Tuesday, November 29, 2005

Blair speech on Nuclear Energy at CBI

CBI Press Release


Check against delivery

There is one question that dominates policy-making for industry and the economy today: open or closed? Look round the world and Governments of all persuasions, colours and countries are trying to answer it. It is the debate that lies underneath the EU budget dispute. It ricochets round the development agenda and how the world's poorest countries make progress. It is the overt issue of the WTO trade round. Does future economic prosperity rest on opening up the economy, embracing the opportunities of globalisation, risking its competitive pressures, trusting your country and its people to pass through the fire strengthened; or is it better to protect what you have, to cushion sectors that cannot compete openly, by tariffs, subsidies or state intervention?

It is easy to answer this question in theory; very hard to do it in practice. Any of you who have managed big change programmes in your businesses know how tough they are to do. The benefits are usually long-term and general. The downside is almost always immediate and particular.

Yet there is no doubt what works and what doesn't. To be successful, modern economies need to be open; that means open to overseas investment; ready to have poor performers taken over by good ones; encouraging managed and controlled immigration; willing to see companies and even sectors rise and fall and unwilling for Government to pick winners.
The role of Government does not disappear. On the contrary, it is vital. But it is different. It sets the climate for business. Where necessary, it invests taxpayers' money to create the right human and physical capital. It aims for a framework of welfare provision that incentivises work and saving. It advocates and seeks to ensure that, whether in Europe or across the international community, other economies too become more open. It tries to espy future challenges and prepare the country for them.

Right now, we are at a critical juncture.

The great success of Britain's economic policy over the past years has been the achievement of macro-economic stability. Between 1979 and 1996 UK growth was very volatile. Since 1997 it has been the most stable in the G7. The UK, alone amongst G7 countries, has had no quarters of negative growth since 1997.

We have the highest employment rate in the G7; the lowest interest rates since the 1960s; productivity is now higher than Germany and Japan; wealth per capita is now above that in France, Germany and Japan.

But the world is changing ever more rapidly around us.

Today, the volume of world trade was 24 times what it was in 1950. The Indian economy is the second fastest growing in the world. China has grown at nearly 10% per annum for a quarter of a century. Information technology, mass communication, large-scale migration and footloose international capital is driving competitive pressures all the time. And the emergence of China and India does more than provide strong competition. They are vast consumers of energy and other scarce commodities.

It is now quite common for commentators to refer to the British economic model.
This is not a split-the-difference model, a little bit of American enterprise softened by a little bit of European solidarity.

At its best, and we are not always at our best, the components of the British model are free trade between open economies; good investment in public services and infrastructure; social protection, of people rather than jobs; a strong emphasis on skills and education; rapid technological adaptation; and flexible markets.

But the challenge is this. You don't, at some time, solve these issues. They need constant re-solving because what was good enough five years ago, or ten or twenty, is not good enough now.

This is why the Hong Kong trade meeting is vital, and why ambitions need to be much higher on agriculture and on NAMA. Agricultural protection, tariffs, sensitive products: on all counts we must go further if the WTO is to succeed.

That is why we need an EU budget deal that allows us to reform radically in the next financial perspective.

But we need to do more in Britain. Today I want to address specifically six elements of reform.

First, we will push ahead with radical public service reform.

Britain needed a step-change in investment. It has happened, and personally I think it is right that our teachers, nurses and doctors are now amongst the best paid in the EU. It is one reason why teacher training is at a thirty year high despite strong levels of employment. But the opening up of our school system, contestability in NHS provision and breaking down the barriers between public, private and voluntary sector must continue. These reforms have to become self-sustaining, driven by the wishes of the users not the producer.

We are also, in conjunction with the Treasury, conducting a zero-based review of Government spending, to report initially in 2006, to inform the 2007 Comprehensive Spending Review.

It will demand of all departments that they reconsider the priority and efficacy of all their expenditure.

This has to be part of the rationale of our reform programme; to ensure that we get good value for every pound spent.

