As ever, as all of you know, it will be the performance of the economy over the next five years that will determine, ultimately, how this Government is judged.
And it will be the credibility of the Liberal Democrats’ alternative vision for the economy that will determine our ability to challenge them.
So today I intend to set out the three principles that will govern Liberal Democrat economic policy for the next five years. They are:
- Invest now in infrastructure
- Back enterprise
- Take the long view
It’s a clear prospectus – just ten words - but it sums up very simply where we need to take this country and how my vision for the future differs from those of George Osborne and Jeremy Corbyn.
And it is the basis of the bold claim that I will make today: that only the Liberal Democrats will invest in an economy fit for the future, that encourages opportunity. An enabling state that empowers people to succeed.
Next Wednesday, the Chancellor will deliver the results of his Comprehensive Spending Review.
In it he will set out £52 billion of new cuts to public spending over the course of the Parliament.
George would prefer you to think about public spending in a vague, esoteric way: a civil servant here, a feckless scrounger there, nothing terribly important.
But of course public spending pays for the things which matter to us all and to our daily lives: the schools our children go to, the hospitals and doctors we visit when we are sick, the police and security services who keep us safe – which is something we have been so starkly reminded of in this last week.
And here’s the thing: the vast majority of these cuts are nothing to do with the job that the Coalition Government started in 2010 to balance the books.
In total over the next five years George Osborne’s plans will mean cutting almost £100 billion from public spending – almost double what is necessary to tackle the structural deficit.
So be in no doubt: much of what George Osborne will announce next week will be driven by dogma and short-term politics, not common sense and long term economics.
George tells us he wants the state to stop subsidising low paid jobs. A worthy aim, but his ideology is getting in the way of common sense.
You know, the phrase “hard working families” has become a terrible political cliché. But in the case of those that will be most hit by the removal of tax credits, it turns out to be spot on.
Those families that rely most on tax credits are those that have to work really hard – often holding down multiple jobs – to get by.
Tax credits are how we ensure that three million of the lowest paid, hardest working people are better off in work than on benefits.
Now, not only is that morally right, it is also economic common sense. Because, in the longer term, work is what gets people out of poverty and ultimately enables them to contribute to the economy.
So the Chancellor’s plans aren’t just unfair, they are also self-defeating and that’s why the Liberal Democrats will oppose them every step of the way.
And I want to take this opportunity again to invite the Labour Party to join us, because transitional protection is not enough.
So I say to Labour: when we oppose the cuts to tax credits again, this time join us. With your support, and that of the many Conservative MPs who have also expressed concern, we can stop them.
But what leads someone like George Osborne to ignore the long-term impact of such measures?
His fiscal charter gives the game away.
It made creating a surplus the primary goal of economic policy.
More important than investing in the future, backing business, or long termism; more important than new jobs, the NHS or improved infrastructure
In government, the Liberal Democrats proved our commitment to abolishing the structural deficit. Indeed, we paid a heavy electoral price for that. But the fiscal charter is nothing to do with eliminating the deficit – it goes well beyond that.
The fiscal charter is simply a trap for the Labour party. And you really don’t have to set Labour traps these days.
They are becoming the most ineffective opposition in modern history.
I don’t blame them, or anyone else, for not liking ‘austerity’. I am appalled by those in the Conservative Party who seem to take glee in cutting programmes that were created with the best of intentions. These decisions shouldn’t be taken lightly. But some of them need to be taken nonetheless.
Leaving the deficit to fester is utterly short termist. It means ultimately a larger public debt, more debt interest payments and less to spend on support for the most vulnerable in the future.
And some within the Labour Party, such as Chukka Umunna, seem to understand this.
But while John McDonnell will undoubtedly oppose George Osborne’s spending cuts, he can’t even agree with himself what to offer instead.
So George Osborne is playing politics with our economy.
He’s prepared to tie the hands of Governments long into the future, all for the opportunity to briefly embarrass Jeremy Corbyn.
Short term political gain, for long term economic pain.
What are the real impacts of not investing in the future?
Let me give three examples:
It is widely expected that a substantial chunk of the up to £2.6 billion in cuts predicted to be taken from the Department of Business, Innovation and Skills budget will fall on Further Education colleges.
We need to get real. Gone are the days when one degree, or one apprenticeship could set you up for life. In the future people will need continually to return to the well of further education, if they are to continue to be productive in the 21st century.
