Philip Hammond – 2016 Speech on Global Uncertainty

Below is the text of the speech made by Philip Hammond, the Foreign Secretary, at the Savoy Hotel in London on 4 February 2016.

It’s a great pleasure to address such a senior business audience.

Lloyds Business Leaders Meeting
I think it’s true to say that the business and political cycles don’t always coincide.

But I suspect right now is the exception that proves the rule: most of you will be watching developments as we enter the final stages of our EU renegotiation process just as keenly as most politicians.

And I will, of course, talk about those EU reforms later in my remarks: why they’re necessary for the future health of both the British and the wider European economy.

But our EU reform agenda is just one part of a much wider, more ambitious package of reforms, aimed at equipping Britain to compete and win in this 21st Century globalised economy.

As we enter 2016, the world is once again facing economic uncertainty; but this time, unlike 2008-2010, we are simultaneously dealing with a level of global strategic insecurity and instability that we have not seen since the end of the Cold War.

The start of this year of course has underlined just how uncertain the global economic outlook is.

You all know the key statistics.

The IMF estimates that the global economic growth rate in 2015 will be just 3.1% – the lowest for 7 years.

Oil prices dipping below $30 a barrel.

Stock markets around the world volatile, to say the least.

And there’s been significant speculation about the nature of the slowdown in the Chinese economy and the Chinese authorities’ ability to manage it, and what all that means for global growth prospects.

Combined with this economic instability, the global security environment remains extremely volatile.

Just four weeks ago, the DPRK announced the test explosion of what it claimed was a thermonuclear, or hydrogen, bomb, reminding us all of the ambitions of North Korea’s illegal nuclear programme.

And despite the cooperation with the international community that led to the nuclear deal, Iran has continued to test fire ballistic missiles, in violation of UN Security Council resolutions.

Meanwhile the old adversary, Russia, is rearming at an alarming pace, despite its economic difficulties, and challenging the international community with aggressive behaviour in Syria, Ukraine and indeed closer to home as Cold War-style probing flights test our defences on a regular basis.

The migration crisis in Europe, driven by the civil war in Syria and the rise of Daesh in Iraq and Syria, continues, and represents a real political threat to some of Europe’s Governments.

If we add to these challenges the spread of Daesh and its affiliates to North Africa and parts of Asia; the civil war in Yemen; continued tension across the Middle East; and recent terrorist outrages in Europe and elsewhere in world; and the strategic impact of oil prices on critical and / or fragile countries across the Middle East, it all adds up to a picture of serious instability across the world.

A potentially toxic mix of threats that represents a grave challenge to UK and to global security.

So what is the Government’s response to this broad ranging set of challenges?

You all know just as well as we know, that businesses, and thus, economies prosper when uncertainty about the long term business environment is minimised and confidence is maximised.

We, of course, cannot be immune from the international climate, but domestically we can and we will seek to insulate the UK economy as much as we can through our long-term economic plan. We are continuing the transition from a low skills, low wage, high tax, high welfare economy; to the higher skills, higher wage, lower tax, lower welfare country that we want to see.

In 2014, we were the fastest growing economy in the G7; and in ‎2015 we were up there again, as one of the two fastest-growing major advanced economies alongside the United States.

We’ve grown almost three times faster than Japan, twice as fast as France and faster than Germany.

We’ve backed business, cutting Corporation Tax from 28% to 20% over the last Parliament, one of the biggest boosts British business has ever seen – with further phased cuts to 18% by 2020 still to come.

And, despite the dire warnings about our austerity programme from the doom-mongers and those who wanted to spend and borrow more, there are now 2.7 million more private sector jobs than there were in 2010; and over 900,000 more British businesses.

Living standards are rising.

But as we’ve recovered from the recession, the old structural weaknesses that have plagued the British economy for decades have re-emerged into the limelight:

Failings in our education and training system;

A welfare system that has too often acted as a disincentive to work;

And an infrastructure deficit that will take decades to correct.

And I am proud to say that we are tackling these familiar challenges – starting during the Coalition, despite the economic and fiscal difficulties that we faced, and continuing under this Government.

And all the while reducing the public sector deficit steadily to our target of delivering a surplus in 2019-20.

Reforming our schools and our vocational training; transforming student finance to ensure our universities have the funding they need to compete in the global marketplace for talent.

Fixing a welfare system that politicians – of all parties – have talked about for years, but always shied away from reforming. We’re fixing that welfare system so that work really will pay, all the time, for everyone.

And investing in infrastructure, right through the difficult years of fiscal austerity, and now increasing by 50% our investment in roads and rail to give Britain the networks it needs – as well as facilitating massive private investment in Britain’s creaking power generation sector.

In short, and if I may coin a phrase, we are fixing the roof.

And when it comes to the global economy, we reject the advice from those who say we should cut ourselves off from the rest of the world – somehow isolate ourselves from the world’s problems whether they are economic or political.

