Britain: The best place for inward investment
All Governments round the world today face the same challenge: how to provide opportunity and security for all in a world of change. Global finance and technology transform not just our economies but our social fabric. Living standards, certainly in the richer nations, may rise. But so does insecurity. The old, familiar certainties - jobs for life, stable communities, settled family ties - are gone or under pressure.
The nations that succeed are those that combine a strong sense of values with a willingness to adapt, to move with the grain of change.
This is reinforced by the fact that the greatest resource of a nation today, certainly one like Britain, is its people. Their education and ability are the key to economic success as well as social stability. So opportunity for all is not just socially desirable; it is increasingly an economic necessity.
All of this transforms the role of modern governments and politics. Old categories of left and right become out of date. Values remain but policies require a radical overhaul.
We have been tougher on monetary and fiscal discipline than any Conservative Government before us; and are proud of it. Yet after cutting the deficit, we are now embarking on a sustained expansion of investment and education, skills and technology. We are pro-business, but are tackling social exclusion through policies like the New Deal for the unemployed. We have introduced tough policies on crime, but are also resolutely in favour of a society of tolerance, without prejudice or discrimination.
People say this is a political contradiction. I say if you want something that works, it is the new consensus around which successful Government has to be based. It is the reason we created New Labour and the reason we will continue it.
One big part of our programme is to make Britain the number one place in Europe for business. Attracting business and investment is essential, economically and socially. If we live in a global economy, get as much of it as you can. Otherwise full employment is a chimera. So we need you and we want you here.
We believe Britain can become the European hub of the emerging global economy. In Europe, a bridge to America, attracting investment from both and from around the world. In effect, Europe's corporate headquarters.
Inward investment in Britain
Britain is already Europe's top location for inward investment. We get over 25% of all investment into the EU, including over 40% of all US and Japanese investment.
This investment accounts for 19% of British employment and over a third of manufacturing investment. There are 18,000 foreign firms now operating in Britain, accounting for 20% of Britain's top 100 exporters.
The total stock of investment at the end of last year stood at 240 billion pounds, 50% up since the general election. Since 1997, foreign investment has created over 90,000 new jobs and safeguarded 158,000 more.
Figures being published on 5 July will further show that last financial year set new records in terms of new investment, particularly in terms of new start-ups and new jobs. These figures will demonstrate that investors not only regard Britain as the business centre of Europe but they increasingly see us as Europe's digital centre - the natural home of Europe's vibrant and growing software and e-commerce industries.
There is always more to do. We are putting in place a new framework for bringing together the way we promote trade and investment in Britain, joining up the different agencies and creating a one-stop shop for investors and business alike.
That is why our strategy is:
First, to entrench our new framework for monetary and fiscal stability;
Second, to reform our education system so that we can compete from a position of strength in the new knowledge economy;
Third, to create one of the world's most independent and robust competition frameworks to open Britain up to new startups and inward investors;
Fourth, to put in place a framework that rewards small and medium size businesses and entrepreneurs for innovation and risk-taking;
And lastly, to put structural reform and competitiveness at the top of Europe's economic agenda through constructive engagement in the European Union.
The British economy is forecast to grow by around 3% this year and 2.5% for the next two years. We have avoided the recession so many predicted. But it hasn't been chance. It has been the result of policy reforms: price stability based on an inflation target, and fiscal stability based on tough fiscal rules.
We have established a more robust and credible institutional framework by making the Bank of England independent and legally enshrining our new fiscal procedures in a new code for fiscal stability.
The results of this new macroeconomic approach speak for themselves:
Inflation down to 2.0%. Short term interest rates down to 6%. Long-term interest rates down to German levels for the first time in thirty years. A budget surplus this year of 17 billion pounds where we inherited a deficit of 28 billion pounds. National debt down to 35% of GDP from 44% in 1997.
At the same time, we have freed up substantial new money for public investment. We will shortly be setting out our plans for increased investment including in the transport system over the next ten years. None of this has come easy. It is only because we were prepared to take the tough choices necessary to keep spending under control, to sort out the deficit, to cut the bills of social and economic failure, that we are able to deliver stability for the long term and that we are now able to invest more in the key public services.
Precisely because we recognise the importance of stability, we recognise the potential benefits of Britain's membership of the single currency.
Whatever you may read, our policy has not changed, and will not change. In principle we favour joining a successful single currency. In practice the five tests, which include sustainable economic convergence and the effect on the City of London, must be met. In the meantime we prepare so that should they be met, Britain is able to join. The final say is with the people in a referendum. We have repeatedly said, most recently the Chancellor last Thursday, that we will make the assessment early in the next Parliament.
