We have punched above our weight
I have come to account to you, conference, for the work I have been carrying out in the coalition government.
I have managed to infuriate the bank bosses; acquire a fatwa from the revolutionary guards of the trades union movement; frighten the Daily Telegraph with a progressive graduate payment; and upset very rich people who are trying to dodge British taxes. I must be doing something right.
But I am told that I look miserable. I'm sorry, conference, this is my happy face. 'Aren't you having fun?' people ask. It isn't much fun but it's necessary: necessary for our country that our parties work together at a time of financial crisis. And it is an opportunity for the party to demonstrate that we have the political maturity to make difficult decisions and wield power, with principle.
As for real fun, I am introducing dancing classes into the coalition. Unfortunately, I keep treading on Theresa May's toes and my partners think I have two left feet.
But what is it like being in bed with the Tories? First, it's exhausting; it's exhausting because you have to fight to keep the duvet. But to hold our own we need to maintain our party's identity and our authentic voice. We had to go through a merger to found our party ... we'll never merge again.
We will fight the next general elections as an independent force with our options open. Just like 2010. But coalition is the future of politics. It is good for government and good for Britain. We must make sure it is good for the Lib Dems as well.
Labour and the economic crisis
What brought this coalition together is the need to clean up the inherited economic mess: the aftermath of the banking collapse; the largest fiscal deficit in the G20.
This is bound to hurt. Strong disinfectant stings. The public is, broadly, sympathetic to the coalition. But we are faced with an aggressive Labour opposition which has chosen the easy option of deficit denial. Deficit; what deficit? Nothing to do with us, guv.
It has everything to do with them.
There was, of course, a global financial crisis. But our Labour predecessors left Britain exceptionally vulnerable and damaged: more personal debt than any other major economy; a dangerously inflated property bubble; and a bloated banking sector behaving as masters, not the servants of the people. Their economic model combined the financial lunacies of Ireland and Iceland. They built a house on sand and thought that they were ushering in a new, progressive work of architecture. It has collapsed. They lacked foresight; now they even lack hindsight.
In an emergency it was right to accept large scale deficit financing. But the deficit must now be corrected. Public spending was ramped up using tax windfalls which have gone. We are a poorer country than two years ago and the budget must reflect what we can afford.
We know that if elected Labour planned to raise VAT. They attack this government's cuts but say not a peep about the £23bn of fiscal tightening Alistair Darling had already introduced. They planned to chop my department's budget by 20 to 25%, but now they oppose every cut, ranting with synthetic rage, and refuse, point blank, to set out their alternatives. They demand a plan B but don't have a plan A. The only tough choice they will face is which Miliband.
A proper debate is impossible with people who start from the infantile proposition that there isn't a problem; and simply hark back to a failed world of 'business as usual'.
The Lib Dem response
But our party will emerge with credit from this crisis. We were the first, by far, to warn of the crisis to come. And last year, Nick Clegg and I warned of future cuts. This inconvenient truth wasn't popular but you heard it here first.
Then, we established in government the need to combine firmness and fairness. Yes, there has to be a freeze on public sector pay, to save jobs and services, but the lowest paid should be protected. Yes, there will be higher taxes overall. But the broadest backs should carry the biggest burden.
But I am also optimistic about the party's future because I know there is stamina and determination born of years of real life experience in local government. Those of you who took power from Labour in Newcastle, Hull, Oldham, Bristol, Sheffield and here in Liverpool had to take unpopular decisions to correct budgets which didn't add up. Nationally we have the same problem on a grander scale and want to learn from your experience.
Growth and recovery
But the real debate is not 'cuts versus no cuts' - an absurd parody of the policy choices - but how we balance cuts with economic recovery and job creation.
Growth is essential. Recovery is not possible without sorting out the public finances; but the public finances cannot be sorted out without the revenue from economic growth. Moreover the growth has to be balanced and sustainable, not based on another bubble.
But economic recovery will not happen automatically, by magic. Government has a key role. It has to sustain demand. That is basic Keynes. Liberal economics also requires us to remove obstacles to growth led by private enterprise. Among them is the threat to recovery from a credit squeeze by banks on small businesses.
On banks, I make no apology for attacking spivs and gamblers who did more harm to the British economy than Bob Crow could achieve in his wildest Trotskyite fantasies, while paying themselves outrageous bonuses underwritten by the taxpayer. There is much public anger about banks and it is well deserved.
But I am not seeking retribution. We have a pressing practical problem: the lack of capital for sound, non-property, business. Many firms say they are already being crippled by banks' charges and restrictions.
The Chancellor and I have set out a range of sticks and carrots to get banks to support the real economy. Tough interventions will be needed if capital which could be used to support business lending is frittered away in bonuses and dividends.
The Coalition Agreement was crystal clear, too, that the structure of banking must be reformed to prevent future disasters and promote competition. Our agenda can be summed in seven words: make them safe and make them lend. I agree with Mervyn. We just can't risk having banks that are too big to fail.
