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UK Declined a Century Ago - Time to Step Up

On the final day of the Conservative Party Conference we hear from the man who, if the polls are to be believed, will be the next Prime Minister of the UK.

David Cameron hopes to break Tony Blair and Gordon Brown's 13-year hold on the keys to 10 Downing Street by convincing the British public that they are "ready for change."

Unfortunately, the change his economy team is predicting is not something that would convince many to get out of the house and vote. Public spending cuts of £23 billion ($36.8 billion) and austerity measures for the next five years at the very least in order to pay down the national debt run-up in the good times and bad.

Who would want to win this election?

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Sharon Lorimer

Britain's status as a world power peaked nearly 100 years ago and has been in decline ever since. World War II and the subsequent emergence of the American powerhouse ended any pretence that Britain was number one and in terms of the global pecking order Britain has been heading down the league tables ever since.

Two wars and the credit crisis in the last decade has accelerated that decline at a time when emerging economies like, Brazil, India and most notably China have begun to flex their economic and political muscle.

The banking crisis has been bad for everyone, but has had a disproportionate impact on the UK given the country's dependence on the City of London.

Soaring tax income in the good times allowed Gordon Brown as chancellor and prime minister to spend big on public services but when the music stopped Britain's national finances where left in disarray.

Political leaders across the world and the bond markets know this and David Cameron and his team, if elected, are going to have to jump through hoops to gain credibility with both.

President Barack Obama has done little to soothe fears Britain's "special relationship" with the US is a thing of the past. With the money tight Gordon Brown has not lived up to Washington's ambitions in Iraq and then Afghanistan. Obama knows the international relationship that will define his presidency will be China and while a Cameron government would spend more on the armed forces in part to improve its standing in the US capital, there is not much he can do about the new status quo.

The decline of the G7 and the emergence of the G2, G2O and talk of a single seat in a G4 for the entire EU reflect this decline in political and economic influence.

If things go well for Tony Blair and he becomes president of the EU, Cameron could find himself elected at a time when he has to play second-fiddle on the world stage to a man he openly blames for getting the country in the mess in the first place.

Cameron, though, has far bigger problems with the bond markets. Even cutting £23 billion from spending over the next five years will not stop the next government from having to raise billions via Gilt sales in what is likely to be an oversupplied market for years to come.

While the world has been fretting over the weak dollar the market has been aggressively selling sterling amid fears that growth in the UK will remain weak at a time when the Bank of England is pumping billions of pounds into the system to help shore up the banks.

Even the most optimistic economist would admit that years of weak growth and high unemployment are all Britain can look forward to. If that is the good news story many are beginning to think what would have seemed absurd just two years ago, namely that Britain could become an inflationary economy that devalues its way out of trouble like Italy before it entered the euro zone.

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Irwin Stelzer, the Hudson Institute economist, raised this prospect with Geoff Cutmore and me on Tuesday night and while he may not be predicting this is how things are going to turn out, the fact we were even discussing such an outcome indicates we might soon be looking back on 2009 as the good old days.

Give us hope

Stelzer told us of an experience that he believes indicates all that is wrong with the UK. A few years back he began businesses in the UK and US.

Having started up in Washington in a few hours at very little cost the same process in the UK cost him £40,000 and took far longer. The story would be depressing if it where not for the fact it represents an opportunity.

Britain is home to some of the world's leading companies like BP, Vodafone, GSK and Tesco. The country may be laggards in areas like IT, engineering and manufacturing, but there is an opportunity over the next 10 years too for large and small businesses to become global leaders in exciting new industries like carbon capture and renewable energy.

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If you want to foster this type of growth then you need to convince people to invest. If it costs a US economist £40,000 to set up shop in the UK then do the math on what it would cost to start a high-cost research-based business aiming to compete with rivals from Asia, America and the rest of the EU. Big companies are leaving these shores at an alarming rate and many of our success stories are based on firms doing business outside the UK.

What Cameron needs to do is set out a viable plan to arrest this exodus and attract people back while at the same time as making it far easier to get on with the already difficult task of building a successful business -- whether large or small.

The majority of Britain like their public services and while Cameron says he wants to protect front-line services he needs to set out a vision of success that will ultimately be needed to fund world class services.

I sit here in an affluent part of Manchester, home of two of the richest football clubs on the planet. Just a mile or two down the road are the housing estates of Moss Side and Salford where many of the children grow up more likely to go to prison than university. There is nothing worse than wasted talent and talent is being wasted on a huge scale across the country.

Many years ago now the last great Conservative prime minister convinced much of the country to aspire. Thatcher was also one of the most divisive prime ministers of the 20th Century. Cameron, if he wants to take the good she did without further dividing the country, has to make the entire country aspire and convince everyone from banking, industry and Moss Side to believe they live in a country with a bright future.

Less hindrance for business, more help for innovative entrepreneurs, opportunity for children whatever social standing they find themselves in and a vision of hope are needed. Convincing enough people of that to get elected will be the easy part, doing it if elected will be far harder, but ultimately more rewarding than simply getting elected.

Mr. Cameron, time to convince voters, world leaders and the bond market you are that man.

So did he step up?

Well, if you are a member of the Conservative Party you will probably be upbeat after the Cameron call-to-arms for the Tory faithful. They go into the next few months believing the 13-year wait to regain power is about to end.

For the wider world, I think the jury is still out. Not much has changed for the bond market. The commitment to reduce public spending by £23 billion over 5 years is on the table but this barely makes a dent on the public finances, even on the assumption they can actually deliver it.

Commitments to raise the pension age and freeze pay for public sector workers will alienate huge swathes of the voting public. The Conservatives say they made these promises in the spirit of straight-talking to a country that has overspent and over-borrowed. But can the Conservatives convince these turkeys to vote for Christmas?

William Hague, the shadow foreign secretary, told CNBC's Geoff Cutmore that he understands the world has changed as the G2 and G20 take center stage. But in the Lisbon Treaty spat that overshadowed the first day of the conference, it was clear Cameron's team remain uneasy about where Britain fits into the EU and the wider world.