Full transcript | Ed Balls | Speech to British Chambers of Commerce | London | 15 March 2012
"Peter Mandelson was right when he said 'ministers and markets can and should mix'."
John, thank you for inviting me here today to Westminster Central Hall to address your annual conference this afternoon.
And Iet me start by sympathising with you all - as I am now the third politician you have heard from today - and with two more to come, I am sure you are all flagging a little.
But I know, from my own direct experience, the passion of your members and their commitment to their businesses and their communities.
Over the last decade and more I have had the opportunity to work closely with the BCC and my local chambers in Wakefield and Leeds on many important issues from regional funding and apprenticeships through to enterprise education in schools.
In fact, I was speaking only last Friday night in Wigan at a local gala dinner organised with the excellent local Chamber.
And we talked about many issues which I am sure have come up today already.
From the local - delays in planning decisions, problems at the Valuation Office in assessing business rate valuation appeals when business rates are rising by over 5%, worries that the LEPs don't have the resources and powers to do the job; through to national and global issues - rising youth unemployment, the Eurozone and why the Brazilian economy is now bigger than the UK.
And what that dinner again drove home to me is this: while the CBI, FSB and IoD also play a very important role on the national and regional stage, if you want to know the views of local small and medium sized businesses up and down the country then it is local Chambers of Commerce that you turn.
John - you truly represent the authentic voice of UK business and it is good to be here today.
And let me say on behalf of Ed Miliband, the Labour Party under his leadership will always be a good but honest friend to business - challenging when we must be - but determined to work with you to build an economy for the future that works not just for financial institutions, but for businesses large and small and the people who work for them - in an economy that is both dynamic and fair to all who work hard and play their part.
But let us be honest - these have been a difficult few months for business in Britain.
I refer, of course, to the way that the depressed consumer and business confidence here in Britain has had a direct effect on to your profits and performance alongside the Euro zone crisis.
But also the way in which issues of bonuses and executive pay have hit the headlines.
And I know how frustrating politics can be when it looks as though politicians are continually moving the goal posts.
I don't think anyone can be in any doubt that after the financial crisis, reform is needed in financial regulation and corporate governance more widely.
But I know too that the most important things businesses need are stability and predictability - government decisions made and then stuck to so that you can plan ahead:
That it is the clear view of business that, where possible, we politicians should seek consensus where we can in the national interest;
I want to come back in a moment to where I believe we can all agree on the big strategic objectives facing our country.
But I have to say I have been dismayed over the past year by the way in which government policy and its attitude towards business has at times seemed driven more by newspaper headlines, and change for change's sake, than what makes for good business policy.
What signal did the Government send to international investors in renewable energy when it abruptly, arbitrarily and without consultation slashed the support for feed-in tariffs and undermined the solar industry at stroke?
What signal did it send to the Chinese investors in the new Longbridge MG line that the very organisation which brokered the deal - the RDA Advantage West Midlands - has now been abolished?
What signal was sent to multinational companies about the abrupt change in North Sea oil taxation in last year's Budget?
Or to globally mobile construction companies with the out-of-the blue and immediate cancellation of Building Schools for the Future, cancelling nearly 800 schools where millions of pounds of private sector investment had already been made and contracts drawn up and negotiated?
And the way business decisions are announced matters too.
Whatever the case for minimum alcohol pricing - and we will study the evidence carefully - is it really sensible for the Prime Minister to announce his intention to proceed the day after Boxing Day without any proper consultation with the beer, cider or pub industries, which will be heavily affected by policy in this area?
And what signal did it send that the Prime Minister - having rejected our calls for greater transparency in City bonuses and a repeat of the bank bonus tax to fund a youth jobs programme - ended up telephoning individual chief executives from Brussels to order them to give up their bonuses?
And whatever you think of the culpability or otherwise of Fred Goodwin - and I don't think there are many who would defend his behaviour over his pension payments after he resigned, or some of his decisions which took RBS to the brink -what signal did it send to businesses round the world that the decision to remove his knighthood was first announced by the Prime Minister to the Daily Mail, with the decision of the supposedly independent committee then announced just in time for the 6 o'clock news?
