"Thank you for inviting me to speak this morning. It is the third Chamber of Commerce event I’ve spoken at in three weeks.
Last Friday I was with the Chamber in Milton Keynes. A fortnight earlier I was meeting the Greater Manchester Chamber of Commerce.
One is a fast-growing southern new town laid out in a grid by planners only forty years ago. The other is a great and historic northern city that was once the industrial capital of the world.
In Milton Keynes I met a number of companies involved in the IT industry. In Manchester a great many were in financial services.
Businesses in Milton Keynes want to establish a university. They are worried about the shortage of broadband cabling.
In Manchester, what concerns them is the cancelled extension of the Metrolink and how to harness the resources of the large university they already have.
Two different places. Two different business communities. Two apparently unique set of local concerns.
But appearances can be deceptive. For scratch beneath the surface and the question they are asking is the same: how do we make sure we can compete in the future?
What is the infrastructure we need? Where can we get the skills from. How do we encourage innovation and investment? When can we have a tax and regulatory environment that helps not inhibits us to succeed?
And do you know what? If you went to Chamber of Commerce in Shanghai or Chicago or Rio or Mumbai the questions would be the same there too.
We now live in a global economy. And the change that has been unleashed is only just beginning to be felt.
Over the next ten years, two billion people – that’s a third of the population of the world – will leave grinding poverty and connect with the world market.
Countries like China, Brazil, India and Indonesia will establish themselves as among the most powerful economies on earth.
You know better than anyone the impact that these new global forces – of the new global economy – are already making.
And you are aware of the challenges.
The challenge of rising energy and commodity prices as demand from India and China continues to grow. That squeezes margins as input costs rise.
The challenge of protecting hard-earned and costly intellectual property.
The challenge above all of competing directly with labour costs a tiny fraction of those in the west.
But at the same time as you are aware of the challenges, you are also seizing the incredible opportunities that this new global economy brings too.
For just as those two billion people I spoke of will make things that we will consume, so they in turn will consumer things that we make and services we provide.
Let me give you an example of the shape of things to come.
A fortnight ago I visited a company in Stockport that makes audio speakers. Like many in the electronics industry, they took a decision some years ago to move production out to China because costs are so much cheaper. But now they find that one of their biggest growing markets for their speakers is China itself.
Their investment in China has helped create the very consumers who now buy their products.
But seizing the opportunities the new global economy offers, and overcoming the challenges it also presents, is not easy. For we know that capital and companies and talent can increasingly move anywhere.
If we are not able to compete and add value then we will be left behind. Long gone are the days when the world owed us a living.
So the central question for those involved in making our economic policy must be the same as the central question your businesses ask: how does Britain compete in an ever more competitive world.
Sadly, the evidence is that Britain is struggling to compete.
We have fallen from 4th to 13th in place in the World Economic Forum’s league table of competitiveness.
The drivers of long-term economic performance are faltering.
Spending on research and development is falling.
Business investment is at an all time low.
Entrepreneurship has dropped in Britain when it is rising around the world.
Productivity growth – described by Chancellor eight years ago as the “the fundamental yardstick of economic performance” – has slumped. Using the measure favoured by the Treasury it is one fifth the level it was five years ago.
And I believe the causes are clear.
We have a record tax burden – higher, according to Ernst and Young, than at any time in our history. What’s more the Government is adding to it. The Chancellor is continuing to increase taxes at a time when the rest of the developed world is reducing its taxes.
His Budget two weeks ago added an extra £5.5 billion to taxes on business. He is abolishing the zero percent corporation tax rate he himself had introduced. He is freezing the business tax thresholds to claw more money back. And he is increasingly using the excuse ‘anti-avoidance’ to tax the legitimate activities of business.
Yet even with this record tax burden the Chancellor is still planning to borrow £175 billion and run a budget deficit. Borrowing now means taxes later.
High taxes and poor public finances discourage investment and enterprise.
Regulation too inhibits enterprise. For example, speak to any business in financial services – from the largest investment bank to smallest independent financial adviser - and the threat of future regulation from Whitehall and Brussels is now their number one concern.
On your own Chambers of Commerce figures, regulation has cost business £50 billion pounds since 1997. £11 billion in the last year alone, at a time when we’re supposed to be having a deregulation drive.
Poor skills are another major drag on Britain’s future ability to compete. In a world where we cannot match our competitors on labour costs we have to beat them on labour skills.
Yet five million people have no qualifications at all; one in six does not have the literacy skills expected of an 11 year old and half do not have similar numeracy skills.
Less than a third of the UK workforce has intermediate skills, compared with over half in France and two thirds in Germany.
At the heart of addressing this fundamental weakness is education reform – but we now know that neither present nor future Labour Prime Minister can carry that forward.
They are too busy fighting each other to fight for the long term reforms Britain needs to pensions and public services.
High taxes and poor public finances. Over-regulation. Inadequate skills and unreformed public services driving falling productivity growth.
They are causing Britain’s slow slide in its ability to compete – bringing about not a sudden economic crisis but instead what the Prime Minister’s chief economic adviser called a “furring of the arteries”.
And we had further confirmation of that last week, when the Economist Intelligence Unit published its latest assessment showing how Britain had fallen again in world competitiveness.
The Unit warned that “the country’s comparative standing is set to decline” further and they explained why: “the attractiveness of the UK’s business environment is threatened by sizeable macroeconomic imbalances, an increasingly complex and burdensome tax system, and weak productivity”.
But it is not enough for me to say what it wrong. I have to offer you an alternative – an alternative that sets, as its central goal, rising living standards in an ever more competitive global economy.
