Politics 4 November 2013 Ed Balls's speech to the CBI: full text "Being pro-market and pro-competition also means acting when markets fail and competition does not operate". Print HTML INTRODUCTION Thank you, Mike. And on a personal note, let me start by saying that - while for many of you this session may feel like just one more in a long line of politicians speaking today - for me this is actually a bit of a milestone. I first attended the CBI annual conference back in 1995 as a young economic adviser - and returned again the following year to Harrogate, just a few months before the General Election. Our plan to make the Bank of England independent was still under wraps, but the then Shadow Chancellor told that year's CBI conference that the next Labour government would lock in price stability by keeping the inflation target. I’ve been back to CBI conferences many times over the following 18 years, but this is the first time I’ve addressed your annual conference. So thank you for inviting me to make my debut today. And this is certainly a CBI conference being held at a vital and challenging time, for British business and for the future of our country. We meet here with economic recovery finally getting going again after a long and protracted period of stagnation, and that return to growth is something to celebrate and nurture. But with business investment still on hold, bank lending to SMEs still contracting, youth unemployment still very high, and living standards still falling for millions - meaning that for most people there is so far no recovery at all - this is no time for complacency. Because there is no quick fix. We have to earn our way to rising prosperity. But we will not succeed unless we use the talents of all and ensure that everyone can benefit from economic recovery and not just a few. In my view, Britain has always succeeded, and can only succeed in the future, as an open and internationalist and outward-facing trading nation, with enterprise, risk and innovation valued and rewarded. Backing entrepreneurs and wealth creation, generating the profits to finance investment and winning the confidence of investors from round the world. That is why Ed Miliband and I share the CBI vision of Britain prospering in a reformed Global Europe. You are right to challenge us politicians to maintain British influence and lead the debate about the reforms that Europe needs to deliver value for money, open up markets and secure rising prosperity. But Britain is better placed to shape Europe’s future if we are fully engaged rather than having one foot out the door. We are clear that there is no future for Britain in walking away from our biggest market – or threatening to do so for reasons of internal party management. Europe needs reform, but to walk away from our EU membership would be reckless, foolish and deeply damaging. On Britain’s future in Europe, the national interest must come first. But at a time when most people in our country are seeing their living standards falling year on year, we cannot take public support for this open, global vision of a dynamic market economy for granted. I know, as an MP with, until recently, the largest BNP membership of any constituency in the country, how some on the extremes of left and right see the solution to be isolationism, turning inwards, setting their face against the rest of the world and the global economy. They are wrong. Business is key to the solution, not the problem - as is Britain properly engaged in a reformed Europe. But at a time when politicians and business leaders often seem to compete with each other for bad headlines, be it MPs expenses, tax avoidance schemes, or rising energy prices, none of us can afford to bury our heads in the sand and ignore the legitimate and mainstream concerns of people across our country that our economy is not currently working for them and their families. That is why we believe it is so vital that government works closely with all businesses - large and small: to promote open markets, competition and long-term wealth creation; and to reform our economy so that, by using and investing in the talents of all, we can deliver rising living standards not just for a few but for everyone in every part of the country. LABOUR AND BUSINESS This may be my first annual conference speech, but over the years I’ve worked closely with five CBI Director-Generals, from Sir Howard Davies onwards. Most recently, of course, John Cridland – who’s been attending CBI conferences for a lot longer than I have. And Sir Richard Lambert, who gave me my first job as an economics leader writer at the Financial Times back in 1989. And Lord Adair Turner - who I worked with closely on the New Deal youth jobs programme and the Climate Change Levy, recommended by the then CBI President Sir Colin Marshall in his 1998 report, which also made the case for extra help for heavy energy users. And of course, the unforgettable Lord Digby Jones. I was reminiscing with Digby last week and I reminded him about the secondary schools enterprise challenge he came up to launch with me in Wakefield. “Oh dear”, Digby said. “Wasn't that the one where my speech got off to a bit of a bad start?” It certainly did. Digby began what became a passionate speech about enterprise education to a group of over 200 fourteen year olds and their teacher, with a totally inappropriate joke, about a lawyer, a pelican and which one could stick his bill where… The actual story was rather more graphic in the telling. As I looked out from the platform, I saw all the teachers turn completely white with shock. But I can report the 14 year olds all thought it was totally hilarious. But let me say this about the work we did together. I’m not going to claim to you that we got everything right in our relationship with business – let alone that you all agreed with everything we did, or will again in future. While you initially had misgivings, we worked hard to make the national minimum wage and the Low Pay Commission work, and it is in that same