Beyond the banks, there are vast amounts of institutional capital - in pension funds and the like - looking for productive outlets. The Government is proposing to establish a Green Investment Bank to support environmentally valuable projects and infrastructure alongside these private investors: making the rhetoric of the Green New Deal real.
And looking further ahead, my colleague Ed Davey is doing valuable work promoting mutual ownership and also - as in the Royal Mail - spreading worker ownership alongside private capital.
I want to announce today that employees in Royal Mail will benefit from the largest employee shares scheme of any privatisation for 25 years. The Liberal Democrats were the first and only party to call for an employee stake and we are now implementing it in Government.
The Post Office is not for sale. There will be no programme of closures as there were under Labour.
And the principle of responsible ownership should apply across the business world. We need successful business. But let me be quite clear. The Government's agenda is not one of laissez-faire. Markets are often irrational or rigged. So I am shining a harsh light into the murky world of corporate behaviour. Why should good companies be destroyed by short-term investors looking for a speculative killing, while their accomplices in the City make fat fees? Why do directors sometimes forget their wider duties when a cheque is waved before them?
Capitalism takes no prisoners and kills competition where it can, as Adam Smith explained over 200 years ago. I want to protect consumers and keep prices down and provide a level playing field for small business, so we must be vigilant right across the economy - whether in the old industries of economies textbooks or the newer privatised utilities and cosy magic circles in auditing, law or investment banking. Competition is central to my pro market, pro business, agenda.
The Knowledge economy
But the big long-term question is: how does the country earn a living in future? Natural resources? The oil money was squandered. Metal bashing? Mostly gone to Asia. Banking? Been there, done that. What is left? Actually quite a lot. People. Skilled and educated people. High tech manufacturing of which we already have a great deal. Creative industries, IT and science based industries and professional services. In my job I meet many outstanding, world class, British based companies. But we need more companies and more jobs in the companies we have.
It is my job as Business Secretary to support business growth. And this knowledge based economy requires more high quality people from FE, HE and vocational training. Here, we have a problem. Businesses cannot grow because of a shortage of trained workers while our schools churn out young people regarded by companies as virtually unemployable. The pool of unemployed graduates is growing while there is a chronic shortage of science graduates and especially engineers.
There has to be a revolution in post 16 education and training. We are making a start. Despite cuts, my department is funding 50,000 extra high level apprenticeships this year - vital for a manufacturing revival. My Conservative colleague David Willetts and I want to sweep away the artificial barriers between universities and FE; between academic and vocational; between full time, part time and continuing life long learning; between the academic and vocational. I was the first person in my family to stay on at school beyond 15. I want everyone to have the chance to continue their education.
There are some unhelpful, cultural, prejudices and vested interests to overcome. The belief that only A-starred A levels count; not apprenticeships. Or a gold standard as defined by the Russell Group not good teaching institutions like Teesside University or Liverpool John Moores. Or the assumption that top Oxbridge maths brains should go to Goldman Sachs or hedge funds not to Rolls Royce or into teaching. Wrong. Completely wrong.
Paying for universities
But what do we do when there is less government money?
I realise that there are people in the hall who believe that education at all levels must be free and the taxpayer should pay up, regardless of the bill. In reality the only way to maintain high quality higher education with less government money is for the graduate beneficiaries to make a bigger contribution from the extra earnings they enjoy later in life.
I am doing everything I can to ensure that graduate contributions are linked to earnings. Why should low paid graduates - nurses, youth workers or science researchers - pay the same as corporate lawyers and investment bankers? We have to balance higher contributions with basic fairness.
Fairness and tax
The biggest test of our party's contribution to the coalition is whether we can ensure fairness more widely. You'll remember our Conservative colleagues campaigned in the General Election to lift the inheritance tax burden on double millionaires.
But they have dropped that commitment. They have gone halfway to accepting our case for equalising income tax and capital gains tax rates. They have accepted in the Coalition Agreement that the priority for cutting income tax is for low earners not top earners.
Ironically, we may be able to make more progress on a fairness agenda with the Conservatives than New Labour was willing to do. Labour was constantly on its knees trying to prove that it was a friend of the super rich.
It will be said that in a world of internationally mobile capital and people it is counterproductive to tax personal income and corporate profit to uncompetitive levels. That is right. But a progressive alternative is to shift the tax base to property and land which cannot run away and represent, in Britain, an extreme concentration of wealth. I personally regret that mansion tax did not make it into the Coalition Agreement but in a coalition we have to compromise. But we can and should maintain our distinctive and progressive tax policies for the future.
I started by saying that I am reporting back to you conference. I want to conclude by saying that your role is crucial. In government we are trying to put Lib Dem ideas into action; your job is to keep us honest. We have punched above our weight in government because we have a democratic party which has clear principles and policies. In a few short months we have showed how we can advance our party's policies and principles while serving the wider national interest. But we need to sell this message. The Tories will not do that for us. We have to do it ourselves. That means focus leaflets and doorsteps. That means you. We need you. All of you.