Transcript of speech given by the Prime Minister to the New Local Government Network on the renewed role of local authorities in helping people through the downturn - London, 29 January 2009.
Read the transcript:
Prime Minister:
Can I begin by thanking the Local Government Network for this opportunity to join you this morning. Let me thank Chris for his leadership of the network, and let me pay tribute to you because all of you work in local government in parts of the country and I want to pay tribute to everything that you do, to the council leaders and elected mayors, the councillors and officers who are here, thank you for working tirelessly to give people a greater say over their lives. To all those who deliver the vital services upon which our society depends, our gratitude to you and to the leaders here who make up the backbone of our local communities in offering real help to families and businesses, especially when they need it most.
I have got a tremendous affection for local government, coming from an area of the country which was innovative in education and innovative in providing services to the elderly, and I am very proud of what they achieved.
I was never myself a local government councillor. I was once asked to stand, just at the time I was finishing as a student at university, for the local council. And I said to the people who asked me, look I don’t know much about local government finance – you probably think I still don’t know much about local government finance – I don’t know how I could deal with these questions on the council. And the people turned to me and said, look, if we were going to win the seat, you wouldn’t be the candidate.
Now these are difficult times, not just for our economy and our communities, but for communities in every major economy round the world. And I want to sketch out to you how in every community of our country we can do more to help people through these difficult times, how local government can play its part, and how we in national government can benefit from many innovative things that you are already doing that I think are making a difference in your own areas.
Now last week it was confirmed that the United Kingdom is in recession. The Eurozone and Japan have been in recession since the spring of last year, America since December of the year before, and a number of forecasters now expect global output to fall for the first time since World War II. And just to give a scale of what has been happening, in just the three months to November German industrial production fell by 15%, Japan’s industrial production by more than 20%, Korea’s by more than 25%. In just two months a million jobs have been lost in America alone, and China again in only a few months have seen two-thirds of a million businesses go to the wall and 6.7 million people have lost their jobs.
So in all our communities round the world the problem is this, that the financial institutions we have relied on to help create and sustain healthy communities, the channels and linkages that we take for granted to provide finance for business and for home owners, these channels have not been working. The banks in our towns and cities are not functioning in the way they used to, as a result local businesses are not able to get the loans and the finance that they need, and mortgages that were advertised all over our High Streets only months ago are now very hard to find at all.
But while the challenges we face are great, and this will undoubtedly be a difficult year, let me be clear and candid with you. With the action that we are taking both here and abroad we will get through this and we will move forward to better times beyond. We will do this together, marshalling all the resources at our disposal and uniting as a nation central government, local government, businesses and trades unions, all willing partners working together. And in the face of what has been a chaotic collapse of global financial markets we will act with purpose and determination to fight this global recession, to address the fears and insecurities that people who are savers, people who are mortgage holders, people running small businesses, people in jobs have, and we will bring real help to ensure greater security in their lives.
And I just want to explain the government’s plan to secure stability and recovery in our economy and how in each local community it can make a difference. I want to address the real problems that you face every day on the front line to help you and your communities through these difficult times and to ensure, as all of us I know here today want to do, that we can emerge stronger and even more competitive in the industries of the future having taken the right long term decisions to deal with our financial sector and how we can build the bridges to the future, the Britain I believe in and the Britain I believe we can create.
So ours is a plan for stability and recovery to fight a global recession that frames our work internationally, nationally and locally in towns and villages and cities across the country. And I believe it will represent the strength of the commitment that British people have to finding a way forward and our absolute refusal to sit back and simply let a recession take its course.
Now the plan we have been taking forward step by step since the financial crisis intensified last September has three main pillars: first of all protecting people by preventing the collapse of the banking system, which has been the life-blood of our economy; secondly, giving real help to families and businesses now and in doing so to increase investment in our economy to keep the economy moving forward and to keep people in work; and thirdly, working with the UK banks to ensure that they can increase their lending, close the lending gap that has been left partly by the retreat of foreign banks from the United Kingdom and other financial institutions who have left the UK market so that businesses are able to invest for the future, mortgages are able to be obtained and people who rely on banks for their savings can feel more secure.
