Brown: On the economy, the choice is between experience or ideology – I won’t let you down

Alex Smith

Brown Gordon

By Alex Smith / @alexsmith1982

As Chancellor Alistair Darling announced that the Budget will be unveiled in two weeks’ time, on March 24th, Gordon Brown gave a speech to Thomson Reuters in which he detailed government action to reduce the effects of the recession and the plans for the recovery – and said the budget will focus on “protecting and advancing the recovery”.

Drawing a new dividing line with the Tories, the PM also said:

“Our opponents build their policy on political ideology. Ours is a policy built on the experience of economic history. That is why we have rejected from the outset the laissez faire approach that would have let the recession take its course – and it is why we are investing now in the industries of the future.”

The PM warned of continuing risks to the recovery from the “storm” of the financial downturn, but said:

“But we must never forget it was the taxpayer that prevented the collapse of the banking system. And we will ensure that the taxpayer recoups the direct costs of the interventions made last year in the UK through the fees we have charged and the shares we own.”

And, painting himself as the dependable choice over the “risk” of Conservative ideology, Brown added, “I will not let you down”.

As one of the ways the government will cut public spending, Brown also announced a pay freeze that will affect “senior staff in the civil service, senior staff in the military, the judiciary, senior managers in the health service and the pay of consultants, GPs and dentists” – saving nearly £3 billion when included with earlier announcements.

And the PM said that plans will be announced later this week to connect Britain through new high-speed rail initiatives.

The full text of the speech is below:

“I want to talk to you today about the economy: about what we have learnt, what we need to do and how we prepare for the future.

The last time I stood here – in October 2008 – the scale of the threat we faced was immense. I won’t try to pretend I wasn’t concerned. I was. We were in the midst of what was to prove the greatest economic crisis since the war – and I could sense its magnitude. We all could. The sense of emergency was all pervasive. It became a global financial crisis so profound that it raised fundamental questions not just about established economic orthodoxies, but about the whole balance between the state, markets and the institutions that regulate and govern them.

And the decisions we took were without precedent. When I first came into parliament almost three decades ago, I never imagined that I would one day, with Alistair Darling, have to nationalise a major building society – or put up £50 billion pounds of public money to buy majority control of two of the world’s biggest banks.

Or that we would need to reverse decades of orthodoxy by restructuring the banking system – and then agree a very substantial fiscal stimulus and programme of printing money to support a world economy that faced the unprecedented threat of a global credit freeze.

And neither could I have imagined the huge step forward in global economic cooperation that for the first time brought together – in a leaders’ economic summit – China, India, Brazil, South Africa and other emerging economies together with the G8 to repair a broken global financial system.

But this last 18 months has not been a time for allowing the old conventional wisdom or short term headlines to constrain our thinking.

Alistair and I have worked with our international partners to make the tough decisions that were necessary to give us a fighting chance. It was a period that has provided one of the greatest tests of character. With hindsight it is now clear just how close the world economy came to complete meltdown. In the space of just over six months, the equivalent of nearly four years of economic growth vanished as global trade plunged by 40%. And in 18 months world stock markets fell by almost 50%.

But this wasn’t just about numbers. The human cost was all too real, with millions of jobs lost around the world. During the recession Alistair and I have taken difficult decisions, decisions that have tested our resolve. But we have stuck to them and maintained a consistent course, making it possible for the resourcefulness of the British people to pull us through.

I said we would take action to restructure the banks, tackle unemployment, address the fear of repossessions, and help small businesses with cash flow. And we did.

I said we would take action to reinvigorate the international economy and change the financial system. And we did.

And so while we were hit with a great recession we now know that the world has indeed avoided a great depression.

And we avoided that depression not by accident, but by design; by learning from the mistakes made and experience gained in previous recessions and making tough but necessary decisions.

