Rebalancing the economy

 

          The government’s economic plan rightly said it intended to cut the share of the economy taken by the public sector, and boost the share of manufacturing and production. The aim is to reverse the dramatic move in the other direction under Labour. In their last three full calendar years they presided over more than a 10% fall in production industries output, and a 3.7% increase in public sector real output.

            In 2010 and 2011 production industries edged ahead by 0.7% whilst public sector output rose by a further 2.2%. These figures of course include four months of Labour and 20 months of the Coalition.

             The overall figures for the period 2007-2011 inclusive show just how far the imbalance has gone. Over that time period public sector output rose by 6% whilst production industry output fell by 10.5%. It just shows how much now has to be done to rebalance as the government intends.

              Putting this right cannot be done by monetary policy alone. Industry needs cheap energy in abundance. The UK is taxing and testing high energy using industries  by its dear energy policies, partly required by its consent to EU carbon dioxide policies.

               It requires a well trained and flexible workforce. Working needs to be more rewarding than being unemployed.

              It requires good transport links.

              It takes the patient building of supply chains, with the capability to produce more components locally to cut costs and logistic delays.

               The UK is having some success with increasing its motor industry output. It has good positions in areas like pharmaceuticals, food manufacturing  and aerospace engineering.

                The UK needs a period when it avoids major companies getting into difficulties. BP was badly hit by the drilling disaster. RBS and Lloyds HBOS were brought down in ways we have often described on this site. This week GlaxoSK paid a $3 billion fine to draw a line under mistakes they have made in selling and marketing. It is a good job that Parliament and press have not launched a bank style witch hunt against this large pharmaceutical company at the same time as the attack on Barclays.  We need more corporate successes so we can earn our living in an increasingly competitive world.

             The government has much more to do to create the right climate for industrial led growth. The UK’s industrial base is now a small proportion of the total economy, so it will need to grow quickly to drag the rest of the economy into good growth. If the financial service and banking sector contracts further, industry will need to grow faster again to prevent another rise in the proportion of public sector activity.

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160 Comments

  1. lifelogic
    Posted July 7, 2012 at 5:29 am | Permalink

    “The government has much more to do to create the right climate for industrial led growth.”

    Indeed it first has to stop paddling in totally the wrong direction:- with the green expensive energy by design agenda, the no retirement laws, the gender neutral insurance, all the EU insanities, the paternity leave, the increasing state sector size, the countless “discrimination” laws, the hiring and firing laws, the legal system, the tax levels and system, the lack of an uplifting small government vision, the dis-functional banking …

    They really now need to get rid of Cable, Clegg, Clarke, Mr Morally Repugnant and Cameron too to send the right message on direction of travel. Also to give at least a chance of not having labour in 2015.

    • Posted July 7, 2012 at 5:59 am | Permalink

      Yes. It would also help if the runiously stupid monetisation of debt program known as QE which simply allows the government to print money and spend it, thus living way beyond its means, is stopped.

      Really, having the B of E purchase sovereign bonds is just a fig-leaf to pretend you aren’t on the same page as Gideon Gono, but you are. Just ask him how “making credit available” and “stimulating demand” worked out.

      • Posted July 7, 2012 at 6:00 am | Permalink

        I mean of course, the government, not you LL.

        • zorro
          Posted July 7, 2012 at 3:03 pm | Permalink

          Zimbabwe had a finance minister called Gideon who engaged in ruinous QE…..The UK also has a chancellor whose name is Gideon and engages in ruinous QE…..Coincidence?…..I think not!

          zorro

          • zorro
            Posted July 7, 2012 at 3:40 pm | Permalink

            (Well Gideon Gono is a Mervyn King type figure I suppose but let’s not spoil it….)

            zorro

      • Denis Cooper
        Posted July 7, 2012 at 12:46 pm | Permalink

        As practised in the UK so far, the primary purpose of QE has been to make sure that the UK government doesn’t run out of money to pay all its bills in full and on time.

        Despite my reservations, I think it’s better that the UK government can still do that, unlike the Greek government which has amassed a pile of unpaid and in many cases long overdue bills – invoices from suppliers and contractors running into billions of euros, plus arrears on public sector salaries also running into billions of euros, and other debts it should have paid many months ago but hasn’t been able to pay simply for lack of money.

        The effects on the Greek economy and the Greek people have been pretty devastating, with businesses bankrupted because they haven’t been paid for goods and services supplied to the Greek state, and for example doctors and nurses continuing to work even though they haven’t been paid for many months and consequently have lost their homes, with the knock-on effect that banks and other companies now have more bad debts on their books.

        To summarise my reservations:

        1. For over three years now two successive Chancellors, in cahoots with the Bank of England, have spun lies about what is being done and why, and those lies have been propagated by the mass media to mislead the public.

        2. It seems that MPs have been completely sidelined – it’s not clear on what legal basis the Chancellors have authorised QE, or how their actions are compatible with Section 10 of the Bank of England Act 1998 which says that they’re not permitted to give instructions to the Bank with respect to monetary policy, given that neither of them has asked Parliament to allow them to exercise “reserve powers” under its Section 19; and have MPs ever been asked whether they agree with another tranche of QE, or agree that taxpayers should accept further contingent liabilities through the Treasury indemnifying the Bank against any losses?

        3. Where and when will the large scale creation of new money end, and who will decide, and on what grounds?

        • zorro
          Posted July 7, 2012 at 6:25 pm | Permalink

          On a reasonably negative outlook, I have predicted about 500bn by 2014/15, but if it gets worse it might be more. Basically, they are clueless, and have no other workable strategy othan a soft inflationary default……well hopefully soft.

          Zorro

        • Mark
          Posted July 7, 2012 at 7:43 pm | Permalink

          See the Banking Act 2009, in particular:

          http://www.legislation.gov.uk/ukpga/2009/1/section/244

          which grants general immunity to anything the BoE does while acting as a monetary authority.

          • Denis Cooper
            Posted July 8, 2012 at 1:39 pm | Permalink

            But ostensibly the legal authority for the Bank to undertake QE is coming from the Chancellor through his letters, eg this most recent letter from Osborne to King:

            http://www.hm-treasury.gov.uk/d/chx_letter_050712.pdf

            “I am therefore writing to authorise an increase in the ceiling on asset purchases financed by the issuance of central bank reserves from £325 billion up to £375 billion.”