Now let me just explain each in turn. In October we acted to protect those who rely upon the financial system. So we recapitalised the banks, by doing so we prevented the collapse of the entire banking system. We did not take this radical step lightly because we are investing nearly £40 billion of taxpayers’ money in buying shares in the bank, and that is not something I ever imagined that I would have to do in this position. But let me be clear, every economy needs a channel through which money flows, from savers to those who want to invest, and if we had let the banks collapse, many more businesses would have been out of business and closed and thousands more workers would have needlessly lost their jobs. And that is not a price worth paying.
Since then of course every major country of the world has recapitalised their banks in a similar way, more than a trillion dollars of new investment in the banking system.
But the second action we took was by cutting interest rates, cutting taxes, increased investment in public works, we are ensuring that this sharp recession does not damage the long term strength of the British economy or put at risk the huge progress we have made as a country. The Bank of England has reduced interest rates to the lowest ever, long term interest rates have fallen to record lows. In more normal times, by cutting interest rates with a monetary relaxation on this scale and the significant changes in the pound, you would be expected to see a significant boost to the economy over the year ahead. But our domestic and international financial system remains under such severe strain that this will continue to reduce the impact of interest rates and monetary policy on the real economy in the months ahead.
So we had to do more. With inflation now falling quickly, public sector debt in Britain is low as the share of national income, lower than other major European economies following debt repayments we made over the last decade, we took the decision in the pre-budget report to launch a major fiscal stimulus to inject money into the economy. And of course as you have seen similar fiscal action is being taken across the world, most recently in Canada only yesterday. And in total around $1.5 trillion have been injected into the world economy through the major stimuluses in China, Germany, France, Korea, and now of course we are about to see a bigger stimulus in the United States of America, countries that many of them have worse debt positions than the United Kingdom.
So rather than cutting back on public investment as the recession bites on public investment, we have decided to stick to our long term investment plans and work to bring forward capital projects. And why have we done this? Because we are determined to ensure that the country will emerge stronger and more productive once the global economy starts to recover.
And because of this broadly based fiscal stimulus, this investment, we are able to pay for real help to families and businesses and communities through these dark times in the world economy. We have been able to raise the pension, we have increased child benefit to £20 for the first child, we have cut VAT to give people more spending power in their pockets, and we have lowered taxes by raising tax allowances.
The action that we have taken is designed not just to support demand in the economy, it is also targeted at specific problems that we have learned from previous recessions could either hold back the recovery or make the effects of the downturn longer lasting than they need to be.
So our focus here has been on three issues: greater security for home owners, reducing the fear of repossession by increasing support for all those at risk; making sure that the increase in short term unemployment does not translate into long term unemployment that scarred our communities for years after the downturns of the past; and stepping up our investment in the jobs and infrastructure of the future to be a world leader in low carbon industry, digital industries, skilled industries that will make for a competitive economy in the future.
And let me just tell you how our measures will help your local communities. For home owners who are hit with financial difficulties we will guarantee a proportion of their mortgage interest payments for up to two years, so that losing a job or suffering a drop in income in the downturn does not mean losing your home as well so we do not repeat the disasters that happened in previous downturns. For jobs we are investing half a billion pounds in support so that Jobcentres in every town and city can help those who lose their job get back to work as quickly as possible, or to acquire a new skill for jobs that are available. And as part of the 35,000 new apprentices we are taking, now a quarter of a million apprentices in this country, Hazel Blears and Jeremy Beecham are today announcing a local government association commitment to double the number of existing apprentices across local government from 7,500 to 15,000 to make our contribution to the training needs of the future.
So while we may not always be able to stop someone losing their current job, we can invest in helping people get the next job. And as we do so we are investing, not cutting, our crucial investment in the jobs and the infrastructure of the 21st century. And it is a pivotal element in our plan for stability and recovery that we do so, for there is no credible plan out of this downturn that is not also a plan towards building a better long term economy that can create jobs. And from green initiatives and pharmaceuticals, to the creative and digital industries, maintaining Britain’s position as a world leader will be essential to our future prosperity, promoting the drivers of prosperity for communities across the country and creating the products and services we will in future sell to what will become an expanding global economy again.
