Transcript of speech given by Mr Gordon Brown, to the Confederation of British Industry (CBI) annual conference in London, 24 November 2008.
Prime Minister
President, Director General, the times that we are in make this one of the most important conferences the Confederation of British Industry has ever convened.
Let me first of all thank you for the contribution that you make to British business and to the life of the British economy. Your dynamism, your resilience, your resolution - the hallmarks of your success have never been needed more. I believe, together, we can take the British economy through these difficult times and equip ourselves for our global future.
I think it is important to just remind ourselves of the scale and speed of what has been happening. In only a few months, $25 trillion erased from global share values. World oil prices having peaked at nearly $150, sinking by two-thirds. All these changes reflecting big forces at work: the rise of Asia, a truly global capital market, the global sourcing of goods and services, volatility in energy demand and supply.
I believe that we are quite simply making the transition from the old world of sheltered national economies to this new world of a fully open global economy. The challenge is for each of us in the spheres of influence that we have, to surmount the insecurities and risks and to manage the teething troubles of this new global age - whilst never losing sight of the vastly increased opportunities it brings for business.
Let’s name one of the great challenges: the global financial system. Even if there had been no systemic banking crisis, we have come to a time when the global flows of capital need to be complemented by a global - not just national - framework of transparency and supervision.
Take another challenge - finite global resources. Even if there had been no oil spike, our over-dependence on oil, the problems of climate change and global food shortages, would have to be addressed by new policies.
Challenge number three is global restructuring itself, and the global inequalities. Even if there was no cyclical rise in unemployment, all of us would be having to deal with the consequences of a more specialist international division of labour and the resultant restructuring of jobs. For Britain of course, this means investing in the new talents and skills required for the technological and creative industries.
Now someone might want to take a narrow and insular view of today’s global crisis: that the best thing we can do is let the recession run its course, and that there is no alternative but to muddle through. But there is another way of looking at this.
Whatever the troubles of this year and next, we are in the midst of this transition to a truly global economy which, in the next 20 years, is likely to double in its size, a billion new skilled jobs being created - we want to attract our share of that flow of new jobs. Together, we must ensure that British companies will benefit from the new opportunities as Asia becomes not just a market of producers, but a market of millions of consumers too.
We must not be frozen into inaction by the scale of the challenge up ahead of us, we must rise to it. Whatever else we do, as everyone here will know, we have to prepare to equip ourselves for what the world is becoming. Investing in our talents, our technological infrastructure, our capacity for innovation - the high value added products and services that are Britain’s most successful guarantee of a global future.
And yes the transition is difficult, but the prize for Britain is great, provided we can meet and master the challenges as we face the adjustment to these new global forces.
Now I believe we are well placed. We are a free trade country. We have the most open economy in the world. We have a global reach greater than any other nation. We understand that protectionism does not work. It doesn’t work for economies, nor does it work for workers. Better than simply protecting people in their last job, is helping people into their next job.
So to all those who try to prove by pointing to this crisis that globalisation and global markets do not work, our answer is very clear: the route to prosperity is not protectionism but an open, free trading, flexible globalisation which of course must also be inclusive and sustainable.
So I am here today to speak up for open economies against the threat of protectionism. Our task is not to reject global markets but to repair and strengthen them for the future. And it is not to condone excessive and irresponsible behaviour but to reward hard work. Rewarding and valuing enterprise and responsible risk-taking.
Now, extraordinary times require extraordinary action. If we have learnt anything in these last tumultuous and unprecedented months, it is that this is not the time to become prisoners of old dogmas of the past. All over the world policy makers are leaving behind the old orthodoxies of yesterday. As we set aside conventional thinking to invest directly, but temporarily, in our banking system, we now face the same challenge in monetary and fiscal policy, for two reasons.
Worldwide, the orthodoxy of the last few decades has been that monetary policy is the only effective instrument for economic management. But the financial system that is a key channel for monetary policy has been damaged, so monetary policy cannot be our only tool. Monetary policy must play its essential role. But it would be a mistake to rely entirely on it to pull the economy out of a downturn quickly.
