Speech by the Commercial Secretary to the Treasury.
[Check against delivery - 2,359 words]
Thank you for inviting me to speak here today. I am delighted to be visiting Canada and meeting with so many of the country’s leading businesses over the coming days, and it’s a pleasure to be speaking with the Montreal Chamber of Commerce.
Montreal is clearly a city with global connections, but it strikes me that the connections with Europe still run deep. The majority of the Quebec population are of course of French descent, and I don’t want to sound like a defensive Brit … but many Montrealers also have Scottish or Irish ancestors.
It was largely Scottish entrepreneurs and bankers that in the 19th Century propelled Montreal to become Canada’s commercial capital.
Of course much has changed since then … though I understand the Scottish connection has recently been revived in a new area: the Scottish chef Gordon Ramsay’s recently-opened venture in Montreal features both poutine and fish-n-chips on the menu.
In fact my father always had some interesting tastes in food which may have something to do with the three years he spent in Montreal in his teens.
But the business, cultural and educational ties between the UK and Quebec remain as strong as ever.
Historically speaking, the UK has been Quebec’s second biggest trading partner after the United States, with about half of UK exports to Canada passing coming to or passing through Quebec, and two-way trade totalling over $7 billion in 2010.
And Quebec accounts for over $10 billion of foreign direct investment in the UK through major players such as Bombardier, CAE and La Caisse du Depot.
In fact the UK is Canada’s second largest destination for FDI after the US, and in the opposite direction, the UK is Quebec’s second largest foreign investor in Quebec, with the likes of Rolls Royce, Standard Life and Unilever building a strong and visible presence in the province.
But at the same time we also face common challenges. Reducing deficits. Broadening our trade relations. And creating more jobs.
And events over the last year, and the summer in particular have added a sense of urgency to those challenges.
It’s been an extremely turbulent period for world markets. Equity markets across the world have displayed a degree of volatility not seen since the crisis of 2008. And of course the UK is not immune to the volatility.
In the US, the political gridlock, the furore over the debt-ceiling, and the historic downgrade of the country’s debt by Standard & Poor’s stoked market anxieties.
Across the Eurozone, the debt crisis continues, with Member States, led by France and Germany, having to pull out all the stops to reassure markets that they have credible plans to deal with crisis but with the need for much more action if the crisis is to be solved.
Last week at a meeting of European finance ministers the Chancellor stressed the gravity of the situation, urged our counterparts to resolve the uncertainty around Greece and implored them to take necessary action to secure the resilience of their banking systems.
Our European colleagues must also accept the remorseless logic of greater fiscal integration. The crisis cannot continue to drag on for months on end, the time for action is now for the economic stability of the Eurozone and the wider economic system
These events inevitably impact on UK economic fortunes. But in one key respect we are insulated from the storm.
Whereas other economies have struggled to take decisive action to tackle deficits, the Coalition Government in the UK has been resolute.
We have demonstrated in the last year that we are willing to take difficult and often unpopular decisions, to deal with the enormous economic problems that we inherited. And in doing this we very much had the lessons of the Canadians fiscal consolidation from 1994 to 1999.
The UK had the biggest housing boom, the most indebted families, the most leveraged banks, and the biggest structural budget deficit.
It was the severity of the situation that motivated the creation of a Coalition Government for the first time since World War II, and what motivated us to agree the most difficult spending review in decades. Not out of ideology, but out of economic necessity.
The cost of not dealing with the deficit would have been higher inflation, higher taxes and higher interest rates. A stranglehold on economic recovery.
Instead, through the toughest spending review in decades, we took decisive action to cut government spending, to bring it in line with the UK’s historical average after years of profligacy, to eliminate the structural current budget deficit over a five year period.
It’s an approach that continues to be supported by the IMF, the OECD and credit rating agencies with S&P deciding to take the UK’s AAA rating off negative watch as result.
And over the last year we have seen this approach bear economic fruit. Our private sector has created almost 600,000 new jobs since March last year.
Business investment, manufacturing output and industrial production are higher than last year. And market rates for British debt have fallen by over one percent. Despite inheriting a deficit larger than Portugal, we have rate as low as Germany.
And that makes a real difference to households and businesses. It means families can stay in their homes and pay their mortgages, and businesses can borrow and refinance their debts at some of the lowest ever rates.
But we need to work tirelessly to help our businesses across the economy…to embed a recovery based on private sector enterprise, investment and export.
Reversing the steady decline in UK competitiveness that has marred the last decade. Stemming the decline of our export industries and share of world goods and services markets.
Diversifying our economy to secure growth across the UK and across all sectors of the economy.
Earlier this year we released our Plan for Growth which set out our plans to achieve that ambition.
First and foremost that we are establishing the most competitive tax system in the G20, reducing our corporation tax to 23% by 2014, making it the lowest rate in the G7 and the 5th lowest in the G20.
We are ensuring that our businesses have access to lending to grow…securing agreement with the UK’s biggest banks to increase credit to businesses by up to £190 billion in 2011.
We are also lifting the painful and costly layers of bureaucracy and regulation that stifle innovation and enterprise across the UK.
We are scrapping plans for regulations that would have cost businesses over £350 million a year and we are overhauling our planning system, which through reams and reams of guidance costs the economy around £3 billion a year.
Instead, we are embedding a presumption in favour of sustainable development, and ensuring that all planning applications and appeals will be processed in 12 months.
