Good afternoon,
After seventy years of an astonishing reign I think there are many reasons why Queen Elizabeth will be remembered as one of our very greatest monarchs.
But there is one particular criterion that’s applied to all reigns throughout history.
What happened to the people, the condition of the people?
In the last 70 years the British people have begun to live lives that were unimaginable even to our grandparents, even our parents.
To travel the world, to communicate globally, to express ourselves – artistically, politically, culturally – as never before.
We are at the forefront of multiple waves of scientific and technical advance.
We live longer, healthier and more prosperous lives than any previous generation.
As we look back at that enormous span of history – our monarch’s lifetime – we see that this progress was sometimes uneven, and sometimes achieved against serious headwinds.
An existential war, when the very independence of our country was threatened.
The Suez crisis.
Industrial disputes that tore communities apart.
Riots.
Stagflation.
The persistent scourge of high unemployment.
Today we are living in the aftermath of the worst pandemic for a century, and once again we are steering into the wind.
We face global pressures on prices caused by the lingering effects of Covid and the shock of Putin’s aggression in Ukraine.
We will get through it, we will get through it just as we got through the far greater challenge of covid, and the colossal fall in output that entailed.
Our position is far better than during past economic difficulties.
People don’t face the misery of the 1980s or 1990s.
Of being told in their millions that they were surplus to requirements, that there was no job that they could do.
We now have unemployment at its lowest level since 1974, and youth unemployment at or near a record low.
It is an amazing fact that we now have more job vacancies than there are unemployed workers to fill them – and that in is itself feeding inflationary pressures.
I want to talk frankly about what we need to do together, so that we come through this period together, as fast and as strongly as possible.
And the first step is to understand the scale and the causes of the problem.
Everyone can see and feel the impact on household budgets.
The increases in the cost of food, the spooling digits on the petrol pumps, energy bills growing seemingly ever larger.
Much of this has been driven by problems in global supply chains that followed the pandemic.
The sudden surge in demand for gas from China, the world shortage of container ships.
Six months ago, there were good reasons to hope that the laws of supply and demand would start to operate, and that these problems would begin to abate.
The world responded for instance to the shortage of lorry drivers, for instance, by hiring more, paying them better, and giving them better conditions.
That progress was brutally interrupted on 24th of February, when Putin decided on his disastrous and unprovoked war in Ukraine.
World markets have responded with a significant spike in prices, partly driven by sanctions, partly by the elevated risk premium – the inevitable increase in what businesses have to charge to compensate for raised global levels of uncertainty.
The price of oil and gas looks likely to remain high for a while to come, and the same goes for grain and feed and fertiliser.
I know that there are some who argue – not in this country perhaps but elsewhere – that the price of supporting the Ukrainians is now too high.
And they should be encouraged to accept whatever terms Putin may ask.
I don’t believe that option is really open to us.
Never mind that abandoning the Ukrainians would be morally repugnant, since they are the victims, and they have an absolute right to defend a free and independent country.
We are simply not in a position to tell them what to do.
They have shown by their heroism that they will fight to defend their homeland, and they have shown that they will win.
Putin has made a colossal strategic error.
He has fundamentally misunderstood the psychology of his opponents, and what Ukraine really is.
He will never succeed in subduing Ukraine, and the sooner he comes to that understanding the better.
But nor should he be allowed the partial success of swallowing some of the country – as he has done before – and declaring a ceasefire.
He would be able to continue to twist the knife in the wound.
The crocodile would simply come back for more.
And he would be able to claim that his aggression and his violence had paid off.
That would be a disaster.
For Ukraine and all the other parts of the former Soviet Union that he might attack and perhaps even for countries – one thinks of Poland – beyond former Soviet boundaries, a disaster for them.
To encourage a bad peace in Ukraine is to encourage Putin and to encourage all those around the world who believe that aggression pays.
That would be a mistake that would open the door to further conflict, further instability, further global uncertainty and therefore further economic misery.
I say this because I do not believe there is a quick fix in Ukraine, and because we must continue to support the Ukrainians – as we have from the beginning – for as long as it takes.
But over time, I believe the economic consequences of the war in Ukraine will abate.
The Europeans and others who depend on Russian hydrocarbons – and we still get 15 per cent of our diesel from Russia, it was 30 per cent, it’s now 15 – will find other sources.
The whole tragic experience will greatly accelerate the rush to clean, low carbon energy of all kinds.
Over time, the inflationary effects will start to diminish.
We are dealing with labour market shortages not just by reaching for the old lever of uncontrolled mass immigration
but with a points based system that gives us the workforce we need.
We’re solving it by getting people off welfare and into work – 380,000 now under the Way to Work scheme
and above all by skilling up the British people – with the Lifetime skills guarantee and all the investments that this government is proud to make into colleges such as the one I am standing in today.
But we must deal with the here and now, we’ve got to recognise that there are pressures on household budgets that for some will prove simply unaffordable – especially when the energy price cap goes up in the autumn.
So this Government is on the side of the British public in coping with those pressures.
As the Chancellor has announced, we are directly helping the most vulnerable eight million households with cash payments worth £1,200.
Every household in the country will get £400 towards their energy costs.
Most will get a £150 council tax rebate.
Pensioners in receipt of winter fuel payments will get another £300 and disabled people will get another £150.
Taken together with funds already committed, that is £37 billion to help with the cost of living.
We have the fiscal firepower to help, and we will.
We will back Britain and we will back the British people for as long as it takes.
But there is only one reason why we can currently afford to make these enormous commitments.
And that is because we responded to the pandemic with a series of difficult but ultimately responsible decisions.