And there is a second reason for reviewing how we see monetary and fiscal policy. Ever since the Second World War, one of the greatest problems and our greatest constraints on policy, has been the risk or reality of inflation. Every framework for British economic policy has had to be focused on the containment of inflation. After many years of inflationary pressures which we have had to contain, the last year with the most sharp rises in global commodity prices, we face today the opposite threat - the prospect of radically declining inflation.
So the Chancellor will set out later today - and indeed as the leaders of the G20 countries agreed last week in America - a new approach to macro-economic policy is now needed for these times if we are to get through this unprecedented global financial recession with minimum damage to our long term economic prospects.
It will be an approach which combines the use of monetary policy with pro-active fiscal policy to support economic activity. An approach which because of our low national public debt, supports demand in the economy with all the instruments at our disposal, whilst maintaining - not cutting, the programme of investment and reform for our long term future.
Richard, in your letter to the Chancellor you argue, rightly in my view, for a substantial time-limited fiscal injection into the economy. And as you say in your submission, it is right to promote action now that could prevent permanent damage tomorrow. Simply letting the recession run its course, to say there is no alternative, is not an option.
We have seen in previous recessions how a failure to take action at the start of the downturn has increased both the length and depth of a recession. It was a mistake made in the recessions of the ‘80s and ‘90s, the mistake made early on by the Japanese when they faced a banking crisis, it was a mistake made in the Asian crisis.
So to fail to act now would not only be a failure of economic policy, but a failure of leadership. Doing too little too late would mean more damage and more deterioration, the loss of vital successful businesses. And it would mean a weaker economy, lower growth, eventually greater fiscal problems and in that event, higher interest rates and higher taxes.
The best way for taxes to be low in the long term is for us to ensure that the downturn is as limited in length and scope as possible so that businesses can grow out of the downturn. That means help when help is needed, not when it is too late. So a boost to the economy to sustain growth that will help to keep businesses open and protect people’s homes and jobs is in my view, essential.
A temporary fiscal stimulus is however, just that - temporary. But to act now means we also have a duty to set out what we will do later for fiscal stability. By showing we will take the necessary decisions in the medium term to guarantee stability, we can act today in a strong, decisive and fair way.
And we must ensure that we get value for every pound we spend. I would like to thank four senior business leaders - Jerry Grimstone, Patrick Carter, Martin Reid and Martin Jay - who have in the last five months used all their business expertise and experience to leave no stone in Whitehall unturned as we demand further ambitious improvements in government efficiency. The Chancellor said in his budget we must go beyond the £30 billion of savings already budgeted. That is why we will be announcing today further substantial improvements in efficiency.
It is a broadly based economic recovery combined with prudent tax spending and asset sales and planned over the medium term that will help to bring the government borrowing back down over the coming years. Now other countries too have agreed, or are preparing to agree, a fiscal stimulus, including America, where public debt is already higher than ours and where the deficit is already rising to very high levels.
And just as coordinated international action is necessary to address climate change, energy security and global poverty, so too it is essential to coordinate interest rate cuts and fiscal policy, magnifying their impact as called for by the G20 leaders. Coordinated action on economic recovery will also benefit Britain. And a coordinated programme in Europe - our largest trading partner - would be of most benefit. That is why I have been discussing in the last few days with other European leaders how we can best act together.
I also believe that while the downturn is difficult, and especially difficult for countries which have large financial sectors like ourselves, our economy is today better equipped to weather a global economic storm than it was in the ‘70s, ‘80s or ‘90s. With your productivity, growth, resilience and success, British business has achieved the fastest growth and average productivity in the past decade across the whole of the G7. We will continue to make the changes in regulations and laws necessary to have the best environment for business.
I think we are better equipped to face this also because of Bank of England independence and now falling interest rates. Because of the most flexible of labour markets in Europe and because we are now making further changes to it to make it a condition of people on benefits to seek not just work but to seek the skills for work. And because vital to our ability to invest publicly now, our national debt is considerably lower than a decade ago and lower than all the G7 countries, except Canada. So there is scope for the Government to increase borrowing at the right time to support the economy.
