Davos 2016: Chancellor's speech at the CBI's British Business Leaders Lunch
George Osborne's speech to British business leaders at the CBI's lunch in Davos.
It’s great to be here again speaking to British business leaders.
I’m glad to see so many familiar faces.
It takes me back to the last time I spoke at this lunch, four years ago.
I spoke then of the sombre mood at Davos, and of the great challenges facing both the British and European economy.
Back then we were still struggling to recover from the financial crash that brought us to the brink, and the great recession that did so much damage.
As a new Chancellor, I had set out a clear economic plan for us to follow. We would tackle the crisis in our public finances.
We would cut business taxes and boost enterprise.
We would take the difficult long term steps to ensure a lasting private sector recovery rather than pump up the public sector balance sheet still further and risk catastrophe.
I described it as “a hard road to a better future.”
But by the time I spoke here to you, the enemies of that plan and our long term solution were circling.
There was talk of a double dip recession.
Our unemployment rate had just hit its peak of 8.5%. Real wages were falling.
The clamour for plan B – and a return to spending and borrowing – was growing.
But you – the British business community – never wavered. You kept faith with our plan – plan A.
You understood there was no easy shortcut to the work Britain had to do. You kept your nerve and so did we.
And I want to thank you all for the role you have played over these years – for your support and commitment to the difficult choices we`ve taken to turn Britain around.
And the results have been there for all to see.
Britain has been one of the fastest growing advanced economies in the world these past few years.
This week we saw our unemployment fall again to almost 5%.
And now we’ve got the highest employment rate in our history.
Real wages are growing.
The deficit as a share of GDP is down to nearly a third of what it was with solid public finance data this morning.
On the back of this, business investment is forecast to grow at 7.4% this year – the fastest growth since before the crisis.
That shows your confidence in the UK economy.
I’m proud of these economic achievements.
And I think you should all be proud too.
Because much of the success of our economy is down to you – you’re the job creators, the innovators, the providers of opportunity.
And thanks to you, the UK has been a bright spot in the world economy.
We have been a chink of light cutting through the global gloom.
But that gloomy backdrop means we cannot rest or become complacent.
Some seem to think the job is done and we can afford to let up.
The new year is only three weeks old, and already I’m facing calls to abandon our public spending controls and borrow freely.
That would be precisely the wrong response.
We need to continue to implement our long term economic plan. We need to keep cool heads as the market heats up.
Now, as much as ever, we need to go on putting our own house in order.
For as I’ve said, we face a dangerous cocktail of risks from the global economy. Everyone here in Davos is discussing China’s slowdown, and plunging oil prices.
And here’s a sobering fact:
2016 has been the worst start to a year for the financial markets in my lifetime.
And I’m not so young anymore.
Oil is now around $30 a barrel.
Let’s be clear: cheaper energy is helpful to many of you here – and to British families.
But the speed of the drop has hit oil-producing emerging economies hard.
And Iran – OPEC’s second biggest member – is now bringing on more supply.
Long term that is good news, but we could all do with a little less of this volatility in our lives.
Meanwhile, as corporate earnings seasons kicks off in the US, there are reports it could be a weak one.
With some people already querying the US rate rise.
It adds up to a hazardous mix.
But my message today is one of confidence: we can meet these risks and overcome them, if we stick to our plan.
We are all here to talk about the future – for your businesses, for our countries. So I wanted explain what the best antidote for the dangerous cocktail is.
To offer concrete proposals on how the global economy needs to change.
And explain how we plan to reform Britain’s economy too.
The Chinese are fond of their proverbs and they have a good saying.
They say that “talk does not cook rice.”
It is simple, it is true, and it is particularly relevant now.
There’s a lot of transition taking place – transition that is difficult and turbulent, yes; but transition that is fundamentally positive too.
We know that China is transitioning from investment to consumption.
We know that global oil markets are in transition, with new suppliers like Iran and new technologies like shale.
We know that interest rates in the US are in transition.