First we protected families and businesses with a package of support worth about £400 billion that was among the most generous in the world.
Then, having rolled out vaccines faster than any other European country, we were able to open up our economy faster –
and that is why we have had such a rapid rebound in employment and last year were the fastest growing G7 economy.
It is that fundamental strength – the tax base of a high wage, high skill, low unemployment economy – that enables us to look after the British people.
That is how we can afford to cover the costs.
We will continue to do what we can for as long as it takes.
That was the pledge I made to you during Covid.
We delivered, and we will deliver again.
At the same time we must face some realities.
The first is that no Government in the world can afford to use taxpayers’ money to shield everyone completely from the increased costs caused by powerful global forces.
When we protected the population during Covid, the package of help was massively progressive, in the sense that it went overwhelmingly to the most vulnerable households.
We will do the same in the aftershocks of Covid.
We will get the right balance between spending what we can afford now and ensuring there’s a healthy economy to look forward to when pressures abate.
And while some support will of course be universal, the bulk will be targeted at those who need it most.
I think that approach is right and is supported by the vast majority of people in this country.
The second reality is that when you face inflationary pressure, you can’t just spend your way out of it.
On the contrary, you have to be careful not to add to inflationary pressure.
We are constrained in what we can do not just by the fiscal position – the risk of borrowing too much – but by the risk that we will fan the flames of further price increases.
Which brings us to the third reality.
That we cannot fix the increase in the cost of living just by increasing wages to match the surge in prices.
I think it is naturally a good thing for wages to go up naturally, as skills and productivity increase. That’s what we want to see.
And yes, we have been increasing wages: with a record increase in the Living Wage, and the changes to Universal credit.
But when a country faces an inflationary problem, you can’t just pay more or spend more.
You have to find ways of tackling the underlying causes of inflation.
If wages continually chase the increase in prices, then we risk a wage-price spiral such as this country experienced in the 1970s – stagflation – that is inflation combined with stagnant economic growth.
When a wage-price spiral begins, there is only one cure.
And that is to slam the brakes on rising prices with higher interest rates.
That has an immediate impact on mortgages and rents.
It puts up the cost of borrowing for business.
It is bad for investment and growth.
It is bad for jobs.
It is bad for everyone.
And, of course, the increase in interest rates considerably increases the cost of borrowing for government.
We are already spending £83 billion this year alone in servicing our debts.
Every extra percentage point in interest payments is another £21 billion that has to go on paying lenders for our borrowing.
That is money that will have to be paid back by our children and grandchildren.
It is money that could go on schools and hospitals.
We have the tools we need to get on top of rising prices.
The global headwinds are strong.
But our engines – the great, supercharged, ultragreen marine propulsion units of the UK economy – are stronger, we will get through it.
And, while it’s not going to be quick or easy, you can be confident that things will get better, that we will emerge from this a strong country with a healthy economy.
That won’t happen if we continue to apply the same mindset that we had during covid: that the answer to every problem is more state spending.
We are already engaged in the biggest package of infrastructure investment for more than a century.
We are transforming our railways, our roads, we are investing massively in skills, in research and technology.
We are making communities safer – those 13,576 police of the 20,000 we promised are already helping to bring neighbourhood crime down by 31 per cent.
We are tackling the covid backlogs – hiring thousands more doctors and nurses to speed up treatments.
We are opening community diagnostic hubs across the country so that you get the scan or test you need, but faster.
We are fixing social care, so that we can end delayed discharges.
Far too many hospital beds are occupied by patients who could be better cared for elsewhere.
We’re investing in education, huge sums in defence, in the agenda on which this Government was elected, to unite and level up across our country.
And we’re keeping the promises that will make a difference to millions of lives over the next decade and long into the future.
But it costs money.
Prodigious sums.
The overall burden of taxation is now very high – and sooner or later, and I would much rather it was sooner than later, that burden must come down.
This burden is an aberration caused in no small part by the fiscal meteorite of Covid, and it must come down because the answer to the current economic predicament is not more tax and more spending.
The answer is economic growth.
You can’t spend your way out of inflation, and you can’t tax your way into growth.
So that is why the time has come for this Government to do what it has been straining at the leash to do for the last two years, but which has been difficult because of the covid crisis.
And that is to enact the supply side reforms that will cut costs for government, cut costs for business and cut costs for people across the country.
Let me take them in that order.
It cannot be right that the size of central government has increased by 23 per cent since 2015.
There are 91,000 more officials than there were.
I believe we have the best civil service in the world – but in view of the pressures on families, we must now find efficiencies and prune Whitehall back to the size it was only five or six years ago.
Something we can achieve without harming the public services they deliver.
And in expanding and encouraging the private sector, it is time for the government to stop spending, and to start cutting taxes and cutting regulation.
This has been an era of phenomenal corporate welfare.
From PPE contracts that were driven by the desperation of the pandemic, to billions of pounds invested – driven by the same desperation – in vaccines and anti-virals, to the whole array of businesses that were, quite rightly, supported and by furlough and Bounce Back Loans and all the rest of the programmes.
Of course this government will continue to invest in the bedrock on which businesses build their foundations: in infrastructure, skills and technology.
But sometimes the best way that Government can help is simply to get out of the way. To do less or better, or simply not at all.
If government has billions, the markets have trillions, and we need to see more of that investment by businesses here in the UK.
That is why we are now taking advantage of Brexit freedoms and accelerating reform of Solvency 2 – a one-size-fits-all EU diktat which has been unnecessarily preventing insurance and pension funds and others from making giant investments in UK firms and in i
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