The right decision - but handled, in my view, in a dreadful manner.
For a country like Britain, the signals we send around the world about Britain as a place to do business really do matter.
And starting with next week's Budget, this Government needs to do a better job of it.
I know you will be expecting me to highlight my differences today with Coalition politicians. And I will.
But, in the spirit of consensus, I also want to set out where, on each of the three big questions of our time..
- deficit reduction;
- the long-term prospects for jobs and growth in the UK
- banking and regulatory reform
.. the Chancellor George Osborne and I agree on the strategic goals even if we disagree on how to get there.
The first thing that George Osborne and I agree on is that, after the global financial crisis, we do need a credible plan for deficit reduction.
For a country like the UK, open to trade and commerce, dependent on the support of international investors, a credible deficit reduction plan is now vital - just as a credible independent monetary policy was one of the most important reforms I was involved in delivering in the last Labour government, alongside keeping Britain out of the Euro.
But we need a plan which will work, and which pulls all the levers required to deliver deficit reduction.
Of course, we need spending cuts and tax rises as part of that package.
But we also need jobs and growth to get the deficit down.
In office, our plan was based on restoring strong, sustainable growth, getting people back into work, and then beginning the difficult task of cutting spending and raising taxes where necessary.
But nearly two years ago, when the Coalition was formed, they took a radically different path.
First, they decided that the speed of deficit reduction had to be substantially increased.
Second, the emphasis of their plan took a sharp turn from increasing jobs and growth to immediate and steep spending cuts and the VAT rise.
But since the Chancellor's spending review we have grown by just 0.2%, while America has now more than recovered all the output lost in the global recession.
Our recovery was choked off in the autumn of 2010, well before the recent euro zone crisis.
Unemployment continues to rise and over the last year the number of jobs created in the private sector has been outweighed by the huge loss of jobs in the public sector.
And the result is that the Government is having to borrow £158 billion more than they planned, to pay for the cost of this economic failure.
If the economy isn't growing and so fewer people are in work paying taxes - and more people claim benefits instead - it makes it harder to get the deficit down, and harder to maintain confidence - of businesses and the markets too.
Don't forget it was the impact of slow growth on deficit reduction here in the UK which prompted the Moody's credit rating agency to put the UK on 'negative outlook' last month, followed yesterday by Fitch. As another agency, Standard and Poor's said this year, 'austerity alone risks becoming self-defeating'.
Many of you will remember the 1980s. Of course, action was needed then to get inflation down from its 13 per cent peak. But who now doubts that the depth of the resulting recession did permanent damage?
Manufacturing jobs and companies lost - never to return. Small businesses bankrupted - losing skills, ideas and potential. Infrastructure plans first postponed, eventually dropped and never resurrected. Adults and young people out of work for years, leaving a permanent scarring effect on their skills, their health, and their ability ever to work again.
That is why, alongside tough decisions on tax, spending and pay, I believe we do need urgent action in next week's Budget to kick-start the recovery.
A Budget for jobs and growth including a temporary cut in VAT and genuinely bringing forward infrastructure investment to strengthen our economy for the long term.
And let's use the almost £1 billion of unspent money in the Treasury's failed national insurance holiday for new firms and extend it to give a tax break to all small firms taking on extra workers.
Because without action now to support growth and jobs, I fear we are in for a lost decade of slow growth and high unemployment which will leave a permanent dent in our nation's prosperity.
But reducing the deficit is not by itself a guarantor of economic success.
So the second thing George Osborne and I agree on is that a credible deficit reduction plan is a necessary condition but it is not by itself a credible plan for jobs and growth.
The question is what form that plan for growth and jobs should take.
And whether it is backtracking on planning for large- scale infrastructure projects, the abolition of the RDAs or the scrapping of skills programmes, I fear that the current Treasury view that the only thing government needs to do for business is just to get out of the way risks undermining your efforts, not backing them.
As the Business Secretary himself wrote a few weeks ago in his famous leaked letter, the Government lacks "a compelling vision of where the country is heading beyond sorting out the fiscal mess"
He is right - and - on transport, planning, skills, strategic industrial support - government has a vital role to play and cannot just walk away.