spirit that we are now working with many employers across the country to promote and, as Ed Miliband said yesterday, incentivise the non-statutory living wage. On Europe, we were right to work together to deepen the single market, and we made the right call for Britain not to join the Euro in 2003. And while most British people do see and support the contribution that migration makes to our country, we were both wrong to support open access for accession country economic migrants to the UK without transitional controls, proper protections and extra support for communities. And we all failed to see the dangers that were emerging in our banking system in the middle of the last decade, and the inadequacy of bank regulation… and I have certainly learned from that experience. But time after time where our economic policies were successful – from record investment in rail and roads, and a ten year framework for increased investment in innovation and science, through to corporation tax cuts and Capital Gains Tax for entrepreneurs cut to 10% - they were successful because we had moved beyond the old-style British debate – public bad, private good; private bad, public good – and recognised that partnership between business and government is vital if we are to succeed and prosper. And at a time like this, when we need to rebuild our economy for the future and rebuild public trust that an open and dynamic economy can work for working people, I do believe that partnership and a long-term consensus on what needs to be done is needed more than ever. WHY CONSENSUS MATTERS I know it is not fashionable to talk in Britain about the importance of consensus. And let us not be naïve - consensus is not always a good thing, as we learned to our cost when Britain joined the ERM. But I know how much business needs stability and predictability – that it is the clear view of business that, where possible, we politicians should seek to build a consensus in the national interest. I know you will be expecting me to highlight my differences today with Coalition politicians. And I will. But there is much we can agree on too. So I want to set out where, on each of the three big economic questions of our time – banking and regulatory reform; deficit reduction; and the long-term prospects for jobs and growth in the UK – the Chancellor George Osborne and I agree on the strategic goals - even if we disagree on how to get there. BANKING REFORM First, on banking reform, where there is clearly now a cross-party consensus on the need for tougher banking standards, we and the Parliamentary Banking Commission are urging the government to go further to entrench cultural change, with a backstop power to break up banks if we do not see the change we need. But we all agree that – as in all areas of regulation – we must take a careful and balanced approach. Too soft: and we risk again leaving taxpayers and businesses exposed. Too heavy-handed: and we risk throwing the baby out with the bath water and ignoring the needs of businesses small and large. In my view, government should always remember the US response to the World Com and Enron accounting scandals a decade ago. The US Congress reacted with a heavy-handed piece of rules-based legislation – Sarbanes-Oxley. But it didn’t work. It did not stop the subsequent financial crisis - which after all started in the US. And its complexity drove jobs and tax revenues out of the US year by year. This audience doesn’t need telling that rigid rules-based regulation is often not the answer, and that small and medium-sized businesses, desperate for much needed risk capital and fair terms, are likely to be the losers if regulation is too inflexible, and heavy-handed. We need to diversity and rebalance our economy. But a sensible and balanced approach must mean valuing our creative and service industries as well as manufacturing and construction. And that must include financial services too, which are vital to Britain’s economic future, and upon which thousands of jobs depend on – not just here in London, but across the country in Leeds, Edinburgh, Birmingham and Bristol too. DEFICIT REDUCTION The second thing that George Osborne and I agree on is that Britain needs a credible plan for deficit reduction. Of course, the contentious issue of the past three years has been the pace of that deficit reduction and its impact on growth. The Chancellor set out to get the deficit down faster than the plan he inherited. But having choked off the recovery, he is in fact now reducing it at a much slower pace than he or we planned. What matters now is where we go from here. And we can all agree that the return to growth over the last few months is welcome - if long overdue. But with the deficit and debt now set to be much higher over the rest of this decade than anyone envisaged back in 2010, there will be no complacency from me and the next Labour government on deficit reduction and spending control. That is why I was very clear with my party in Brighton in September: that the next Labour government will have to be very different from our predecessors; that we will be cutting spending in 2015-16 and not raising it, with no more borrowing to cover day-to-day spending; that we will have tough fiscal rules to balance the current budget and get the national debt falling; and that we want every tax and spending commitment in our manifesto to be independently audited by the Office for Budget Responsibility. We will have to make tough and difficult choices. So we will have a cap on structural social security spending and go ahead with increases in the retirement age. And I have told my party that we cannot continue to pay the winter fuel allowance to the richest pensioners. And because we must make tough choices about priorities when resources are tight, we have set out difficult choices on tax too. After the financial crisis, I believe it is right to repeat Alistair Darling’s tax on bank bonuses to fund a youth jobs programme and raise the bank levy to help make work pay by expanding