Today we have an interim report from Lord Carter setting out the scale of our ambition to compete in the digital economy, and that is a market worth about £50 billion a year, it affects every community in our country who are looking for the best digital infrastructure, access to broadband that we can offer them. And our digital networks will be the backbone of our economy in the decades ahead, just as roads and rails were the backbone of our physical infrastructure, and still are. And we know that every aspect of our lives in local communities, every school, every hospital, every workplace and even every home will be dependent on the services that the digital network provides. It is as essential to our future prosperity in the 21st century as electricity, roads, bridges and trains were in the 20th century. And building these bridges to the future will need a clear lead from government, combined with a strategic partnership between the public and private sectors.
So even at this difficult time for our economy we will not turn our backs on the future, we will build these bridges to the future, from the digital economy to fuel efficient cars, from pharmaceuticals to renewables Britain will invest in the industries of the future even as we fight our way out of what has been described as a global economic hurricane.
But as well as stabilising the banks and supporting demand in the economy, we can only deliver the true security for families and businesses if we also act to remove the obstacles to lending and funding for small businesses, home owners and communities. So the third pillar of our plan is a credit stimulus to expand lending in the economy. Only with this lending can we start to see the recovery in our High Streets and businesses in our towns. If people have money in their pockets but there is no financial mechanism by which they can actually be sure that their money is either invested properly or they can be confident about the future then the economy will not be able to grow in the way we want. It is only this lending that can ensure that those who can afford a mortgage get one, only with this credit stimulus that we can provide greater security for credit-worthy businesses who depend on this to invest and create jobs now and in the future.
So in addition to new support for up to £21 billion of lending to businesses that are small and medium size businesses, we have also set out comprehensive measures focused on increasing the amount of lending to families and businesses as a whole.
People ask why we hadn’t secured enough lending with the original support package last October. The fact is that lending was a condition of the recapitalisation of our banks in October. The banks we recapitalised in October have met this requirement to maintain lending as part of the conditions for receiving support, the problem is that maintaining the lending of these banks is not sufficient in itself because the lending on which our economy depends derives not just from these banks, but from other banks, foreign banks, banks that are non-banking institutions by name who were in the market before the sub-prime crisis started, many of whom have now left the country.
So the reason we continue to take action is to fill the gap in capacity, ensure the banks can continue to put enough credit into the system. But we cannot do this all on our own for if what happens to a bank in one country can within minutes bring potentially devastating effects on banks in a different continent, then only a truly international response can be effective. So we will also need the widest possible agreement on how to proceed. And beginning tomorrow at Davos, and in the weeks and months leading up to the London G20 summit we are seeking to move towards a global consensus to deal with what is essentially a global financial failure, a consensus on global financial regulation and supervision that will build from these ashes of financial failures the new rules for a global order.
Now at times like these, as you know, we need everybody to pull together at all levels so just as national governments need to cooperate across frontiers, so everyone must rise to the challenge of helping people throughout this downturn at a local, regional and national level. And ultimately, as you know yourselves, it is only by combining the support of national government with local government and all local partners from the PCTs to the police, the business community to the voluntary sector, that we can ensure that support is truly there on the ground and we know we will get through this faster and stronger if our communities are strong themselves.
No town, no city, no county is of course identical in the problems it faces or in its path to recovery, but let’s be clear, the downturn is absolutely the wrong time to turn our back on the devolution that we have promised. It is right that we maintain our commitment to greater power in the hands of local people. Alongside greater local accountability local authorities and council leaders, no longer responsible solely for the delivery of a limited range of services, are now responsible for shaping the place in which they live, for helping the community get through these difficult times and to emerge stronger, and I know all of you are thinking about what you can do as local authorities and local communities to improve the services that you give to people during these difficult times.
When we came into government, local government itself had no real power over their local economies, they were defined by delivering services, not by promoting prosperity and growth. But we have invested in local authorities, increasing funding in real terms by over a third in return for reforms, including a tough performance framework, more transparent governance and we saw not just a social and political case, but an economic case for each local authority’s involvement, each councillor’s direct involvement in the economic development and renewal of our communities and our country as a whole.
With Regional Development Agencies, local and multi-area agreements we have established the new flexibilities that allow us to promote development in a way that better matches local needs with a commitment in the last pre-budget report you have seen of more powers for our cities, at least two new city region agreements, and we are strengthening our major cities therefore as key power houses of growth and prosperity in the future.
