These are difficult times. We have to deal with the legacy of the deficit and the debt, the eurozone is in deep and continuing trouble, and yesterday unemployment rose again.
Across Europe, economies have stalled. Here in Britain, it is clear that this is an active government. Its sleeves arerolled up. We are doing everything we possibly can to get our economy moving: the biggest work programme since the 1930s, helping three million people; a massive drive on apprenticeships; major initiatives on regional growth, on infrastructure, onenterprise. But today, if we are frank, many people are questioning not just how and when we will recover, but they are questioning the whole way in which our economy works.
So while our economic challenge starts with dealing with our debts and achieving growth, itmust not end there. We must aim higher than just coping with the storms that are affecting the international economy, because I believe that out of this current adversity we must aim to build a better economy, one that is truly fair and worthwhile.
And my argument today is this: we will not build a better economy by turning our back on the free market; we will do it by making sure that the market is fair as well as free. While of course there is a role for government, for regulation, forintervention, the real solution is more enterprise, more competition, more innovation.
In this debate about the kind of economy we want to see, my position is very clear. I believe that open markets and free enterprise are the best imaginable force for improving human wealth and happiness. They are the engine of progress; theygenerate the enterprise and the innovation that lifts people out of poverty and that gives people opportunity.
And I would go further: where markets work properly, open markets and free enterprise can actually promote morality. Why? Because they create a direct link between contribution and reward, between effort and outcome. The fundamental basis of the market is the idea of something for something, an idea we need to encourage, not condemn.
So we should use this crisis of capitalism to improve markets, not undermine them. Now, I believe Conservatives in particular are well placed to do this. Because we get the free market, we know its failings as well as its strengths. No true Conservative has a naïve belief that all politics and politicians have to do is just stand back and let capitalism rip. We know there is every difference in the world between a market that works and one that does not. Markets can fail. Uncontrolled globalisation can slide into monopolisation, sweeping aside the small, the personal, the local.
But we are the party that understands how to make capitalism work, the party that has constantly defended our open economy against the economics of socialism. So where others see problems with markets as a chance to weaken them, I see problems with markets as an opportunity to improve them.
Now, this reflects two principles that have always been at the heart of what I believe, and that I thinkhave been at the centre of Conservative thinking for centuries. The first is a vision of social responsibility, recognising that people are not just atomised individuals and that companies have obligations. And the second principle is a genuinely popular capitalism, which should alloweveryone to share in the success of the market.
Now, the idea of social responsibility is not somenew departure for my party. It was Burke who insisted on public accountability for the East India Company; it was William Pitt who brought it under the control of government. Later, the same spirit of responsibility helped drive the campaign against the slave traders. Under Peel, it led to the repeal of the Corn Laws which had forced up the price of food. Under Disraeli, it led to the Factory Actswhich began to set working conditions.
Now, of course it is true that great campaigns for reform drew strength from many other movements too. But social responsibility - watching over business, correcting market failure, recognising obligations - that has been part of the Conservative mission from the start. And a large part of my leadership has been about renewing that commitment and that long-standing tradition. Corporate social responsibility and environmental responsibility have been constant themes in the arguments I have made and the policies I have developed.
Soon after I was elected leader, I said that we should not just stand up for business but also we should stand up to big business when it was in the national interest to do so. Three years ago, I argued that the previous government's turbo-capitalism had turned a blind eye to corporate excess, while we believed in responsible capitalism and in government would make it happen.
But the second principle, popular capitalism, is just as important as the first - social responsibility. We need to open up markets; we need to get more people engaged in a genuinely popular capitalism, which is what you see when you walk through the space here at The Hub today in New Zealand House.
Now, Conservatives have always believed in an ownership society. A consistent theme has been the ambition of building a nation of shareholders,of savers, of home-owners. Macmillan championed this through home ownership, giving people an asset of their own. Margaret Thatcher did the same with privatisation, with share ownership, with the right to buy your council house. And three years ago in Davos, I called for a new popular capitalism, one that recognised what has gone wrong with capitalism and which freed people to make something of themselves, to get a good job, to own a home, to start a business.
Today, this mission of improving markets and ensuring they are fair as well as free, informed by the principles of social responsibility and genuinely popular capitalism, should have three things at its heart. First, we need be clear about the specific mistakes of the last decade. Second, we need to put the right rules and institutions in place to correct them. And third - and I think this mattersmore than anything else - we need to open up enterprise and opportunity so that everyone has the chance to participate and benefit from a genuine market economy. So we need to boost competition, back enterprise, encourage the adventurous spirits who challenge the status quo. That is how we will build a fairer and more worthwhile economy.