I have no doubt at all that it is essential for Britain to develop its rule as a key player in Europe. Not for Europe's sake, but for Britain's. To talk of withdrawal from Europe or a retreat to its margins is the fastest job-losing strategy I know. My Government won't follow.
Education, training, welfare-to-work
We need a modern flexible labour market and a radically improved education system.
Last year's results in primary schools were the best ever; we are reforming our secondary schools; introducing performance-related pay for our teachers; giving more people access to higher education, with the goal of extending further education to 50% of young people by 2010. And giving people throughout their life greater opportunities to continue to learn and retrain.
But just as we are preparing the next generation for tomorrow's challenges, so we are working to help this generation adapt to those of today.
As the OECD said in their recent report on the UK, our welfare-to-work programme is having a significant impact in improving Britain's labour market and moving people out of declining industries into new opportunities.
By demanding responsibility as well as giving opportunity, the New Deal has already helped cut youth unemployment by over half. Nearly one million jobs have been created.
As a result we are spending 2-3 billion pounds a year less on welfare.
If stability is the pre-requisite for investment, competition is the driving force.
Competition is also the key to improving Britain's poor record on productivity - the traditional Achilles heel of British industry.
That is why this Government is putting in place the most rigorous competition framework this country has ever seen.
Our new Competition Act builds on our decision to create a new independent competition authority.
For banking and financial services, the Financial Services Authority will now, for the first time, be required to facilitate competition.
And for the regulatory system, the Government will consider how to scrutinise regulatory bodies and review existing and proposed regulations to ensure they are promoting not impeding new entrants and competitive forces.
Creating the best environment for investment
Making Britain the best place to do business in Europe means creating the best environment for investment, innovation and risk taking.
Of course, business will always have its concerns with this or that aspect of Government policy. We have set up a new Small Business Service, based on the American model, to promote small businesses' interests, including tackling regulation. Recently there has been disagreement over so-called "mixer taxes" though I believe with the new Treasury proposals these can now be laid to rest.
But it is important to emphasise the business-friendly nature of much of our tax reform.
To promote small business development, we have cut small business tax from 23p to 20p and introduced a new starting rate of tax of 10p in the pound for all companies making profits of up to 50,000 pounds a year.
To promote expansion in larger businesses, we have cut corporation tax from 33% to 30%, the lowest rate of corporation tax of any major industrialised economy.
To promote longer term investment, we have cut capital gains tax from 40% to 35% after one year, tapering down to 10% after four years.
And to promote the best talent entering the new high-tech sectors, we have also introduced a new share-ownership scheme allowing firms to offer share option incentives of up to 100,000 pounds for up to 15 employees.
As we can, so we will do more.
Economic reform in Europe
But reform at home must be matched by reform abroad if we are to reap the full benefits of the massive changes sweeping the global economy.
That is why we, along with like-minded governments on the continent, have led the drive to accelerate structural reform in Europe. At the Lisbon Summit last March we succeeded in getting the European Union to put job creation through economic reform at the heart of the EU's agenda; and to focus future legislation on opening up new markets and liberalising existing ones.
Gordon Brown's personal triumph at the Summit in Portugal earlier this week is further proof of that new economic realism in Europe. Six months ago Britain was all but isolated in arguing that the best way of cracking down on tax evasion was by exchanging information, not imposing a one-size-fits-all tax across the European Union.
Today, the threat of a withholding tax being imposed on the City of London has been lifted. By winning the argument, not by using the veto.
And by winning the rest of Europe round to our point of view we have done more than protect Britain's interests over the withholding tax.
We have advanced our vision of an open, deregulated Europe in which legitimate tax competition is a spur to economic development not a threat.
Which brings me back to where I started.
Our ambition to make Britain Europe's corporate headquarters. The leading destination for inward investment, the best place to do business in Europe.
Getting the fundamentals right has been our priority. We can now move on in the confidence that we are building on stability.
I believe our reputation for economic competence is one of our most important achievements. There are many responsibilities that face a government. They don't come bigger than managing the nation's finances, delivering economic stability, jobs and rising living standards.
There is a tendency in this country to knock rather than celebrate. I believe that inward investors share my view about Britain today. That it is a great country, with a great past, and a great future.
That there is nowhere better on earth to work, to live, to do business.
So I thank those who invest here already for the faith you put in Britain.
And I promise you today that we will carry on working, day in day out, to deliver the policies that help you thrive and prosper in the UK.