We promised immediate and real help for families and businesses – and we did what we said we would do. I know that many have suffered as a result of the global recession, but unemployment in the UK increased far less than was widely predicted; home repossessions and company insolvencies have been far lower than in the recessions of the 1980s and early ’90s. And the number of small businesses is in fact growing – with a record number of private sector enterprises in Britain today.

But we knew that domestic action alone would not be enough. The problems were global; and the solutions had to be global too.

In the autumn of 2008 and then again on the eve of the G20 summit in London last April I was all too aware that unless we acted quickly and decisively we could be hit by an economic slump from which it would take years to recover.

I have attended a great many summits and international meetings. But never have I been so acutely conscious that the eyes not just of the financial markets – but of worried citizens all across the world – were on us that day – anxiously hoping that we could agree a strategy that would begin to restore confidence.

And I believe that the measures we agreed that day did indeed make a difference and marked a turning point in confidence.

But let us be clear: although the economy is now growing, recovery is still in its early stages – and remains very fragile. There will be many months ahead of conflicting statistics, false hopes and mixed signals.

In Britain and across the world, we have reached a crossroads in our response to the global economic and financial challenge. Analysis by the international monetary fund shows that if we get things right – if we repair and reform the financial system, invest in green jobs, and bring down trade barriers – we can return to the world growth rates of 5% a year seen before the crisis, and on a more secure basis.

But if we get things wrong then the IMF estimates that growth rates could be 2% a year lower. This could cost the world a full 6 trillion dolllars and – over the next four years – up to 200 million jobs.

So the progress we have achieved is no excuse to relax our vigilance or resolve. To turn aside now from the course we have set would be an error of incalculable proportions and would hurt our people, our businesses and our country.

We know that the world has much more to do to get banks lending; to increase investment; to get trade moving forward; to bring down unemployment. In my view we are nearly there in repairing the global financial system. But there is nothing pre-ordained or automatic about the upturn, either here or around the world.

While we have come through the worst of this dreadful storm, the waters are still choppy. There are still real risks to the recovery. And we must be alive to them.

So the choices we will make in the coming months are just as important – and just as urgent – for families, jobs, mortgages and companies, large and small – as the difficult choices we made to protect them at the height of the storm

. I believe that around the world we have to re-discover that sense of urgency and collective ambition that guided us a year ago. For it is our choices – and the wisdom, resolve and judgements we bring to bear in making them – at both a national and global level – that will determine whether we secure a lasting recovery and indispensable reforms to safeguard our economic future.

Do we too rapidly and recklessly put into reverse the exceptional fiscal and monetary policy measures of the last two years and risk driving our economies back in to recession? Or do we continue to support the private sector recovery until it becomes self-sustaining?

Do we allow a return to business as usual for the banks? Or do we drive through radical reform at a global level that ensures we never see a repeat of the crisis?

Do we gamble our future prosperity on the unreliable, inequitable and often unaccountable, status quo in national economic and financial systems? Or do we follow through the international processes agreed in Pittsburgh to rebuild the global economy on firm, fair, and consistent principles and practice?

Do we retreat once more into the silos of national markets ringed with protectionism? Or do we push forward with not just more but better globalisation?

Do we let the progress of recovery be overwhelmed by an ideologically-driven programme to cut the responsibilities of government regardless of economic circumstances? Or do we hold firm to our carefully constructed deficit reduction plan – a plan we first set out in last year’s budget and we will continue to implement step by step as sustained recovery is achieved.

Do we undermine our frontline public services – the NHS, our schools, front-line policing – with arbitrary cuts? Or protect those frontline services and instead reduce the deficit by taking tough and fair decisions on tax and spending in other parts of our economy, doing so on a clear and firm timetable that strikes the right balance between supporting the economy now and reducing the deficit substantially by the end of the next parliament?

For the first time in British history, the government has made a tough, legally binding commitment to reduce the deficit: a contract between the government and the British people. This contract says we will more than halve the deficit over four years, and we will also reduce the size of the structural deficit by two-thirds over the same period.