And with the three year settlement an additional £8.9 billion, an average 4.2% cash, we are increasing funding per year. Councils now have even greater flexibility in funding with which to support communities through the downturn. I believe there are many good examples already, without wanting to single out people, of innovative local authorities using these greater flexibilities to tackle the downturn, initiatives like I have seen the Recession Task Force embarking on in Dagenham to coordinate actions to mitigate the effects of the downturn, from fuel poverty action through to giving personal skills and improving benefit take-up and support for small businesses and the role of local agencies strengthened in procurement. The Tay Valley’s multi-area agreement is revisiting delivery plans to re-allocate resources specifically to respond to the downturn. And I can say today that we will release £100 million of un-ring fenced money from the local authority business growth incentive scheme to help local authorities respond flexibly to the effects of the downturn in their area.
And in every aspect of responding to this global crisis we are prioritising what the economy needs ahead of any dogmatic commitment to old ideas and we will do the same in our attitude to local control.
Now let me take housing, one of the most concerning features of the downturn, already in decline is new house building of course and it is occurring at a time that we have a rise in the threat of repossessions. From the start I have said that we will not stand by as people’s hopes and dreams of a good home in a good neighbourhood are threatened by economic forces beyond their control. We will be ready to do more wherever necessary and I believe that councils should be given greater opportunities to play a bigger role in housing.
Already local authorities are pivotal in delivering new support for those facing repossession which we announced last year, and helping to provide greater security for home owners at difficult times. But we must also look to support further action on housing supply for the future. We know that there is still significant demand for housing, you see it in your own areas. There is clearly spare capacity in the house building industry, so we must consider all options if we are to meet the needs and aspirations of individuals and families across the country as a whole.
In the past we have placed restrictions on local authorities delivering social housing. Of course investment in social housing must be aligned with reform so that for example social housing providers working with local authorities and Jobcentre Plus address the high levels of worklessness that can be concentrated in parts of this sector. But let me today be clear, if local authorities can convince us that they can deliver quickly and cost effectively more of the housing that Britain needs, and if local authorities can build social housing in sustainable communities that meets the aspirations of the British people for the 21st century, then we will be prepared to give you our full backing and put aside any of the barriers that stand in the way of this happening. We will not allow old arguments and old ideologies to stop us getting on with the job together when there are families who need homes, when there are bricklayers, carpenters and electricians ready and willing to work, when there are construction companies that are ready to build houses. So in the coming months we will report on further measures to address housing supply to support real need and we recognise the important role that local authorities can play alongside of course the social housing reform that will ensure a fairer system for all.
Equally we cannot stand by and allow any failure in process to stand in the way of the help that families and communities need now. We have set of course tough efficiency targets of 3% to ensure that every penny of council taxpayers’ money is spent wisely and cuts out waste and inefficiency, and we will be asking that when the Audit Commission reports on the effectiveness of councils they give real weight to the way they are taking their communities through these difficult times. And further and prior to that we have asked them to report to our National Economic Council on the effectiveness of local authorities’ responses to the downturn. For if there are ways in which government is unintentionally frustrating your effort to respond appropriately I want to know about them. And I pledge we will act whenever and wherever we can do so to ensure for you and your authorities the necessary freedoms and flexibilities.
Equally local authorities should feel a similar obligation to do all they can, making full use of the capital expenditure from our stimulus to benefit your local communities. For even as our communities are being battered by a local storm that is vast and seems far from our control, it is ever more important that local people are empowered within their own local communities to lead our response to the downturn.
I would say this, by acting together as local authorities and national government in partnership we can bring more help to families and business when and where they need it most. We can offer greater security for home owners, for business and for the unemployed and with it the platform on which to build a recovery. And that recovery in my view is something that together we can push forward, it will secure the future of vibrant local communities, it will secure a future on which the whole of our society depends.
Thank you very much.
Questions and Answers:
Chairman:
The Prime Minister has said that he is happy to take one round of questions, although his other colleagues are encouraging me to get him away, but I think if we have got any signs of comments or observations, questions, then we will just take one quick round of those.
Question:
Could you give us some indication please, there have been press comments about Building Schools for the Future. Is this still on track because we are quite hopeful that we might be considered in the next round?