So, first, what went wrong? Now, the last government claimed to have got rid of boom and bust. But what really happened was it allowed a debt-fuelled boom to get out of control. The result was, if you like, a series of lethal imbalances in our economy, between north and south, between financial services and manufacturing, between the people who got huge rewards at the top or welfare at the bottom while everyone else seemed to getleft out.
The truth is the last government made something of a Faustian pact with the City. It encouraged a debt-crazed economy because it needed to pay for spiralling welfare costs and a very much top-down, interventionist state. It tolerated market failuresbecause at heart it did not really accept that markets could be made to work properly. It seemed frightened of challenging vested interests, believing too often that the interests of big business were always one and the same as those of the economy as a whole.
Now, all this left us with a level of public spending we could not afford and a model of economic growth that would not work. Now, I understand why this has made many people today disenchanted with markets, even angry. Because far from abolishing boom and bust, what we had was the biggest boom and then the biggest bust, leaving everyone with a share of the debt. But when things went well only a few seemed to get a share of the profit. Too many people found they couldn't count on their savings growing. They couldn't afford to buy a home. They worried about how they'd pay their bills in old age. And the City, which should have been a powerhouse of competition and creativity, became instead a by-word for a sort of financial wizardry that left the taxpayer with all the risk and a fortunate few with all of the rewards. So instead of a popular capitalism, we ended up with an unpopular capitalism.
So the next question is: what needs to change? My answer is that we need to change the way the free market works, not to stop the free market from working. We need to reconnect the principals of risk, hard work and success with reward. When people take risks with their own ideas, their own energy, their own money; when they succeed in the competitive market where anyone can come along and knock them off their perch at any time, we should celebrate entrepreneurs that succeed and create wealth, and yes, get rich in that way. We should support business leaders who earn great rewards for building great businesses, for doing great things for their company, for our economy, for our society. There should be a proper, functioning market for talent at the top of business and that will inevitably mean that some people will yes, earn great rewards.
But that is a world away from what we've seen in recent years where the bonus culture - particularly in the City - has got out of control. Where the link between risk, hard work, success and reward has been broken. Now this is not the politics of envy. As the Governor of the Bank of England reminded us this week, excessive, undeserved bonuses reduce lending that's available to small businesses. Large rewards for failure when companies are suffering means that even less is left over for customers and for shareholders.
So next week the Business Secretary will set out our detailed proposals on executive pay including any necessary legislation to follow because there is a need for new rules. But we should be clear about what will do most to bring about true responsibility. We need to make the market work and we'll do that by empowering shareholders and using the powers of transparency as well. That is why I welcome this week's decision by Fidelity Worldwide to add their voice to calls for better policing of boardroom pay. Its responsible action to make markets work and it's a thread that runs through this government. Now regulation is part of it but again, I think the last government got regulation the wrong way round.Small companies were often strangled in red tape while the banks were allowed to let rip.
We need to turn the tables on this so we're acting to make banks work for the people and the firms who rely on them. This means implementing the Vickers' report to separate investment banking from retail banking. We will ensure banks are properly capitalised as losses should be borne by investors not by taxpayers. We're completely overhauling financial services regulation, abolishing the failed tri-partite system and putting in place a system that will work and that will protect the consumer. We're fundamentally reviewing the private finance initiative to strike a proper balance between risk and reward to the private sector and we're also busting open the cosy collusion between big business and big government that has locked small business out of public sector contracts: a market worth £150 billion a year.
Now none of this should mean more regulation. It means less but better regulation. We need strong frameworks that people can understand, not endless but ineffective box-ticking red tape. That's what lies behind the new anti-tax abuse rule that the Chancellor is examining which will make the tax codes simpler, not more complex, but stop abuse at the same time. At the end of all this, be in no doubt this government will have reduced regulation, not increased it.