We will set out in more detail in the Budget in two weeks’ time how we deliver on our commitment to restore the public finances while protecting the fundamental public services that we all depend on. But our approach is clear and we will not be diverted from it.

We have already announced tax and national insurance increases that are fair so that we can both cut the deficit and protect hospitals, schools and policing.

And we are taking the tough decisions on spending. This will include forcing all government departments to make real and lasting efficiency savings. Every single penny of taxpayers money will be spent wisely – founded on the same principle that families and businesses employ to decide their spending.

Part of our tough approach on spending will be the tough approach to pay in the public sector we see announced today. Last week I said that the parliamentary and ministerial salaries of all paid government ministers would be frozen. We must take an equally disciplined approach to pay and benefits right across the public sector.

So today I can announce that after the reports of the review bodies we will also freeze the pay of senior staff in the civil service, senior staff in the military, the judiciary, senior managers in the health service and the pay of consultants, GPs and dentists.

These measures, along with the new controls on pay which I announced in December, will save money immediately and by 2013-14 save more than £3 billion.

But let me be clear – fairness will be at the heart of the measures we take to reduce the deficit. Unlike the policies of the 1980s and 1990s – where taxes for the wealthiest people in society came down, as the burden on people on middle and modest incomes went up – we will not make those on modest and middle incomes take the greatest strain.

That is why it simply does not make any sense to me to cut tax credits for one million and a half middle class families on modest incomes – while at the same time proposing massive inheritance tax cuts worth £200,000 to a handful of estates.

The budget will focus on protecting and advancing the recovery – on how we protect our children’s and young people’s economic futures by ensuring that Britain can succeed in the new industries and new jobs of the future global economy.

For the final essential element of our plan to reduce the deficit is a determination to get the economy growing faster. Growth creates jobs, stimulates demand and brings in revenue. Growth reduces the wasted costs of unemployment while at the same time helping to avoid the cycle of deprivation and social breakdown we have seen when generations of families are unable to find work.

Our opponents build their policy on political ideology. Ours is a policy built on the experience of economic history. That is why we have rejected from the outset the laissez faire approach that would have let the recession take its course – and it is why we are investing now in the industries of the future.

In the last three years we had a choice to make: whether to leave the status quo as it was with long planning delays and uncertainties for investors, or taking on our opponents, to build for the future and create a new more flexible faster planning environment with a new planning commission. Our choice is clear and we have already set out within the national planning framework for infrastructure plans for ports and for energy.

In these last three years we had a choice to make – to do nothing about our overcrowded airports and lose business to Britain or to build for the future and establish, as we did, an airports policy for the future which keeps Britain at the centre of the global economy.

In these last three years we had a choice on whether to leave the energy status quo with us over- dependent on oil or to build for the future and expand renewables and nuclear power. And we had a choice – to cut back on student and apprenticeship numbers – or to raise them during a recession.

In making each of these important choices about the future of Britain the right but difficult decisions were made to build for the future.

And we have modernised support for British exporters while making changes in regulations and incentives to further encourage the creation and growth of small businesses building on the unprecedented increase in the number of entrepreneurs in this country since the 1990s.

And we have chosen to enhance our already strong relationship with the rest of Europe. We will not jeopardise British jobs and growth by satisfying the reactionary impulse to isolate ourselves from Europe where 60% of our trade now lies.

Providing we continue this programme of proactive support – in active partnership with business – I believe Britain has all the talent it needs to succeed and lead in the future global economy. I believe in Britain’s future.

Broadband Britain can be a world leader, so too can creative Britain, biotech Britain, Nobel prize-winning science Britain, Olympic Britain, high-speed rail Britain – a Britain that is capable of creating in these and other economic frontiers as many as 1.5 million new skilled jobs in the next five years, and opening up the possibility of the greatest wave of social mobility in the post-war era.

