Check Against Delivery
Thank you for asking me to speak this evening.
I am particularly grateful to Iain McMillan.
Iain is an effective and powerful advocate for Scottish business, making
sure your views are heard in Westminster, Holyrood and Brussels.
I’d also like to take this opportunity to welcome Helen Alexander as
the new President of the CBI. And I’d also like to acknowledge the
work of Martin Broughton as her predecessor.
Looking round this room, I see many familiar faces.
It is a pleasure to see such a cross-section of Scottish business
represented here – a testament to both the diversity and richness of
our economy.
The strength and breadth of the UK economy, even in these difficult times,
is something to be proud about.
CBI Scotland represents some 26,000 businesses employing over 600,000
people, making a huge contribution to our prosperity.
We should be proud that we are home to a wide range of world-class
businesses:
· Leaders in oil and green energy – especially important as we
move towards a low carbon economy;
· In advanced manufacturing – from aerospace to laser
technology to semiconductors;
· In food and drink – whose quality and taste is in demand
around the globe.
Despite the global downturn, Scotland continues to export across the world,
selling over £20bn of goods and services in recent years.
That trade, impressive as it is, is dwarfed by Scotland’s trade
within the UK, which amounts to about £36bn a year.
This is, of course, just one way of demonstrating the strength of the UK.
A strong British economy supports hundreds of thousands of jobs in
Scotland, in both the private and public sectors – including in the
financial services sector.
Last autumn, when the global financial system came close to collapse, it
was the strength of the UK that made it possible to stabilise the banks.
In the last few weeks there’s been a lot of talk about the financial
sector being too big. Some say we should cut it down in size. I want to say
this.
To me, that is the wrong approach. Yes, we do need a balanced economy,
building on the success of our other industries.
There are almost 100,000 jobs in the financial sector here, one million in
the UK and 70 per cent outside London – not just in banks, but
pensions, insurance, law and accountancy – all part of the critical
mass of expertise that makes us a world financial centre.
We are not going to throw away that expertise and advantage.
Because, properly regulated and supervised by the UK Government, the
financial services sector will remain important, north and south of the
border, as part of a strong and diversified economy.
Given all that has happened this year, I find it strange that today some
seem to think the priority is a referendum on the constitutional make-up of
the UK.
Our priority now must be to maintain our efforts to get through this
recession quickly and do whatever we can to keep people in jobs.
I can assure you I will not be distracted – my priority will remain
the economic prosperity of this country.
And our prosperity depends on remaining part of the United Kingdom.
Economic recovery, of course, depends on us learning the lessons of the
past two years.
The banks made mistakes. They rewarded the wrong kind of behaviour and took
on risks they didn’t fully understand.
So we are now putting in place, here and internationally, the necessary
reforms to prevent a repeat of this crisis.
We cannot allow banks to assume that, whatever they do, whatever mistakes
and misjudgements they make, they will always be rescued by the tax-payer.
We – and other Governments around the world – intervened to
stabilise the banks last year because the global financial system was
facing collapse.
But in future banks must stand on their own two feet.
That’s why regulators across the world are right to insist that
banks’ capital ratios reflect the risks they take on.
Higher capital requirements will dampen excessive lending in the good
times, as well as ensuring that profits are retained and re-invested
– not paid out as executive bonuses.
Both national and multinational banks also need to put in place contingency
plans, should they get into difficulty – a Living Will if you like.
When I published my reform proposals in July, I asked the Treasury, FSA and
Bank of England to work on these plans.
I also emphasised the importance of competition in the market for financial
services.
Competition is essential to providing customers with value and choice
– and the regulatory regime needs to ensure no-one is forced to pay
excessive fees and charges.
So in encouraging new bank lending, we need to do so in a way that actively
protects new and smaller players in the market.
As we reduce and ultimately remove government support in the banking
sector, we will do so in a way that proactively encourages new entrants, to
build a competitive and healthy banking sector.