And we know there are big forces at work as the demographics of many Western nations change, altering the balance between investment and savings.
These are the shifting tectonic plates of the global economy.
So since we all know they are shifting, we should also know that those shifts create tremors.
The question is: how large will those tremors be?
And the question for all of us here is: do we just talk about this transition – or do we take the action, and show the political will, to adjust to this transition and make it as smooth as possible?
You will hear, here at Davos, any number of political leaders promise reform.
What we need to see are the results.
We need to see every shoulder at the wheel.
Every country acting as one in search of growth.
We need China to keep reforming. To deliver on the commitments in the Fifth Plenum to allow markets to play a greater role as it consistently says it wants.
We need Japan to stick to all three arrows of its bold plan. To deliver not just stimulus but the structural change to deliver the sustainably higher growth rates it so badly needs.
In countries like Russia and Brazil we need greater efforts to diversify, away from state owned companies and to increase investment, particularly in infrastructure.
And in our continent of Europe I’m tired of seeing yet more action plans for completing the single market and yet more calls for free trade deals. I want to see those plans put into effect.
That is part of the reform we are now seeking in the EU.
Our global institutions can play their part too – and up their ambition.
The theme of Davos this year is the digital economy.
And we should give our global institutions a reboot.
Take trade.
Opening up markets with trade deals can help all your businesses grow, helping every economy you operate in.
I welcome the recent trade agreements in Nairobi, but it is simply unacceptable that the Doha Round of trade talks that were kicked off in 2001 have still not been concluded.
It is no easy task but the World Trade Organisation has a strong leader. Let’s get behind him.
Or take the IMF.
The IMF tells us reforming the supply side of economies by backing competition can boost growth.
So I want the Fund to hold countries feet to the fire – tell us when we are not doing enough to reform.
Christine Lagarde has shown real leadership and guided the IMF through a very difficult period with integrity and intelligence.
I was the Finance Minister who proposed her for the job 5 years ago.
Yesterday I nominated her again, for a second term, so she can complete the job.
And we will need more from the G20 too.
China will lead this year and the focus – on trade, and on competitive reforms – dovetail with what we need from the WTO and the IMF.
Working together across these institutions we should make it a year of action.
For as that Chinese saying goes, talk does not cook rice.
And in turbulent times we need action to deliver economic security at home. At its heart are sound public finances.
When we came to office in 2010 the deficit was over 10% of GDP. £1 in every £4 the country spent had to be borrowed.
We’ve dramatically reduced that deficit – but it remains too high. So does our debt.
The Budget last summer and the Spending Review that followed took further difficult decisions so that we turn that deficit into a surplus.
I said at the time that we needed that surplus as the precaution against tough times ahead. People said it wasn’t necessary, we should run a deficit forever.
I think events at the start of this new year have borne out our judgement. They serve as a salutary reminder that we need to do everything we can to fix our public finances and build our resistance for whatever lies ahead.
Reducing government spending is easy to talk about; but hard to deliver.
Every government budget has its pressure groups who will go on our TV and radio to defend every pound we spend. But we have persevered in the patient work of saving money and reducing borrowing.
In the UK we are seeing what independent observers like the OBR describe as the most sustained reduction in government consumption in over 100 years.
Indeed, it’s the biggest fiscal consolidation any G7 economy has achieved in modern history.
You, the business community, have consistently backed us as we’ve taken these difficult decisions – because you know that there`s no security unless a country lives within its means.
Just as we’ve put the public purse on a stable footing we’ve radically reformed financial stability too.
People ask me about whether we’re keeping an eye on levels of private debt. Yes we are.
Indeed, I created the new Financial Policy Committee in the Bank of England precisely to spot those kind of risks.
The Committee has already taken action to limit bubbles in the housing market, and require our banks to hold more capital.
It’s looking at Buy-to-Let mortgages and it’s made it very clear it will take further action if needed.
For economic security is a foundation that every working person and every company operating in our country gains from.
Sound public finances, a sound financial system.