This belief in Britain’s future is why we are modernising incentives and improving the way we supervise digital enterprise and communications and are offering up to £1 billion in incentives and support so that we become a world-leading digital economy.

This belief in Britain’s future is why over the last ten years we have doubled the budget for science; why we are encouraging partnerships between business and universities and why we are creating a new £325 million innovation fund to exploit the benefits of our country’s scientific genius.

This belief in Britain’s future is why we are changing the tax regime for biotech and medical innovations creating a new bio-bank – to find new ways to prevent early death and disability from many different diseases – and investing around £15 billion of public money throughout the next 10 years in medical research.

This belief in Britain’s future is why we will propose in the budget new frameworks to stimulate nuclear and clean energy generation and why we are investing more to become a world leader in a three-trillion pound market for low-carbon environmental goods and services – which offers us the prospects of up to 400,000 new jobs by 2015.

And this belief in Britain’s future is why we will later this week set out proposals for investing in high speed rail. For this is the great transport investment project of the first half of this century. It is a symbol both of our ambitions for Britain and of the low carbon economic growth and prosperity we must deliver if we are to give our children’s generation the best possible chance of prospering in the global economy.

These are the critical domestic economic decisions – the new basis of an industrial partnership between business and government – that will secure the recovery and build for strong and sustainable growth.

But we must also ensure that on a global basis, the recovery is balanced and sustainable. And this means that far from Britain stepping back, we must step forward in Europe and within the G20 to inject new urgency into the delivery of the international agreements we have reached.

The risk is that despite the traumatic shocks of the last 18 months, the world will all too easily default to former patterns and failed pathways. I believe there is now a real risk that if no action is taken, either the global imbalances which were the background to last year’s crisis will re-emerge with a vengeance in 2011 and beyond – or the global economy will experience a lost decade of low growth and low employment.

So we must now make a reality of the breakthrough we agreed in Pittsburgh – the first genuine attempt by countries representing 80% of global GDP to coordinate and commit to change their national economic policies to aim for higher and sustainable global growth.

As Dominique Strauss-Kahn, the managing director of the International Monetary Fund, has pointed out: without such co-ordination, countries’ individual economic forecasts will simply not add up. We can not all export ourselves to sustainable growth. Together with a reformed IMF, the framework is the first step to a new system of international economic governance.

But now is the time to turn the blue-print into concrete action. Europe has already been looking at how it, as a union, can contribute to this process. And good intentions are getting an early test within the Eurozone as countries grapple with how best to make it possible for Greece to reduce its own imbalances and rebuild market confidence.

A duty falls upon every government of the G20 to realise the Pittsburgh Accord – reducing imbalances to sustainable levels, achieving exchange rates that reflect sustainable fundamentals, generating new sources of growth from consumption and investment in emerging markets and other surplus countries.

The success of this new growth framework will be one of three acid tests for the G20 in 2010. The second is financial regulation. The foundation of the new global banking system must be a sounder, more accountable and, internationally consistent regime for capital.

The fact that banks are returning to profitability does not remove the need for them to become better capitalised over time.

Nor does it dispense with the imperative, as we concluded in London, for enforceable international rules on capital and liquidity, leverage and resolution mechanisms – or what we now call living wills. Of course, the timetable for the implementation of such rules must be carefully calculated and calibrated to the pace of recovery.

The pace of delevering must be managed to ensure that businesses and employment can recover first. But make no mistake, over the coming years, we need to introduce – gradually, and taking account of the needs of the real economy for credit – core requirements that banks hold much more, and much higher quality, capital. This will do more than anything else to prevent a new crisis.

So the process of recapitalisation must be finished. And government has a crucial role to play in ensuring that the timing of this process meets the needs of the economy – and that it tracks with what is happening in other countries too.

I want Britain to have the highest standard of supervision in the world – and one that is able to compete on a level playing field against other financial centres.