In a globalised, interconnected economy, sustainable economic growth will not come from isolation.

We have to engage with the fastest-growing economies of the world, and the economies with the greatest potential, like never before.

And we are.

Through the Spending Review, we have protected the crown jewel of the Foreign Office – our global diplomatic network – and given it a mandate to lead the charge for British businesses across the globe.

Now I know that Diplomats can’t do your overseas business for you. And we won’t try to.

But what we can do is coordinate British business approaches to key opportunity sectors; lobby foreign governments for access and for fair treatment; and help to create the most benign environment possible for British business through advocating and supporting liberalisation and reform in the fastest-growing economies.

We’re reforming UKTI, as Francis Maude I suspect has already explained to you this morning, making it leaner and more focused on the markets where we, Government, can make the biggest difference to what you, business, are doing.

And I can’t mention UKTI without thanking Lloyds for your support for the GREAT campaign, which is has done huge amounts to boost Britain as a brand around the world.

With China, we’re forging a new, 21st Century partnership – demonstrating in deeds our stated intention to be China’s partner of choice in the West; and to do that by being the Western market most open to Chinese investment.

And we are also opening up new markets for British businesses back in China, creating greater access to the world’s fastest-growing consumer market.

And it’s not just China.

We’re building a closer relationship with India, building on Prime Minister Modi’s visit at the end of last year and the agreements reached by the Chancellor and Finance Minister Jaitley on financial services, infrastructure and technology.

We’ve seen exports to South Korea more than double since 2010.

We’re the driving force behind efforts to deliver an EU-Japan Economic Partnership Agreement that could deliver an extra £6 billion in UK exports.

And now, Britain is the leading advocate, working with the US and other like-minded EU partners, for a new Transatlantic Trade Deal – TTIP – that has the potential to add almost £100bn annually to Europe’s GDP, and £10bn to Britain’s, bringing huge benefits for particularly the City, but for British businesses in general and for the British people.

Reforming the EU to make it more competitive

And a core part of our plans to boost the international competitiveness of the UK economy is the package of EU reforms that were outlined in documents published by Donald Tusk on Tuesday.

The Prime Minister has said this is a deal that is far from done.

And some of the most important details are still up for negotiation in the run up to the February European Council.

But I believe that the framework represented in that package, if – and only if – we can get agreement on the details, has the potential to address the four most important areas of concern about our EU membership for the British people.

The text draft delivers substantial progress in each of those areas – welfare, sovereignty, competitiveness and governance of the Eurozone.

Now I know that not all of these baskets of issues are as important to business as they are to the British electorate and I won’t go through the detail of all of them.

But I do want to address the two baskets that business leaders tell me are of greatest concern to them: the arrangements for a fair settlement between the Eurozone and the non-Eurozone countries in the EU; and the competitiveness agenda.

First, competitiveness.

We all know the problems created by the over-regulation and bureaucracy emanating from the Commission in Brussels that imposes burdens on business, limiting growth and costing jobs.

Making the EU more competitive in the global economy is crucial to Britain’s continued membership.

And the good news is that, after many years of a, frankly, cavalier attitude to Europe’s declining competitiveness, most of our EU partners, and certainly the Juncker Commission – one very nasty recession and 7 years of persistent high unemployment later – do now get it. That we do need to be competitive if we are going to maintain our current position.

The separate draft Council Declaration on competitiveness that was published on Tuesday sets out the significant steps the EU will take to deliver progress in all the areas that we’ve been pushing:

– progress towards completion of the single market, including in energy, digital and services;

– on completing international trade deals, including TTIP;
and, for the first time, introducing sector-specific regulatory burden-reduction targets, with an accountability mechanism, which will be particularly important to small and medium-sized businesses.

Secondly, in the equally crucial area of ensuring that Britain – and in particular, our hugely important financial services industry – will not lose out as a result of our decision not to join the Euro, we have secured the protections that we need.

We want the Eurozone to succeed. The Eurozone countries are our biggest market, and we want to be able to continue to grow our trade with them.

But we cannot allow Britain to be bullied into changes to facilitate Eurozone integration that would be bad for Britain.

We cannot accept the British economy, British businesses and British workers losing out as a result of changes imposed on the EU by the Eurozone countries who now form a Qualified Majority in the EU.

Now, for the first time, in these texts we have proper recognition that the EU has more than one currency, with explicit recognition that further Eurozone integration must not discriminate against non-Eurozone members, like the UK; that any discrimination based on the currency of a member state is unlawful.

If we can deliver this deal as drafted, never again will Britain be forced to bail out Eurozone countries; and never again could the EU attempt anything as clumsy as its “location policy” seeking to limit the clearance of Euro-denominated financial instruments to institutions located in Eurozone countries.

And underpinning these measures is a new mechanism – a brake that we can pull – to ensure that if these safeguards are not being properly applied in accordance with this agreement, the issue in dispute will be addressed at the European Council.

