29 July, 2012
Much remains to be done in Britain and, as with the rest of Europe, it is not just about tinkering with the money supply. Osborne himself has spoken about rebalancing Britain and there is work to do on three fronts.
The Industrial Mix
Britain is overly reliant on the financial services sector, which constitutes 10% of GDP compared with 8% in the USA and 4% in Germany. It supplies around 10% of the tax take. Britain has more, bigger banks, so when the credit crunch came we were hit harder.
However, there is nothing wrong with doing something well, and rather than reducing our activities in the financial services sector, the solution is to build up other sectors, by making it more attractive to invest in Britain.
Nor should we return to old fashioned industries. We cannot compete in shipbuilding, clothing (except high fashion) and several other industries. It is interesting to note what has happened in the car industry. Britain last year produced a record 1.3m cars, but the growth has only happened as cars got more sophisticated, with more electronic and high added value engineering. Aircraft engines, at which we excel, provide a similar example. Life Sciences, pharmaceuticals, high-tech computer chips, these are the things we should be encouraging, without of course the government picking winners; we have had enough of that in the past. The Government needs to create the environment necessary for people to invest in these areas; it will do that by reducing taxes and cutting regulation (including opting out of much of the European system of red tape).
Britain is far too closely linked to European markets, with which we do around half our trade. Europe is no longer the great hope for the West; it is a declining, decaying structure based on the values and politics of the previous century. Growth will be in the East, in the developing BRICS economies, Brazil, Russia, India, China, South Africa and in Africa generally.
Lastly, something will need to be done about the regions other than the South East. For a while I thought that the proposed high speed rail link would help, but we can't afford to take it even as far as Birmingham.
Shovelling money into projects chosen by the government, or worse the EU, doesn't help. It never has. Paying successful companies to set up factories in deprived areas doesn't work either.
The only solution I can see is for the government to move out of London and into the regions. This would save money since property prices are lower away from London and wages less. With modern communications including video conferencing there would be no need for anything except rare visits to London by any except the top personnel. And the devolved offices would draw industry towards them as London does now. If you are a defence contractor you want to be lobbying where the Ministry of Defence is (Cornwall would be good). The hapless G4S Olympic Security maestros need to be brown-nosing the Home Office in their new offices in Newcastle, and so on.
Unfortunately all this will never be achieved while the Conservative Party is in coalition with the Liberal Democrats. The Business Secretary John 'Vince' Cable is a 1970s style socialist who seems unable even to peer into the current century.
It will have to be done some time, though.