We meet at a time of great contradictions in the British economy. Earlier this week, we officially entered recovery. That start of growth we've been hoping for has finally appeared. And yet in many ways, our long economic winter drags on.
The stark truth is that today, Britain's reputation is at risk. To deal with this we need to make sure people can look at our budget deficit without worrying about our creditworthiness.
We need global companies to look at our system of banking regulation and feel that London is still one of the best places to do business. We need investors to look at our plans for growth and feel reassured that the next ten years will not be a repeat of the unsustainable boom in the last ten years.
Restoring our reputation requires urgent action on each of these concerns - action on the deficit, action on banking regulation, action to build sustainable growth. But in politics there is an unwanted by-product of recovery, which is that resolve for change can dissolve.
Instead of 'why put off what needs to be done,' politicians start to chant a new mantra of wait and see. It is natural that people's appetite for reform should diminish the further they feel they are from an immediate crisis. So it is predictable that many should argue for the path of least resistance - or to continue with the economic status quo.
But I want to argue today that our reputation rests on rejecting the course of inaction and the path of least resistance. Instead we must be bold enough to make the right judgments - however difficult they may be - to ensure the long-term health of our economy and restore Britain's reputation on the world stage.
Let me start with the question of deficit reduction. According to the latest OECD forecasts, the UK will have a budget deficit of 13.3 per cent this year - the worst in the developed world. Since I started speaking today over a million pounds have been added to the national debt. On any measure, we are living well beyond our means. But some argue that while this must be dealt with at some point, starting to address the deficit early will damage growth. Taking the path of least resistance, they defer all that needs to be done until some point in the future.
Our analysis is that the greater danger lies not in dealing with the problem, but in delaying the start of what everyone knows has to be done. Uncertainty over fiscal consolidation carries the threat that investors lose confidence in Britain's prospects - pushing up interest rates, pushing up mortgage rates, lowering investment and putting a drag anchor on recovery.
The great contrast between these two arguments is that one is simple and one is complex. The case for delay - which is, essentially, 'don't strip demand from the economy while we are trying to grow again' - may sound simple but is false. Our argument - on the economic domino effect that tips high deficits into higher interest rates and so on - is much more subtle.
But paradoxically, the most subtle shifts can have the most profound effects. The people of Greece are already suffering the cost of a loss of confidence in their economy, with an extra three per cent on the interest rates they pay to borrow. If Britain follows them, the interest bill on a £150,000 mortgage could go up by more than £200 a month.
This is not some wild dystopian vision. The warnings are already being sounded. Last week the head of sovereign risk at Fitch characterised the risk of a downgrade of Britain's credit rating as "a bit less than 50 per cent, but not very much less." Earlier this month the head of portfolio management at PIMCO, the world's biggest bond fund, said on the downgrade risk that "It's just a question of when on the current trajectory, not if" - and they've repeated their warnings this week.
The way markets perceive sovereign debt has shifted notably - and with that shift has come a sea-change in international opinion on reducing government debts. As former Chief Economist at the IMF, Kenneth Rogoff, puts it: "There's no question that the most significant vulnerability as we emerge from recession is the soaring government debt. It's very likely that will trigger the next crisis as governments have been stretched so wide."
Mervyn King has also said that "the longer there is not a credible plan that sets out what actions will be taken the more [a downgrade to the credit rating] is a risk." And the OECD has offered this clear advice to the UK: "By developing and announcing more ambitious fiscal consolidation plans early and supporting them with a strong and credible medium-term fiscal framework, the government would strengthen the recovery."
World-leading economists. The Governor of the Bank of England. The OECD. The Conservative Party. All of us are agreed on the importance of being clear about the risk the deficit poses and of the importance of making an early start.
This emerging consensus isn't built on conjecture - it's based on experience. Historically, fiscal consolidation - particularly when markets are losing confidence - leads to higher, not lower economic growth.
Just look at what happened in the 1990s in Canada, in New Zealand and in Sweden. Each had huge deficit troubles, each dealt with them decisively - and each grew faster as a result. Sweden turned a 10 per cent deficit into a surplus in just five years, staving off a fiscal crisis and helping to deliver years of strong economic growth.