With China currently producing more graduates a year than the whole population of Scotland; and adults in Brazil already twice as likely to be running their own business as Britons - I believe here in Britain we do need a long-term plan for growth to support and back your leadership and innovation and risk-taking.
That is why Ed Miliband, Chuka and I are clear that a modern industrial and business policy needs:
- government action to back business and ensure markets work for the long-term, including tougher competition rules, tax incentives for long-term investment, research and development and skills;
- stronger corporate governance and transparency in executive pay to make sure decisions are taken in the long-term interests of wealth creation and jobs;
- and tougher financial regulation and banking reform to make sure that the needs of small businesses are addressed, including examining the case for a British Investment Bank.
Which takes me to the third thing that George Osborne and I agree on - - the need for banking reform.
The global financial crisis started with the reckless lending practices of American financial institutions, but it exposed risky behaviour by banks and inadequate regulation in every major country of the world, including in Britain.
This must never happen again.
And while it was the irresponsible actions of banks which caused the crisis, it was also the fault of governments and central banks - including Britain's - who did not see the financial crisis coming and should have been tougher in regulating the banks.
Every government in the world got that wrong. We did here in Britain. And while it is not good enough simply to be wise after the event, life is also about admitting when you get things wrong and learning from your mistakes and that is what we must all do.
For the longer-term, I do believe that the report from the Vickers Commission on banking reforms is the right way forward - though the devil will be in the implementation detail.
But I know too from my own constituents the huge frustrations that many small and medium sized businesses currently feel about the ways the banks are now behaving.
Since the widely criticised Project Merlin deal between the Government and the banks, net lending to businesses has fallen by £10 billion over the last year.
And despite all the promises that credit easing would be a short term solution to this problem, in the six months since it was announced not a single businesses has yet been helped, indeed the details of the National Loan Guarantee scheme have yet to be announced.
Vickers is right to argue that to protect customers and taxpayers we need much tougher accountability and transparency and clear, workable and robust firewalls - as well as stronger competition, especially in business lending, where the Government is taking much too long to make progress.
But on 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.
The easiest way to avoid any financial risks at all would be to have no transactions at all. But a lurch to regulatory risk aversion would be disastrous for the UK economy.
That is why in Parliament we are arguing that the proposed permanent Financial Policy Committee of the Bank of England should have a clear objective, alongside financial stability and consumer protection, to promote economic growth - a proposal which has been supported by many business organisations.
In my view, we need to have in our minds the US response to the WorldCom 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 financial crisis which 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 heavy-handed.
Let me be clear - I know many of your members worry about the burden of regulation.
It is always important to keep Government under pressure on that issue as on spending too where wasteful public investment can never be justified.
As my colleague the Shadow Business Secretary Chuka Umunna said in his speech earlier this week, a good industrial policy:
"is as much about knowing when not to intervene, to let business and competition thrive in healthy markets, as it is about knowing when to intervene to address market failure where needed. Active, intelligent government understands its limits."
But that does not mean the only thing government needs to do is cut regulation and spending and then leave business alone to get on with it.
I am not going to claim to you that Labour got everything right in government - let alone that you all agreed with what we did.
But many of our most successful economic policies:
- record investment in rail and roads,
- an expansion of higher education and science,
- a renaissance in apprenticeships,
- CGT for entrepreneurs cut to 10%
- faster business planning decisions,
- the car scrappage scheme,
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 rise to the competitive challenge.
Peter Mandelson was right when he said:
"ministers and markets can and should mix."
And at a time like this, when we need to rebuild our economy for the future, that partnership is needed more than ever.
I said at the beginning of my speech it is the clear view of business that you need stability and predictability and, where possible, we politicians should seek consensus where we can in the national interest.
In all sectors, but especially in manufacturing, aviation or energy, that is the only way to ensure businesses can invest.
Consensus is not always a good thing. But nor is headline-grabbing change for the sake of it.
That is why - issue by issue - whether we agree or disagree - I am committed to working with you and listening to you on all issues which affect your businesses and our economic future.
It is the only way forward for Britain.