We are also making sure that we have the skills to capitalise on opportunities through the recovery and it is critical that the young do not bear the brunt of economic hardship, and are not left to fend for themselves.
That’s why we are providing funding for 250,000 apprenticeships and 80,000 work experience placements.
And on infrastructure we are investing £200 billion over five years with a substantial increase in transport and energy investment, and a greater share of private sector finance, because high quality infrastructure is essential to stimulating new growth across the economy.
Put simply, Britain is open for business. Private sector enterprise, innovation and growth have to be at the heart of our recovery and we are doing everything we can to make that happen.
But our recovery also relies on increasing opportunities for trade. Encouraging our businesses in the UK to expand to international markets including Quebec and Canada, and likewise encouraging international companies to expand to the UK.
Since coming into Government, we have put trade at the heart of our international agenda. In the last year we have redoubled our efforts to forge stronger trading relations with our international partners and we are eager to see the completion of CETA…an agreement which could be worth hundreds of millions to both our economies.
And we welcome the constructive engagement of Quebec and the other provinces in these discussions.
Earlier this year Quebec Premier Jean Charest visited London with the same ambition to strengthen trade relations between our two countries. Sustaining the momentum he has helped build as one of the earliest advocates of this agreement.
And it was a visit that came on the back of a remarkable year for UK-Canada trade relations. In the last year Canadian exports to the UK jumped 34%, and UK exports to Canada increased 14%.
And there are a wealth of further opportunities for instance in the pharmaceutical sector where Canada is already second in the world in terms of number of companies, with a significant presence of UK firms such as AstraZeneca and GSK.
Trade opportunities exist across the spectrum through R&D and technology transfer, commercialisation and international production of products, and clinical trials run by UK researchers for Canadian firms.
In energy and oil, Canada has cemented its position as a leading global power, and there remain ample opportunities for strategic partnerships and shared expertise through Carbon Capture & Storage, and offshore oil gas exploration development.
I am fully aware of the concerns that Canadian investors in the North Sea have over recent changes to supplementary tax in this industry, and I fully understand that businesses need tax certainty.
That is why our Government has undertaken more engagement and consultation with business on tax affairs than any previous Government - but I completely understand that this means that when, inevitably, there are occasionally tax changes on which we cannot consult in advance, business is even more upset with us.
But we do have to retain some flexibility on tax policy, and there are times where the Government can’t consult on rate changes if doing so presents a risk to the Exchequer.
That said,we take these concerns seriously as a government. We said at the Budget we would listen carefully to the oil and gas industry, and that is what we have done. In July, we introduced changes to support new entrants to the North Sea.
We are also engaging on issues such as field allowances and decommissioning. I am meeting with several of these companies while I am in Calgary to further explore their concerns
There are also ample opportunities through financial services. One the one hand, yes, the UK had become over-reliant on financial services and London as the engine of growth.
We had let growth in the sector come at the cost of wider economic stability. And we had to rescue the sector with bail-outs that we can ill afford to repeat.
But we cannot merely consign our financial sector to the waste basket. As a global financial centre that generates over one million jobs, two thirds of which are outside of London, a successful banking and financial services industry is critical to our economic recovery.
We are leading the domestic and international debate on regulatory and banking reform to deliver the right balance between success and stability, to ensure that we do not forfeit our position as the world’s number one financial centre but to also ensure that such success does not come at a cost to the wider economy.
We face a substantial task in putting our economy back on its feet. Rebalancing our economy will be a difficult task and will take sustained commitment.
The UK suffers from a huge debt overhang following the crisis, and recovery from a debt driven recession will inevitably be prolonged and difficult.
And it’s a story that is replicated across the world. The imbalances that were built up in the global economy over the last decade still have a long way to go to be resolved.
International co-ordination and co-operation will be vital to unwinding those imbalances and securing a global recovery. Two weeks ago the Chancellor spoke about these international challenges in a speech to Lloyds of London. And as he said, the challenge today is much greater than it was in 2009.
In 2009 we faced a daunting crisis, but the solution was to pull in the same direction through a coordinated monetary stimulus, fiscal loosening from those who could afford it, and taxpayer support to stabilise the banking system.
A few years on, and in the face of a banking, private, and now sovereign debt crisis, the challenge is much more complex and varied. And the international response has to reflect that.
We can’t simply charge ahead in one direction and ignore the underlying debt crisis… countries with massive trade surpluses have to rebalance to encourage domestic sources of demand … countries with deficits caused by credit backed consumer booms, like the UK, have to bring debt under control.
As we agreed at the G20 in Seoul last year, and as we are discussing through the IMF, we have to work together to bring global imbalances to a sustainable level.
Of course the US with its reserve currency faces different constraints from other countries.
But in the UK, consolidation is the only option. Two weeks ago, Christine Lagarde reiterated the IMF’s support for our approach saying that ‘strong fiscal consolidation is essential to restore debt sustainability’.
We have made substantial progress to date on that front. We have set out our path to balance the books by the end of this parliament, we have restored market credibility in the UK economy, and we have avoided the turmoil that continues in the Eurozone.
Alongside consolidation we are working tirelessly to boost growth, to support a recovery led by enterprise, investment and export. Of course, putting trade at the heart of our international agenda is a key part of our plan for growth.
There are a whole wealth of opportunities for Canadian businesses in the UK, and likewise UK businesses in Canada. Pharma, energy, financial services, creative industries…in all sectors across the economy we want to forge stronger links, and foster greater trade.
And I look forward to realising that ambition with many of you here today in the coming years