Question:
Before Christmas the EU released its fiscal stimulus package, as part of that package it offered a six month extension for European regional aid for regions who have not spent the money, to spend that money over the course of an extra six months. The UK government accepted that extension for the devolved countries but not for England. That means England’s poorest regions are missing out on around about 700 million of European aid. That money goes back to the Treasury, it doesn’t go to the poorest regions. I was hoping you could just explain a little bit about why you made that decision and how that fits in with your strategy of supporting the poorest regions through the recession.
Question:
Good Morning Prime Minister. I would be very interested in your views on councils using their wellbeing powers to set themselves up as banks to support local businesses and indeed individuals in their attempts to secure mortgages for purchasing their houses.
Question:
The pre-budget report put 50 regions right at the heart of economic recovery, just your thoughts on if any changes to the leadership structures and the political structures in cities might be needed.
Question:
I recently completed a report for you on planning reforms and there were some good proposals there about how we could eliminate bureaucracy and help businesses to have a kick-start and it would just be interesting to understand how you can give your CLG colleagues a nudge on that.
Question:
I was wondering if you would be able to give some views about empty rates relief for businesses at this time.
Question:
It seems in many cases that the regulatory regime has failed. Can you give us some indication of how that is going to be tightened up? The issue particularly around obviously the banking system, but also part of our role is supporting councils in delivering more effective regulations. Now that is often seen as being too much red tape and bureaucracy but good regulation can be helpful to the economy as well.
Prime Minister:
Thank you for the range of questions and I hope I can do justice to them in the short period of time.
The first range of questions really affects the public investment programmes that we are undertaking and I was asked about schools and I was asked about the role that councils could play in housing. Basically in the next year we will invest £44 billion in total in capital investment, that is £10 billion more than the year before. That gives us a chance to give a big stimulus to the economy. The education programme, if I remember right, is employing about 70,000 construction workers, that will rise over the course of this year to 100,000 construction workers, so you can see the impact on jobs of the public investment we are doing.
I am told that the health programmes are moving ahead. There are issues about private finance initiatives in relation to some of the schools programmes but it is our intention that we can move forward with the schools programme, the Building Schools for the Future that we are undertaking. So we hope to have ironed out any of the difficulties relating to the private side of the private finance initiatives where they are involved over the next period of time.
So I can absolutely assure you it is our intention to move forward and we have advanced about £3 billion of spending, including a lot of that for schools, so that we can if you like invest more quickly in the most difficult times and where the construction industry can actually play a big part. So that is the first thing.
The second thing about regional aid, I think you are talking primarily about what is happening in the north east of England. I have said that we will look at that and we continue to do so. But let us remember at the same time we have got a huge amount of European money coming in through the European Investment Bank that is designed to help the flow of funds for banks and we are ourselves pushing forward with our infrastructure investment programmes, as I have just explained.
Then take housing and the role that local authorities can play. I think we should be imaginative in the way that we look at things, and innovative, and we have recognised the need for local authorities to become in effect builders where they can bring up plans to do so and I think there are many authorities that are looking at what they can do in this area and we have got these housing development companies that we are proposing.
On the side of providing mortgages, there is a lot of work being done now. Look, what has happened to the market in mortgages is that half the capacity has gone. So you had a large number of foreign investors, you had a large number of banks who have disappeared, you had non-banking institutions, then you had obviously the problems with Bradford and Bingley in particular, Northern Rock is now going to start lending again but you have lost that capacity in the market so that even if Lloyds TSB, Barclays and the Royal Bank of Scotland are increasing the amount of lending they are having to replace capacity that has been lost through the flight of some of the foreign firms and the non-bank lenders. So we have to both fill a gap in the market and of course over the longer term we want a competitive and therefore diversified mortgage sector.
So we are looking at innovative ways in which this can be done. We have already said we are looking at how Northern Rock could transform itself into being a mortgage provider, and of course we are particularly interested in those who are denied mortgages at the moment because it is a 70 or 75% requirement but there are circumstances of course where you could find, as building companies do and others, arrangements where you could get up to 85 or even 90% so that house ownership doesn’t fall outside the ability of young people in particular wanting their first rung on the housing market. So that is what we are looking at at the moment and we welcome the discussions you are thinking about.
Then on the issue of empty property relief, as you know the Chancellor made proposals in the pre-budget report and that leads on to what decisions he makes in the budget.
