Check against delivery
I am grateful to be here with a group of businesses who are at the forefront of the UK’s drive to build a new economy.
I will be saying more about the specific issue of carbon capture and storage, and our plans for a green economy, in a moment.
First I want to make some remarks about the Government’s approach to economic growth - and about the kind of economy we want to grow. This is of course a topical question in light of last week’s disappointing figures for GDP growth.
We are under no illusions in the Government about the difficult economic circumstances that we inherited from Labour. The Chancellor and the Governor of the Bank of England have said that recovery from the recession is likely to be ‘choppy’ for some time. The Prime Minister and I have both said that the nation faces a long, hard road back to prosperity.
It is perhaps worth saying that there are also some strongly positive signals in the economy. During the course of this week, we have seen the publication of three sets of important economic indicators on manufacturing, construction and services - all moving in a positive direction. Things are difficult, but it is not all bad news.
But let me also assure you that we are determined on our course of action to tackle the deficit. The outgoing Labour Chief Secretary to the Treasury said in his now famous parting note that ‘there was no money left’. Of course it was much worse than that. They left us well and truly in the red. This year we’ll be spending over £43bn just on the interest on our debts.
That’s £830m per week. Just under £119m a day. For that money, we could build a new primary school every hour. We could buy a new Chinook helicopter every day. We could take 11 million people out of paying income tax. We could triple the number of doctors in our hospitals.
But the broader point I want to stress today is that the deficit and debt […] are simply the most obvious symptoms of a much deeper economic malaise. When the financial crisis struck, the economy was fragile, founded on personal and state debt rather than investment; lopsided in favour of financial services and the South East; and overly-reliant on carbon consumption rather than green growth.
So the Coalition Government is determined to eliminate the deficit. But let me be clear: paying off the deficit is a means to an end, not an end in itself. We are determined to foster a new model of economic growth, and a new economy - one built on enterprise and investment, not unsustainable debt. We seek nothing less than a new model of sustainable growth.
Paying off the deficit is a vital part of our plan for growth. Necessary for restoring confidence in Britain; necessary for keeping down the cost of borrowing for families and business; necessary to avoid paying extra interest to the bond markets. Necessary - but not sufficient. If the Coalition Government simply pays off the deficit, but leaves the underlying economy unchanged, we will have failed.
[…] We are in Government to lay the foundations for a better, stronger economy. People want their politicians to be leaders, not accountants.
It is important to be crystal clear about the problems we are addressing. Most people know that we inherited a crippling deficit. But perhaps it is not yet clear enough that we also inherited a failed economic model. The model of economic growth based on debt and on financial services is broken for good. So the Coalition is undertaking two very difficult tasks at the same time - dealing with the deficit and building a new model of economic growth.
Let me say too that as a Government, we are determined to get this right. It is very tempting in a time of economic difficulty for governments to churn out initiative after initiative, in a desperate attempt to stimulate the economy or - all too often - to try and give the appearance of doing so. And politicians can fall prey to the myth that somewhere there is a lever they can pull to generate growth, and that they should simply pull as many as possible in the hope of finding it.
The last Government introduced, in the name of economic growth, over 3,000 publicly-funded schemes aimed at business support and an almost monthly diet of tax breaks and so-called ‘business solutions’.
And the result of all this activity and spending? In the first decade of this century growth was the slowest since any decade since the 1960s. Over the past decade, business investment has grown by just one per cent a year, a quarter of what it was in the 1990s.
Of course I am not claiming that all of the previous Government’s schemes were ineffective. Many were valued and valuable. My point is that we have to do a very much better job of targeting public money in a way that has a genuine impact on economic growth.
That is why the Government is currently conducting a growth review, consulting with businesses and economists to ensure that our approach is grounded, evidence-based and properly thought-through. Some have expressed concern that we haven’t published it yet, and that we are waiting for the Budget. I do not think we should apologise for treating this issue with the utmost seriousness.
We need to be clear about the fundamental factors that drive economy growth; clear about the areas in which government can effectively play a role; and clear about the interventions than make the most difference.
We need, in short, a grown-up approach to growth, based on hard-headed analysis - in place of the ‘pick and mix’ approach that has characterised too much recent government activity, grabbing at instant initiatives rather than taking the big decisions that really count.
There are four important steps we need to take to build a new economy:
- Weaning ourselves off debt-financed growth, and onto investment-led prosperity;
- Investing in the ‘hard’ infrastructure that underpins growth, such as transport;
- Cultivating the ‘soft’ infrastructure made up of knowledge, skills and education that businesses need; and
- Balancing regions and sectors, instead of putting all our economic eggs in one basket.
We have learned the hard way that an economy built on debt is built on sand. Right now we are going through the sometimes painful process of unwinding a toxic legacy of personal, business and public debt.
We should not fall into the trap of seeing deficit reduction and economic growth as separable. Our deficit reduction plan is a vital element in our growth plan. By keeping the UK out of the danger zone, and holding down the cost of borrowing, our approach is creating a stable macroeconomic platform for growth.
As the Secretary-General of the OECD said of the UK last week: “dealing with the deficit is the best way to prepare the ground for growth in the future. In fact if you don’t deal with the deficit, you can be assured that there will not be growth, because confidence will not recover”. I agree. And just this week the Institute for Fiscal Studies endorsed the Government’s overall deficit reduction approach.
There is a moral dimension to this question too. I have never understood those who say it’s more ‘progressive’ to delay tackling the deficit, so that we shuffle off responsibility for our debts to the next generation to deal with. This strikes me as little short of intergenerational theft. It is the equivalent of loading up our credit card with debt and then expecting our kids to pay it off.