free childcare for working parents. And while we have supported - and indeed began - successive cuts in the main rate of corporation tax to make our tax system more competitive, down from 33 per cent in 1997 to 28 per cent by 2010 and 23 per cent today, we do not think we can justify another tax cut for large businesses in 2015, when so many small and medium sized business are under such pressure. That is why we have said the next Labour government will instead cut and then freeze business rates for 1.5 million business properties, a tough choice we need to make to help more businesses when resources are tight. SECURING A LASTING RECOVERY Let me turn to the third area where, after the experience of the last three years, the Chancellor and I now agree: that we can’t get the deficit down and secure our economic future without economic growth. And this is now set to be the central challenge for economic policy in the coming months: how do we secure a strong balanced recovery which is built to last; which supports long -term investment; and which can deliver rising living standards for all and not just a few. ‘Built to last’ means a recovery based on long-term investment, exports, innovation and productivity growth. That is why we share your concerns about the Chancellor’s current reliance on boosting housing demand through taxpayer-guaranteed mortgages to secure recovery through the Help to Buy scheme, while failing to take action to boost housing supply. The danger is that by boosting demand while failing to build more homes, the Chancellor will deliver an unbalanced recovery and make home ownership even further out of reach for the aspiring first time buyers his scheme should be helping. That is why we continue to agree with the IMF in urging the government to bring forward £10 billion of infrastructure investment this year and next year, which could be used to build 400,000 affordable homes. And it is why we have urged the Chancellor not to wait for a year to ask the Bank of England to review the details of Help to Buy, but instead to do so right now. How can it make sense, for example, for a scheme that should be about helping first time buyers to offer taxpayer-backed mortgages on homes worth up to £600,000? INDUSTRIAL POLICY But what will deliver the strong and balanced recovery we need is long-term business investment. Because in the 21st century, we know that the companies and countries that will succeed will be those who invest in skills and innovation and can exploit the huge opportunities that the new global digital network and the era of big data are bringing – in high-value manufacturing, digital media, clean energy, education and medical technology. And the question is whether we will seize this opportunity or squander it? You know in your own businesses you have no future trying to undercut emerging market economies like India, China and Brazil on cost and wages. And we cannot succeed as a country and win the global race through a ‘race to the bottom’ on wages and standards. That way is doomed to fail. And because Chuka Umunna and I are determined to learn from successful British businesses, we have asked Mike Wright, Executive Director at Jaguar Land Rover, to lead a review for us on how we can help strengthen our manufacturing supply-chains and deliver the skills and innovation Britain needs to succeed, small and large businesses working together to invest and export. Some of you will say government should just get out of way. And let me say, if government action is undermining confidence and investment then that is what government should do. But on innovation, skills, planning, infrastructure - for government to walk away would be for government to abandon the long-term partnership we need to succeed. As Labour’s last Business Secretary, Lord Mandelson concluded: “ministers and markets can and should mix - selectively and strategically.” So to drive innovation the next Labour government would continue to support the technology strategy board and its catapult centres - successful initiatives we started. And we will make Local Enterprise Partnerships fit for purpose. To promote long-term investment, we are studying former IoD Director-General Sir George Cox’s proposals to reform takeover rules and our tax system. And we should use revenues from the planned increase in the licence fees for the mobile phone spectrum, expected to be over £1billion in the next parliament, to capitalise the British Investment Bank so that, region by region, we can get small and growing businesses the finance they need to grow and create jobs. And following the path-breaking report by the Chair of the Olympic Delivery Authority, Sir John Armitt, we will set up an independent infrastructure commission to end dither and delay in infrastructure planning and build the consensus on infrastructure that we need to invest for the long-term. Of course, the test for any such reform is how it would affect big decisions currently on the table. So let me address two. First, on airports, we welcome the Howard Davies review and it is Labour’s view that it should report before the General Election and not after. Under the Armitt plan, it would not have been possible to set up the Davies review without proper cross-party consultation, or kick the report into the next parliament. And if any future government then were to sit on the recommendations, the Armitt plan would give a clear remit to the independent commission to chivvy and chase. Second, on High Speed 2, the whole purpose of the Armitt plan is to ensure that in future the case for and the costs of any large project is properly and thoroughly and independently investigated. Labour supports HS2 and the idea of a new North-South rail link because of capacity constraints on the existing rail network. But our support for it is not at any cost. The Labour Party cannot – and will not - give the government a blank cheque. That is what you would expect from any credible official opposition seeing a Government desperately mismanaging