Further education is the springboard of a successful economy and if we kill off the sector now, we will not get it back.
And Further Education isn’t the only function of the Department for Business, Innovation and Skills under threat.
Universities are key drivers of growth helping businesses to grow and develop. That is why ‘Catapult Centres’ – primarily based around our universities to support research, and, crucially, the development of new products – are so important.
They already have a proven track record in supporting high value manufacturing, medical innovation and digital technology and for every £1 we have invested with them, we are now seeing a £7 return.
Yet despite their success, private sector investors are now wary of committing to them, for one simple reason. They do not have confidence in the Conservatives to continue to provide public investment in catapult centres, as they pursue short term spending cuts.
And so their value is being undermined to all our costs.
Thirdly, we can be incredibly proud that green energy is a British success story. It employs 150,000 people in our country and we have the biggest solar PV market in the EU - bigger than even Germany.
Did you know that there more offshore wind turbines around our coasts than everywhere else in the rest of the world put together?
The companies making those turbines - and the other products and technologies which a decarbonised world are going to buy - are our future.
And they have been thriving due to the investment that Liberal Democrats fought for and secured in Coalition.
That’s why - over the last 5 years – and despite the need to sort out the deficit, Liberal Democrats in the Coalition fought to invest heavily in renewable energy: Since 2010 an average of £7 billion a year has been invested - delivering a doubling of the amount of energy produced by renewables to 15%.
If we continue to invest in our renewables sector, it could be worth up to £50 billion to our economy by 2020.
But now, for purely ideological reasons, the Conservatives are taking the knife to our renewable industries, cutting Feed-in Tariffs for solar, hydro and wind power, ending public support for on-shore wind power and halting the zero carbon homes policy that would have had a huge impact on energy emissions, all while selling off our brilliantly successful Green Investment Bank, without any guarantee that it will retain its remit for supporting our green industry.
This is short-sighted economic vandalism of the most self-defeating kind. It has already placed more than 25,000 jobs at risk in the solar industry alone - and the entire industry is bracing itself for further deep cuts in the CSR.
Invest for the future
Still, at least we have Jeremy Corbyn calling for the reopening of coal mines.
But just in case Britain’s economic future doesn’t lie in exporting expensive carbon-based fuels to China, what might we do instead?
As a direct result of the actions we took in government over the last 5 years, the UK is a more stable, more economically confident place than it would have been had we delayed those decisions.
So as we now approach the point at which the goal of abolishing the structural deficit is met, I want to set out the Liberal Democrats first economic priority going forward: invest now in infrastructure.
The cheap borrowing costs we see today are a direct result of the prudent deficit reduction we undertook in government, so that past austerity makes future austerity less necessary.
Borrowing now to invest for the future can make debt more sustainable, not less.
Fix the roof
Or, to put it another way, fix the roof while the sun is shining.
If you’ve got zero percent interest rates - then the sun is shining. Why don’t we fix the roof?
So spending decisions over the next fiscal period must focus far more on long term infrastructure investment, than the short term need to reduce the deficit.
That does not mean ignoring the deficit, but instead reprioritising our approach to balancing it with measures designed to create a stable economy for the future.
I believe now is the time to balance deficit reduction with an active, ambitious and targeted programme of capital spending:
A high speed broadband service to every corner of Britain to allow those with new ideas and drive to do business from anywhere in the country
Transport links to allow them to get goods and services to their customers
Schools and colleges to provide the highly skilled, highly trained workforce they need to succeed
And homes to ensure that those workers have somewhere affordable to live.
We need to take seriously the case for borrowing to invest, specifically in housing, rail infrastructure and broadband.
The consequences of not doing so are clear.
We are already seeing a housing crisis. If we fail to drive forward the building of affordable homes, to reach a level of 300,000 a year by 2020 then the problem will only be getting worse.
Much of this will have to be private sector led, but you know what? It’s about time the Government stepped up to the plate as well.
We need to start direct Government spending on house-building, including finally cutting ground on new Garden Cities to provide new communities with decent jobs and infrastructure, for the next generation.
And if we don’t invest in rail the consequences are equally clear:
In too many areas our railways are already over capacity. Failing to invest will only make the problem worse.
Failing to invest now means that the challenge of getting people out of their cars and on to commuter light rail will be put back yet another generation. That means more traffic, higher levels of pollution and further pressure on the capacity of our roads as well.
