Speech by the Chancellor of the Exchequer, Rt Hon George Osborne MP, to the EEF Manufacturers’ dinner 2012
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Speech by the Chancellor of the Exchequer.
[Check against delivery]
Ladies and gentlemen, good evening.
I am very grateful to EEF for inviting me to speak tonight.
I want to congratulate Martin Temple and everyone at the EEF for their dedication to British manufacturing.
Your campaigns on issues such as research and development tax credits, regulatory burdens and access to finance have shaped the Government’s reforms, helping thousands of manufacturers across the country.
As you know better than any, we’re facing a tough economic environment right now.
Although there are signs that confidence is starting to rise in the British economy, with some more positive economic data since the start of the year.
And while recent action by the ECB has eased some of the immediate concerns about the euro zone, more needs to be done to reach a lasting solution.
One of my concerns right now is the effect that tensions in the Middle East are having on the oil price, just as inflation has begun to fall.
We don’t get to choose the global environment which we operate in.
We do get to choose how we respond – whether we duck the choices facing our generation or whether we take the tough decisions that will secure Britain’s long-term prosperity.
I simply don’t accept the argument made by some at home and abroad that the “the UK has no industry”.
That Britain doesn’t export.
That British manufacturing cannot compete with the likes of Germany, China and South Korea, and so decline is inevitable.
Let me share a few home truths with those who want to talk British manufacturing down.
The UK is one of the top 10 manufacturers in the world.
Manufacturing represents 10 per cent of the economy – more than financial services – and the same – incidentally - as in France.
It’s responsible for 46% of UK exports and for over 2.5 million jobs.
We are world-leaders in aerospace, defence, high-performance cars and pharmaceuticals.
It’s not just Formula One cars and luxury brands like Bentley cars that are made in Britain – although both, incidentally, are thriving.
Here are some facts about British manufacturing you don’t hear so often.
International figures out today show our productivity per worker is similar to Germany.
The gap between the number of cars we import and export is at its lowest level since 1975.
In pharmaceuticals - around a fifth of the top one hundred medicines in use in the world today originate from research in the UK.
Our aerospace industry is second only to the US.
Across the country, thousands of companies are world leaders in their fields.
There are many examples in this very room.
But that doesn’t mean we should be satisfied with where we are.
Over the last decade, our economy has become far too unbalanced.
We’ve become too reliant on a few industries in a few regions, and on borrowing from the rest of the world.
And we became far too dependent on the public sector.
When I became Chancellor, the state was consuming 47% of national income – far above the average of our recent history.
This was paid for by debt – public and private.
There are those who think Government should have no view about the structure of the economy, but I believe that they are wrong.
The bad old days of propping up failing companies and trying to create government-backed national champions have rightly gone.
But this Government is unashamedly backing those parts of the economy that are a British success story, like car manufacturing, marine technology, and the digital and creative industries.
Industries where Britain is already world beating but where Government support can help us to maintain that edge.
The Growth Review that Vince Cable and I lead is a manifestation of this approach.
We talked about it again today at Cabinet.
And we’re the first to agree that more needs to be done.
First, we have to continue to secure long-term stability.
When the Government came into office, the British Government was borrowing one pound for every four that it spent.
Since then, the argument we have made about the necessity of a credible deficit reduction plan has been vindicated by events.
I want to thank the EEF for their backing.
For having the courage to stand up to those who criticise any attempt to reign in government spending.
And there is no starker reminder of why what we’re doing is necessary than the fate of some of our neighbours.
While our interest rates are just above 2%, Spain’s are Italy’s are around 5%, and Portugal’s nearly 14%.
In Britain we’ve confronted our problems, won the credibility which will allow us to constrain inflationary pressure with low interest rates, and provided the stability that creates the space for private sector investment.
Nothing would be more damaging to your members right now than a sharp rise in interest rates.
I have a Budget in two weeks time.
I can tell you: we are not going to put that credibility and stability and low interest rates at risk.
Our action is bringing the deficit down – but it is still far too high.
The days of un-funded giveaways are over – and they’re not coming back in this Budget.
Everything has to be paid for.
Instead, what we want to do is use the hard-won low interest rates Government can borrow at to reduce the interest rates that small businesses can borrow at – so we are launching the Government’s National Loan Guarantee Scheme.
Businesses with a turnover of less than £50 million will be able to apply for a loan through the scheme.
We expect these loans to benefit from a reduction of up to 1 percentage point in the rate of interest charged.
We are going to make £20 billion of guarantees available over the next two years.
And while there are still some important legal hurdles to clear - including confirmation that we have state aid clearance from Brussels - we aim to have the scheme up and running ahead of the Budget in a fortnight’s time.
We are also launching a £1 billion Business Finance Partnership to help mid-sized businesses.
Through this, the Government will invest in funds that lend directly to mid-sized businesses, giving them new source of investment outside the traditional banks.
So we have secured economic stability and low interest rates – and we’re spreading the benefit to your members.