Of course, fiscal policy and monetary policy must be coordinated; the right fiscal policy can help interest rates stay lower for longer. But while the precise pace of consolidation must be determined in coordination with the independent Bank of England, the case for starting early to establish credibility is overwhelming. That is why we will start cutting the deficit in 2010, with a credible plan to eliminate a large part of the structural deficit over a Parliament.
And it's why we've set out some examples of where we will cut spending. Reducing benefits for better off families. Freezing public sector pay for a year from 2011 - apart from the million lowest earners - so we help protect jobs. Cutting the cost of Whitehall bureaucracy by a third. And bringing forward the planned increase in the pension age.
Making big public announcements about spending cuts might not be in the textbook for winning elections, but it is the right thing to do. It's the right thing to do by the people of Britain, who deserve the truth. And it's the right thing to do to reassure the markets and start to restore our reputation on the world stage.
The second step to restoring Britain's reputation is ensuring we have a system of banking regulation that commands confidence at home and abroad. There is always the danger that, after a financial crisis, the use of heavy regulation to prune market excesses ends up slicing the roots of future prosperity as well.
We cannot allow such a response to damage the financial services sector but neither should we take the path of least resistance and stick with the status quo. As Joseph Stiglitz, the Nobel Prize-winning economist, observed recently, "the UK financial system was even more overblown than that of the United States." The tripartite system has comprehensively failed in its task. It lacks muscle, it lacks authority and it lacks oversight.
Throughout the fall-out from the financial crisis the Conservative Party has argued that what matters is not just the rules you have in place, but the authority and respect of the institution responsible for carrying them out.
So we will abolish the tripartite system and give the Bank of England the power to regulate the pay structures, riskiness, complexity and size of all our banks, building societies and other significant financial institutions.
When we first announced our plan to make the central bank the regulator, some said we were isolated. But today, as with the case for early deficit reduction, there is now a growing international chorus extolling the sense of putting the central bank in charge.
Stanley Fischer, the former Chief Economist of the World Bank has suggested that: "It is very likely prudential supervision will return to central banks when the lessons of this crisis are drawn." Ben Bernanke has pointed out that under the tripartite system: "When the crisis hit - for example when the Northern Rock bank came under stress - the Bank of England was completely in the dark and unable to deal effectively with what turned out to be a destructive run and a major problem for the British economy". He argues that the international trend is "to give the central bank the authority and information it needs to know what's going on in the banking system".
Indeed Jacques de Larosiere, the architect of the new European regulatory structure, has explicitly endorsed our proposals and said "I really think that in our present world it's good to have the central bank in charge of supervision. Because it is in the market every day."
It's an argument that has been endorsed at the highest levels, most notably in the US and Germany. President Obama has put forward proposals to give the Federal Reserve a greater role in supervision, while the new coalition German government has agreed to give the Bundesbank control of banking regulation.
Putting our central bank back in charge in Britain will help to avoid future financial crises, and it will help too to restore the reputation of the City for the long-term. But there are also immediate issues that need addressing.
Over the last eighteen months hundreds of billions of public pounds have been pumped into the banking system. Last autumn the British taxpayer footed the bill for the biggest bank bail-out of any single bank in any country. Over £40 billion - equivalent to £2000 for every family in the country. And yet many in the banking system seem to be suffering from collective amnesia. They're awarding themselves colossal bonuses while at the same time failing to lend to all parts of the real economy.
Let me be clear on this point: our reform of the banking system must be shaped by hard-headed national economic self-interest, not the politics of envy. But it is in everyone's interest that we should act on this.
Last week President Obama took a bold step in the right direction, calling for limits to the very riskiest activities of retail banks, so that American taxpayers can no longer be held hostage by the banking system.
Let me be clear, this is not the return to Glass-Steagall; it is not a complete separation of retail and investment banking. Instead it is the rational response to a real problem. Banks know that tax payers cannot afford to let them fail. It is fair for taxpayers to say to banks in return, through their governments, that the very riskiest activities should not be undertaken with the backing of retail and corporate deposits.
It's a move that chimes with our own ideas and we'll now look for agreement on this in the G20. And as George Osborne has also set out, we would work for a new international levy on banks - one of the ideas being considered by the IMF - to protect the taxpayer from footing the bill for banking crises.