And failing to invest now also keeps economic power focussed on London. You can’t build new regional bases, across the North East and North West of England for example, if it takes almost twice as long to get from Liverpool to York than it does to get from London to Bristol.
And when it comes to investment in new technology infrastructure we are also falling behind our competitors, not just in the West but in emerging economies as well.
How can it be that when our government talks about superfast broadband they mean 24Mbps, while in South Korea, they are already rolling out broadband with a 1Gbps capacity? It’s like buying a bicycle to compete against a formula one racing car.
And while it is true that communities like mine in the South Lakes are in desperate need of decent, fast broadband, let’s not pretend this is just about the roll-out of rural broadband, as the Conservatives have suggested.
Even in our capital city we lack the broadband speed and capacity to compete internationally. London is currently ranked 26th out of 33 European Capital cities for download speeds.
This is a national problem and one that will damage our economy.
Key parts of our economy, such as our creative industries, rely on getting decent digital services.
But for many in this industry the problem of slow broadband is compounded by the sustained attack on the BBC, which is jeopardising those high skilled, new tech businesses in the creative industries that have grown up around hubs like Cardiff, Bristol and MediaCity in Salford due to the presence of our national broadcaster.
That is so short-sighted. And again driven by ideology over pragmatism.
Unlike the Conservatives we will not define what we spend on infrastructure by what we can squeeze within an arbitrary spending target.
Instead we should determine what to support by looking at what we need for the future. To do this I believe we need to set up an Office of Capital Expenditure- an OBR for Infrastructure to assess projects value for money and make sure we get returns on investment.
And so to our second priority: back enterprise.
The liberal spirit is the entrepreneurial spirit and entrepreneurs are natural liberals.
What does it mean to be an entrepreneur?
It means believing that no-one owes us a living, but nor should government get in the way of us making a living for ourselves - like liberals.
It means, given the opportunity, believing we can make a difference through our own individual talents and vision - like liberals.
And it means believing everyone deserves that same chance to succeed regardless of where they come from or what they look like.
Just like liberals.
So, whether they know it or not enterprising people – entrepreneurs - are liberals…
…creative and innovative, wanting to be their own bosses, wanting to create opportunities for others.
Liberal. Entrepreneur. They are almost interchangeable words.
The Tory pro-business myth
You know, for many years the Tories have laid claim to being the party of business, the party of entrepreneurship. This is a complete and utter myth.
And here is why:
The fact is that the Tories aren’t really pro-free market capitalism at all. They are pro-corporate capitalism.
They are there to fight not for entrepreneurs, not for innovators who oil the wheels of the market, but for the status quo.
Don’t believe me? Look, not at what they say, but what they do.
An opportunity to cut taxes on business? Go for corporation tax to benefit the very largest of companies, not help small start-ups to grow.
An opportunity to diversify the energy sector? Withdraw the subsidies for renewables that would give small start-ups the opportunity to challenge the big six energy companies.
An opportunity to change banking as the major shareholder in RBS?
Rather than use the chance to create a real, diverse, regional banking sector, sell the stake at a loss and keep the bank intact as yet another too-big-to-fail institution, ill-equipped to finance small businesses.
Maybe George or Dave don’t mean to lie when they say they want to support entrepreneurs. But it’s simply not the Tory ‘gut instinct’ because the Tory gut instinct is to support the establishment, the status quo.
Well the liberal gut instinct is absolutely on the side of the entrepreneur, the challenger.
- We embrace diversity in the marketplace.
- We embrace those who don’t want to conform
- We embrace those who want to try something different and disrupt the way things have always been done.
We are in politics for precisely the opposite reasons to the Tories: to challenge orthodoxy and challenge those with power, while they support orthodoxy and established power - in business, just as in politics.
Because here is the truth - it doesn’t matter if it is big government or big business, the fact remains, too much power in the hands of too few people means a bad deal for everyone else.
That’s why Lib Dems have always championed a diverse, flexible economy with an enabling state and an innovative private sector.
So I say “let the Tories be the Party of huge complacent corporations”
The Liberal Democrats will be the Party of Small Business, the party of wealth creators, the insurgents, the entrepreneurs.
And to do this means first understanding the differing ambitions of the 5.2 million small business owners in this country.
‘Small for Good’
First, come those business owners who are happy staying small, the businesses that are ‘Small for Good'.
‘Small for Good' - means exactly what it says. Like the small independent retailers in communities like mine in Kendal, plumbers constantly on the lookout for business or even the one person web and graphic design companies, operating out of Britain’s attics and garden sheds.
