Chamber National Conference: Growth speech

British Chambers of Commerce Director General John Longworth addressed hundreds of businesses at the movement’s Annual Conference on 1 April.

Keynote speakers at the one-day event included government ministers Philip Hammond, Michael Gove and Vince Cable, plus opposition figure Ed Balls.  Business figures included Karren Brady and Theo Paphitis.

In his welcoming speech, John Longworth said:

“For the third time, I have today the privilege of addressing you at our Annual Conference.

“Bigger, better and more exciting than ever – Accredited Chambers of Commerce and businesses are now able to participate, not only from all parts of the UK, but from British Chambers around the world.

“Nobody, I am sure, will have failed to notice that the title of this conference is ‘State of the Nation – Good to Great’, so I thought I would start the proceedings by looking at why we have focussed on this theme, and some of the challenges that we in Britain must overcome if we are to create truly great, sustainable economic growth for our country.

“It may be obvious to us in this room why great growth is so important, but surprisingly there are many people out there who do not get it, do not subscribe to it, and do not think it is the most important thing for the UK.

“The simple fact is that it is only through wealth creation, through sustainable, great growth that we can afford all of the things we want like the green agenda, defence, emergency services and overseas aid. I have said it before and I cannot repeat it enough – achieving sustainable, great growth should be and must be the number one priority of any government, and our political class needs to be more economically literate and business orientated.

“But there is a more immediate reason for this laser like focus; we have a very large national debt and very large private debt hanging over the UK.

“Let’s make no bones about it; the Chancellor has pulled off a brilliant Houdini-like trick. In the last few years he has talked tough on deficit reduction, but to his credit he hasn’t actually applied deficit-reduction measures too severely. Thanks to this balancing act, he has successfully kept the confidence of the global markets while avoiding the social strife that characterised the 1980’s. He has bought the time needed to restore growth to the economy. Contrary to popular opinion, we haven’t really seen austerity in the way, for example, it has been applied to many countries around the Eurozone – such as Greece, Spain, Portugal and Ireland in particular. Here in the UK, many areas of public spending have been ring fenced. In common with the United States, Britain has let time and the inevitable economic recovery do its work.

“The rub is that the next stage of debt reduction will require more belt tightening, possibly even real austerity in some quarters, unless we are able to achieve great, sustainable growth. There is a debate to be had as to what extent this is necessary, however – whoever is in government next will face very hard choices. The programme the Chancellor has outlined will require significant cuts in public spending in those departments that are not ring fenced – Business, the Home Office, Welfare, Local Government, Defence and Higher Education will have to face cuts of more than 30%.

“Ironically, some of these departments are important for economic growth.

“Alternatively, the government will have to raise more tax, which is also a potential brake on economic growth – particularly when, as we have seen this year, a tiny number of people are already paying an alarmingly large share of the tax collected in Britain today.

“So, while it is good to have the economic cycle working in favour of UK growth, as we do now, what we really need is the kind of great growth that only comes from deep, lasting and profound structural reform. That is the great growth that will help create the virtuous cycle we need to avoid a long future of high taxes, public spending cuts, and general discontent.

“Great growth is not a luxury, it’s a necessity.

“So what are the challenges? Well there are UK and global, economic and political challenges.

“As they say, ‘We live in interesting times’. In the next twelve months or so, the UK political landscape will be influenced radically by European Elections, then a Scottish Referendum and finally a General Election. The decisions we, the electorate, make will determine our future prosperity for years to come and perhaps, even, irrevocably.

“All of these events in the UK are being played out against a background of global change and uncertainties spanning the globe from Asia to Europe and the United States – tectonic shifts, which need to be understood and mitigated by both government and business alike.

“Although it is shrinking, the USA still has a current account deficit. It also has a huge mountain of public debt.

