Or we could get the incentives right — to steer people in the right direction and then trust them to make their own decisions and live by the consequences. So we should consider requiring the initiator of a mortgage to retain more of an interest in that mortgage. We should ensure that the regulators take Executive compensation schemes into account when regulating institutional risk. And we should look at the way that rating agencies earn their fees, with more transparency and perhaps some relation to the performance of the securities they rate.
All of these measures are about retaining the fundamental strength of the market — freedom — but endowing it with the fundamental value — responsibility — upon which it depends. The right framework of rules and incentives in the financial markets so we restore financial responsibility. And in addition, much of the growth has been driven by immigration — an unsustainable basis when you consider the impact on public services and our national infrastructure. Unlike many other countries in Europe, we can't turn to a strong manufacturing base to provide export-led growth, because manufacturing has shrunk by more than a million jobs over the past decade.
And we can't put our faith in the high-tech service sector — like in America — to drive growth, because we haven't created the right conditions for it to flourish sufficiently over the past decade. We have to broaden our economic base to include more science, more hi-tech services, more green technologies, more engineering and more high-value manufacturing, drawing upon a much wider range of industries, markets, people, towns and cities. We need to do far better in bringing into everyday use technologies that are still in laboratories….
We need to reconfigure our energy systems, wean our economy off its dependence on imported hydrocarbons and turn Britain into a world leader in green innovation and engineering. We need to decentralise our economy so the south doesn't overheat and instead every part of our country plays a significant part in our growth. That is why we are committed to cutting the headline rate of small business tax to 20p, paid for by abolishing complex reliefs.
And that is why we have asked David Arculus, a leading businessman and former head of the Better Regulation Task Force, to head an independent task force examining ways in which a Conservative Government could cut red tape. In the weeks ahead, we must not let this Government make the mistake of thinking that the answer to this crisis is to tax and regulate small businesses even more heavily. But creating a balanced enterprise economy is not simply a matter of government getting out of the way. As I have said many times before, while we must be aware of the limitations of Government, we should never be limited in our aspirations for Government.
Government must also do more to secure the skills, energy and transport infrastructure that will help create new jobs in new industries and new markets. That's why we have set out a radical agenda of supply side reform in the education system, to create more and better school places in every community. That's why we are committed to a bold series of environmental policies, from feed-in tariffs for microgeneration to unleashing a green coal revolution. That's why we have proposed a series of policies to make it easier for innovative start-up businesses to win government contracts. And that's why we have pledged to introduce a high speed rail system that will link cities across Britain and transform regional economies.
This is the right vision, the right plan, and above all, the right ambition, to create a balanced economy that is built to last. But as we look at the wreckage of our economy after ten years of irresponsible Government, it's clear that if we're going to make the most of those resources we need change — not more of the same.
Gordon Brown is hoping that his whirlwind of summitry will mean that we will forget what has come before. Forget that — as we enter a downturn, where jobs, home and livelihoods will be lost — that he was the one who created this mess in the first place. Stopping the fire from spreading — averting an even deeper financial crisis - has required everyone — opposition included — to man the pumps. We did support that — and my Party backed the decision, united and strong.
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Of course the details of the deal should be discussed robustly. Let me make it crystal clear — we do not. And the complete and utter failure of their economic record has never been more clear to see. This crisis has highlighted just how mistaken Labour's economic policy has been. His assumption that you could abolish boom and bust and that the good times would last forever. Now we can see that each of his assumptions were false. We need change. They are wrong. And that is exactly what has happened to our economy.
Over the past decade, we have seen a total breakdown of economic responsibility. From the government, as it has spent and borrowed without restraint. So it is not more freedom that our economy needs; it is more responsibility. We've had irresponsible capitalism presided over by irresponsible government. Today, I want to set out how we got to where we are — financial crisis and economic downturn. The crisis that we face has deep roots. We all know the simplistic version.
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People in America were given sub-prime mortgages they couldn't afford. The banks devised new ways of chopping up debt and selling it on. No one understood the assets they were buying. So when the merry-go-around stopped, it all came tumbling down. That's all true. But it's only half the truth. The underlying dynamic was this global boom presented those in charge of economic management in Britain with a temptation… …and they succumbed to it. For example in China, for a time, the average family saved over half its income. In Britain we took advantage of this new debt without stopping to think of the consequences.
Government made things worse. And he stood aside as our households racked up over a trillion pounds of personal debt. So why did our Government let this happen? Was it negligence — or was it intentional? There is a strong case for saying it was intentional. New Labour took a new approach to economic and social policy. Having previously opposed free market economics, they decided to accept it without question, seeing it as a 'black box' to produce ever-growing tax revenues… …without properly understanding how it worked.
Of course, these mistakes were not only made in Britain. We all agree about that. But we mustn't let that consensus hide the truth. The underlying failures of policy were national. The failure to regulate U. And the failure to regulate public and private debt in Britain was a British failure. It was a failure Gordon Brown was warned about time and again.
And time and again he ignored those warnings. Two years ago, he was dismissing calls for what he called a "regulatory crackdown" on the City. And only last year, he was celebrating what he called a "golden age for the City of London"…. Does Gordon Brown really think he's going to get away with that? He cannot hide from his mistakes. He cannot hide from the truth.
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The truth that house prices rose higher in the UK than even in the US. The truth that the boom has now turned to bust. So let me set out exactly where we've come to. Gordon Brown's policies — his entire economic strategy - has fundamentally failed. The Government's deficit is so big that the cupboard is now bare. That's put further pressure on families, businesses and our financial institutions. And let's be clear what all this all now means in the real economy. We've got more and more families unable to make the mortgage repayments and losing their homes.