I believe that we are also making the right long term decisions for our economy, not shirking the difficult decisions in planning, in skills, in flexibility, in infrastructure, in transport and in nuclear power. I believe also that in our ambitions to ensure that the banks continue to fund the lending of small businesses, and in the measures we will announce today and tomorrow, we will show that we are moving from providing liquidity and capital to banks to ensuring that the small businesses who depend on the flow of funds from banks can get the proper answers they need.
But the way forward is not just one isolated initiative or one individual measure. It is not even going to be a set of measures for a few months. It is a concerted and comprehensive plan that gives real help to businesses while at the same time preparing our economy for our future.
We have a unique opportunity to do in the 21st century way, what was done in the 20th century by the American New Deal. As they built roads and bridges to create their infrastructure, we can use the period of adjustment to build our technological infrastructure, and build our human capital to equip us for the opportunities ahead.
So we will continue our programme of investment in the technological revolution we face, in the talent revolution, and of course, in the environmental revolution. Now at the very moment of an economic downturn is precisely when we need to invest in human capital, step up our welfare reform and put a premium on increasing the skills of our firms. As many of you who recently put your names in the newspaper would agree, investment in intangible and knowledge assets, in ideas, grants in research and development. All areas dependent on technology and innovation, all areas dependent on high value added talent and skills. This will be a vital force in building Britain’s future high value added competitiveness in the global economy.
And to ensure Britain can make the most of the environmental revolution and its opportunities we will today support new investment in the low carbon economy. This is a worldwide market that could reach by 2050, three trillion a year and which could employ as many as a million people in Britain.
So we are taking action to respond to the immediate financial crisis. We will continue to do whatever it takes. We are putting in place reforms and investment to benefit from long term opportunities that the global economy will throw up. This is a time for resolution, for solidity in responding to a unique financial crisis. A time for powerful action to equip us for globalisation’s challenge. And in due course, to reap its rewards. I believe that this is also a time for confidence that as real incomes pick up next year and national and international policies work together through the economy. We in Britain have the strength. We have everything it takes to face the global storm and to emerge as a country stronger.
Thank you very much.
Chairman
Thank you very much Prime Minister and I know we will welcome lots of the comments you made there, particularly on open markets, but also the need for concerted action and particularly support for SMEs, which is the essence of the employment market.
The Prime Minister is very happy to take questions. In order to get as many in as I can I am going to take three at a time.
Question
Good Morning Mr Prime Minister. My name is Stan Anderson, Harvey Nash US. The news coverage of the global financial crisis over the past eight - ten weeks in the US has covered our major trading partners and their reactions to it, obviously an understanding of other interlinked nature of this crisis. Your government and you in particular have received some favourable coverage based on your immediate response to the banking crisis. I wonder if you could share your thoughts on working with the new Obama administration, which of course will be in power here in just a few weeks, on maintaining and strengthening the longstanding strong working relationship between the US and the UK.
Question
Good Morning Prime Minister. I really sense the Brown bounce. Your support in helping small and medium sized enterprises through this difficult period has been credible with the pressure you placed on banks to help SMEs and I hope you continue doing this. If you really want to help SMEs, wouldn’t you support small businesses not to pay VAT until the invoices they have issued are paid?
Question
Prime Minister the burden of empty rate legislation fairly recently brought in will not fall on property investors, it will fall on the companies in this room who are now required to reduce their costs in order to weather the downturn that is coming. In my view the result of that will be that actually those companies will have to shed jobs where they could have simply shed empty space. Now Prime Minister we please urge you, and would you comment please, on whether you are willing to scrap the empty rates legislation?
Prime Minister
I am in a difficult position this morning. I am not the Chancellor, the man with the power. He will be making his decisions this afternoon. But I can tell you that on the issues that are raised, doing nothing is not an option. On small businesses and cash flow, trade credits, and in deed, areas where small businesses feel that more could be done to help them in the tax system.
I believe that you will find this afternoon that action is being taken. And you raised specifically the difficulty of small companies paying their VAT or national insurance or income tax or tax contributions to the Exchequer. I believe you will find this afternoon that a system is put in place to help small companies in exactly that position.