Britain also needs to compete.
You understand that better than anyone.
That’s why we’re listening to you.
This Chancellor thinks business is the solution to Britain’s problems, not the source of them.
And so your representations are not ignored.
They are implemented.
You told us we should reduce corporate taxes.
So we’re cutting the main rate of corporation tax from again this April and reforming the rules on controlled foreign companies, so that companies are coming back to Britain instead of leaving it.
You told us we should make research and development tax credits for SMEs more generous.
So we are further increasing their generosity to 225 per cent from April.
You told us we that putting these benefits “above the line” in terms of their accounting treatment was important for encouraging R&D in larger companies.
So we’re implementing this from next year.
You told us that a four year limit on capital allowances for short life assets didn’t reflect the realities of modern manufacturing.
So we’ve extended the limit to eight years so that a wider range of assets can be written off at the end of their useful economic lives.
You told us we need to invest in science, to ensure the UK remains at the cutting edge of technology.
So we protected science spending and another have allocated another half a billion in science capital investment from new products like Graphene to high performance computing for industry.
You asked us to deal with one of the biggest problems of all – the burdens on your businesses from red tape.
I know how frustrating it is when Government regulates with no regard to costs to your business.
What I’ve seen after nearly two years in the job is that it’s not just about this one piece of regulation or that.
It’s about a culture in our politics, public life and media in which people assume you can regulate every problem away; where everyone insists government must step in - “something must be done”.
It would be so easy to give into the relentless stream of pressure groups, single issue campaigns and front pages – but we’ve got to as a country be able to say “no”.
So we’ve introduced a “one in one out” rule on all new business regulation in Whitehall, to try and stem the relentless tide of red tape that stifles innovation.
For businesses with fewer than ten employees, we’ve introduced a moratorium on new domestic regulation for three years.
We’re doubling the period before employees can claim unfair dismissal to two years and introducing fees to deter vexatious tribunal claims in the face of determined political opposition.
Of course, employees have rights and should be protected.
But what about your right to start a business and not be sued out of existence?
And now we’re beginning a call for evidence on the case for a new compensated no-fault dismissal for our smallest businesses.
Plenty of trade unions and others will be submitting their evidence for why we shouldn’t do this.
If you think we should, and it will increase employment, then don’t wait for someone else to send in the evidence.
Send it in yourself.
We’re also taking on reform of the planning system – very soon we’ll come forward with planning rules that shift the balance in favour of sustainable growth and jobs.
So instead of delay and objection every time you want to expand, the default will be “yes”.
None of these things are easy.
All provoke a furious reaction.
But we are prepared to do them to help you succeed.
But as EEF have rightly argued – if we want Britain to compete as a world-leading manufacturer we need to make sure our young people have the skills that allow them to succeed in the high-value jobs your companies provide.
So Michael Gove is taking on the education establishment to make this happen - getting schools to compete, making them publish their results, and opening Free Schools specialising in Maths to encourage young people to become the engineering and science graduates we so badly need.
New University Technical Colleges are being set up, with the help of manufacturers like JCB and Siemens, to create a modern, valued vocational education.
And with the help of employers around the country, we’re delivering record growth in Apprenticeships – with 450,000 places this academic year.
And we’re expanding work experience too.
It’s not slave labour – it’s a potentially life changing chance for a young unemployed person.
We will continue to push forward on this front and many more.
But I believe the real prize for Britain will be if we are able to broaden our horizons and take advantage of the opportunities that the new markets around the world present.
In a generation, China’s middle class is forecast to be more than three times the size of that of the whole of Western Europe.
And as they become richer, they’ll want to buy the kind of things you make and sell.
As I travel around the world promoting our trade and investment it is clear that one of our country’s greatest advantages is our openness.
Protectionism may be depressingly common in the domestic politics of many of our competitors.
But that is not the case in Britain – over recent decades, even in the most difficult economic times, the consensus that free trade is good for everyone has held firm.
We must never lose that precious advantage, and politicians who flirt with protectionist rhetoric risk doing huge damage to business and jobs and investment in Britain.
But the fact is not enough of Britain’s small and medium sized businesses export, and those who do are too focused on European markets, many of which aren’t growing.
This is a huge missed opportunity – including for British manufacturing.
In the UK, around one in five UK SMEs export.
Across Europe, the average is one in four.
If we got the number of small and medium sized exporters up to one in four – we could add approximately £40 billion to total UK exports and a massive boost to our economy.
I need your help to make that happen.
We are already seeing positive results.
UK goods exports to China were up by over 20% last year and up by 40% to India.
But I want many other British companies to benefit from these opportunities.
Yes it’s difficult right now – but I passionately believe we don’t need to accept things as they are.
We are dealing with our debts.
We are making ourselves more competitive.
We are broadening our horizons.
We are doing the things that are needed to put British manufacturing at the heart of Britain’s recovery.
I know that with the energy, creativity, innovation and courage of the people in this room, we can do even more, and build a more prosperous future for us all.