“Is it credible for a global reserve currency to be based on ‘Fiat’ alone, to forever simply print money in order to counter trade imbalances, particularly when its principal creditor, China, ends up having a larger economy in perhaps only ten years time? And thinking of the shifting power balances of 1914, will the Pacific Rim remain stable for trade and prosperity when China begins to flex its muscles, and when the dragon begins to flap its wings?

“The Eurozone, for its part, is in much better shape than when we met last year. Germany and the European Central Bank have variously made it clear that they will stop at nothing to sustain the currency union. But the underlying problems remain. How are the European banks going to be re-capitalised and stabilised? What controls will there be in the future to prevent national banks and national governments tying themselves together like two drowning men?

“Is it the Eurozone that will shape the future political and economic landscape of Europe? Will it be this that will determine the relative balance of advantage of European Union membership for the UK, and how will this paradigm shift in the power and economic structure of the EU affect the environment in which UK will operate in five to ten years time?

“Will the answers to the question of Eurozone sustainability mean a Eurozone of inter-governmental agreements outside of the EU structures, the creation of a true Central Bank structure, fiscal oversight and all the political and regulatory paraphernalia that will, of necessity, flow from that? Where will the UK reside in all of this? There were helpful comments from the German Finance Minister last week, who acknowledged that non-Eurozone countries like the UK would require specific reassurances as the Eurozone integrates further. But will these reassurances amount to anything and, if they do, will they be enough?

“These are much bigger questions, and are much more fundamental to our business community, even than whether we re-negotiate a few regulations – important as these may be for the present.

“The elephant in the room for any future government is whether or not it commits to holding a referendum. Looking at the Prime Ministers priorities for renegotiation published recently, and listening to the Leader of the Opposition’s speech on European triggers for a referendum, I wonder whether a future government will really grasp this nettle and address what the key issues are.

“And then there is the other referendum whose name cannot be spoken among so many in the business community, lest the politicians reap their revenge. What are the economic and business implications of the choice that Scotland faces in September?

“The small economic union of the United Kingdom is far more intertwined, complex, and interdependent than any relationship the UK has with the rest of the EU. We have a common currency, Central Bank, a common defence structure and command, common constitution and believe it or not, a common language. These are not things we share with the EU.

“Scotland’s choice is a very big deal. Has either side in the debate answered the fundamental economic questions? Perhaps neither side can, since only through exit negotiations would those answers be known.

“Will a yes vote be disruptive? You bet it will. Will a no vote still lead to a fundamental shift in the political and financial settlement? You bet it will. Regardless of how Scotland votes on September 18th, things will never be quite the same again.

“Taken together, we have big economic and political questions on the horizon – much bigger than just a simple, cyclical economic recovery alone, and much bigger than one country alone.

“Many of these issues have timescales of many years and are imponderable and will therefore be largely discounted in business planning and investment cycles. But the general atmosphere of uncertainty naturally detracts from investment confidence, and we have seen in the official statistics that exports are themselves under performing and investment is the only measure which is not yet at pre-recession levels.

“If we are going to achieve long term sustainable great growth in our economy, we must stimulate investment.

“Business must become more long-term in its planning, address these imponderables and mitigate them. And in so doing, de-risk, remove the fear factor and invest. Most of all business must accept the one new norm that does exist, that the global environment is more uncertain and get over it.

“It is those businesses that have the courage to grasp the opportunity in these times that history tells us will do amazing things.

“Just as important, the government must do all it can to counter balance the uncertainty with bold measures that provide support and medium term incentives for investment. While they might not be able to make the risks go away, government certainly should do everything possible to make investment attractive as our ship sails on stormy, global seas – by committing to tax incentives, favourable regulatory regimes, easy access to finance, low interest rates and a serious re-balancing towards export support.

“Of course on investment in infrastructure, the can has been well and truly kicked down the road. There are some signs of progress on the ground, many small incremental improvements. But big infrastructure, such as rail, airports and motorways are not going to happen this side of the election. We might as well save our breath, except to secure manifesto commitments. Infrastructure is vital for both doing business and for generating economic development for long-term great growth, rather than just short-term good growth.