How do we achieve that?
Well, economic stability must come first. Your business must be able to plan for the long-term.
Low interest rates and low inflation have been a feature of not just the British economy, but the wider global economy, for more than a decade now.
They have not, however, been matched by stability in the public finances.
That is why I am keen to see a triple lock on stability. We are committed to maintaining and entrenching the independence of the Bank of England. We will create a truly independent statistics body. And we will introduce independent verification of the fiscal rules.
But whilst stability is paramount, stability without competitiveness leads to sclerosis. A graveyard is an awfully stable place.
So when we can, without putting stability at risk, we will share the proceeds of economic growth between real increases in spending on the public sector, and reductions in taxation.
The slice of national income taken by government will fall over the cycle. This is in stark contrast to a Chancellor who has greatly increased the size of the state.
I am a very long way off writing a budget for 2009 or 2010. Even now, we know that the Chancellor is set to borrow £24 billion that year. So I cannot promise specific tax cuts.
However, as and when we move in the direction of lower taxes, I acknowledge that there is a strong argument for cutting business taxes first – for business taxes are in reality taxes on research, taxes on investment, taxes on wealth creation and taxes on jobs.
I am also determined that we will simplify the tax code too, to cut the burden of paying taxes. Tax law has doubled under this Chancellor. We now rank an appalling 67th in the world for the simplicity of our tax code.
That is why last September I established the independent Tax Reform Commission under the chairmanship of Michael Forsyth. Its membership includes leading business figures like Chris Gent, the Chairman of the CBI in Scotland, the Chief Economist of the Institute of Directors, the former Deputy Chairman of the Inland Revenue, a senior tax partner at KPMG and your very own Director General, David Frost.
They will report later this year and I am confident, given the talent involved, that they will identify a path we can take towards a simpler, fairer and flatter tax system
But macro-economic stability and simpler, lower taxes are not enough. They are just one part of an economic policy.
We need a new supply side revolution that liberates our economy and allows businesses to flourish, innovate and succeed.
With the help of the dynamic Chief Executive of Next, Simon Wolfson, we are looking at practical ways to tackle regulation, reform planning, encourage science, protect intellectual property, enhance the competition regime and do all the worthy but necessary things required to clear the arteries of the British economy.
With a record trade deficit and a deteriorating trade deficit with countries like China we must also support exports. Speaking to British exporters and potential foreign investors, I am not convinced that UK Trade and Investment works nearly as well as it should.
We must also confront protectionism abroad and not just press for, but insist that EU markets be opened up in fields such as services, energy and communications – so that your businesses get fair access to the single market.
And we must improve our nation’s skills levels.
Last month the internet booksellers Amazon decided to relocate their European customer service operation from Slough to Ireland. Their stated reason was not the lower tax rate but the higher skills level.
In other words, they felt they were more likely to find the skilled people they were looking for in a country with a population a tiny fraction of ours.
If we are going to compete with Ireland let alone the 4 million graduates coming out of Chinese and Indian universities, we have to begin with our schools.
Gordon Brown wants spending in our state schools to match spending in our private schools, although he will not say when.
I think we should set a more ambitious goal. I want to see standards in our state schools matching the standards that exist in our private schools. That is about more than money. We need higher teaching standards, better classroom discipline and more freedom for headteachers.
And we need to alter the basic thrust of further education.
The Chancellor is clear that funding for adult education should be diverted to the under-25s that have already been failed by our schools.
The result is that cost of evening classes will double for more than two million people who are already in work but who want to adapt their skills to a changing world. A third of all places on adult courses will be lost by 2010.
That is a huge mistake. We should be helping those with aspirations to better themselves, re-skill and keep pace with change. That is what our future economic success depends on.
Yet the Chancellor appears not to understand this. Take his sudden decision, buried in the small print of the Budget, to scrap the Home Computing Initiative scheme that has helped more than 300,000 low income families have a computer at home.
We should be encouraging people to develop IT skills and connect to the digital age. Instead up to 100 companies launched specifically to serve the HCI market will be forced to close down, resulting in up to 2000 job losses.
That is why – like the CBI and the TUC – I am urging the Chancellor to reverse his mistake and work with us to draw new tighter rules that allow the Initiative to continue. Do visit our website and join in our campaign. Ask Alan Johnson to take part too when he turns up – only two weeks ago he was rolling the initiative out to his own DTI employees.
As with so many of the Government’s policies, its failures on skills and education are not caused by spending too little. The Learning and Skills Council had a budget of £9.2 billion – larger than the Royal Navy’s.
The problem is a lack of reform. As the Foster review found, there are 17 bodies with some responsibility for overseeing further education. He recommended that they be rationalised. But instead of simplifying the system, the Government simply merged two of the bodies, and then created a new one.
I believe that our further education system must be more responsive to the needs of local employers and the local community. It is not up to the Chancellor to announce – Soviet style – what new skills will be required in ten or twenty years time and then provide the training. It is up to you to drive the market and to assess what you need this year and in the years ahead.
That is why our approach will be centred on a far greater say for businesses in allocating funding. I see the Chambers of Commerce as potentially an important vehicle for doing that.
I hope that this is just one of the many ways which you can help create the climate in which British business can succeed.
Stability first. Lower and simpler taxes. Economic reform and deregulation. Equipping people with the skills they want and we need.
That is the alternative to the current approach. In the coming months and years I want to work with you, listen to your concerns, tap your expertise to develop it.
I want your help to prepare Britain for the future."