I believe also that we are looking very carefully at what the empty property legislation means for this particular period of time. In fact everybody agreed on the need for action on empty property two years ago. But I understand we are in a new situation because of what is happening both to property prices and to the economy itself, and you will see announcements this afternoon. If I go beyond that, I will be breaking all the traditions of pre-budget reports and the responsibility of reporting first to the House of Commons.
The first speaker asked quite rightly what is the scope for action now that we have a new American administration being formed, and it is preparing for its first period of action after January 20th. I think many people will know that I have worked very closely in previous years with Timothy Geithner, who has been named as the Treasury Secretary, and of course, with Larry Summers, who is going to have a very important role in the White House. I look forward as I have had great relationships with Hank Paulson when he was Treasury Secretary, and of course Ben Bernanke at the Federal Reserve. We will have strong relationships that are built on mutual understanding. Having worked together for many years with the new American administration, I believe that these will be seen as important appointments for helping us through.
Now the issue is pretty clear now. If monetary policy cannot do everything that it has done in the past to keep activity moving in the economy, partly because of the transmission mechanism being damaged, then we have to ask whether together right round the world we can use fiscal policy to better effect.
When we were at the G20 meeting a few days ago, figures were produced by some countries and some international institutions, saying the combined effect of countries working together in concerted action, the impact on growth was twice as much for each country than if they had worked singly and doing their own isolated initiative. So there is a premium on international and coordinated action over the next period of time.
The reason why I think fiscal policy is also important today is because we are not in an inflationary situation. All past worries about fiscal policy have been related to the dangers of inflation and interest rates. At the moment we face the prospect of lower inflation. We have low national debt, lower than America, or France, or Germany, or Italy or many of these countries, so I think it is the right thing to do. But I want to see coordinated action. So the G20 which we brought together in America a few weeks ago will meet again.
We are the President of the G20 for the next year coming up from 1 January. I hope to see a degree of coordinated action with the American administration and with our European partners. Indeed, I hope to see European action later this week so that there is a degree of coordination between what we do today and what happens in the next few days. I believe that is to the benefit of the economy as a whole. We will of course have to show a path to fiscal stability, and that is what we will do today. The important thing however, is that we have where possible coordinated monetary and fiscal policy to deal with the fact that we are now a global economy.
Question
I come from the music industry, PPL. My question in these difficult times is the path to recovery. You mentioned innovation, technology, creative industries, IP-based intangible industries. Do you have any plans for helping these industries drive the recovery?
Question
Two years ago at this conference I was able to ask your predecessor about the fantastic Channel Tunnel rail link that he gave his and your government’s commitment to. Can I ask, based on your comments about infrastructure and investment, that you are now also committing to this conference and to the nation that projects like high speed rail through to the west Midlands and Heathrow Hub, now is the time to invest in these and not delay?
Question
Much of the solutions to the financial crisis have been sought in the arms of sovereign wealth funds. You commented that we are entering into a global economy and I think we are conspicuous in our absence in not necessarily having one. And yet various government initiatives through nuclear decommissioning, the Pensions Department setting up the PPF, new personal accounts, the Treasury now setting up their bank shareholding company. Clearly all these departments are not acting together, and yet now we have an opportunity to pool this. Maybe perhaps you could share some insights as to what are the advantages in having given the Bank of England policy independence and having this new fund to give us investment independence, so we can all gain in the future.
Prime Minister
Let me deal with Anthony’s question first. Sovereign wealth funds are increasingly important, I am told that their resources will move from something in the order of two or three trillion to twelve trillion. But a lot depends of course, on what happens to oil prices. We are an open environment for investment by sovereign wealth funds. And I make that absolutely clear, we are encouraging sovereign wealth funds to invest in the British economy.
Our own investments: we are forming British financial investments to take the investments that we have in the banking system and put them into an arms length group. We have already announced that Philip Hampton will be the chairman of that, and John Kingman the Managing Director. But our assets in the banks, I want to stress, are temporary. We have no desire to be permanent shareholders in banks. We are not going back to the age where government was expected to invest in absolutely everything. That is not what we want to do. Our role in holding shares in the banks was to take the banks through a difficult situation and then to provide for new investors to come in, and that is what we will do.