            King may suggest, propose or urge QE, but it’s down to Osborne to decide and then if he agrees to legally authorise; but on what legal authority is Osborne acting, and do MPs ever get a say in the matter?

        • Posted July 7, 2012 at 7:46 pm | Permalink

          Of course, as a viable alternative they could, er, not spend money they don’t have.

          As to your question three the answers are; the market will decide on the basis that ongoing devaluation makes Sterling a basket case. I honestly can’t see any current or likely future Chancellor walking away from the apparent magic money tree.

          • Denis Cooper
            Posted July 8, 2012 at 1:50 pm | Permalink

            It’s not really an alternative which can be quickly adopted by a country which has got into the two bad habits of:

            a) having half its national economy directly or indirectly involved with public spending; and

            b) running government budget deficits funded through borrowing as a matter of normal course.

    • Bazman
      Posted July 7, 2012 at 7:20 am | Permalink

      The usual race to the bottom then? Have you worked out what the race to the bottom is?

      • lifelogic
        Posted July 7, 2012 at 7:47 am | Permalink

        No I assumed “race to the bottom” was just some funny interest of yours. I want the UK to race to the top your suggestions seem all aimed at a race the bottom.

        • Electro-Kevin
          Posted July 7, 2012 at 11:43 pm | Permalink

          Lifelogic @ 7.47

          Touche’

          (A double entendre there I think)

    • APL
      Posted July 7, 2012 at 7:31 am | Permalink

      lifelogic: “They really now need to get rid of Cable, Clegg, Clarke, Mr Morally Repugnant and Cameron too to send the right message on direction of travel.”

      Oh, you mean an utterly different party.

  2. Posted July 7, 2012 at 5:33 am | Permalink

    Normally I pretty much agree with JR’s posts, but I flatly disagree with the above one.

    I totally fail to see why changing the proportion of GDP taken by the public sector has anything to do with the cost of energy, flexibility of the workforce, quality of infrastructure, etc. (worthy as the latter objectives are).

    I.e. it strikes me that poor infrastructure and workforce flexibility have much the same detrimental effect whether the public sector takes 30% of GDP or 60%.

    Reply: The government wishes to increase the size of manufacturing – it therefore needs to create a climate and framework where that can happen.

    • lifelogic
      Posted July 7, 2012 at 5:58 am | Permalink

      The proportion of GDP taken (and usually wasted by the public sector) is an overhead cost on productive industry that renders it unable to compete and pushes it away from the country to lower cost bases – how could it not do. As is the expensive allegedly “green” energy, the over regulation and all the rest. Beyond basic law and order, defence and infrastructure the more not working for the state and working the in the wealth and tax creating sectors the better for all.

      Industry must compete in the real world or die – it has no choice it needs to go where it can survive and will do so or die.

      • RDM
        Posted July 7, 2012 at 11:26 am | Permalink

        Well said!

        But do we really have to accept stagnate growth, possible until 2017 (MK – BoE), which is what DC & GO seem to have installed for us? They don’t seem to accept the need for reform of the concentrated Banking, Energy, Media, etc … markets?

        I don’t know how far Coalition/Devolution politics is getting in the way, but this should not be getting in the way of Banking reform (etc …), regional access to the government lending schemes, and more boardly, building up an Enterprise cultural.

        Regards,

        RDM.

        • lifelogic
          Posted July 8, 2012 at 7:00 am | Permalink

          No we do not. We clearly could have growth if the government wanted some – but they clearly prefer “tax, borrow and waste and decline”.

      • Martyn
        Posted July 7, 2012 at 12:15 pm | Permalink

        Indeed! “Industry must compete in the real world or die – it has no choice it needs to go where it can survive and will do so or die”.

        Which does not, of course, apply in any way to the hundreds of tax-payer funded quangos, the government or the public service. Or at least until they run out of other people’s money. The government is safe enough I suppose – simply print more debt to add to the taxpayer, budiness sector and saver miseries.

      • Posted July 8, 2012 at 4:36 am | Permalink

        Obviously cheap energy is nice. But if the cost of energy is important for employment creation purposes, how come Japan based manufacturing has competed successfully with American manufacturers over the last thirty years despite Japan having much higher energy costs relative to Japanese person-hours than Americans? Reason is that if costs (like energy) rise in one country relative to another, then the relative value of their currencies will simply adjust sooner or later to keep trade between the two countries in balance, all else equal.

        Re the claim that public sector spending is a “waste”, that is a purely political opinion. X might think we need more spent on state education, while Y might think otherwise. It’s near impossible to prove who is right.

    • Bazman
      Posted July 7, 2012 at 7:34 am | Permalink

      We often look at manufactured items that we could easily make in our company and see that it is not possible to make the product cheaper than the Chinese as it would cost more in materials. How does the government propose to increase manufacturing against this? Not that I propose any tariffs. You can only really compete with the Chinese on high technology or strangely on large heavy items like things made from structural steel that in the main are bought in that particular locality at short notice, which is the company I work for main business. It must be uneconomical to transport these systems across continents?

      • lifelogic
        Posted July 7, 2012 at 7:51 am | Permalink

        Indeed the UK cannot compete in all areas but can in many and very many more if the government just got out of the way.

        • uanime5
          Posted July 7, 2012 at 5:18 pm | Permalink

          The UK cannot compete on cost against low cost producers so there are only a few areas where it can compete; namely by making high quality products and new technologies. Sadly the UK does badly in both of these areas.

      • A different Simon
        Posted July 7, 2012 at 1:10 pm | Permalink

        Bazman ,

        Surely materials costs in China aren’t so different from here .

        Is the Chinese article must be made of inferior materials and the corner-cutting carried out at every stage ?

        A true quality product properly designed to last and be safe , made of properly specified and treated materials is expensive to make anywhere isn’t it ?

        I don’t believe for one minute that the Chinese use the same el-cheapo agricultural equipment themselves which they export around the world . More chance they would import quality from Italy or the US .

        The Chinese tractors might even look the same superficially but the home market one will give good service and the export model will be a danger to it’s operator and become uneconomic to run very quickly due to lack of spares backup .

        The same is true with people . The best people in any field are in short supply .

        There are not enough really good software developers in India to satisfy the amount of Western offshoring contract and there never will be .

