National Federation of Enterprise Agencies (NFEA) Speech

I am delighted to be able to join you once again at your Conference.

And given the theme - of balancing commercial reality with a social ethos - its especially fitting that you should meet here in York. For it was the founder of Rowntree’s, York’s most famous business, who was one of the first socially responsible employers.

Joseph Rowntree believed that being socially responsible wasn’t merely doing good deeds. He believed we first need to understand the causes of social inequality, before we can address them. And his business was both a great success and socially responsible, in taking care to support not just his workers, but their families and the wider community.

Some bankers could learn from his example.

Today I want to talk about the current state of the UK economy and to consider its prospects. I would then like to suggest what needs to be done in the short and longer term and how I (and my Conservative colleagues) believe we can enable the UK to once again become one of the best places in which to start and grow a business.

The UK economy

Of course, we meet one year after the collapse of Lehman Brothers and the subsequent financial meltdown which the world experienced last autumn. The subsequent recession has proven to be deeper and wider than almost anyone predicted.

The latest figures in the UK show that GDP has fallen by 5.5% from the same quarter last year, with the construction sector suffering a record eighteen consecutive months of contraction.

Company insolvencies have soared by over 39% whilst unemployment has risen by over 800,000, with more to come.

As advisers you know what all this means in personal terms. And having run my own business for ten years, I well understand the heartache for business owners who see their life’s work destroyed in just a few months.

Now whilst this is a global recession, the UK has suffered more than most. Our economy has contracted more than almost every competitor and the OECD has predicted that we will be the only G7 nation which will not see growth this year.

However, the greatest threat lies in the appalling state of our public finances. Already net borrowing is expected to reach £175 billion this year, with net public sector debt standing at 56.8% of our entire GDP.

The result is the largest budget deficit of any nation in the G20, since the end of the Second World War. And that means that the ability of the UK government to help people and business through the recession is sharply reduced, whoever is in power. Labour’s failure to prepare for a downturn, has made us all more vulnerable.

Short term action

That doesn’t mean that nothing can or should be done by government to help. Government can make a real difference in helping firms better manage their costs and cashflow.

That’s why last November my party set out a range of practical short term steps. For example, we proposed cutting the payroll bills of the smallest employers by 1% for at least six months, to help firms keep vital staff. We also called on Ministers to allow firms to defer their tax payments, to aid cashflow.

And we’ve also proposed helping small businesses with their rates bills. At present only half of eligible firms claim relief under the small business rate relief scheme, often because they’re put off by the paperwork.

Yet it means they’re missing out on a saving of up to £1,100 per firm per annum. Not a fortune, but for some businesses, it’s the difference between survival and failure.

So we intend to act. We have urged Ministers to make this relief automatic to every eligible firm, now. No longer should small firms have to go cap in hand, for money which is rightfully theirs. And we’ve made it clear - if this government won’t act, we will. Its time for a change.

Enabling a lasting recovery

All the actions I have mentioned so far relate to the short term. However, if we are to achieve a lasting economic recovery Conservatives believe we need a clear long term strategy, to help us prosper in the decades to come.

Let me set out four crucial elements of that strategy: balancing the public finances; supplying long term credit to business; providing effective business support; and freeing enterprise, to once again make the UK an attractive home for creating wealth and jobs.

Balance the books

Our first priority must be to set out a credible plan reversing the enormous deficit we would inherit. As George Osborne has warned if (on being elected) we failed to provide a coherent and credible financial plan, then the creditworthiness of the UK itself would be in question.

Of course, until we see the Treasury books, we cannot be sure either how bad the situation is, or exactly what we shall need to do to cut spending or raise tax revenue.

But be very clear. We are determined to take the right steps to put our nation’s finances back onto a firm, sustainable path. It won’t be popular, and it won’t be easy. But it will be right both for the economy and for the country’s long term future.

Working capital

Clearly access to working capital is a fundamental pre-requisite to any recovery. Sadly, many of the Government’s current schemes have proven either too complex, or narrow to provide what many businesses need. And as we know, there’s a big gap between the claims of the banks and the needs of small firms

That’s why last November we proposed a single national loan guarantee scheme. Worth some £50 billion it would available for viable businesses of all sizes and all sectors-clear, easy to access and simple to understand, it could underpin conventional bank lending.

But we need to go further. We need to improve the supply of long term credit to British businesses, especially SMEs. That means embedding a new culture in our financial sector which values investment in long term assets and technologies.

We’ve done it before. After all it was a Conservative Government that formed Investors in Industry, out of the former Industrial and Commercial Finance Corporation.

Such a body successfully provided long term debt financing to industry in the past. That’s why today we are considering very carefully how we might re-create such institutions again.