a project. And that is what is happening here with the costs having shot up to £50 billion. Indeed, the costs have gone up by a staggering £10 billion in the last year, so I of course welcome the Prime Minister's belated recognition that he needs to get a grip. As you at the CBI have said recently: “The increased costs of HS2 are a matter of concern. For HS2 to go ahead it has to wash its face. The value for money test has to be properly applied.” We agree – and we will put the national interest and the taxpayer interest first. We will take a hard-headed look at the costs and benefits of the scheme to ensure this is the best way to spend £50 billion for the future of our country. As Chancellor, I would be a strong advocate for infrastructure investment. And I believe the government should be acting now to bring forward that long-term investment, as the IMF has also argued. But the Chancellor should never simply become a cheerleader for any particular project. Building a consensus about long-term infrastructure does not mean turning a blind eye to value for money. ENERGY Let me turn to another area where we badly need a long-term consensus to secure long-term investment - and that is energy. In your report, the Colour of Growth, the CBI made a powerful case for long-term certainty to drive investment and innovation and new technology. You called for a 2030 decarbonisation target and we agree. But fully consistent with the need for long-term stability in vision, price and regulation, we also need an energy market that works in a transparent and fair way for household and business customers alike. And it patently isn't at the moment. That is why we have said that we will introduce a new, tougher and more transparent regulatory regime for what remains a highly concentrated utility industry. And while these long-term reforms to increase competition are being introduced, we believe it is right and fair to give households and businesses some respite with a 20 month price freeze just as we introduced a one-off windfall tax to give the taxpayer redress after the post-privatisation excesses in the 1990s. This isn’t just to benefit households – it is deliberately to also benefit businesses large and small across the UK Markets promote growth and innovation and reward entrepreneurship - and when they are competitive they should set prices, not Government or anyone else. But being pro-market and pro-competition also means acting when markets fail and competition does not operate otherwise we risk public support. That is why I believe the CBI has been right to back tough bank regulation. It is why the CBI has rightly urged long-termism and transparency on executive pay-setting. It is why the CBI was right to urge your members to sign up to your code of good tax practice. Our task is to show that a dynamic and open market economy can work to raise living standards for all. But when it doesn't because competition or regulation or tax law fails, then business and government must work together to solve the problem and win back public trust. USING THE TALENTS OF ALL And that is why the CBI has been right to urge reform in the area where we can together do most to ensure that all citizens share in rising prosperity - by getting all people the education and skills they need to succeed. Just a few weeks ago my colleague, the Shadow Business Secretary, Chuka Umunna, published the first report of the Husbands skills taskforce. You have told us that qualifications need to fit the realities of the modern economy. So the Husbands review has set out a way Government can give you, as employers sector by sector, far more control over the £1.5 billion currently spent on workplace skills and apprenticeship by Government. We will ask you to tackle free-riding and deliver an increase in the high end apprenticeships in these sectors and supply chains, including in all companies seeking to bring in more skilled migrants. You will decide what qualifications work best for you and your employees and who delivers the training. Just a few weeks ago I met the Chief Executives of a number of big IT companies at E-Skills. They were singing the praises of the IT Diploma, which they designed. I remember the head of Vodafone telling me he knew this qualification would work when the head of a school’s computer science department complained he could only teach it in partnership with the business department. “Exactly” cried the Vodafone executive, “teach them how to use IT to solve problems. That's what we want.” But the IT Diploma has been scrapped with no adequate replacement. And vocational learning has been downgraded in the school curriculum and derided as ‘soft’ by the Education Secretary. That is no way to use the talents of all and to raise aspirations. Let me end with that enterprise competition that Digby and I launched. The winners were a group of 14 year olds from a local school. They designed a website to sell Wakefield as the rhubarb capital of Britain with a tourist tour and promotions. It was fabulous. They partnered with a local business, found out that the things they enjoyed doing on computers in the evenings were things people got paid for doing, and came down to the House of Commons to get their prize. Their teacher told me afterwards what a brilliant assembly they did telling the whole school about how they had won. And she said to me: what you have to understand is these three lads had never been to London before, this competition and enterprise education has transformed their view of themselves and what they can achieve. So I say let us give that same chance to every young person: modern, rigorous qualifications, enterprise education and a determination to raise aspiration. That is how we use the talents of all. Let us work together and build a long-term consensus to secure the skills, and the long-term investment and reform we need to deliver rising prosperity for all. I do believe the future of our country depends upon it. 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