“It is fantastic that we at the British Chambers are predicting good growth at 2.5% plus over the next few years – a super achievement. The hard working businesses up and down the country who kept at it plus the government and the Bank of England are all to be congratulated for climbing out of the ashes of a highly culpable and dangerous recession. But make no mistake – we have a lot of catching up to do. Growth based mainly on consumer spending and borrowing foreign money to buy property we already own at ever inflated prices, will not do. It may be good for banks who take a turn on every transaction, but it has the flavour of an even bigger ethos of the ‘Great British Sell off’ rather than ‘Build a Great Economy’.

“Prospective and growing businesses need access to finance to create real value in the economy. A rejuvenated manufacturing sector will be important, although it will for the foreseeable future be a small part of the economy. It is in service sector exports, including financial services that we excel.

“People often ask me, what are services? How do we export them?

“Services are everything we do based on knowledge – insurance, finance and professional services like accountancy, architects, designers and engineers. They include creative industries from television and theatre, through to literature, games design, sport, cinema, the IT sector, science, healthcare, education, the fashion industry, PR and Marketing. We are brilliant at services and very successful at exporting these – particularly to countries who share our language and, often, our legal system.

“Underpinning all of this is access to finance.

“If we are to stimulate great growth, particularly among fast growing, small and mid-sized companies who are the vanguard of an entrepreneurial economy, we need the creation of a properly functioning business bank, a better developed retail SME bond market and properly resourced support for exporting – both export promotion and export finance. All of these factors will be crucial for long-term, great growth.

“Thirty plus years ago our economy went through a revolution, which probably saved Britain from terminal decline. Although it was not perfect and was undoubtedly traumatic, it was right at the time.

“I have travelled the globe since then, looking at the way business is done. The world has changed. We are now, in Britain, a niche economy in a globalised world, just 3% of global GDP. That is not a problem per se – it is part of our opportunity as a niche, knowledge and services based economy in a global. But our political class have not yet fully recognised and capitalised on this. They are still playing the power politics of the age of empires rather than taking their cues from the earlier merchant, trader nation, that was the historic bedrock of our prosperity.

“It also strikes me that our most successful competitor countries in global trade have not only restructured their economies, as we did, they have also developed a close partnership, a true partnership, between government and business, and between business and government. This is not a servant/ master relationship, a relationship based at the tradesman’s entrance, but a true partnership of equals working in the national interest. These competitor countries understand and value their national interest – and pursue it relentlessly.

“A true free marketeer would have said thirty-odd years ago, that the only role for government is to get out of the way, and that government should only intervene in markets where there is market failure. I was this person, and this fundamentally remains a good starting point. However in a globalised world, government also has a crucial role in creating the right environment for entrepreneurial success. A partnership between business and government will be crucial in an export-led recovery if we are to achieve truly great growth. Most importantly, for us to gain this last ounce of advantage, it will require a culture change in both business and Whitehall if Britain is to fulfil its true potential in what the Prime Minister has, so correctly, termed a new ‘global race’.

“Education, education, education – what a meaningless phrase this proved to be. But there is no doubt that in the knowledge based economy that is the UK, the soft infrastructure of education is as important, if not more fundamental to economic growth, than the hard infrastructure of roads, airports, digital and railways.

“The UK has many pools of talent. Britain remains a leading nation in academic education and Russell Group universities are in the top echelon of world rankings. Of course, there are challenges for the future; they are insufficiently funded and the intellectual property of research is all too often lost to the UK and UK business. There is wasted human capital as those universities are not accessing all of the brightest and best intellectual talent in the UK, which is so essential for the economy. But this is not their fault. The schools system must throw up and prepare those individuals who have academic ability, but who do not currently have access to these universities, by whatever means, for the sake of the economy. And if that requires some form of selection for ability and aptitude, then the educational establishment need to get over it.