        How many times do Western companies have to get burned to admit offshoring was a mistake and re-onshore it ?

        Seems to be all about quantity , not quality , short term thinking and having upfront cost as the only criteria .

        Sure there are a few things the Govt can do but doesn’t it really boil down to changing attitudes of western companies and western consumers recognising the importance of quality , learning to discern it and buying it in preference to tat ?

        • Bazman
          Posted July 7, 2012 at 6:23 pm | Permalink

          People like cheap and in the case of many tools where there is nothing for free most are happy at cheap as they are only lightly used in the home. In industry they would not last a day. Where they get their steel from I don’t know, but we could not buy it from our suppliers at that price. Even with promises of large orders. Do you want a Yale padlock for six quid or a Chinese one for two. Most want the two quid one.

          • A different Simon
            Posted July 8, 2012 at 2:52 pm | Permalink

            Sadly you are right . I fear that even if people had more money in their pocket most of them would not change their buying habits .

            The British govt prefers to purchase from overseas (eg computer system for doomed NEST pension is from Tata) , so I can’t see them extoling the benefits of circulating money in our own economy leading to it returning to people who spend it quicker .

            If you are locking up a £39.99 bicycle which has come from China you may as well continue as you started .

            For my motorcycle I want something which will take a blow from a hammer without shattering and so do the insurers . My last padlock and chain lock cost over £50 several years ago .

            Did not check where it was made like I try to check everything now .

            For a critical machined part I would not use Chinese materials . The first batch may be OK but the quality control will not be there at the price they ship it for .
            It may be irregular which will show up when try and machine it and shorten tool life , may not have been properly heat treated , certainly will not have been x-ray inspected for cracks or come with a certificate showing the results of testing of the billet the piece it came from .

          • alan jutson
            Posted July 9, 2012 at 3:45 pm | Permalink

            Bazman

            They make their own steel in China hence the cost advantage.

            As for quality, I would suggest it varies and its make up is chosen dependent upon what is to be its final use.

            You can make steel to whatever quality you want, leaded, non leaded, stainless, wrought, forged etc etc.
            The consistancy of all depends upon quality control.

            Remember China have put rockets into space, and they work, so not all they produce is crap.
            Although I would happily agree much is poor and cheaper.

        • Bazman
          Posted July 7, 2012 at 6:56 pm | Permalink

          China and India often take old Japanese technology from the 80’s such as motorbike design and then make a lower quality copy of the original at a low price. If that’s what ya want..

          • APL
            Posted July 8, 2012 at 10:21 pm | Permalink

            Bazman: “China and India often take old Japanese technology from the 80′s such as motorbike design”

            Then they are probably using a design that had its roots in the British motor industry of the 30’s.

        • Bazman
          Posted July 9, 2012 at 6:26 pm | Permalink

          Irwin Record 42″ bolt cutters will see most chains cut. My motorbike is secured with chains and locks unable to be cut with this tool and anchored to the floor big time. Accept no Chinese substitute.

      • Alan Wheatley
        Posted July 7, 2012 at 1:42 pm | Permalink

        The UK can be competitive in certain areas, such as high tech, specialist components for historic and classic cars. This is an area that is very busy at present.

        Buying from India and China is a dead loss as the volumes and total job cost are far too low. You may get a cheaper quote from these countries, but that is a fat lot of good if the product does not arrive until very late, or not at all, or the quality is rubbish.

        • Bazman
          Posted July 7, 2012 at 6:48 pm | Permalink

          The disadvantage of buying from China is that in many cases you have to but a container full and the container and then dispose of the container.

      • zorro
        Posted July 7, 2012 at 3:08 pm | Permalink

        The Chinese currently work for less than us, but from what I hear they are not always as economical or productive as UK workers. It is important to remember that Chinese are rising quickly as are expectations. Look at their wage inflation over the last 10-15 years. The Chinese won’t have this advantage for long, and they still struggle in the innovation stakes. They are good copiers.

        zorro

        • Bazman
          Posted July 7, 2012 at 6:53 pm | Permalink

          “Them Japanese bikes will never catch on with their pressed steel frames and flashing indicators even if they do include a cheap nasty tool kit.” “Lets face it they’re not mens machines and men like to spend their Sundays repairing their bikes as much as they do riding them”

        • Farmer Geddon
          Posted July 7, 2012 at 8:25 pm | Permalink

          ..but Chinese will eventually outsource work to Africa ? They are already establishing good ties in several countries.

          • A different Simon
            Posted July 8, 2012 at 2:57 pm | Permalink

            Surely they are just after the mineral rights and participation in infrastructure and utilities ?

            The Chinese have earned a bad reputation for leaving an environmental disaster when they pull out which has forced them to partner up with (mainly fund) foreign companies including British .

    • oldtimer
      Posted July 7, 2012 at 8:56 am | Permalink

      When Cameron/Clegg/Huhne promote the notion of negawatts to pay businesses to shut down operations in order to save energy (see the Carbon Plan) it is no surprise there is a reluctance by businesses to invest in manufacturing capacity. Clearly they have no conception of what is needed to run a manufacturing business.

      Alternatively they know all too well and are determined to put an end to it. Given that they were and remain committed to the idea behind the failed Copenhagen treaty, and presumably Agenda 21, I am ready to believe it is the latter. All we will get from those presently in charge is words; we certainly are not getting effective action. The leadership of the Labour party are no better – if anything, as architects of the Climate Change Act, they are even worse.

      • Bob
        Posted July 7, 2012 at 2:22 pm | Permalink

        We need a government of people who who done something with their lives outside of politics. People who know how to create wealth, as opposed to steal it.

      • zorro
        Posted July 7, 2012 at 3:31 pm | Permalink

        Agenda 21 – effective de-industrialisation of the West….

        zorro

      • lifelogic
        Posted July 7, 2012 at 5:01 pm | Permalink

        Indeed words saying bonfire of red tape, the most business friendly but action all in the opposite anti business direction every time.

  3. Matthew
    Posted July 7, 2012 at 6:13 am | Permalink

    It requires that some of the best engineering and science graduates decide to go for a career in industry too.
    What is a concern is that only you seem to bang on about these factors with any consistancy.