Now as I said earlier, this is far from being a done deal.

And there will be some robust discussions with the EU institutions and with our EU partners on these two baskets – and on the sovereignty and migration issues that are of even greater salience with the British people – in the run-up to the February Council in two weeks time.

But we are confident that we can reach an agreement that delivers what we need. But we are clear that we’re in no rush to do this.

Getting the right deal is more important than getting a quick deal; if it can be done at the February Council, good. If it can’t be done at the February council we’ll continue working on it. And only when the deal is done will we decide the timing of the referendum that will put it to the British people. But whether it’s sooner or later, that referendum is a commitment we have made and a commitment that will be delivered.

And as the public debate on our EU membership reaches its crescendo, I would urge all of you as business leaders, on whatever side of the argument you come down, to please get involved in that debate.

And I know, from my many discussions with business leaders, the frustrations that many of you have with the EU and actions that have, in the past, seemed like an attack directed at the success particularly of the financial services sector in this city.

But I also know that most of you will regard access to the single market, and Britain’s unique position as the first point of investment for many foreign companies into the EU, as of paramount importance to your future success.

And I say this to you: Business has a crucial role to play in this debate. These are complex economic issues and people who work for you will expect that you understand these issues better than they do, that business is in a position to make an objective, dispassionate judgement about the balance of advantage for Britain staying in the EU versus leaving it. And they deserve to hear it from those who are qualified to opine on all sides of this debate before they make up their minds, so that when they come to cast their votes, however they choose to vote, they have done so in full possession of the facts.

Delivering reform in the future

For my part, the most significant part of this deal is not the detail.

It’s something more fundamental.

It’s the fact that this negotiation has happened at all and that, if we get agreement at the Council meeting later this month, we will have delivered significant and enduring change to the way in which the European Union operates.

Because for the last forty years the European Community, now the European Union, has operated on a one-way ratchet.

It has accrued more and more powers from the Member States’ Governments, extending its areas of competence far beyond our membership of the single market that was the basis of the last European referendum in this country in 1975.

But if this deal is agreed and implemented we will have passed the peak of European Union interference in the UK.

The tide will be running in the right direction – and we see more and more people across Europe aligning themselves with our views on competitiveness, burden reduction and subsidiarity.

More and more governments being elected in the European Union countries that agree with our vision of the future of Europe.

The ratchet will have been broken – in favour of a more balanced, less ideological, more pragmatic, two-way mechanism.

Other countries, particularly those in the Eurozone, will wish – and will need – to integrate further in the future.

But Britain and the British people have never been signed up to ever closer union.

We have never believed in the one-way ticket to economic, social, fiscal and political union – the inevitable destination of the Eurozone, if it is to succeed.

And we have never believed that the key decisions affecting how this country is governed should be made in Brussels rather than just up the river, in Westminster.

The draft text presented this week demonstrates that powers can flow back from Brussels to the Member States; that restrictions can be applied to new migrants; and that the powers of Eurozone Member States can be fettered to protect the interests of the non-Eurozone Member States.

But let us be clear: whatever agreement is reached will not be the end of the process.

No-one is asking, no-one is suggesting, that Britain should stop fighting for open markets and free trade if we stay inside the European Union.

No-one is asking us to endorse as “final” or “perfect” any part of the EU arrangements.

Britain can, and will, continue to fight for an outward-facing, open-market, non-interventionist EU from the inside as we have done for years and, if I let you into a secret, as many of our fellow Member States would want us to carry on doing in the years ahead.

Britain is the second largest economy in the EU; and may well become the largest in the next 20 or so years.

And if the British people decide that our future is in the EU, that should be a future of leadership, a future in which Britain shapes the European Union for the future not grumbles from the sidelines about the direction of travel.

So Ladies and Gentlemen, I return to the theme I set out at the start

With a potentially toxic mix of instability in the international markets and a particularly volatile global security environment, charting a clear and certain course is vital to maintaining our economic security, the foundation upon which our national security is built.

Whether it’s the reforms to our tax system, to our welfare system or to the business environment here at home, the crucial international trading relationships we’re strengthening abroad, our commitments on Defence spending and the overseas aid budget or the renegotiation of the terms of our membership of the EU, we are taking the actions needed to ensure Britain’s prosperity.

And to ensure Britain’s national security.

We can’t be immune from external shocks.

And we cannot isolate ourselves from global threats.

But by enacting our bold reforms, backing business, backing job creation, strengthening our Armed Forces, boosting our competitiveness and building up global trade we will maintain and grow Britain’s position as one of the most competitive and dynamic developed economies in the world, and one of the most capable partners in defending the Rules-Based International System.

Business, and business leaders, are and will be a vital part of that success.

And I and all of my colleagues in Government look forward to continuing working with business to deliver it.

Thank you.