The need to shift from debt-fuelled growth to investment-led growth also frames our approach to banking reform. We will shortly be announcing the outcome of our discussions with the banking sector. But I can say now that we are determined to ensure greater investment in British business; a greater contribution to the Exchequer; and more transparency in top pay in the banking sector.
The Government is also committed to the creation of a Green Investment Bank, with funds of at least £1 billion, to enhance the necessary investment in low-carbon growth, in a sound economy built to last. We’ll be able to say more about this vital new institution in the coming weeks too.
The second element in our drive to build a new economy is to focus on the hard infrastructure that underpins growth. It is clear from the economic evidence that the key function of government, beyond creating the right macroeconomic environment, is to support investment in the infrastructure that makes economic activity possible.
That is why the Coalition Government took the decision to maintain the capital investment plans of the previous administration, despite our tough deficit reduction plans.
That is why this government has pressed ahead with plans for High Speed Rail 2, and with investments in Crossrail.
That is why we are planning to provide the best superfast broadband network in Europe by 2015, with the Government providing £530m of investment over the Spending Review period to support private sector investment - including in some of the most remote areas of the UK
And that is why, in our National Infrastructure Plan - the first to be produced by a UK government - we have established an expert review into improving the flow of private investment into some of our key infrastructure sectors. The review is ongoing, as part of the Government’s wider growth review, and is drawing on the advice of three well-respected experts in the area: Dieter Helm, from the University of Oxford; Mike Toms, of Oxera; and Tim Stone, chairman and founder of KPMG’s Global Infrastructure and Projects Group.
We also know that the nation’s knowledge base, and the skills of our workers, is a vital component of growth. The importance of investing in this ‘soft infrastructure’ - the third key step towards a new model of economic growth growth - explains a number of decisions taken by the Coalition:
Ensuring that the UK remains a world leader in science and research by maintaining a science budget of £4.6bn over the Spending Review period.
Protecting education spending, and increasing investment in apprenticeships, as well as reviewing the vocational curriculum in the critical years between 16 and 19
Investing in technology hubs to link up the best universities and manufacturers. We have announced an investment of more than £200m over the next four years in a network of technology and innovation centres, modelled on the German “Fraunhofer Institutes”.
Fourth, the new economy will also need to be radically rebalanced. For too long, we have allowed the economy to be dependent on certain regions and certain sectors. A sound economy is built on diverse, strong regions and diverse, strong sectors. I am delighted that even as the economy struggles out of recession, that the recent data on manufacturing is so strong.
As the Chancellor has said recently, we need an economy where we sell our goods and services to China and the rest of Asia, instead of borrowing from them in order to buy the things they make for us.
But we also need to ensure that economic growth is not lopsided in terms of geography. The regional inequalities running like scars across our country are not only socially damaging, they are economically destabilising. The old economy was regionally unbalanced: in the decade up to 2008, for every private sector job created in the Midlands and the North, ten were created in London and the South. So:
We have created a £1.4 billion Regional Growth Fund, specifically tasked with stimulating sustainable private sector growth, particularly in those regions most dependent on the public sector;
We are working with the Devolved Administrations to promote growth across the UK and, where appropriate, transfer power of economic issues, such as within the Scotland Bill;
We are establishing local enterprise partnerships that will bring together local business and civic leaders to take forward economic policy in their area; and
We are giving localities and communities greater freedoms to deliver what they want and conducting a Local Government Resource Review to examine how we can incentivise local growth
These, then, are the four big steps we need to make towards a new economy - moving from debt to investment; building our hard infrastructure; cultivating skills and knowledge; and ensuring regional and sectoral balance.
I would now like to say something specific about Carbon Capture and Storage.
CCS will play an enormously important part in the new, rebalanced economy. It is an industry of the future; taking the best of British talents in manufacturing, engineering and research; using our natural resources; and spreading growth - green, sustainable growth - across all corners of the UK.
As Rachel explained earlier, the Coalition Government has committed to four commercial-scale projects. In the Spending Review we allocated £1bn in capital expenditure to the first demonstration project - the largest such commitment to a single project anywhere in the world - despite the immense strain on the public purse.
Because the Coalition Government understands that if we invest in CCS now, if we get this right, we can create export opportunities of up to £6.5bn a year by 2030. We could create and sustain up to 100,000 new, high skilled jobs. And, at the same time, we can massively cut our carbon emissions. And, make no mistake, this isn’t simply well-meaning environmentalism. This is hard-headed economics. We know that, without CCS, halving global emissions by 2050 will be 70% more expensive.
So gone are the days of government that pins the nation’s hopes on risk-taking in our City banks. We are determined to get behind new industries, in new places, to deliver lasting growth. The people in this room are crucial to that and we look forward to working with you to make it happen.
So: we need an economy that is sustainable - environmentally sustainable, of course, but economically sustainable too. An economy built on investment, not debt; on world-class infrastructure and world-class skills; and on regional balance and diversity.
Right now, our deficit reduction plans are inevitably taking political centre stage. And nobody should be in any doubt of our determination as a Coalition Government to stick to those plans.
But as I have argued today, our ambitions go far beyond deficit reduction. We are equally determined to set our economy on a new course; to fuel growth in a new, more balanced way; and to replace the old, debt-ridden economy with a new one, based on investment, export and sustainability.
The old economy got burned down in the financial crisis. But a new economy might be able to rise, Phoenix-like, from the ashes of the old.