    To the observer the coalition seems more focused upon, enquiries for activities that are illlegal already, printing money to get the economy started and House of Lords reform.

    • A different Simon
      Posted July 7, 2012 at 1:27 pm | Permalink

      Why should an engineering or science graduate go into industry where they will struggle to even make enough to buy a house when they can make many times more money by prostituting themselves to The City ?

      Almost every piece of Govt policy originates from the financial services community and is designed to benefit it .

      The parasitic load of such an oversized financial services industry is bleeding the real economy to death .

      Whilst Govt needs to be shrunk by the order of 10% , the financial services industry needs to be shrunk to about 1/10 th of it’s current size to rebalance the economy .

    • uanime5
      Posted July 7, 2012 at 5:20 pm | Permalink

      The problem is that the best engineering and science graduates decide to work in the City because it pays so much better than industry. Until this problem is resolved manufacture will continue to decline.

      • lifelogic
        Posted July 8, 2012 at 5:10 pm | Permalink

        It is probably better for the country if they go where they are best paid.

        • uanime5
          Posted July 8, 2012 at 8:51 pm | Permalink

          Given that this has caused manufacture to decline I doubt it’s better for the country.

  4. Posted July 7, 2012 at 6:23 am | Permalink

    This is an interesting and reflective blog from John Redwood.

    Sadly, so far the Coalition Government’s policies have been completely inadequate to grow the Private Sector. One of the major obstacles has been finance, with the Financial Services industry consumed with their own greed rather than national gain.

  5. Matthew
    Posted July 7, 2012 at 6:24 am | Permalink

    Meant “inquiries”

  6. Johnny Norfolk
    Posted July 7, 2012 at 6:30 am | Permalink

    In many respects this is the root cause of our problems. This level of the state just cannot be supported. Still nothing is done except for window dressing. Worst of all they still think just printing more money is the solution. Nothing will be done till the whole thing crashes.We have the worst politicians in living memory.

    • zorro
      Posted July 7, 2012 at 3:33 pm | Permalink

      It is the only solution they are capable of – slow inflationary default….

      zorro

      • Electro-Kevin
        Posted July 8, 2012 at 12:00 am | Permalink

        Agree with you, Zorro.

        However there is another underlying issue which is driving this. It becomes very clear when we find that we have 20,000 soldiers being put on the dole but no ‘bonfire of the quangos’ and taxpayer’s money going on bankers’ bonuses.

  7. Simon
    Posted July 7, 2012 at 6:40 am | Permalink

    At the risk of straying off topic, GSK did not make “mistakes”, they deliberately and illegally sold prescription drugs for off label use, and hid safety critical data from regulatory bodies.

    Whatever they might spin it as on radio 4, they were fined $3bn for knowingly breaking the law.

  8. JimF
    Posted July 7, 2012 at 6:59 am | Permalink

    This post seems half-hearted by your usual standards. Perhaps you have given up on there being any progress on this subject.

    Cutting to the chase, there are things which could be done overnight e.g. countrywide enterprise zones, labour market flexibility, business rates reform, and there are things which will take decades (transport links, getting a decently educated workforce).
    There is no will in government to even change the overnight issues, so what hope the long term ones?

    • zorro
      Posted July 7, 2012 at 3:39 pm | Permalink

      Unfortunately, there is more than enough evidence to show that they are hopelessly out of their depth. We can go on ad infinitum on this blog pointing these issues out and their probable solutions. It really needs the issue to be forced one way or another by somebody or other….

      zorro

    • uanime5
      Posted July 7, 2012 at 5:22 pm | Permalink

      Enterprise zones just suck business from the surrounding areas to the enterprise zone. They don’t create jobs.

      The UK has one of the most flexible labour markets in the OECD.

      • Posted July 7, 2012 at 8:59 pm | Permalink

        I agree on Enterprize zones the whole country should be one not silly zones.

        I doubt if the second is true but anyway hire and fire is far too restricted and it does not even help workers as it deters companies taking people on.

  9. Bazman
    Posted July 7, 2012 at 7:17 am | Permalink

    Flexible? I’ll come and repair your heating system sometime in the next ten years and you can pay me some time in the next twenty. A career of being a ‘chap’ would be nice.
    Corporate success cannot be argued against. Working for a big company can have the advantages over a smaller company as they often pay sick pay, have to comply with health and safety and pay better wages. They also in many cases do not and exploit their workforces. This is where I am suspicious of the term ‘flexible workforce’ In what way flexible? In the sense of being easy to hire and fire? Sorry I am not that flexible and will work somewhere else that offers more security. Or not work. Flexible in that you will do any task? Like skilled work for the same pay as unskilled? Or being the manager for minimum wage? Flexible on your hours and days worked. Like the managers are on the golf course? All this with the threat of being told that if you do not like it you can leave?
    Flexible means being definite for the employer and employee. procrastinating / filibustering and being told to be flexible by employer who often have no definite other than the sack is to use the correct legal term. Taking the piss. The employee must have a definite career and pay path. In some cases their is no obvious one. A cleaner does not have a career. This is one of the main problems of working for a large company and an an advantage as you can hide quite easily. In a small one at least you get some definites and the ones you do not get are self evident, though pay and conditions can be worse. Ram it.

    Reply: Labour cost is a small proportion of modern industrial costs – the main costs are raw materials, bought in components, marketing and design. The UK can compete with low wage countries as long as we have a well trained and skilled workforce. The aim shoulod be high wages for high productivity.

    • David John Wilson
      Posted July 7, 2012 at 10:40 am | Permalink

      This is a gross misinterpretation of the facts. Almost the total cost of anything is labour. All the bought in components, marketing,design etc. have a major labour cost. Eventually you get back to raw materials, the major cost of which is the labour of getting them out of the ground. Tools are used, yes, but they again can be taken back to their raw materials.

      • Richard
        Posted July 7, 2012 at 1:38 pm | Permalink

        Having spent most of my life in engineering, the effect of China was to rapidly close those companies who had a large labour cost element in the price of their product.
        What you see today in this sector are thriving companies who have reduced their labour cost element to a fraction of the selling price of their products.
        They have done this by investing in computer design, high technology machinery and concentrating on very complex products or very luxurious products and on low volumes, but with a well paid highly skilled workforce.
        If only the Government in the UK and in the EU would release industry from some of the constraints they place on the industry, you would see a lot of growth.