These businesses are the absolute backbone of our communities.
All too often they are run by people struggling to make ends meet, who are loyal to their customers and - where they have them- fiercely loyal to their staff, willing to pay themselves below the minimum wage so that they can keep those staff on when times are tough.
These businesses aren’t worried about growing. They are worried about the people in their patch being able to buy their products, the businesses they supply treating them fairly and not being put under by business rates that demand stratospheric upfront costs.
So Liberal Democrats would do three things to help them:
One, we would give real teeth to the Small Business Commissioner, such as the power to fine large companies who regularly fail to pay their bills on time.
Two, we will press the Government to renew the review of Business Rates that Danny Alexander initiated when he was in the Treasury and which George Osborne has quietly dropped.
And, three, we will be passionate champions of local banking.
The big 4 banks lost any appetite for lending to small businesses after 2008, and what lending they do provide is far too London centric.
We are committed to the creation of a real, sustainable local banking sector to support small business across our country.
‘Small for Now’
However, in supporting these ‘Small for Good' businesses, we must also back the ambitions of those who wish to grow.
‘Small for Now’, they will be the backbone of future economic growth.
Businesses that are ‘Small for Now’ were last year responsible for creating one in three of the new jobs in the UK - 4,500 new jobs every single week. That’s three times the number of new jobs created by our FTSE 100 companies. And over two thirds of those jobs were outside London.
Behind these businesses are people who are not just economically liberal – they are also so often socially liberal too.
They care about climate change, they support immigration not just because it makes good business sense, but because they recognise they live in a truly globalized world.
These are people who aim to use their success to start a charity as much as to finance a Ferrari.
They are people who want to do and think differently.
So Liberal Democrats will do everything we can to support these small businesses with big ideas and big ambitions.
And the first thing we would do is rapidly boost access to equity finance for these companies.
British businesses are still far too reliant on debt financing rather than equity. And these debts are a drag on growth.
That’s why I want the Liberal Democrats to become the champions of long term, high value Venture Capital in the UK.
What does that mean? Well for starters we could look at doing four things:
First, British investors in British companies need to be able to move their money around more easily. That may mean, for example, allowing investors to keep more of the money they would receive upon exiting an investment, providing they move on to the next investment rather than taking their profits.
Second, we need to encourage large companies to act as venture capital investors.
We could start by allowing companies that invest in Venture Capitalist Trusts to claim a significant rebate on the cost of investment in small businesses, or include such investment within the remit of Research and Development Tax Credits.
Third, we should look towards the success surrounding Stanford University in encouraging Venture Capitalists to set up shop around our Universities, on the lookout for the next great idea.
Cambridge is already having some success in this area but we need to go further, for example, giving local authorities powers to tempt those who may be able to fund new business ventures, or support the scaling up of existing projects via tax incentives.
And fourth, we need to do everything we can to encourage diversity within the financial industry, to further support peer-to-peer lenders, and other alternative finance providers.
That is why Liberal Democrats will push, in the Bank of England Bill, for a new requirement on both the Competition and Markets Authority and the Prudential Regulatory Authority to encourage diversity as part of their core remits.
And let me give one further commitment to ‘Small for Now’ businesses: Throughout the CSR process, Liberal Democrats will seek guarantees of funding for university-based Catapult Centres for at least the next five years.
So, that’s my second priority - to establish the Liberal Democrats as the party of enterprise, the party of small business, the party of economic diversity.
Take the Long Term View
But still this is not enough. I want to take a longer view too.
Look back just a single generation and the world has changed beyond all recognition:
The opening up of new markets and shifting of power and resources, mass migration, globalisation and the Internet are creating a world that is ever more interconnected, ever more integrated.
Either we face up to these changes or we condemn ourselves to the economic and political side-lines for the foreseeable future.
It means understanding migration as a blessing not a curse.
The fact is that since the turn of the century, immigration has added £20 billion to our economy. And it is why this small island is home to almost a quarter of the world’s best universities.
But this is at risk because of the Conservative’s refusal to exclude students from their immigration target.
The Government must also stop sending mixed messages to the world’s entrepreneurs.
On the one hand trade missions on the other more and more ‘tough rhetoric’ from Theresa May and more gimmicks to reduce immigration.
We need to accept the facts: if we close off routes for people to come to the UK they will take their skills and their ambitions elsewhere and others will benefit instead of us.
