Speech to the Institute of Directors

30 April 2008

Speaking to the Institute of Directors in London, the PM promised to work towards the most open EU market possible, a better EU US trade relationship, reform of agricultural subsidies and a global trade deal that resists protectionism.

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[check against delivery]

Let me say how pleased I am to join you once again at your Convention today: to be able to congratulate the Institute of Directors on your work for Britain not just here but round the world.

And let me immediately acknowledge the challenges your companies are having to face --- and praise you for your capacity to respond and adapt at a time in these difficult times when we not only face a global credit crunch but when the speed, scale and scope of global change is unprecedented.

And let me especially thank the leadership and the contribution of your Director General Miles Templeman.

I fully agree with Miles when he talked earlier about the importance of celebrating winners and of encouraging and applauding business excellence - and I am reminded of the US Supreme Court Justice Earl Warren who once said that he read the sports pages first because they focused on human accomplishments and achievements, leaving the front pages of newspapers to last because they always focused on human failing. I hope we all - while dealing with all challenges and problems ahead - celebrate all there is to be proud of in Britain ----- our entrepreneurial spirit, our creative talent, our ethic of hard-work and our global reach and internationalism.

Today I want to talk about how we can together build on this foundation to prepare Britain for the challenges ahead.

We all know that this is a testing time.

A credit crunch which started in the American housing market is threatening in the US alone 2 million repossessions, 9 million in negative equity and rising unemployment. And a few weeks ago the IMF suggested America would tip into a mild recession, with European growth rates also projected to fall.

Indeed, people will probably look back to say that this is the first truly global financial crisis of this new era of globalisation.

But we know we face additional challenges too: at the same time as stagnation spreads from the west, inflationary pressures are spreading from the east, not least from the race for commodities --- with oil, coal and gas prices up 60 per cent, world food prices up 45 per cent, and global food reserves at their lowest level in 30 years.

I can tell you that addressing the global credit crunch is our first priority and we will do everything we can to help you weather the storm, putting in place specific measures to help the financial markets and the people and businesses most affected:
- the Bank of England liquidity package;
- more help for homeowners through the Council of Mortgage Lenders;
- more help for first time buyers through the expansion of shared equity schemes --- and I urge you to look at how private capital could do more in this market;
- and more help for small businesses by expanding the small firms loan guarantee scheme and asking the European Investment Bank to improve access to finance for medium-sized and small businesses. And I can tell you that President Sarkozy and I are today writing to the Presidency of the European Union and the President of the European Commission proposing new action to help small companies across Europe cope with the impact of the credit crunch.

In a world of global financial flows it is essential that immediate action at home is accompanied by cooperation overseas. So we will also take the measures necessary internationally to improve handling of major global market disruptions --- ensuring financial authorities are able to share information and act decisively in turbulent conditions.

That is why Britain is pressing the G7 to implement the recommendations of the financial stability forum, including clearer standards for valuation and changes in the role and use of credit ratings -- with an action plan in the next 100 days. And we should consider doing more to ensure coordinated disclosure and improved monitoring of crises across borders.

As you know no country can insulate itself completely from the current volatility but - as the Institute of Directors recently recognised:
- your success has ensured that the corporate sector is running a surplus in excess of 2 per cent of GDP;
- and inflationary trends, you rightly say, are better than in the early 1990s.

And it is because of this low inflation that we have been able to do what the euro area has not been able to do - cut interest rates. And it is because we have low debt that we have been able to use the automatic stabilisers to maintain growth. And today I am pleased to see manufacturers taking advantage of the exchange rate to grow and employment still at record levels with vacancies high.

But the pressures facing us today are more than just the short term, credit crunch and short-term rises in fuel and food prices. This is a testing time for all of us who believe in an open and flexible globalisation.

For we are also seeing right in front of our eyes not just short term changes but longer term ones too.

We are witnessing a radical restructuring of the global economy:
- Asia now producing over 80 per cent of computers;
- China 50 per cent of textiles and electronics;
- India accounting for half of all call centre jobs and even Malaysia taking half the market for world exports of plastics.

And some of our biggest corporations - IBM, Corus, Jaguar and Land Rover - are now partially Asian or Arab owned....with Indian and Chinese sovereign wealth funds also buying into global companies.

And increasingly China and India are not competing simply on low pay as if it were a race to the bottom. With 5 million graduates a year, far more engineers being produced, far more computer scientists, they are competing on high skills too, in a race to the top.

Up to 1 million manufacturing jobs moving from Europe and America to Asia each year, one quarter of a million services jobs. With more to come.

So it is understandable that in America and Europe worries exist, and the dominant response is not to welcome new competitors but to see people in fear of their jobs and livelihoods.

And as a result we see protectionist sentiments growing;
We see the danger of increasing demands for heavy-handed regulation;
We see pressure for regulating hedge funds and sovereign wealth funds in almost every capital.

And I see that there is a reaction building up: popular fears in America especially but across Europe too; people's fears that they are not in fact the winners of globalisation but losers -- that even when they are benefiting from low inflation and lower interest rates and cheaper consumer goods they are instead the victims not beneficiaries.

Like the banner I saw by anti-free trade demonstrators which summarised the problem. It was entitled: 'world wide campaign against globalisation'.

And this raises the question as to whether in response to a more testing global economic outlook the world will relapse into the old and counter-productive - but familiar - defensive and negative protectionism ---- a defensiveness that means that under the illusion they can stop change people will deny themselves the competitive benefits of globalisation.