These don’t happen by accident.
They’re not a consequence of speeches… They require hard decisions, persistence and action. And we are delivering it.
Of course, stability is essential, but it is not by itself enough.
After all, graveyards are pretty stable places.
We need a dynamic economy.
We need major reforms to improve our productivity, which is the key to sustained rises in living standards.
We start with education and skills.
It’s been a perennial British weakness. Lots of governments have talked about it as a priority.
But changing schools, demanding excellence and driving up standards is easier said than done.
The vested interests gather. The unions circle the wagon around the status quo.
But we’ve challenged that status quo – and I think people will look back on the far-reaching reforms we’ve made to schools under Michael Gove and Nicky Morgan as one of the most important economic and social reforms any post-war government has undertaken.
Five years ago 200 schools were academies; today over 5000 are.
Our reforms mean 1.4 million more pupils are being taught in good or outstanding schools.
Our reforms mean millions of new apprenticeships, giving young people the chance to learn a trade.
And despite all the protests, we raised student loans and now our universities are flourishing, many rank among the best in the world, and more kids from low income backgrounds are going to college than ever before.
Now under the leadership of my friend and colleague Sajid Javid we’re pushing forward with more apprenticeships funded by a levy, more improvements in schools and university reforms – again bitterly opposed – but absolutely right.
Not just talking about excellence, but delivering it.
As well as investing in people we must invest in hard infrastructure
In Victorian times we led the world in rail.
The first inter-city railway in the world was British, the fastest steam locomotive in history was British.
But then we fell back.
Now I want us to get back the cutting edge, building new high speed lines.
Again, we faced opposition. Everyone is in favour of infrastructure in general until you propose something specific. But now the budgets for HS2 are set, the legislation is going through Parliament and construction will soon begin.
We’re also backing the largest road investment programme since the 1970s, building new nuclear power and investing in renewable energy too.
And we’re now trying to instil long term thinking in all our infrastructure planning – taking it out of the day-to-day political fight.
Crossrail took 20 years to get off the ground because a political consensus couldn’t be found.
It was the first project I was asked to cancel, and the first project I gave the green light to – and now this awe-inspiring underground railway is taking shape.
I’m not going to stand by and let British people travel for longer to work, or pay more for their utilities just because we struggle to get political consensus for the big decisions.
That’s precisely why I wanted to set up the National Infrastructure Commission – it’s why I reached out for the very best person to help me set it up in Andrew Adonis.
And now I’m looking forward to reading their first report before the Budget on how we can improve transport in the north and in London and every region across the country.
We are also committed to creating a competitive economy. Now again, we know, competition doesn’t always happen if you leave it to the market alone.
That’s why in November we published a new plan to break up monopolies and back new entrants.
Why shouldn’t customers choose their water provider? Why can’t more pharmacies deliver drugs online? Why can’t supermarkets offer legal services? Of course, there will be protests from those whose businesses are shielded by existing regulation.
We need action to let competition flourish, back the new company that doesn’t always have a seat at events like this, and put the customers first.
And we need to improve connectivity.
We start from a decent base: British households are pretty savvy when it comes to the internet.
The average Briton spends £1500 online each year with the internet contributing more than 10% of our GDP – higher than anywhere else in the G20.
We are the top destination in Europe for Foreign Direct Investment and the leading FinTech hub in Europe.
These are encouraging signs. Because a digital economy is a productive one
But here’s another statistic for you: just a 10% increase in the UK’s digital density could add £40 billion to GDP by 2020.
Those are the sort of gains we must grab
That’s why we will be publishing our far-reaching Digital Strategy this year, setting out what we will do to ensure that the benefits of digital are felt throughout the economy.
And we must go on building stronger and deeper links with the rest of the world.
That’s why events like this are important Because yes, it is true that growth in emerging markets has slowed recently, down from 7.5% a year in 2010 to 4% a year in 2015.
But even with this slower pace of growth, the emerging economies are still expected to have accounted for 70% of all the growth in the world in 2015.
