Launch of the OECD Economic Survey of the UK: Speech by the Chancellor of the Exchequer Rt Hon George Osborne MP.
Good afternoon everyone and welcome to the Treasury.
It is a great pleasure for me to share this platform with Angel Gurria, the Secretary-General of the Organisation for Economic Cooperation and Development.
Angel is in London to mark the 50th Anniversary of the creation of the OECD.
Born from the body that administered the Marshall Plan, the OECD was founded in 1961 to promote economic progress and world trade across all those countries committed to democratic government and a market-based economy.
Today the OECD has established itself as the preeminent international organisation for economic and social policy analysis, doing important work in a range of areas from tax avoidance to economic governance.
But this year of celebrations is not only about the past but also about the future.
During his five years as Secretary-General Angel has not only reinforced the OECD’s reputation as a global centre for economic research.
He has expanded the membership of the OECD and also strengthened links with the major developing economies of China, India, Brazil, Indonesia and South Africa.
And he has cemented the OECD’s position within the G8 and the G20, where they are now active participants in the global policy debate.
Angel is also in London today to launch the 2011 Economic Survey of the United Kingdom.
Every two years the OECD conducts in-depth analysis of the main economic challenges and policy options facing individual member countries.
Their verdict is influential in policy and political circles around the world.
So I am very pleased that the OECD decided to hold this press conference and launch its report from within the Treasury building - indeed I believe it is the first time this has happened.
Mr Gurria will speak after me and give you a full run-through of the contents of his report.
I would just like to make some very brief remarks before that.
In exactly a week’s time, I will deliver the Budget.
The Budget will echo what I see as the central message of this OECD report: this Government has set the right course for the British economy, but we have so much more to do.
Last year’s Emergency Budget was a rescue mission, bringing us back from the brink of fiscal disaster, and we will stick to the course we set out.
The mission of this year’s Budget will be to move from rescue to reform.
Because if we want Britain to succeed in the new global economy, if we want to create the high quality jobs of the future, then we need to overcome some of the deep rooted and long standing weaknesses of our economy that are spelt out in this independent report.
For too long governments have shied away from the difficult choices and trade-offs that are required.
We will confront these choices head-on.
We have already made a strong start, with reform of education, welfare and energy; new investment in science; and setting out a clear path towards a more competitive tax system.
Next week’s Budget will mark the next phase of our plan for growth.
The foundation of that plan must be fiscal responsibility.
I strongly welcome the OECD’s support for the principle at the heart of this Government’s economic policy: that a credible plan to deal with our record budget deficit is an absolute pre-condition for sustainable economic growth.
As today’s report says, our deficit reduction plan has “significantly reduced fiscal risks, contributing to lower bond yield spreads and diminished uncertainty”.
On the question of the scale and pace of deficit reduction, the OECD is clear: “the announcement and initial implementation of the consolidation programme strikes the right balance between addressing fiscal sustainability … and preserving short-term growth”.
The OECD’s support for the course we have set out comes on top of support from the IMF, the G20, the European Union, and at home all the major business organisations.
So fiscal responsibility is a pre-condition for growth, but it is not enough on its own.
We need a new more sustainable model of economic growth.
As I’ve said we need to be realistic about where we are coming from and optimistic about our future.
We share with the OECD an understanding of what went wrong in the British economy over the last decade.
Britain became in many ways the most indebted and unbalanced major economy in the world.
It is worth reminding ourselves of what the OECD said in its last report on the UK back in 2009:
“Despite the long period of economic expansion, developments in recent years were less robust than in earlier years, suggesting that this good performance might not have been sustainable. The composition of growth changed: export performance weakened while public expenditure expanded rapidly. From 2000 to 2005, public sector employment rose by around 12% compared with just 3% for private sector employment. The current account deficit widened further and reached over 3% of GDP in 2006.”
In short, the debt-fuelled model of growth pursued in Britain over the last decade is fundamentally broken.
We need to build a new model which is more balanced and sustainable.
That new model of growth is already starting to be created.
As today’s report says, “the UK economy is gradually emerging from the recession and has started to rebalance away from overreliance on debt-finance and government spending towards more investment and exports.”
Exports to the rest of the world are growing strongly and our manufacturing sector is expanding at the fastest rate in 16 years.
Today’s labour market statistics confirm, as was forecast, a disappointing rise in unemployment on the ILO measure.
But they also provide more positive evidence of rebalancing.
430,000 new private sector jobs have been created in the last year.
More than 70,000 private sector jobs created over the last three months of 2010 alone, exceeding the 45,000 jobs lost in the public sector over the period.
At the same time the claimant count has fallen and employment is up.
But to sustain the transformation to this new model of sustainable economic growth we will need to address the deep rooted problems identified by the OECD.
We have to begin with education at every level - crucial to our country’s future success.
Today’s report is supportive of our new pupil premium, which will focus resources on the children who need it most.
But the report also says that even more needs to be done to improve educational outcomes, for example further incentivising schools to take on the most disadvantaged children.
On further and higher education, the OECD supports our investment in vocational training and the increase in the ceiling for tuition fees.
But it also calls for the system of vocational education to be improved and supports better access to universities for students from disadvantaged backgrounds.
On the housing market, the OECD survey identifies the planning system as a major obstacle to the construction of new homes and a more stable housing market.
They support our abolition of the top-down system that has failed.
But they also point out that we should do more to make sure housing supply keeps up with demand, for example by making the land-use system more flexible and providing ever better incentives for local communities to allow development.
I very much agree.
On climate change, the survey praises our ambitious domestic targets for cutting greenhouse-gas emissions and our policies to meet these targets.
But it also calls for the Government to reduce the uncertainty about future carbon prices and provide better incentives for low-carbon research.
Again, I agree on that.
And it is no secret that on tax competitiveness, economic governance, financial regulation, and many other areas, the OECD is also broadly supportive of our reform programme.
On all these issues, the OECD points the way on what should be done.
Governments in the past have chosen to ignore their advice.
We will take action - starting in next week’s Budget.
When we move from rescue to reform.
Indeed, we will be as determined in our pursuit of economic reform as we have been in our pursuit of economic stability.
But the Budget is next week - today is Angel’s day, so let me hand over to him now.