But we must never forget it was the taxpayer that prevented the collapse of the banking system. And we will ensure that the taxpayer recoups the direct costs of the interventions made last year in the UK through the fees we have charged and the shares we own.

Of course, we cannot act in a vacuum. The costs have been and will be different country to country, and the approaches we adopt to recoup crisis assistance can also differ. But that does not mean we can afford an incoherent and uncoordinated approach internationally, which risks banks again taking advantage of differences between countries to locate their activities where regulation is at its most lax. Britain has always been at the forefront of this debate.

I set out at the G20 Finance Ministers meeting in St Andrews in November the need for a new relationship between banks and society – the range of options that should be considered internationally, and the principles that should govern the process, in order to deliver a fairer balance between risks and rewards.

Since then a number of countries have set out their ideas and specific proposals have been put forward. And the IMF is continuing its work.

I believe that we should now build on the ideas that have emerged in the large financial centres and we should seek consensus on a co-ordinated approach over the coming months, building on four key elements.

First, that a levy on banks seems likely to be the most practical approach.

Second, that the levy should be designed go with the grain of necessary regulatory reform not cut across or remove the need for it.

Third, that the levy should support globalisation and avoid double-taxation of international banks.

And finally that proceeds should be for national governments to use, whether to put them aside in a dedicated insurance fund, to repay interventions or to reduce public debt. Based on these four principles, we now need to work actively in the G20 to forge an internationally consistent approach.

There is an immense body of reform which demands continuing high level political engagement. Now is the time for G20 leaders both to recommit themselves to the ambitious agenda we have already set, and to go further – by making clear we will adopt a shared approach to the whole range of measures necessary both to reduce systemic risk and to ensure that the financial sector makes a fair contribution, recognising the cumulative effect of these measures as well as the coherence and consistency between them.

And the third test for the G20 this year must be a renewed focus on trade – the crucial driver of growth in the world economy. I believe we must make the opening up of trade one of the key deliverables for the June G20 summit. A world trade deal, which is within reach, would be worth 0bn annually, and would ensure no backsliding towards the protectionism.

Two years ago we were very close to a deal, but we could not travel the final mile. Today we have to recognise that we will need an even more ambitious deal than we envisaged then if we are to get agreement – and all players must engage in shaping the agreement. And not only should we maintain our ambition in the trade round negotiations, but we must go further.

We must focus on the potential new source of growth – not least low carbon industry and technologies – from liberalising trade with, and investing in, low-income countries to spread prosperity and self-sustaining development to the poorest countries so that in the years to come they too can become engines of growth.

We are at a turning point, a crossroads, for our domestic economic recovery where we have to choose now to maintain the stimulus until recovery is assured or cut it and at a crossroads for the global economic governance that will shape the next decades for us and our children, and for families and children all across the world.

We face crucial decisions. Cut now at home; fail to protect our frontline services; fail to invest in the growth sectors of the future; and we could push our economy back into recession threatening the very jobs, homes and businesses we fought to protect from the toxic winds of the great global recession.

But it would be just as dangerous for our own prospects – and for the prospects of our international partners – to fail to deliver the urgent global growth strategy we now need and to fail to complete the work of bank restructuring. Both are essential for strong, balanced and sustainable growth across the world economy.

Just as before – the response of this government will be swift and unwavering – to do whatever it takes to protect the recovery, advance the global reforms and achieve balanced and sustainable growth for the future for families and businesses in Britain.

And because it is right, right in principle and right for our own economy, we will work for a prosperity across the world that will fuel prosperity in our own country.

And the stakes are high. We dare not risk the recovery. For our task above all else is to preserve and expand the jobs – and lift the standards of life – of the British people.

We are weathering the storm; now is no time to turn back. We will hold to our course. And we will complete this mission. We have got through this storm together but there are still substantial risks ahead.

There will be bumps in the road. And I believe the only way to overcome them is by displaying the same strength and resolve as we did during the crisis. I will not let you down.

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