But the third part of the mission, to improve markets and make them fair as well as free, is about enterprise and opportunity. Capitalism will never be genuinely popular unless there are genuine opportunities for everyone to participate and benefit. Now of course this means a greater emphasis on equality of opportunity. You can never create a fair economy if there are people who are automatically excluded from it through poor education, or if there are people who are encouraged to think that the only way to live their lives is to depend on state hand-outs. People need the capacity to succeed, that is why this government has made the education revolution its priority, with academies, free schools, rigour in exams and a complete intolerance of failure - as we saw this week with the abolition of the idea that you can have a school that is less than good being called satisfactory. We are slanting the funding system in education in favour of the poorest, with a pupil premium that means disadvantaged pupils get more. So every time a child on free school meals walks into a school, that school knows they will get more money for teaching that pupil and asa result will be able to help turn their lives and their prospects around.
In an age when we're having to cut public spending we're actually investing more in early years childcare and also we're intervening comprehensively and early in families that are failing to help children who otherwise will get a poor start in life. But popular capitalism also means believing in what I call the insurgent economy where we support the new, the innovative and the bold. Where we give a chance to thousands upon thousands in our country who aren't in business yet but who want to be; whose ideas and energy, whose enterprise and ambition need that first crucial springboard. Intelligence, ingenuity, energy, guts - I believe Britain is fizzing with business potential and you can see it just a few yards from where I'm standing.
But we need to end the fear that says this is opportunity only for a few. I admire, all more than anything, the bravery of those who turn their back on the security of a regular wage to follow their dreams and start a company. If you take a risk, quit your job, create the next Google or Facebook and wind up a billionaire, then more power to your elbow. And if you took a punt, invested your money in that hugely risky start-up and made a fortune, then fair play to you. And let's also recognise people who take risks who don't succeed the first time, who often find the first investment, the first business fails, doesn't succeed, but who persevere. We have to recognise that that is a process leading to success, not a failure in itself and we should be open to that, I want to see it happen and encourage it.
So that's why we're taking a whole series of steps. We are improving entrepreneur relief so that founders of companies get to keep a bigger slice of the gains that they make. It's why we launched the entrepreneur visa so that the best and brightest would-be entrepreneurs from around the world can start their business right here in the UK. It's why we've implemented some of the most generous tax incentives for early-stage investment of any developed economy. And next week I'll be launching a new campaign to StartUp Britain, helping people take that brave step into business for themselves.
It is a basic truth that if people have a stake in business they will support its growth and share in its success, but the reality is that even as our country has grown richer, participation has actually shrunk. Yes, we're boosting shareholding by giving tax relief to people who invest in new small businesses and for this Olympic year of 2012, we're taking another step that hasn't been much commented on. We are effectively abolishing Capital Gains Tax for people who this year are prepared to have a go and invest in a start-up.
But I don't believe we should stop there. To build a fairer economy we need more shareholders, more home owners, more entrepreneurs. That's why we're reinvigorating the right to buy your council home and we're transforming the failing housing market. And as the Deputy Prime Minister said on Monday, we need to help encourage different models of capitalism. One where employees have a much more direct stake in the success of their company. This is an issue that I've long cared about. Back in 2007 I established the Conservative Co-operative Movement which now has over 40 Conservative MPs as members. In a government where we're providing new rights for public sector workers to create mutuals and to own a stake in their success, with employee-led mutuals now delivering almost £1 billion worth of health services, I think it's right to take further steps. Because we know that breaking monopolies, encouraging choice, opening up new forms of enterprise, is not just right for business, it's also the best way of improving our public services too.
Now there are over 12 million Co-op members in the UK. It is, if you like, a vital branch of popular capitalism. But right now there are too many barriers in the way to extending and improving that record.
There are over a dozen separate and out-dated pieces of legislation that add cost and complexity to the process. So today I can announce they'll all be brought together and simplified in a new Co-operatives bill that we'll be putting before Parliament.
Now I want, in these difficult economic times, to achieve more than just paying down the deficit and encouraging growth. I want these times to lead to a more socially responsible and genuinely popular capitalism, one in which the power of the market and the obligations of responsibility really come together. One in which we improve the market by making it fair as well as free, and in which many more people get a stake in the economy and a share in the rewards of success. That is the vision of a better, more worthwhile economy that we're building. An economy where people who work hard get rewards that are fair in the true, conservative sense of the word. An economy where people feel in control of their destiny because they've started their own business, or they're shareholders in the company they work for, or indeed are part of a co-operative. An economy where everyone has the chance to build up assets, to pass something on to the next generation. That is how we will make markets work for all of us - to spread wealth, to spread freedom and to spread opportunity. Thank you very much indeed for listening.