Banks with Government shareholdings are now restructuring their businesses
– and we will ensure that happens in a way that promotes the vibrancy
of the sector and supports new banks entering the market.
That’s why I have proposed that, from now on, the Office of Fair
Trading provides an annual update on market access for providers of
financial services.
There is more to be done, here and internationally – as we will
discuss at the G20 Finance Ministers meeting in London this weekend.
We will see reform through, so that we emerge from this crisis with a
stronger global banking system and more effective financial regulation in
every country.
When it comes to the issue of bank bonuses and pay, we need solutions which
are global in scope and practical in action.
And international co-operation is needed to prevent banks playing one
country off against another.
Our aim should not be to prevent rewards where they are deserved, for
long-term success or hard work.
Rather it must be to prevent excessive pay and bonuses which both reward
and encourage short-term decisions and reckless behaviour.
- Pay structures must be fully transparent and designed to reduce the
risks faced by banks.
- They must encourage long-term value creation, with pay in the form of
shares or paid over a number of years, and with claw-back if decisions
prove to be wrong. A bonus shouldn’t be guaranteed, it should be
earned.
- They should be based on greater corporate independence and
accountability.
And as we build this new global financial system, it is vital that we
remain a world-class financial centre.
It won’t happen with a laissez-faire, hands-off, do-what-you-like
approach any more than it would if governments try to micromanage the
financial sector.
What is needed are tough, practical and sensible rules which protect the
interests of customers, share-holders and the wider economy – while
allowing us to make the most of the expertise in our financial sector and
the opportunities recovery will bring.
Almost exactly a year ago, I said the world was facing the worst economic
conditions in 60 years.
Today, I can say that as a result of the action taken by governments
everywhere, I am confident that we will see a global recovery next year.
In the first quarter of this year, many countries saw the sharpest and most
widespread downturn in generations.
By March, output here had fallen by 5 per cent – the largest fall in
almost 60 years.
In Germany and Japan, the equivalent contractions were 7 and 8 per cent
– which demonstrates the scale of this economic shock.
But there are now visible signs that global confidence is
returning:
· World equity markets have risen for five months in a row;
· The US housing market, which is where this crisis started, is
showing some signs of stabilisation;
· Economies in Asia are again growing steadily.
All of this, if sustained, will support global demand over the next few
months.
That is why I continue to believe that we will see growth in our economy
resume around the turn of the year.
This is a view, I admit, now shared by many more people than when I first
made this forecast in the Budget.
For next year, too, many others now share my view that we will be able to
deliver a recovery.
For us, the news that France, Germany and Japan saw positive economic
growth in the second quarter of the year is encouraging – though
we’re right to be cautious.
One thing these three countries – and the UK – have in common
is that they have all put in place a fiscal stimulus.
We all allowed borrowing to rise, so that we could put more money into the
economy, to help people, protect jobs and support businesses.
To have failed to act would have been indefensible – and the cost
would have been far greater.
So I believe we can be confident about our prospects for 2010. But there
are still uncertainties and risks that we have to confront.
And the biggest risk is to think that the job’s done – that
recovery is guaranteed.
No country can be complacent – we’ve got to see this through.
Supporting the economy now through targeted public spending, rather than
cutting back at this crucial time.
Fighting protectionism – getting the world trade talks going again.
The effective response to this crisis rests on the scale and scope of
international co-operation.
In the 1930s governments failed to act, with disastrous consequences. At
the London summit in April, G20 leaders agreed to do whatever necessary to
support their economies.
Here, we took the initiative with a £20bn fiscal stimulus in
November, including:
· A temporary cut in VAT, which is putting £1bn a month into
the pockets of shoppers and retailers;
· A scrappage scheme which has supported the car and manufacturing
industries;
· Tax cuts for small business and for large firms who want to
invest;
· A new service to give businesses more time to pay their tax bills.
The lesson from the ‘80s and ‘90s, as the people in the West of
Scotland know too well, is that when people lose their job they cannot be
abandoned.
They need to be helped to find jobs as quickly as possible.