That’s what I mean by taking the long view. And the same applies to our attitude to Europe.
Many Conservatives, who we’ve established are not the party of business, make the case that Britain’s economy could survive outside the EU and they may be right.
But I don’t want Britain just to ‘survive’. I want it to thrive.
At a time when every single trend in the world is towards more integration, more interconnectivity, more globalisation, how can it possibly be the right economic strategy to reduce our marketplace, cut our links to the biggest trading block in the world and head for isolation?
So Liberal Democrats will fight proudly for our place in the European Union, because we know that being in the EU doesn’t just mean jobs, it means ideas, it means opportunities and it means a say in the rules governing those with whom we wish to trade.
I am not naïve about the challenges of European reform or indeed the battering that Europe’s economy has taken over the past ten years. But this is about the direction of travel for the UK economy, and the role we expect to play in the world over the next 100 years.
And be in no doubt, the Chinese and Indian leaders didn’t come to Britain because of what we once were, but because of what in the future we might be - a gateway to Europe - and what is still and will continue to be one of the most important marketplaces in the world.
That, too, is taking the long view.
And there is one more area related to taking the long view that I want to address before I close. And that is intergenerational fairness.
I have already talked about the economic potential of the green energy sector. There is no question that that is a business sector both for now and for the future.
But investing in green energy is also about protecting future generations from the most extreme impacts of climate change created by previous generations: water shortages, flooding, mass migration, natural disasters – the decimation or deluge of the land that feeds us.
These would bring with them not just political and societal costs but also huge economic costs.
So green policies are not a luxury that we cannot afford, but a necessity we must afford for future generations.
But there is also the need for more intergenerational fairness in the welfare system and public services.
Over the last twenty-five years since I was at university, we have seen a steady shift of the economic burden of paying for stuff on to the younger generation, the 18-35s.
Massive increases in housing costs whether for sale or rent, tuition fees and student loans, and now the ending of tax credits.
This is not a coincidence but a trend.
This is the very group on whom we will need to depend for our future economic prosperity. We need them to succeed - which means investing in them – so that, when they do, they will pay the taxes to enable us to invest in the next generation and those that follow.
And yet, instead, the Tories are skimping on investing in their education - cutting back their opportunities - while ring fencing the incomes of older people.
Can it really be fair and economically sensible to place all the burden of paying for the welfare state on a single generation?
That’s one consequence of the fiscal surplus compounded by universal benefits paid to wealthy pensioners. It’s as if the Tories are running the economy as one gigantic closing down sale, as if it will be only this generation of older people and no others will follow.
Well, the current intergenerational balance is unsustainable and what the Tories seem to have forgotten is that this generation of older people are parents and grandparents too. They want opportunities for their children and grandchildren and they don’t want their own financial comfort to be at their children and grandchildren’s expense.
So even they are asking “can’t we share that burden more fairly?”
And that is a question that I want my party to ask itself under my leadership.
Because I am determined that, over the years ahead, we must support the young, the wealth-makers, the innovators, every bit as much as we have supported older generations until now.
That’s intergenerational fairness.
So to summarise: under my leadership the Liberal Democrats offer a balanced economic approach, based on living within our means for revenue spend, and investment now for capital spend.
We offer a commitment to enterprise and small business and we take a long view to challenges such as migration, European integration, climate change and intergenerational fairness.
I believe that the Liberal Democrats are the only party who are able to take the challenges we face seriously, because we are the only party whose philosophy is based on optimism for the future rather than the ideological struggles of the past.
Labour under Jeremy Corbyn continues to fight the battles of the 1970s, becoming ever more squeamish about free trade, and locked in an internal war of ideology.
Meanwhile, the Conservatives worry about the fights against the trade unions of the 1980s, and play to prejudices about the EU and immigration. They are closing the door on new investment to boost growth.
Liberal Democrats will be different.
To those who want to invest in the future, I say join us.
To those that are truly pro-business, I say join us.
To those, that are for innovation not the status quo, I say join us.
To those, who are for giving youth a chance, I say join us.
To those who see themselves as the challengers in business, I say join the challengers in politics.
And to all those that want to build a society that can tackle the challenges we and future generations will face in the future, I say join us, join us today.
If it’s all about the economy stupid, then surely we need a party that is not stupid about the economy. The future can be better than our Chancellor’s short termism will allow it to be. But it is a future we will have to fight for.
Together we can create an economy fit for the 21st century.