SPEECH TO THE CBI

18 November 2003

SPEECH TO THE CBI

Introduction

Thank you for asking me to address you today.

It is often said that a week is a long time in politics. Well, I can tell you from personal experience - it is!

My approach to politics is to be straightforward and businesslike. That's how you run your companies and your outfits. That's how I intend to run mine.

That's why I've shrunk my Shadow Cabinet from 26 to 12. Our objective is different from that of the Government. Our objective is singular and simple. It is to win the next general election. The structure I've put in place is designed to achieve that objective.

Conservative Party and Business

Last month your Director General spoke at our Party Conference in Blackpool.

His message was two-fold.

First, he spoke of business frustration over the `progress on the current government's agenda'. That was, I think, putting it mildly. `The UK's traditional strengths - a low tax environment and a flexible labour market' were, he said, in decline.

But second he challenged the Conservative Party to deliver.

Those are two themes I want to address briefly today. We do need to look at the mistakes the Government has made if we are to learn from what has gone wrong since 1997. But that is not enough. My Party needs to show that we have a credible alternative approach.

As Digby said, the assumption that every businessman is a card-carrying member of the Conservative Party is a caricature. If it ever was a valid assumption, which I doubt, it is certainly out of date. Today more than ever we have to earn your respect, your trust, your confidence. If you are sceptical of politicians, who can blame you.

Labour said, and these are their words, the Prime Minister's own words, that they had no plans to increase tax at all. But they have brought in 60 tax rises - yes, 60. They promised not to impose burdensome regulations on business. But they are bringing in new regulations virtually every day. I'll give you the number. It's an average of 15 new regulations every single working day. That's 50 per cent more than when Labour came in.

The Current Economic Situation

It's not my style to criticise for criticism's sake. Where credit is due, I will say so. The Government does for example deserve credit for its decision to make the Bank of England responsible for setting interest rates, and I have set out some further suggestions in this area.

But the picture is not as rosy as Gordon Brown would have us believe.

For example, the IMF thinks the UK will grow more slowly this year and next than the US or the world economy as a whole.

But the biggest concern is not current growth rates or even the prospects for next year. It is the fact that our medium and long-term prospects are being systematically undermined as a result of burdens being loaded on to companies by this Government.

The supply side reforms of the 1980s, in which burdens on business were reduced, took many years to feed through. But over the last six and a half years they have been eroded, and in many cases reversed. This has been done by the very Chancellor who now lectures the rest of Europe on the need for a competitive economy.

Like the reforms of the 1980s, the effects of these adverse changes have taken time to feed through. But, like a slow-acting poison, they are now working their way through the system. They will do real damage for years to come.

And they continue today. A Government which ploughs ahead as we speak with its damaging changes to stamp duty to leases, in the face of concerted opposition from business and opposition politicians alike, is not a Government which has understood the need for an enterprise agenda.

Nor is it just Whitehall that business needs to be concerned about. Many of the regulations you face came originally from the EU. Now there are concerns that the proposed EU constitution will reduce the threshold by which legislation is passed under a qualified majority, making it easier for high-regulation countries to increase the burden on those with less regulation at present.

If you have a situation where the cost of extra red tape and business taxes since 1997 has reached up to £15 billion a year, as the CBI has said, then sooner or later that is bound to affect the ability of business to win orders and create jobs.

Let me give you a small but specific example. Two weeks ago I visited a small printing business in Romford. They have recently received a visit from the Health and Safety inspector. He had asked them to install emergency lighting at a cost of several thousand pounds. They had received a similar visit the year before. On that occasion emergency lighting had not been thought necessary.

Nothing had changed in that year. No new equipment had been installed. There had been no accident. Indeed they had had no significant accidents for twenty years or more. Their health and safety record was exemplary. But for no apparent reason they were obliged to spend several thousand pounds on this new requirement. And partly as a consequence, just a few days before my visit they had had to lay one man off.

This sort of thing is happening up and down the country. And it puts up costs. It cripples competitiveness. If you want to sell abroad and you have to pay more for your printing it's one extra notch that makes you less attractive than your rivals.

It is entirely appropriate that the UK's international competitiveness is the central theme of this Conference. Today, business is more mobile than ever. It owes our country no favours. If alternative locations become more attractive, then that is where investment will take place.

It is often on the margin that companies make their decisions about jobs and investment and sometimes even their survival. The marginal piece of red tape, the additional business tax, can make all the difference.