Not to do so would mean another lost generation, some detached from work
for years.
That is why I have made available some £5bn to help people look for
jobs and stay in work for longer.
Here in Glasgow, I welcome the pledge from the City Council to give every
school leaver qualifying this year a place on an apprenticeship, working
with over 70 local businesses to do so.
There is now clear evidence our action is working. While every job-loss is
a tragedy to that man or woman, compared to previous recessions, the number
of jobs lost has not been as large.
We are not complacent – and we will continue to do more to protect
jobs and help people back into work.
It may all seem like common sense now. But there were some at the time who
opposed every single one of our measures to support the economy.
The job is far from over. We have to see through what we have promised.
Crucially, we must plan for the future. We’ve seen the risks from
globalisation. But we must not forget the huge gains that can come from it.
This weekend the G20 meeting must agree to continue to support our
economies – keeping interest rates low, delivering fiscal support,
and restoring lending – to secure a recovery.
And, as we agreed back in April, we are increasing the help available to
emerging and developing economies who find themselves in difficulty.
It is clear that the G20 countries were right to support their economies.
But it’s equally clear that we need to live within our means in the
medium term.
This downturn has pushed up deficits and debt in all countries, as
governments across the world chose to support their economies.
But as I said at the Budget, once the recovery is clearly established,
countries across the G20 will have to start rebuilding their fiscal
strength.
We are one of the few countries to have put in place a plan to cut our
borrowing in half over four years – with tax increases for those that
can afford them and slower spending growth in the years ahead.
I know the new top rate of tax will not be popular, particularly with many
in this room.
I can tell you that no Chancellor wants to put up taxes. I am fully aware,
too, of the need to keep our tax rates globally competitive.
But when so many people are having to tighten their belts, it is right that
those most able to bear the burden make the greatest contribution.
It’s right and it’s fair.
There are many people who live, work, and pay tax in this country –
they expect others to play fair too.
People rightly resent those who are able to hide their tax affairs outside
this country, while enjoying the benefits of living here.
So it is right that we take action against those who do not pay their
taxes.
Following the G20 agreement in April, we and other countries have been
tackling offshore evasion and tax havens across the world.
And I can tell you that so far HM Revenue and Customs has requested details
of at least 100,000 offshore accounts held at over 300 financial
institutions.
This should mean billions of extra unpaid tax returning to our country,
with an expected £1bn from our agreement with Lichtenstein alone.
That’s not only fair – it’s also particularly important
that we collect every pound in tax due, especially at a time when we expect
public spending in the period ahead to be tighter.
When we talk about slower growth in public spending, it does not mean some
sort of dark age.
It means deciding what’s important now and what’s less so. It
means setting clear priorities and choices – a clear sense of
direction – underpinned by our values.
We must continue to drive through reform in public services – in
every part of the UK – so that our public sector can become more
efficient and productive.
And we need to keep investing in what matters to the future strength of our
country.
Just as all of you, in running your businesses, reassess and refocus your
activities in light of current conditions, I am determined that we in the
public sector do the same.
To do this we need to reform the way the public sector operates –
focusing not just on the pounds and pence that we spend, but on what the
money actually buys for the country.
There are those who think that the Government spending is a drain on our
economy.
But every business and every person in this country depends on public
investment in some way.
Looking round this room, I can see many people who have put to me the
critical importance of world-class education for our future.
And the doubling in the science budget, the funding of research and
technology parks are causes many of you have championed.
I can also see those of you who have pressed the case, many times, for
better transport links between Scotland and London, crucial to our
prosperity.
The fact is that well-managed and targeted public investment can make a
real difference to this country.
Especially over the last year, governments across the world have shown what
a difference they can – and must – make.
Continued international cooperation is essential. But the job’s not
done. There’s more to do.
We are dealing with the causes of this recession, taking action to see
through the recovery, and we are planning for the future.
Working together, business endeavour and ambition alongside a Government
committed to growth and fairness.
Committed to global action – countries working together.
And confident about the prospects for next year and beyond.