Secondly, we need to prepare now for a future in which more people will live longer in retirement and fewer people will be of working age. Here, welfare and pension reforms are linked. On any basis, we will need to spend more on retirement if there are more retired people. In turn this can only come through increased prosperity.

This is why we have set a long-term goal of 80% rather than 75% as of today, of those of working age at work. It is the reason for investing in good quality childcare and helping families with children through tax credits. It is why we cannot afford to have almost 3 million people on incapacity benefit. True, the numbers coming onto it are 30% down over the past decade. But the numbers are still very large. We cannot afford this if we want even a moderately adequate standard of living in retirement.

Life expectancy at birth in 1911 was 50. Now it is 76. In 1950 we spent 18% of our lives in retirement. Now almost a third of life is left when we cease full-time work.

And demographic changes have meant that there are fewer people of working age to support this growing band of pensioners. In 1950 there were more than 5 people of working age for every pensioner. Today there are under 4. By 2050 there will be just 2.
The first report of the Turner Commission made clear that over 9 million people are not saving enough.

We need a system that enshrines a decent basic state pension, funded by the tax-payer; that allows top-ups in a way that is easy to save; a retirement age that begins, over time, to reflect the changing demographic reality and a proper balance between the obligations of the employer, the employee and the state. And, of course, any reform has to be affordable.
The basic construct of Turner is right; it addresses these requirements. Pensions policy, like all long-term decisions, needs a consensus. We are seeking a settlement for a generation not a Parliament. That is why, over the coming months, John Hutton will take forward an extensive consultation. Then, next spring, we will publish comprehensive, detailed proposals.

Incidentally, I want to say one word about the public sector pension agreement, which raises the retirement age to 65 but only for new entrants. I understand your concerns.
But it is important, as a matter of balance, to point out that the savings, rising to ?13 bn over 50 years, are the savings we set out to make; and crucially, that 10% of the public sector workforce is replaced each year. All new entrant, whatever their age, will from 2006 have a retirement age of 65 not 60. In little more than a decade, the majority of civil servants, for example, will be on the new retirement age.

Thirdly, another issue that also demands a long-term solution and if possible a consensual approach, is transport.

By 2007, transport spending - after inflation - will be over 60% higher than 1997.
And this investment has bought improvements. Over 100 road schemes have been completed; 40% of the rolling stock on rail has been replaced in the last 5 years; rail freight has increased by more than a third since 1997; the Channel Tunnel Rail Link opened on time and budget; the second section is due in 2007.

But as you said earlier in the week, economic growth, higher living standards and therefore large increases in car, rail and tube usage mean we still face a big challenge to renew our infrastructure.

There are many facets to this issue. Congestion is one. Financing transport improvement another.

A planning regime that helps not hinders, crucial. For these reasons again we asked someone independent of Government, in this case Rod Eddington, to review the options and report back next year.

Meanwhile,Alistair Darling has announced 7 pilot schemes to test how road pricing will work. This will lead towards our stated objective of a national road-pricing scheme.
The fourth challenge is skills.

There is a lot of good work going on. More than 250,000 young people are now taking Apprenticeships, three times more than in 1997.

We are developing specialised diplomas to combine academic and vocational courses, with a view to ensuring that young people arrive in the labour market ready to work. Next year we will unveil the National Employer Training Programme, developed in partnership with the CBI. We need your engagement to make the Sector Skills Councils a real success, as we do with the 367 Centres of Vocational Excellence.

We recently announced the first four Skills Academies, in construction, manufacturing, food and drink and financial services. The Academies will be up and running by the autumn of 2006 and we aim to have 12 in place by 2007/8. In the longer term, we envisage that each major sector of the economy will have a Skills Academy.

Major companies such as Kier Homes, Northern Foods, Caterpillar, Filtronic Components and Norwich Union Insurance have all committed to the proposals.