We've got more and more good businesses going to the wall because they can't get the credit. And we've got more and more people losing their jobs through no fault of their own. And to this Government and to these Ministers who say that anyone mentioning these things is somehow "talking Britain down", everyone knows what you're trying to do — to close down debate, to shut people's eye, to hide the truth… …to mask your failures. I will never pull my punches in explaining how this Government has brought Britain down. We did support the action taken to re-capitalise banks. It was an action that had to be supported by any responsible, centre-right Party.
But stabilising the financial system is not by any means enough. This will help to counter deflationary pressures.
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But short term action to get through the crisis is not enough. You also need people to know that they will be punished if they do the wrong thing. Just as we've argued in welfare, that if you don't accept a good offer of a job you should be denied your benefits… …so too should we say to bankers if you don't succeed, you shouldn't get your bonus. We shouldn't replace the free-market — we've got to repair it.
Repairing our public finances. Repairing our financial services. Repairing our skills, infrastructure, and enterprise culture — to create a balanced economy. So let me set out exactly what we will do. This means having the character and judgement to impose discipline. That means discipline in opposition. No spending commitments which will never be delivered. No promises of upfront, unfunded tax cuts which will never happen.
Instead, responsibly focusing on what can — and cannot — be done. And it means discipline in government. Saying 'no' more than 'yes'. Not borrowing to try and buy yourself a by-election. Living within your means. Spending responsibly, borrowing responsibly and saving responsibly… …so in the long-term we can cut taxes responsibly. But to help governments stick to the right course, we need radical a plan for fiscal policy. It will have far more authority than a select committee or a Westminster think-tank.
But, it will not be a substitute for making tough decisions on tax and spending. We will not, as some have wrongly assumed, be subcontracting this core function of government. They report. Government's decide. I believe in markets that work — not in the assumption that laissez-faire is enough. We regulate utility companies — and there is a good reason.
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If they fail, our lights go out — so we've got to make sure they work. And it's why we need proper, responsible regulation of our banking industry too. For too long, City firms have been able to poach the best regulators. It will be a fundamental and far-reaching reform of monetary policy. Instead, they must recognise the massive responsibility they have to our society. We could respond in two ways. We could write detailed codes and establish an army of enforcers. Sound public finances by restoring fiscal responsibility.
These are necessary if we are to repair our free-enterprise economy for the long-term. But there is a third requirement. A responsible party has to include rebalancing our economy. Over the past decade, seventy percent of our economic growth has come from just three things. From housing — which is now declining. From the financial sector — now in turmoil. And from government spending — now slowing.
We've got to change this — and build an economy that is balanced and resilient. And how will get there? We need a radical plan. We need to do far better in bringing into everyday use technologies that are still in laboratories… …and developing in the laboratory technologies that haven't even been thought of yet.
This won't happen overnight. For a start, this means creating an economic framework that enables new businesses to flourish. It is not enough for Government to get out of the way — they've got to get involved. Britain has incredible resources at its disposal. World beating companies. Since the figures reported above are not forward-looking by their very nature, they do not tell us whether there are structural factors that could prevent the rebalancing of the economy back towards manufacturing industry and how feasible it would be.
The challenge for rebalancing is significant. The strategic focus, correspondingly, would have to be not so much in the development of entire industries but rather to find niche areas of expertise high up in the GVCs of a relatively wide portfolio of industries.
This in turn has implications for innovation capacity that is both much discussed and where the UK, with a score of While productivity growth continues to be a challenge, therefore, there is at least some evidence that the UK may be well positioned to grab a niche relatively high up GVCs, where much of the value is created. This brings us to the two issues with huge political implications. First, are we asking the right questions about manufacturing sector growth and its share in the economy?
If the future of manufacturing lies in innovation, will we see an inevitable period of industrial decline as industries in which UK firms do not have competitive advantage shrink while new industries and firms grow to make their mark? Second, what is the objective for growth of the manufacturing sector?
Is the objective a more diversified UK economy that is not heavily reliant on the financial sector — or is there an unspoken subtext about generating demand for a well-paid and organised sector labour force harking back to the post- World War II era of manufacturing growth.
While innovation-driven manufacturing sector growth may be quite feasible, it may not necessarily lead to the creation of a large number of well-paid jobs for people with all skills levels. Then there is the question of how at British exit from the EU might affect all this. While crystal ball-gazing is hazardous, two things immediately come to mind.
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If the future of UK manufacturing lies in an innovation-led move up the GVC ladder, it would need an economy that encourages innovation and clusters of enterprises that may be costly to develop within borders of a single country whose resources are limited. To the extent that Brexit would raise the transactions cost of forming these eco-systems and clusters in cooperation with other European countries, it would be more prudent to stay in than stay out.
Further, since integration with GVCs quite likely has implications for skill gaps at one end of the labour market and structural unemployment at the other, it may be imperative for the UK to be part of the intra-EU flow of labourers. Retraining of labourers in sunset industries to prepare them for sunrise parts of the sector sounds good in theory — and makes for good political speeches — but it cannot possibly be a substitute for free mobility of labour within 28 countries that will present opportunities for workers with particular skills to find the right niche and industries with particular needs to hire the right workforce.
Policymakers, in other words, would have to have clarity about the objective for manufacturing growth and rebalancing: either achieving greater diversity within our GDP portfolio so that we are not overexposed to future financial crises, or creating the space for a certain kind of employment.
Importantly, it would be prudent to make those choices within the the EU. Low pay, earnings mobility and policy — Manchester, Lancashire.