      • Bazman
        Posted July 7, 2012 at 3:07 pm | Permalink

        I would agree with John. Modern manufacturing techniques require little labour. I don’t see much labour going into a digital watch or the like. Hence to low cost, though in the metal and building trades full automation is not realistic.

      • lifelogic
        Posted July 7, 2012 at 5:06 pm | Permalink

        There is much truth in this even if the factory is all robots, the robots and mechanised they still need labour to build maintain and run the robots. All is labour at the end of the day even the material is mainly the cost of labour to extract it.

        • Bazman
          Posted July 7, 2012 at 6:30 pm | Permalink

          Robots need very little maintenance even in very harsh conditions for them such as welding. They are very tough and fiendishly complicated and simple at the same time. If they did need much maintenance most factories would not be able to operate. The problems often are with the peripherals which are less complicated and do not need much skill to maintain. A few technicians can easily do this work. An example being washing machine factories employing hundreds of men and woman are now like ghost factories employing 3-5 technicians. How do you think a washing machine for less than £200 quid can be built and sold at a profit?

        • Mark
          Posted July 7, 2012 at 8:41 pm | Permalink

          Labour cost is much lower than you suppose. The embedded cost can be calculated using Leontief analysis of economic input-output matrices. Direct labour costs are shown as 13.4% of the total for mining and quarrying in the ONS tables for 1995 that I found. Embedded labour of direct suppliers adds about 7.5% to that.

    • zorro
      Posted July 7, 2012 at 3:49 pm | Permalink

      Why would employers want to get rid of good workers in the normal course of affairs?….They are often like gold dust! Why should I or anyone else have to employ people who are not up to the job? Last time I looked, I am not registered as a charity…..

      zorro

      • Bazman
        Posted July 7, 2012 at 6:39 pm | Permalink

        They often employ a revolving door recruitment policy how do you explain the often massive turnover of staff in some companies. They are all useless and should be happy?

      • Posted July 7, 2012 at 9:03 pm | Permalink

        “not registered as a charity” – though loads of lefty (and some right) political propaganda organisations are get all the tax benefits. Often with some interesting connections to politicians.

    • White Dragon
      Posted July 7, 2012 at 4:18 pm | Permalink

      To JR, that is big business talk. What if I want to start up making a particular type of grommet, which I know I can do better than those presently available? I need a press to get a start but to employ someone I must pay the minimum wage. This means I can’t sell them a profit, so I don’t start up. The answer is to abolish the minimum wage and hire and fire regulations. If I get a start and go bust so be-it, there will be someone else like me doing something else. This argument about just making high value things for high wages has been made for years, but it is not enough and is not successful. We also heard we should not make anything, just design it and have it made somewhere else. I understand the economic theory but we killed off many of our industries because of this type of thinking. We need to swallow hard and start again. How did Japan, South Korea and China get going? Just like us in the 19thc. they started small and grew, they weren’t snobbish and arrogant, they just allowed workers to work and left them alone. There must be some reason why other countries make or own the major ‘brands’ today and not us. Mobile phones, laptops etc.

      • uanime5
        Posted July 8, 2012 at 9:00 pm | Permalink

        Even without minimum wage your business will fail as no one will work for a pittance so you can run your business.

        China, Korea, and Japan grew by making things cheaper than the USA and Europe, and encouraging these countries to outsource their manufacturing to them. They also developed companies by having the Government invest in them and used protectionism to ensure that these companies wouldn’t have any competitors.

        Finally companies in Germany and Japan make top brands because they offer all their employees secure employment and a high salary. They also face strong competition from domestic rivals, which forces them to constantly innovate.

    • uanime5
      Posted July 7, 2012 at 5:25 pm | Permalink

      John please explain to me how the UK can complete against a low wage country such as China where people are paid $1.36 (88p) per hour by having a well trained and skilled workforce that gets high wages for high productivity.

      Reply: We do so easily by the strength of brands, technologies and high productivity, where labour cost is a small part of total cost. We sell Land Rovers to China, for example, made in the UK.

      • zorro
        Posted July 7, 2012 at 6:34 pm | Permalink

        This is why the Chinese are so eager to copy our innovative designs and technology. Low wage costs are OK for a while but not in the long run. Quality products, skilfully made by skilled, incentivised workers will always win through……..

        Zorro

      • AJAX
        Posted July 7, 2012 at 8:10 pm | Permalink

        Johnny, give us the latest balance of trade figures between the UK & China in goods & services when you have a spare moment please?

      • Posted July 7, 2012 at 9:05 pm | Permalink

        Yes owned by the Indian company Tata Motors, forming part of their Jaguar Land Rover (JLR) group.

  10. Pete the Bike
    Posted July 7, 2012 at 7:34 am | Permalink

    The public sector does not produce “output”. It can only drag down private sector output. Governments have no money of their own, they can only steal it from taxpayers. They have some use providing roads, basic utilities and police but apart from that they do not produce anything of value and only hinder business. If you really want growth forget all the interference and “creating the right climate”. Just cut the public sector drastically, cut regulation even more drastically and take a machete to the tax code. The private sector will do the rest without government drones telling them how to do it. Just leave us alone.

    • lifelogic
      Posted July 7, 2012 at 7:57 am | Permalink

      Indeed just fire one in two. The government does produce some output perhaps 10% of the money going in at best. Much of the output is even negative in benefit to the public (pointless fines, licences, inconveniences, negative wars and paper work for example).

      • Bazman
        Posted July 7, 2012 at 12:36 pm | Permalink

        Have you any other ideas than firing and lowering wages?

        • Posted July 7, 2012 at 9:11 pm | Permalink

          Yes cheaper (non green) energy, more flexible workforce (therefore higher wages), better legal systems, fewer lawyers, less (and fewer levels of) government, lower taxes, better and fewer regulations, more people doing useful things, functional banking, sort of the water, legal and power cartels, lower and simpler taxes …… is that enough?

          • uanime5
            Posted July 8, 2012 at 9:07 pm | Permalink

            A flexible workforce doesn’t result in higher wages, it results in people having erratic working patterns that vary from 50 hours one week to 0 hours the next. As a result these people save as much money as possible because they don’t know how much they will earn over the next month; resulting in them spending very little in the real economy.