We don’t deliver sustained growth by becoming insular and isolated.
We’ll protect ourselves by reaching out to the world and broadening our links.
By looking to each and every trading opportunity.
So that we are doing business with many countries, and many sectors. That`s why we are determined to pursue reform of the EU and achieve a better relationship for Britain with our European partners, as David Cameron explained yesterday.
That’s why, earlier this week I welcomed Indian Finance Minister Arun Jaitley in Downing Street and we reaffirmed the strength of our economic relationship, jointly announcing the upcoming issuance of the first-ever Indian offshore Rupee bond in London – cementing our future as the world’s centre of finance.
And it’s why I hosted the first ever UK – Brazil Economic and Financial Dialogue in London at the end of last year.
These relationships help to boost trade for British businesses – exports from the UK to the emerging economies have increased by 16.5% since 2010. And let me just say a few more words about China.
We want China to rebalance.
All of the troubling statistics – slowing energy use, low metals demand—are signs of the same thing, a shift to a consumption based economy.
So my main message on China is that we won’t rubberneck and fret about each new bump on the road.
We’re in it for the long haul.
We are going to support China on the difficult route of economic reform that it is following.
We want to be China’s best partner in the West.
Some say the stock market volatility in China means we’re wrong to strengthen our economic ties.
But those critics can’t look beyond the next days’ headlines.
China is an economic colossus, it is the second biggest economy on the planet. It’s a huge part of our world’s future.
Any economy that size you want to trade with, whether it is growing at 7%, 6% or 5%.
Even at this growth rate, China will add an economy equivalent to the size of Germany’s to world output by the end of this decade. So we strengthen our links across the world.
But we will only thrive as an outward looking nation that wants to trade with the world if we have a pro-business government.
So my aim, and what I’m working to achieve, is making Britain the best place to be a global firm.
For five years we’ve unashamedly backed business, large and small.
You asked us to set a permanent level for the Annual Investment Allowance; we did that and made it bigger too. At £200,000: it’s at its highest ever permanent level.
You asked us to reform R&D tax relief, so we made it more generous.
You asked us to deal with the punitive 50% income tax rate because it was destroying enterprise – and though it was not popular, I cut it.
But the business tax reform I am most proud of is the reform we’ve made to corporation tax.
When I became Chancellor it stood at 28% - and as a result, Britain did not stand out as a low tax destination for business. Today it does.
In Budget after Budget I’ve cut the rate – from 28% to 20%. The lowest in the G20.
I could stop there. Let other countries catch up. Or we could press on and press home our advantage.
The future favours the bold. So I’m cutting corporation tax again, to 19% and then to 18% by the end of the decade.
Let us forge ahead and let others follow our dust tracks.
Overall the business tax cuts we’ve announced since 2010 will be worth nearly £100 billion to business this decade.
To repeat, that is £100 billion of support.
At times when we’ve had to make many other difficult decisions on the public finances I hope those facts make my priorities clear.
And I want to assure you of another thing.
That these choices are born from deeply held views I hold about enterprise and free markets.
I`ll be frank with you: There aren’t many votes in cutting taxes for business.
And so we don’t pander to business to win your votes.
We support firms like yours because we honestly believe that the business community shows some of the best British values.
Of self-reliance, of building for the future.
Of innovating to solve problems, and of open and fair competition.
That is what the UK is about.
That`s what this government is about.
That is what your businesses do. And without your success there are no jobs, no resources for public services, no future.
We’ve all come a long way together since I spoke to you at this lunch four years ago.
There were bumps on the way, but we stuck to the course. Now, as markets around the world heat up, we in Britain will keep a cool head.
Because we have further to go to achieve our aim – and become the most prosperous major economy in the world by 2030s.
My door is always open to you.
I will need your ideas to achieve that goal.
And I’m looking forward to working with you all in the years to come to make it happen.
For, as the team who’ve provided this meal today know: talk, my friends, does not cook rice.