So it is hardly surprising that 70 per cent of companies in your survey say the UK has become a less attractive place to invest over the past five years. That last year business investment fell at the sharpest rate for nearly a decade. That small firms face the highest rate of closures for a decade. And that our average productivity growth has halved in the last six years.

All these indicators are not only of vital importance in themselves. They are also important weather-vanes pointing to the future health of our economy. And they create a sense of insecurity.

Less Security in the Future

There is less security for business.

And people are feeling less secure about their job prospects.

They are also feeling less secure about their incomes. Real take-home pay in the private sector has actually fallen as a result of April's tax rises.

And at the back of people's minds - indeed, increasingly at the front - is the prospect of further interest rate rises at a time of record debt.

That debt is itself linked with rising taxes and falling incomes. When people have less money they face an unwelcome choice of spending less or borrowing more.

To make matters worse Gordon Brown has introduced direct disincentives to save. One of the worst was his £5 billion-a-year Pension Tax. Then there is the growth of means-tested-benefits. All in all, these have led to people in Britain saving only half as much today as they were in 1997.

Now we have the pension cap being put forward by Gordon Brown. He says it would only affect 5,000 people. But the truth is the number of people hit would be far more. One independent estimate is that it could hit as many as 600,000 people.

So is it surprising that people are saving less and borrowing more?

Government Borrowing and the Black Hole

Nor has the Government itself set a good example. In fact combined borrowing by Government and individuals is running at the highest level since the relevant Bank of England statistics began.

Projected Government borrowing over five years has already leapt from £30 billion in the 2001 Budget to £118 billion in the 2003 Budget.

Commentators now say that Gordon Brown has got his forecasts wrong again. And there are real doubts over the Government's ability to continue to meet the Chancellor's `golden rule' without further tax rises.

Tax and Spend and Fail

The question that needs to be answered is why is this happening? Why, after 60 tax rises, and a 50 per cent increase in the tax take, are we faced with the prospect of yet further tax rises under Labour in the future?

The problem is Labour's approach to the public services. Because the Government refuses to introduce reform to our public services, its only answer is higher tax. When that fails, it can only turn to higher taxes still. It keeps coming back to the taxpayer for more and more money in an increasingly desperate attempt to deliver results. It is locked in a vicious circle of ever higher taxes and ever failing public services.

Those ever higher taxes will inflict ever more serious damage on the supply side of our economy. You cannot go on taxing and spending and over-regulating with impunity. The chickens are coming home to roost, including the worst ever monthly trade deficit in goods and services.

The Alternative

So what is the alternative approach?

Let me tell you where we have got to and how we intend to go further.

We will never regulate by law if a voluntary approach is possible.

Quite the opposite. We want the total regulatory burden imposed by each government department to fall year by year.

Where new regulations are introduced, there should be sunset clauses. That is to say the regulations would lapse after a specified period of time or they would have to be reintroduced. The onus would not be on companies to argue that they should be repealed. The onus would be on government to make an overwhelming case that they were still needed.

But I want to go further. Even where I sit, you get the impression that regulations are fired off randomly as if from machine guns. So heaven knows how you must feel. I am determined that there should be a more effective and discriminating method to scrutinise all new regulations.

And in particular we want to ensure that small firms are protected from onerous regulations. The smaller the organisation, the lighter our touch.

Above all, we believe that the best contribution government can make to your business is to give you more time to run your business. To take less of your time on filling forms and dealing with paperwork and complying with unnecessary regulation.

But all of this will not be enough if the structure of public services wastes public money rather than using it wisely. We must turn the vicious circle of ever higher taxes and ever failing services into a virtuous one.

The only way to do that is to tackle the problem at its core - by ensuring that our public services are reformed and improved. That is precisely what we intend to do. We are setting out detailed proposals for such reform, based on the principle of decentralisation - giving more choice to patients and parents, and more freedom to doctors and nurses and teachers. And not for us the creation of exclusive forums to discuss public service reforms - to which only union leaders are invited.

By reforming the public services and by tackling waste we can halt the need for ever higher taxes. But we won't be making any promises we can't deliver. All our proposals will be clear, costed and credible.

Conclusion

There is a mood change sweeping across our country - in companies, in our public services, among the public as a whole. Labour's approach just isn't working. All Labour offer is second best. But the people in this country are not prepared to settle for second best. Why should they? We are the fourth largest economy in the world. We are a country of hard working, enterprising and energetic people. We can do so much better. The challenge for my Party is to show precisely how a change of government would help us achieve that demanding but exciting objective. That is what the country expects of us.

It is a challenge to which we will respond with relish.

Rt Hon
Michael Howard QC MP