      • Denis Cooper
        Posted July 7, 2012 at 12:51 pm | Permalink

        Careful; if you admit that some public spending is useful, even if only as little as 10% of it, that must call into question your ideological purity …

        • Posted July 7, 2012 at 9:13 pm | Permalink

          Well some does produce a useful output it is just that it is almost always less than the output stopped by the tax taken to pay for it. Beyond law and order and defence it is nearly always a net negative.

      • zorro
        Posted July 7, 2012 at 3:57 pm | Permalink

        The trouble is all the legislation around getting rid of unproductive, inefficient workers. Then there is all the diversity/equality legislation which means that you cannot get rid of people on merits of their work productivity, but you have to consider the effects of your decisions on diversity/equality, and that trumps all.

        zorro

        • lifelogic
          Posted July 8, 2012 at 5:16 pm | Permalink

          Indeed and the BBC type political agenda the tribunals often seem to have.

  11. AJAX
    Posted July 7, 2012 at 7:48 am | Permalink

    Raise tariffs as an aegis against imports from the Orient. Without it = game over for the Anglosphere.

    Everything else in comparison is fiddling while Rome burns.

    • lifelogic
      Posted July 7, 2012 at 11:03 am | Permalink

      Not needed there are areas where the UK can compete, or could if the state got out of the way and stopped taxing and regulating it to death. Also it stopped paying healthy people to live off the backs of others.

      • zorro
        Posted July 7, 2012 at 4:01 pm | Permalink

        This government prefers to attack disabled people in jobs rather than confonting the healthy (though often overweight) feckless!

        zorro

      • AJAX
        Posted July 7, 2012 at 8:24 pm | Permalink

        No Lifelogic, England cannot compete seriously with Chinese wage differentials & (potential) scale of production, which will only get worse as the industrialisation of China & the Orient expands

        Taxes & red tap is a Libertarian cop-out & are side-issues, & more of the Free Tradist dogma that has reduced the U.K. over the last century to being a dying state economically, with vanishing industry, diminishing power & authority in the world, endemically high unemployment, poverty & blight everywhere other than the S.E, of England masked by a financially crippling Welfare State provision & astronomical levels of debt

        The lack of address to the heart of this problem in principled terms in England’s politics – as is beginning now on Capitol Hill as the American people are waking up to the threat & putting pressure on the legislators – is depressing & disquieting

  12. alan jutson
    Posted July 7, 2012 at 8:01 am | Permalink

    Whilst I agree the economy needs to be rebalanced, and as quickly as possible.

    Surely the first step is to convince our school pupils that such industries can provide a worthy, interesting and rewarding career.

    For decades governments of all types have virtually rubbished, skilled, semi skilled, and unskilled people and the industries within which they work.
    In fact, anyone who actually worked with their hands wore overalls and got a bit dirty, was thought of as being somehow in a second rate job (not a career at all) because it was assumed they failed at education.

    People simply did not give it a thought that in many of these jobs you had to be technically very well qualified, and thus had to use your brains as well.

    The mantra of education, education, education, whilst right to a point, has promoted the idea that if you do not go to University, you have failed, and thus will end up as a failure working in these very indusries that they now wish to promote.

    How many times have you heard the threat to a youngster at school, better keep up with your studies or you will end up with a dead end job in a factory !

    Yes of course we need people to go to university, yes we need some academics, but for decades now universities have been churning out people with totally irrelevent degrees (which are of no use in the word of work and commerce) and graduates who have an overinflated opinion of their actual worth.

    Thus to rebalance the economy we need to re-educate much of the population.

    Our school levers need to be given much more information with regard to a career/working structure/oportunities, so that they can also make a choice in which direction they choose to go.

    Believe it or not, higher University fees may just have had the unintended consequense of actually making people think a little harder about their future and the direction which they intend to follow.
    But much more needs to be done.

    • alan jutson
      Posted July 7, 2012 at 8:24 am | Permalink

      oops typo’s !

    • Max Dunbar
      Posted July 7, 2012 at 10:00 am | Permalink

      What sort of career can you pursue that does not require qualifications, training or any previous experience – politics.

    • lifelogic
      Posted July 7, 2012 at 11:10 am | Permalink

      Indeed we cannot all be lawyers, health and safely officers, civil servants, EU parasites, financial advisers or the like. Someone has to do the useful things too.

      • Bazman
        Posted July 7, 2012 at 6:37 pm | Permalink

        We can’t all be rocket scientists either.

        • lifelogic
          Posted July 8, 2012 at 5:19 pm | Permalink

          Indeed rockets going beyond geostationary orbit are rather pointless too I think.

    • A different Simon
      Posted July 7, 2012 at 1:55 pm | Permalink

      Alan ,

      Don’t forget it is politicians who are repeating the mantra of “education, education, education” .

      From what I’ve seen they actually mean “training ,training,training” .

      Certainly in the field of software , what passes for a degree course has an awfully high content of training people how to use particular vendors tools .

      I assume this is in order to churn out what industry thinks it needs and get people used to being spoon fed by vendors so they never get ahead and demand real innovation from them .

      Students aren’t taught the underlying fundamentals of the field and in many cased do not even know the existence of such fundamental theory .

      Consequently they are unable to evaluate things themselves or determine whether a vendors product or a feature in it is logically sound . Because they don’t know how much better things could be they will never demand anything better .

      This lack of demand for anything better maintains the status quo and contrary to popular opinion , the software industry does not progress .

      I’m certain that the ratio of education/training was higher in an engineering apprenticeship than in many of the degree courses my co-workers graduated from .

      • alan jutson
        Posted July 8, 2012 at 8:46 am | Permalink

        Simon

        Your last paragraph sums it all up nicely.

        Yes I did a fully indentured apprenticeship for 5 years with a large motor manufacturing component company.

        Then I spent another 4 years after completing that apprenticeship on further training and study, the result, I had an exceptionally good grounding and understanding of all of the processes which helped immensly in any diagnostic problem solving.

        The newer forms of apprenticeships seem to only teach a very narrow range of skills and knowledge, as is evident in many of the workers performance today.
        They simply do not have a clue (or indeed care) as to how their bit, has to dovetail with anything and everything else in the process.

        Probably a bit like your software example.

        I left engineering 30 years ago, because my skills and knowledge could only command the same wage as a hod carrier.