As far as planning is concerned, I welcome what you have done to speed up the system of planning. Hazel Blears will be here this afternoon and I think she will be speaking about that and I will pass on your concerns about the speed at which we are doing things.
On the financial system as a whole, look everybody round the world is saying this, what actually went wrong? This is not a normal inflation-led downturn. Almost every downturn we have had in the last 60 years since the Second World War has been domestically generated inflation which then got out of control as we had to raise interest rates, governments had to raise interest rates and that in itself meant that there was a shortage of affordable funds for business, demand fell in the economy, jobs were lost. And that cycle of inflation-led recessions was really the pattern that we were trying to get away from in Britain, and inflation has been low and inflation even throughout some of the most difficult times has never reached the levels that we have had in the past and interest rates have been low as a result of that.
So the problem we have got is not that we have got domestically generated inflation either in Britain or in America or in other countries, it is not a problem of public debt, as some people say, because quite frankly our debt is lower than most of the other major countries, it is lower than America. The problem is a failure in the world banking system, the problem is that starting in America assets that seemed to be valuable that were being transferred from firm, to firm, to firm, parcelled up and then given high Triple A rating standards, passed on to Europe in a lot of cases, turned out to be worthless. And then people stopped trusting each other through a whole range of other products that were financial products in the market and then the financial markets seized up as a result of that. And at the point at which we recapitalised our banks the markets were actually frozen and the banks were in danger of collapse.
So what we are actually seeing is a system that people thought would diversify the risk by it being spread all over the world, it actually magnified the risk because it just moved from one company to another as people lost trust in the very system that was operating. So if you take the sub-prime market which is the American problem, half of the sub-prime products were bought by European banks. So European banks, including banks in Britain, ended up with worthless assets that then questioned whether they were able to continue to function as they had been in the past. And now with the withdrawal of lending all over the world you have got foreign banks moving out, retreating into their home countries and as a result of that there is a loss of capacity, very, very serious in areas like eastern Europe because they have got very little capacity that is local to replace them. We have our domestic banks but obviously the variety of lending that is needed for the future requires an international financial system to work.
So our aim is to give real help to people now and to stimulate the economy, as we are doing through injecting resources into it. The reason why fiscal activity makes sense at the moment is inflation is very low, the cost of borrowing is low, the monetary system is not working properly and when markets fail governments have got to step in to keep the economy moving forward.
But I am in no doubt that what we have got to do collectively, and I have been talking obviously to all the other leaders, is we have got to renew the financial system. You cannot have a financial system where what is happening in one country is so unknown to the regulators and supervisors in another country that they are not in a position to judge the credit-worthiness or liquidity or solvency of institutions. And so the information has got to flow round the world about what is actually happening in what is essentially a global financial system. We have got an international financial system, we have got national regulators. Companies live internationally but their lifeline is only national because they are operating under national supervisory systems. We have got to actually create out of this problem, and I may say we have been proposing this for many years, we have got to create an international financial supervision that meets, and is up to and equal to the challenges of having these global financial flows.
And for local authorities that have lost money in Iceland and those who have got investments in other countries, we have got to ensure that in future that the international financial system is in a position to guarantee that when you do invest abroad and do invest in other places you are doing so in a secure way because it has been verified and it is properly accountable, and that is the real challenge we face.
In the meantime we want to give real help to people through these difficult times and I am confident, having talking to President Obama and the European leaders, and we have Premier Wen visiting us next week from China, and I am meeting the Japanese Prime Minister this week, we can get an agreement when we come to April 2nd at the G20 that we reform and renew the financial system.
So our plan is clear, real help now, our plan is to extend the lending of the banks and our plan is to invest in the future. I believe that is the right thing to do but we do need this further pillar of reform and that is the international financial system has got to be rebuilt for modern times. And I know it is frustrating for people because when they look at what is happening in their own local community, they say what is the relationship between that and what is happening to some sub-prime company in the United States of America. The problem we have got is that one wrong decision reverberates in a global financial system right across the world and we have got to make sure that people can feel secure about any investments they make in the future.
Chairman:
Prime Minister you have been very generous with your time this morning, giving a real chunk of your thought on how in fact all of these issues are interconnected. And I think you can be assured that whatever the political colour across local government there is some real innovation and enthusiasm in the field, those agents in the field who want to make a real difference to help communities and I think we are all going to be pulling together in that same direction.
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