This is not about retribution, it's about taking the long view on how we can build in to banking regulation the most security with the least interference, so improving the status of the City and restoring Britain's reputation as a place to do business.
PLAN FOR GROWTH
The third vital step to restoring Britain's reputation is having a clear and ambitious plan for growth. For more than a decade, our country has been sleepwalking into a model of unsustainable growth. The boom was driven not just by overblown financial services, but by massive household debt and unprecedented levels of public spending.
The British people now owe one and a half trillion in debt. The state's share of GDP has risen from 37 per cent in 2000 to 52 per cent today. In parts of the country the state accounts for a bigger share of the economy than it did in Communist countries in the old Eastern bloc. This is clearly unsustainable.
And yet there are those whose idea of going for growth is to pump the bubble back up, re-inflating all the empty sources of growth that have burst so spectacularly. They might not use the words 'pump' or 'bubble' to describe their strategy, but when they talk about simply increasing government spending and reviving consumer demand that is their implication.
This path of least resistance would have a disastrous return. We need a new plan for growth that learns from the mistakes of the past. We must turn the old, failed, hollow economic model upside down to create a new economic model, going from an economy fuelled by excessive public spending and consumer debt to one founded on saving and private sector investment.
Getting there means promoting different things and measuring success in a different way. So, for instance, we're not just looking at how much money people are earning, but whether they are owning their own homes, setting up pension schemes, saving and investing for a rainy day. It means government and individuals playing their part by spending and saving more responsibly. And to compensate for that, it requires more business investment and more exports. This is the only sustainable model for growth, and enterprise is the only sustainable driver of that growth.
So I want to be very clear with you about what business can expect from a Conservative government. Across a sweeping range of policy - through tax, regulation, education, infrastructure, banking - we will be sending the clearest signal that Britain is back open for business.
Tax will be simplified, corporation tax rates cut and employment taxes on the first ten new jobs created by new businesses removed in the first two years of our government. The rise of red tape will be stopped, with new regulation only given the green light when an existing piece of regulation is given the red light. Schools will undergo their most radical programme of reform for decades and 100,000 new apprenticeships and pre-apprenticeships will be created, to turn out the skilled employees of the future. The process of linking up Britain with a high-speed rail network will begin and the cables of high-speed broadband will be laid. New sources of credit will be opened up to help with cash flow and keep businesses afloat.
A Conservative government will work with you not because we are the party of business, or because we are somehow tribally on your side, we will do these things because of the simple belief that your success is Britain's success, that by elevating entrepreneurs we help create wealth and elevate everyone.
And I passionately believe it has never been more important for Britain to have a pro-growth government. We should be on the cusp of a great new age for global trade.
For too long we've seen the success of countries like China and India as a threat when actually it's a huge opportunity. China is already the world's largest car market. Consumer spending there grew eight per cent annually in the past decade. Millions of new middle-class consumers are entering the marketplace. Britain - and British business - must be ready for them.
A new Conservative Government would also be a strong champion for completing the Doha trade round. Then those countries in the West with big deficits and big structural problems who are asking where growth is going to come from: they should realise that trade liberalisation is one of their biggest interests and that's good for the US too.
I believe we have great cause to be hopeful for Britain's economic future. We have always been an open, trading nation. We have a proud history of inventing the goods and services the world wants to buy. We speak the world's first language. We boast world-beating industries not just in finance but in the arts, in media, in pharmaceuticals, in aeronautical engineering, in medical science.
But we must always remember that Britain isn't somehow entitled to goodwill and investment. In the modern, globalised world, no-one owes us a living. We need to show that we are a sound business prospect now and for the future. It will take a huge amount of political will and business skill.
But if we avoid the paths of least resistance to show discipline in reducing the deficit, to bring wholesale reform to banking regulation and to build a new model of economic growth led by enterprise and exports, then we can restore our reputation, we can get our economy back on its feet.
Were we to win the election in a few months I would be proud to take on the role of flag waver for British business. British business is in my blood. And to help lead our economic recovery but also to do all I can to help recover our reputation abroad - those are challenges I relish.
Britain has the business heritage, the ideas, the spirit, the talent and the energy to take on the world. If we avoid those paths of least resistance we can put Britain back on top - back open for business.