Business support

And alongside this financial reform we are finalising our plans for overhauling how government supports business.

When I spoke to your Conference two years ago, we were anticipating a report by Doug Richard, which would assess how business support should be reformed.

It was clear then what the problems were. Too many ‘products’, causing confusion and waste; poor quality advice from state agencies and their contractors; and a regionalisation process which actually reduced access to help for small firms. Indeed the system had become so confused that it actually deterred the very small businesses it was meant to help.

Since then, the Government has tried to respond. I welcome the work of Martin Temple and his colleagues in trying to rationalise the business support ‘products’. Reducing them to thirty or so has to be progress. And I also acknowledge that the regional Business Links now provide a more co-ordinated web presence, unlike two years ago.

However, these changes alone are not enough.

We need to make the system business-led, not Whitehall driven. We need to distinguish between basic information and the provision of face to face advice by experienced individuals. And we need to be committed to both improving the quality and access for firms to that advice, if we are to deliver what British business needs as it emerges from recession.

I cannot today set out for you the details of our plans. These will come later this autumn as part of our long term strategies for the economy.

However, what I can say is that the model of enterprise agencies is one for which I have great respect. A local initiative, rooted in the community, but run on sound business principles. Match funded by central government, but only for a limited period, so that right from the start each agency is focused on providing what its customers want. And a service which understands that good business advice comes not from well meaning public servants, but from people with real business experience, from people like you.

As we finalise the details of our reforms, I will continue to keep this Federation closely involved, so that you have every chance to be part of our plans to make government an effective partner for business.

Freeing enterprise

Of course, reforming the public sector is vital. Yet on its own it will not provide the UK economy with the kick-start it needs.

To do that we shall need to free enterprise.

That’s why at our conference in three weeks time we will be setting out a series of changes which we believe will help firms, large and small.

In particular, we want to focus on removing the barriers and burdens which hold business back.

We will start by cutting the corporation tax rates of every company in the country. We believe that we need to show that once again Britain can be a place in which success is rewarded.

So we will cut the main rate of corporation tax from 28p to 25p, making it one of the most competitive rates in the world. And we will reverse Labour’s plans for the small company rate of 22p, and peg the rate back to just 20p.

And we’ll achieve these reforms by making the tax system simpler. Under Gordon Brown, our tax code has doubled in length to become the longest and most complex of any developed economy.

We need to simplify the system and then provide constancy and clarity in tax law, to save business time and money. And that is why we are committed to reforming our taxes, one by one, to make them simpler to administer and cheaper to comply with.

And that’s not the only de-regulation we have in mind. At our Conference in Manchester Ken Clarke will set out a comprehensive plan to reverse the tide of regulation, to free enterprise.

Let me offer you two examples of our approach.

First we believe that Whitehall doesn’t understand how regulation hurts small business. It’s not the single measure; it’s the cumulative burden that does the damage. With the equivalent of 14 new regulations every working day, smaller firms simply cannot keep up.

We need civil servants to also feel that burden. So we intend to introduce regulatory budgets for every department and to require civil servants to reduce the overall cost of regulation through the next Parliament. It will force departments from the start to look at every alternative to regulation, thus making them the last resort for Whitehall, not the first option.

Second, we have watched the growth in the number and size of regulatory bodies with mounting concern. We believe that these quangos have been allowed to grow too far and their remit spread too wide. Its time to reverse that trend.

So we will review the role, scope and mandate of every regulator, and we will time limit their existence, so that they would cease to exist after seven years, unless they have satisfied us about their mandate, performance and value.

Our aim is simple. We want to ensure that where regulators operate they are fewer in number, smaller and cheaper.

Conclusion

These are tough times for business. Demand is down, credit is scarce and confidence is low.

Meanwhile the current Government has left our nation’s finances in such a parlous state, that the credit worthiness of the country itself has been called into question.

We need to change course. Business needs clear, consistent policies, which enable firms to plan and invest with confidence.

Lower corporation taxes, to reward investment. Access to long-term working capital. A simpler tax system, that’s cheaper to comply with. And a reformed system of business support, that’s customer-led, easy to access and which provides what businesses need, not what politicians think they should have.

And we need to free enterprise from the ever rising tide of regulation, to help existing firms grow and the next wave of entrepreneurs to make their fortune.

But I believe my Party can offer a greater change. After all, unlike Labour Ministers we’ve been in business. Every one of my shadow ministerial colleagues in the Business department have owned, run or managed a business.

And that means we understand something no civil service brief will ever say. Government doesn’t create wealth. You do.

Our job is to create a stable, long term framework which frees enterprise and which will help us once again grow and prosper, both as an economy and as a nation.

Thank you.