You have a point about the shareholder executive which manages our shares in all the other industries for which we have got partial stakes. That is the Shareholders Executive that will work side by side with British Financial Investments. Let me stress, the investments that we have had to take are investments for the short term and not the long term.
I do agree that in this situation where we are actually seeing that there are opportunities ahead in the global economy, if we can solve what I think are probably the inevitable difficulties of the transition to a global economy. If you are having a global economy, you have got to create global financial markets that work. You have got to deal with the restructuring that has got to take place as a result of jobs and services being done with the sourcing of goods in different countries. And you have also got to deal with the energy and environmental problems.
These were problems we already knew we had to deal with. But if you can deal with these problems, if you have the right technological infrastructure, the right skills base and the right physical infrastructure, you are well placed for the future - if you are an open economy like ours. And I wouldn’t under-estimate the extent to which our expertise is in a whole range of industries where global markets will develop if they haven’t developed already. That includes the creative industries. It includes education itself, pharmaceuticals, high technology, modern manufacturing as well as business services. So you need that technological and physical infrastructure.
That is why we want to continue our programme of investment in infrastructure. We are looking at high speed rail. We committed ourselves only a few months ago to Cross Rail. We have got a bigger programme of transport investment than ever we have had in our history.
And that is also true when we answer the question about the music industry, the digital infrastructure of our country. We have got a programme for making that the best in the world. We are moving very quickly with the digitalisation of Britain. Stephen Carter has been put in charge of linking the different work of different departments to do this. I know the music industry has fundamentally transformed over recent years because of the internet and the ability to purchase on the internet. We think that one of the best things we can do for the creative industries is speed up the digital revolution, and that is what we will announce plans to do in the next few months.
So we are trying to prepare ourselves for the future. This is the dilemma of fiscal policy: to prepare ourselves for the future at the same time as making sure that we can give real help to families and businesses now so we can take ourselves out of the downturn that exists. But that is the policy we will pursue.
Chairman
As we have only got time for one more question, I am going to ask your Director General, Richard.
Richard Lambert
Prime Minister, this afternoon we are going to be discussing the question about an industrial road map for Britain’s future. We are going to be asking that given what we know we have to do in this country in the next 10 or 15 years in terms of rebuilding our power generating capacity, massive infrastructure and so on, whether we need to start talking about words that we haven’t used in this country for many years, namely industrial policy. Some idea of prioritising our investment in skills, in IP, and other things. Do you think there is anything in that, what is your sort of early take on that debate?
Prime Minister
Well when I was answering the question about the Channel Tunnel rail link and high speed rail I was remembering a story of Mitterrand when he came to Britain and he was asked about the Channel Tunnel rail link. He said it would offer high speed travel from Paris to Calais, and then cross the Channel and a chance to have a leisurely look at the English countryside.
Now we have invested in transport. And I think the case that is being put for high speed is one that is very strong indeed. What then is the relationship between government and business in the years to come? We don’t want picking winners, which is often simply picking losers. But we don’t want a wholly laissez faire approach where we do nothing to support business as it is investing for the most challenging time of all to be successful all over this new global economy. If you have a product that does well in one country, it can do well now in every country.
So what can we do? One, we have got to have the best skills base possible. That is where the huge investments are going in at the moment, and I hope you will hear during the course of the next two days about that level of investment. Second, is to get the technological infrastructure right. Thirdly, of course, the physical infrastructure. And fourthly, I think the spirit of entrepreneurship which we are trying to encourage in our schools. I think more is being done in our schools to see that young people have the chance to think of business and to think of enterprise as their future.
How do you bring that together? Well the old cooperative stuff didn’t work so we have to find a more flexible way of drawing on the opinions of business in the regions and at the centre to have this discussion about what are the elements on which we can build a consensus.
If we are going to succeed in this global world, it is going to have to be Britain working together as Britain. We have got to find that framework within which British business, British industry, British finance feels that it has that relationship with government where we are listening to each other and acting to meet each other’s needs
I think this is the new challenge as we move forward. Not the old industrial policy, but a sense of a national consensus being built up by dialogue and then by partnership about what we have to do. And I think Richard, we were talking about this a few days ago, I think it is something we could advance in the next few months.
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