Brown’s speech in full
Having taken the long term decisions to achieve and sustain low inflation and economic stability, the task of this Pre Budget Report is to meet and master the global economic challenge, making the critical decisions to secure Britain’s long term economic future.
And the theme of this Report is that, by combining our enterprise with investments in skills and science, infrastructure and housing, at every point matching investment with reform, Britain can lead in the world’s most wealth generating and dynamic sectors – in science and modern manufacturing, in finance and capital markets, in education and the creative industries.
And with fiscal discipline, and by matching investment and reform in welfare and our public services, we can combine a strong economy with opportunity and security for all.
Mr Speaker, the last year has seen a virtual doubling of global oil and commodity prices.
In the USA inflation has risen to 4.3 per cent.
In the euro area inflation forced a rise last Thursday in interest rates.
Across Europe and America almost a million manufacturing jobs have been transferred to Asia and a quarter of a million service jobs outsourced.
While all countries have faced global inflationary pressures, the British economy has also had to deal with domestic inflationary pressures – to achieve what we and the Bank of England identified early last year as the necessary slowing of house prices and consumer spending – which some in this House predicted would return Britain to the old familiar stop-go cycle of overheating, inflation and recession – and under previous monetary and fiscal regimes, did so time and time again.
In the last eight years our new macroeconomic framework has been tested – in 1997 when domestic inflation had to be curbed; and in 1998 and 2001 with two global crises – the first starting in Asia and the second the IT crash, the US downturn and falling stock markets round the world.
Now in 2005, tested by both domestic and global pressures, we are on course to meet our inflation target of 2 per cent. And house prices, which were rising at 15 per cent each year for three years, and at their peak rose by 25 per cent, have moderated to 3 per cent.
This is in stark contrast to previous decades when our economy faced simultaneous domestic and global inflationary pressures – in 1990 when inflation went to 11 per cent, in 1980 to 22 per cent and in 1975 27 per cent, when a cycle of overheating and inflation could only be brought back under control by mortgage interest rates above 10 per cent, recession and unemployment.
But today when, more than ever, stability and low inflation are the essential foundation for investment and job creation, Britain ends this year with inflation lower than America, lower than the euro area, lower than the European Union as a whole. And we are on course to meet the inflation target of 2 per cent, not just this year, but next year and the year after that.
The average inflation in Britain from 1970 to 1997 was 8 per cent, with inflation often going above 20 per cent.
Our stability since then is such that in the last seven years inflation has been at or around 2 per cent.
As Chancellor I have always understood that the strength of a monetary and fiscal regime is how it performs, not just in the good years but in this, the toughest and most challenging year for the economy.
Mr Speaker, this year we have seen inflation not above 10 per cent but around 2 per cent; interest rates not rising above 10 per cent but peaking below 5 per cent; unemployment not as in the past at record highs, but at record lows; not the economy in recession, but growth even in this toughest year at 1.75 per cent; the 34th quarter of continued growth with low inflation – continued growth under this Government.
The first Government of any party to achieve 8 years of uninterrupted growth since 1805.
For the fifth successive year running, British growth higher than France, higher than Germany, higher than Italy, higher than the euro area, higher than the European Union.
And British business investment already rising this year by 3 per cent is expected to increase again next year by 3.0 to 3.5 and then in 2007 by 4.5 to 5.25 per cent.
Overall domestic investment which is growing this year by 2.75 per cent is set to grow next year by 3.75 to 4.25 per cent and then in 2007 by 4.75 to 5.25 per cent.
And as production grows, we expect exports to rise by more than 5 per cent next year and the year after.
Globally, there are continuing risks from trade imbalances, exchange rate movements and commodity price shocks and domestically, monetary policy will continue to closely monitor the housing market and consumer spending.
Domestic demand is projected to grow at the same rate of the economy, overall growth projected in 2006 at 2 to 2.5 per cent and in 2007 and 2008 2.75 to 3.25.
Mr Speaker, some said that as we moderated the housing market and responded to the oil shock, employment levels in this country would fall, and we would end the year with fewer people in work.
In fact I can report to the House that in just 12 months employment has risen by 330,000 to 28.8 million and is the highest in the country’s history.
Higher in every region and nation of the UK.
This year the economy has been generating 6,000 new jobs every week – with 3,500 new companies formed each week .
Indeed, of the extra jobs since 1997 almost 1 million have been created by small businesses.
And by tackling youth and long term unemployment, the New Deal has helped ensure that while unemployment in the USA is higher than ours, and in France and Germany much higher at nearly 10 per cent, in Britain unemployment is today lower than 5 per cent.
And we know that continuing this record of high employment with low inflation demands continued wage responsibility in all sectors. So the Health Secretary is submitting evidence to the pay review body that headline rise in NHS pay should be based upon our 2 per cent inflation target, and the Education Secretary is announcing that even after taking account of annual increments and performance pay the total increase in the education pay bill will be just 2.8 per cent – both signals of our determination to keep public pay costs under control and contribute to low inflation.
Upon this foundation of stability our task is to match investment with reform in science and skills, infrastructure and housing – and show that working in partnership with the private sector, we can best meet the challenge of globalisation.
First, although we have already doubled investment in science, global competition requires us to continuously update our ten year framework.
With, this week, a new public private partnership, supported by £50 million of new public investment, Britain is determined to lead the world in the new frontier of genetics – stem cell research.
And with the establishment of a new National Institute for Health Research in the NHS, pharmaceutical and biomedical companies have just announced a new half billion pound a year investment in Britain, making Britain the leading location for research in new drugs and treatments.
To support research and development across modern manufacturing I am announcing reforms to help access the R&D tax credit.
The design of new products and services is now such an important sector that we propose a network of creativity and innovation centres – one in each region offering start up help to new design talent and supported by an expanded national centre in London to showcase British design.
Because we have learned in the past that the neglect of investment in science holds our economy back, we are determined to make the necessary long term investment – Government and private sectors working together to make us fully equipped for the global challenge.
And the same is true in skills.