Or whether we will - as I believe we should - champion a globalisation that is not just open, flexible and free-trade but is also inclusive.

And we have to be aggressive advocates together of free trade, openness, flexibility and an inclusive globalisation.

We should start - businesses and governments together - by showing people that the rise of Asia - and the wider changes brought by globalisation - need not be a zero sum game.

Why do I say there are huge opportunities?

Because in just over 20 years we will see the world economy double in size again.
And we will see over 1 billion new professional or skilled jobs, the global middle class will grow twice as fast as the rest of the population.
New types of creative and knowledge-based industries are emergin.
And China and India will become countries that don't just sell to us but buy from us - as the 3rd and 5th largest consumer markets in the world.

This potentially makes it a time of huge opportunity for all of us --- with in my view Britain potentially one of the greatest success stories of this new era.

First, because we are the most open, free trading country in the world - determined to stay so. And because as a result we have huge global reach.

Second, because we will take all the long term decisions necessary to remain the hub for international business: offering the most sophisticated financial, business and legal services - and hopefully backed up by the technology and skills that attract new investment.

And third because the industries and services that are growing fastest and key to the world's next stage of growth -- financial and business services, creative industries, IT, pharmaceuticals, advanced manufacturing, education, environmental technologies - are services and industries that we specialise in.

So what must we do?

First, as we all agree the countries that succeed in this new world will be those that do everything to be internationally competitive as a location for business.

It means monetary and fiscal stability first and always - my commitment to you - and it means making the long term changes that matter - in science, transport, planning, energy and infrastructure.

And I am determined to do so.

We must have energy security which means we must also invest in low carbon energy. That's why we are leading by investing now in nuclear in particular for the next generation of sustainable and secure supplies.

But we will make the changes not just on energy and climate change.

On planning, with the new planning commission and its new flexibility we will make Britain's planning more responsive.

On transport with Crossrail, Heathrow and round the country we will make the necessary new investments;
On science, we will push forward our 10 year plan;
On universities we will invest heavily in their research and teaching capability.

In every area taking the long term decisions that matter.

We also know that an internationally competitive global Britain will maintain and enhance its flexibility through deregulation and competitive taxation. And cracking the problem of regulation every advanced industrial economy faces - as I found in America last month - would help us all.

Delivery and culture matter. That is why in moving to a new risk based approach we will reduce inspection, form filling and information --- my whole emphasis is on action on the ground

We are on our way to cutting, by 2010, the administrative burdens faced by UK companies by 25 per cent

And we will now consult on the radical idea of regulatory budgets ---- giving Whitehall departments who want to introduce new regulation - for whatever well-intentioned reason - a strict annual limit on what they can impose, agreed right across government.

If we decide that the proposal is practicable and would not get in the way of key objectives like national security, it could transform the culture of Whitehall - meaning for the first time that regulation is not treated as a free good.

And on tax, we have now cut the headline rate of corporation tax from 30 per cent to 28 per cent this month - with a lower rate for small firms and an additional allowance for investment ---- and our aim is to reduce corporation tax even further when we can afford it.

And with Alistair Darling's announcement yesterday of a new working group on business taxation, I can assure you that we will continue to work with you to modernise - and importantly to simplify - the UK's tax regime.

So to succeed in the new global economy Britain must - and will - continue to focus on openness and on improving flexibility. But I am also increasingly convinced that we will only be able to persuade an anxious workforce and an uncertain people that globalisation can work if we equip them with the skills needed to do jobs of the future and give them the best transitional help for moving between jobs.

This is not about stopping the clock or attempting to freeze-frame, but about giving people a chance to move forward even when the future is uncertain.

And it's about helping you - as business leaders - get the skilled workers you need to make your companies a success.

So we will step up a gear with not just education to 18 and intervention in failing schools, but a massive expansion in workplace and lifelong learning as well as investment in our universalities and colleges.

The government will invest £1 billion over the next 3 years in 'Train to Gain', the national service providing advice and skills brokering to employers, with new freedoms for you to have your own qualifications accredited nationally.

There will be a radical expansion in apprenticeships -- 90,000 more by 2013.

And we will strengthen business involvement in local employment partnerships - companies working with their local jobcentre to prepare people on benefit for specific jobs in the local labour market.

At all time making the long term decisions necessary for success

And finally an internationally competitive Britain demands a continued commitment to free trade and keeping our economies open.

And I hope we can work together to push for opening of trade, a world trade deal, opening up the single market in Europe, a better US-EU transatlantic partnership.

The worldwide benefits of breaking down trade barriers and removing distortive subsidies could be as much as 300 billion dollars by 2015 - equivalent to 0.6 per cent of global income. And every sector of the economy stands to gain.

But if we do not get a trade deal within the next few weeks there will not be a trade deal for years.

So I will be raising these issues with key overseas leaders in the next few days. And I would urge all of you to join the campaign for a trade deal that will help us to restore confidence to the world economy.

So let me conclude by emphasising that like you I recognise the scale of the challenges ahead.

Churchill once said those how build the present in the image of the past will miss out entirely on the challenges of the future.

I will not be diverted from the mission of this government:

• to move forward with a reformed, inclusive globalisation;
• and to build a better, more prosperous, more competitive Britain. A country ready to be a winner in the new global era.look forward to continuing to work with you to achieve these aims in the years ahead.