But with the Skills Academies, the Foster proposals on Further Education, the reforms to the 14-19 curriculum and the restructuring of the Learning and Skills Council, we have an opportunity to put the business and Government relationship in this area on an entirely new footing.

For as long as anyone can recall, the complaint from industry has been that the public education system was not providing the skills it needed. My plea is simple: get involved.
Rapid technological adaptation is the hallmark of a successful developed economy. The economy we are creating is one based on a comparative advantage in highly-skilled industries. The raw material is sophisticated knowledge. This means we need to be attentive to science - and we are doubling spending on it - and encourage research innovation. Half the annual growth in productivity comes from new ways of doing things. The fastest growing cities in America and Europe are those with the largest numbers of knowledge workers.

The exploration of knowledge is our economic future. But all of this requires your strong input.

Fifth, the issue back on the agenda with a vengeance is energy policy. Round the world you can sense feverish re-thinking. Energy prices have risen. Energy supply is under threat. Climate change is producing a sense of urgency. I have no doubt where policy is heading, here, in the US, across the emerging economies of the world. I believe there will be a binding international agreement to succeed Kyoto when the Protocol expires in 2012 that will include all major economies. The future is clean energy. And nations will look to diversify out of energy dependence on one source.

We will meet the Kyoto targets but we have recently seen an increase in carbon dioxide emissions. They are projected to rise further between 2010 and 2020. By around 2020, the UK is likely to have seen decommissioning of coal and nuclear plants that together generate over 30% of today's electricity supply. Some of this will be replaced by renewables but not all of it can.

I can today announce that we have established a review of the UK's progress against the medium and long-term Energy White Paper goals. The Energy Minister Malcolm Wicks will be in the lead, with the aim of publishing a policy statement on energy in the early summer of 2006. It will include specifically the issue of whether we facilitate the development of a new generation of nuclear power stations.

In Britain, on any basis, we also have the issue of our transition from being self-sufficient in gas supply to being an importer. Energy companies are making huge investments - ?10 billion in total - in the infrastructure needed to import and store gas. Some of that infrastructure is already open - such as the doubling of the capacity in the interconnector from Belgium and the LNG facility at the Isle of Grain - even more will follow in the next couple of years.

But this winter, if it is as cold as the Met office suggests it may be, our gas market will be tight. For our domestic gas customers and most businesses the National Grid is clear there would not be a problem. But for big gas users, Ofgem, the National Grid, energy suppliers and the DTI have all been and will be working to make sure business is aware and ready.

Finally, I want to add some words to what the Chancellor said yesterday on deregulation.
In May of this year the World Bank said the UK was the best in the world for the quality of its regulation. Start-up costs are low. It is comparatively easy to do business in this country.

But again the problem is that relative to the markets in which we are going to have to compete in the future, we are not in shape.

I have given William Sargent of the BRE a strengthened remit to challenge departments on regulation, reporting personally to me.

There will be a Better Regulation Bill early in the New Year which will make it easier to amend legislation to make it simpler and less burdensome.

DEFRA, the DTI and the HSE are publishing simplification plans which will commit them to a 25% reduction in the administrative burden.

Deregulation has been a theme of our EU Presidency and the Commission has committed itself to produce an impact assessment for each proposal in its Annual Work Programme from 2005. Recently it announced it will withdraw 68 pieces of legislation. There is a different attitude in this Commission. We must capitalise on it.

As Isaiah Berlin once said, the tough questions in politics are not between good and bad. That is easy. The tough questions are between good and good.

Difficult decisions provoke difficult reactions. But we should end on a note of optimism. Britain has weathered the storms of the past decade better than most.

We have huge challenges. But so does everyone else. The problems do have solutions; and they can only be pursued with business and Government working in partnership together. I am aware that certain aspects of this partnership have been troubled recently. But think back several decades and compare then with now. We do share the same aims. We both know this country will only succeed as a dynamic, open, knowledge-based economy where people succeed on their merits and we are both determined to realise that vision. That is a great advance on the past and one which, for all the problems, will continue into the future.

29 November, 2005


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