“If the top universities draw upon the best talent in the world to provide competition for the UK’s best and brightest – and in doing so also provide a pool of talent for business and generate income for universities and a major service sector export –the political establishment need to get over it.

“But it’s not at the academic end of the spectrum of the talent pool that we have the greatest problems. Some educational institutions do a great job linking with employers, but far too many have lost the vocational plot. They need to provide for the talents of our young people who are technically or vocationally minded, and provide our employers with people who are enthusiastic to learn and develop, capable of communicating and getting stuck in. Preparing this next generation for the British workforce is too important to the economy for us to ignore.

“Connecting the world of work and academia is a challenge, which Chambers of Commerce are uniquely placed to help with, but which must also be reflected in the courses provided and in the culture of learning in the institutions concerned.

“Last, but by no means least, is the promise of opportunity for talented youngsters who have practical or artisanal aptitude. There is a critical need to encourage and facilitate hard pressed employers to take on apprentices, to give the under twenty-fives ‘a go’ and to get our young people, who are our future, into meaningful employment. It is incumbent upon the educational establishment to encourage this and to help to develop the necessary work ready skills and to connect young people with employment. It is important to recognise the range of talents that our young people have, and if this requires selection for ability and aptitude, in the way that so many successful, competitor economies do, then politicians and the educational establishment need to get over it.

“Chambers of Commerce can and are playing a vital role in connecting the worlds of education and work, encouraging proper apprenticeships, and I am pleased that the Chancellor has committed to continue support for this.

“Of course entrepreneurialism, creativity and innovation know no boundaries and are no stranger to all three of the talent pools. And it is important that education and employers encourage and nurture these. It is these attributes that most define Britain’s USP and our best chance of future success. It is equally important that we retain and monetise the intellectual property arising from this.

“Britain is lamentably low in the league table of patent registrations. All too often we let slip the value and output of our talent, the most culpable sector, from my experience, being public healthcare where it is often given away.

“Our Prime Minister has said on numerous occasions that exports and inward investment are vital to the re-balancing of the economy if we are to win the global race. In order to achieve the Prime Minister’s goal, we will need to grow exports by around 10% per annum, year after year until 2020.

“This is not impossible. Official figures have shown growth like that in previous years, but it will be increasingly tough to sustain and official figures in recent years do not bode well. In 2012 as a nation we only managed 1.9% growth in goods exports, and only 0.6% in 2013. So far the national plan has failed.

“By contrast, the number of Chamber of Commerce members that are exporting has gone from 22% to 35% in just under three years. We at Chambers are doing our bit, working with our valued colleagues in UKTI and the Foreign and Commonwealth Office, to build the very first British global business network in 41 key markets across the world – specifically to help British businesses export to these emerged and emerging markets.

“Although a small and very modestly funded project at the moment, I am confident that this will prove so successful, it will be seen as the cost effective solution to the Prime Minister’s challenge for the years ahead.

“In our global race to create great, sustainable growth, Britain is barely off the starting blocks. Gross, Domestic Product is not yet back to pre-recession levels and we lag behind competitor countries. We are carrying a significant public and private debt burden.

“We have secured good growth for the time being and George Osborne wants to ‘fix the roof while the sun shines’. Now whether all of this was good design or good luck is immaterial – as my old boss used to say, ‘it is better to be born lucky, than clever’. And Britain is a lucky country in so many ways.

“But we can’t rely on luck alone. We need to invest, to innovate, to export, to build. We are on a long road to truly great, sustainable economic growth – and there are some twists and turns to navigate up ahead.

“It will be some time yet before Britain can march to the tune of the Great Escape.

“I am certain, however, that Britain has all of the talent, the creativity, the innovation and the latent entrepreneurialism, necessary to run the race, to go for the gold.

“And when we get there, I am confident that we have the dynamism (if not the dynamite) to ‘blow the bloody doors off’ the global market. Have a great Conference.”

Written on 1st April 2014Lillie Geistdorfer. Published in BCC, News