  13. Brian Tomkinson
    Posted July 7, 2012 at 8:20 am | Permalink

    The government seems more interested in reforming the House of Lords and gay marriage than creating the right climate for industrial led growth. Just like its predecessor it is more interested in spending the proceeds of wealth creation than helping the providers.

    • lifelogic
      Posted July 7, 2012 at 11:08 am | Permalink

      Indeed, now it seems Cameron want to pay for horses, polo ponies, yachts and tennis lesson for the poor, using tax payers money, as they are under represented in sport too. All part of his idiotic, forced equality, agenda I assume.

      • Bazman
        Posted July 7, 2012 at 12:39 pm | Permalink

        Would you like to say where you get this information from? I see he wants to abolish housing benefits for under 25’s. Like that one?

        • zorro
          Posted July 7, 2012 at 6:37 pm | Permalink

          Yes, it will bring down rents if followed through properly.

          Zorro

          • Bazman
            Posted July 8, 2012 at 12:38 pm | Permalink

            Thatcher had a go in the 80’s to sent them back to their parents, but found that many had no parents, their parents did not want them or they where abused sending up the rates of homelessness as a result. Homeless under 25’s. Would you see that as problem or will they be incentivised by this?

        • Mark
          Posted July 7, 2012 at 9:05 pm | Permalink
        • Posted July 7, 2012 at 9:24 pm | Permalink

          He was making statements about the over representation of sports people from private schools. Over representation just as one would expect – if you are poor you cannot buy the boats, horses, travel, rackets, swords, training, facilities, entry fees …. not are you likely even to consider such sports.

      • zorro
        Posted July 7, 2012 at 4:04 pm | Permalink

        Indeed, it is all ludicrous nonsense.

        zorro

  14. stred
    Posted July 7, 2012 at 8:31 am | Permalink

    What is ‘public sector real output’? For example would this include expenditure on abortive work when changing the specification of defense equipment, paying PFI companies to alter items in schools and hospitals, crazy paving in town centres, police investing in and running Lexus and Mercedes patrol cars, more inspections and approvals for the thermal conductivity of front doors, Care Quality Commission checks on nurses calling patients ‘darling’, etc?

    • Brian Tomkinson
      Posted July 7, 2012 at 8:52 am | Permalink

      Stred,
      Good point. I think you know the answer will be ‘yes’ to all of the above.

    • stred
      Posted July 7, 2012 at 9:29 am | Permalink

      defence

      • Posted July 7, 2012 at 9:25 pm | Permalink

        & law and order and property rights.

    • zorro
      Posted July 7, 2012 at 4:08 pm | Permalink

      Border control – keeping out undesirables/criminals/terrorists – stopping any of the latter claiming any benefits or spreading their mischief – bearing down on illegal/legal migration to keep it to sustainable levels and stop the need for the government to spend extra taxes on social needs/infrastructure costs……Or at least that is what it should do – It should also give a good rate of return for the ezpense it should save.

      zorro

  15. Acorn
    Posted July 7, 2012 at 8:51 am | Permalink

    I see the IFS is saying that the government overdid the deficit reduction plan for 2011/12.

    “Today HM Treasury published Public Spending Statistics which contain, for the first time, estimated spending outturns by Whitehall departments for 2011−12. The figures show that, in total, departmental spending was £6.7 billion lower than was planned this time a year ago. Had departments spent all their planned budgets in 2011–12, departmental spending would have fallen in cash terms by £4.4 billion between 2010−11 and 2011−12 − a real terms fall of 3.5%. As a result of the underspends, cash departmental spending actually fell by £11.0 billion, which equates to a 5.2% real terms fall.”

    That is £11 billion cash that cash that did not get into the pockets of Households and SMEs; reduced spending power. That is private sector DEMAND dropped due to lack of income. Understanding how the sectors of the economy have to balance out is worth considering at this stage. One man’s income is another man’s (government) deficit.

    Have a Google of “Barnaby, better to walk before we run”. Plan B anyone?

    Reply: Total spending mroe than made up for any departmental shortfall. Total spending was up in cash and real terms, and is currently (May) running 7.2% higher than a year ago.

    • zorro
      Posted July 7, 2012 at 4:10 pm | Permalink

      Indeed, it is total spending that matters – typical that they should focus on departmental spending levels!

      zorro

    • Mark
      Posted July 7, 2012 at 9:14 pm | Permalink

      There is a nice mass of Whitehall speak hidden away in those figures. No admission as to whether they relate to DELs or AME. The real delight is to see that allegedly the DECC achieved the greatest underspend. That means that the department didn’t quite manage to increase its spending by 50% as planned.

      • A different Simon
        Posted July 9, 2012 at 8:47 am | Permalink

        Look at the efforts the Govt is going to to spend the budget from the Oxygen Capture and Storage scheme – £1 billion .

        Haven’t those cretins considered whether sequestering the oxygen we breath is actually a good idea ?

        There is no accident that they dropped the “dioxide” from the CCS accronym .

  16. Posted July 7, 2012 at 9:01 am | Permalink

    Can anyone etimate how much public spending supports private industry? One Typhoon at £20m, one aircraft carrier at several billions, drugs and equipment for NHS, Balfours doing well from local government road maintenance, spending on schools, the list goes on. Surely if we cut this spending, private industry feels the effect, employment decreases, tax take decreases and the benefits bill increases. The latter of course comes from the public purse.
    Yes I admit it I am confused

    • lifelogic
      Posted July 7, 2012 at 5:09 pm | Permalink

      It is not so much supporting private industry as largely misdirecting it to do often largely pointless things too but for the state.

    • waramess
      Posted July 7, 2012 at 5:21 pm | Permalink

      Just think about where all that money for public spending comes from in the first place and confusion may cease.

  17. Gary
    Posted July 7, 2012 at 9:13 am | Permalink

    The manufacturing industry was shrunk by the growth in the financial industry as well as the growth in govt. I cannot understand why all political parties are in thrall to the financial industry. It is killing us. How much political funding comes from the financial industry ?

    • libertarian
      Posted July 7, 2012 at 12:31 pm | Permalink

      That’s funny because at the time of the greatest growth in Financial Services 1980- 1992 manufacturing industry in the UK also GREW by 12%.

      Please understand that like so many other industries, manufacturing changed radically and drastically with the deployment of new technology. Old outmoded uneconomic industrial and manufacturing processes and companies died. New smaller, more innovative companies took their place. The UK is the 7 or 8th largest manufacturing nation still. Even those businesses that outsource some assembly work to the far east actually generate the lions share of the value in the UK.

      If you wish to get ahead of the curve, the next industries to fail ( i.e. to be overtaken by new technology) are media, newspapers, radio and to a lesser extent TV. Pharmaceuticals. Retail is close behind. If you want to back the future then look for small innovative businesses.

      Likewise the future of financial services will be smaller more boutique based banks and service companies. With some forward thinking regulation we may even be able to restimulate mutual building societies.

  18. oldtimer
    Posted July 7, 2012 at 9:45 am | Permalink

    You raise pertinent questions. If I was responsible for a global manufacturing business I would start with a PEST analysis. That would consider the political, economic, social and technological environment of the country I was thinking about investing in. How does the UK score? The answer is: not very well.

    On the political front it is governed by an increasingly fractious coalition that embraces policies that are hostile to manufacturing industry. The Climate Change Act embodies one important aspect of this. The tax code is a mess and a minefield. The opposition, presently ahead in the polls and on track to win the next election, has no discernible policies. On past form, they will make things worse.

    On the economic front, the country is one of the most heavily indebted in the world, especially in the state and personal sectors. State debt continues to rise; there appears to be little public appetite to face up to the consequences. Inflation is embedded in the economy. Devaluation is a well tried “solution” to the country`s problems with being competitive – marking an obvious exchange risk for new investment. The fragility of the EZ presents an obvious risk to demand for UK exports to the EU. The longer term relationship with the EU, and how the latter will evolve in the event of the collapse of the EZ remains highly uncertain.

    On the social front, attitudes to business and industry are neutral to hostile. High pay is regarded with suspicion and is highly taxed. For many “profit” is a dirty word. The benefits culture is well-embedded, though the government recognises the problem and has plans to deal with it. The growth of the labour market appears to have been filled mostly by immigrants. This is a source of increasing social friction.

    On technology, the UK has a long and distinguished history. It still possesses some world class businesses. These often complain about the shortage of people with appropriate skills. Education standards have slipped, though reforms are underway to remedy this. Be prepared for having to provide remedial education and extensive training.

    Conclusion: approach with caution. New investment will face an obvious fx risk. In many areas the UK is uncompetitive with the rest of the world. It has some strong brands which enjoy world wide recognition, but many have already been bought up by foreign investors. Look out for cheap assets as the recession continues to bite. Only buy or invest in assets that can support a premium priced product in world markets, or enjoy competitive advantages only attainable by proximity to an end UK market.

    • alan jutson
      Posted July 7, 2012 at 11:36 am | Permalink

      Oldtimer

      Difficult to argue with any of your points.

      Just like the recent weather forecasts.

      Outlook.

      Poor.

    • zorro
      Posted July 7, 2012 at 4:15 pm | Permalink

      Your conclusion is sound.

      zorro

    • uanime5
      Posted July 7, 2012 at 5:31 pm | Permalink

      Regarding the social front you forgot that employers keep trying to reduce salaries as low as possible, the net result being that most people won’t be able to afford the products you make.

      • libertarian
        Posted July 7, 2012 at 6:54 pm | Permalink

        You do not have ONE single shred of evidence for that.

        The cost of employment, as I’ve told you a few times now, isn’t just in the rates of pay that the workers earn its in the total cost of employment.

        The average UK male salary is now £30,000 pa

        The average UK female salary is now £24,000 ( a large part of the discrepancy is caused because far more women than men work part time )

        There are a record number of people working in the UK 29.2 million and less than 5 million workers currently earn the minimum wage

        There were 7 million jobs advertised on Internet job boards in the UK in 2011

        • uanime5
          Posted July 8, 2012 at 9:47 pm | Permalink

          Average salaries means that half the population (13.1 million) earns below this amount. Given that minimum wage is £12,646.40 p.a. if you work 40 hours per week, 52 weeks per year this means that about half the working population earns between minimum wage and twice the minimum wage. Clear evidence of the low salaries paid throughout the UK.

          There’s a record number of people working because the population keeps increasing. There is also a substantial number of people unemployed for the same reason.

          If there were 7 million jobs available in 2011 there wouldn’t have been 2.7 million people unemployed.

          • Lindsay McDougall
            Posted July 10, 2012 at 1:08 pm | Permalink

            Don’t you know the difference between mean (average) and median (middle of the distribution)? If the sample is an odd number, the number of values above the median value equals the number below it. If the sample is an even number, you identify the two central values and average them.

            Example: 9 values
            £2 £3 £5 £8 £12 £17 £23 £30 £38
            Median value = £12
            Average value = £15.33

            Example: 10 values
            The first 9 values as above and a new value £47
            Median value = (£12+£17)/2 = £14.50
            Average value = £18.50

      • Mark
        Posted July 7, 2012 at 9:35 pm | Permalink

        Businesses try to keep every cost they can under control, but like everyone else who buys goods and services they also appreciate that they need to pay a fair price to get a good quality of inputs. That applies to their raw materials and to their staff. However, for most businesses labour costs are not their biggest bills, so they have much more incentive to keep down other costs that can eat into profits. Sensible businesses will treat staff well in return for good work.

  19. Alan Wheatley
    Posted July 7, 2012 at 10:28 am | Permalink

    Seems the dairy industry is about to go down the pan, and our milk with it.

    • waramess
      Posted July 7, 2012 at 10:48 am | Permalink

      I think these days you need a big herd to make a comfortable living. I believe nothing less than 300 dairy cows is needed. The noise we hear is from farmers with small herds and they must find other things to do.

      • alan jutson
        Posted July 7, 2012 at 11:43 am | Permalink

        waramess

        Perhaps they will learn that “set aside” will make them more money, all paid for by the State (taxpayers) of course.

        We can then travel in our cars to vast areas of the countryside so we can all see lots of wild flowers, on land which should produce food.

        On the other hand they could turn their out buildings in bed and breakfast establishments, and import food to feed their guests breakfast.

        Ever thought that something is perhaps wrong with the system, where outside subsidy destroys the very industry it was supposed to support.

    • stred
      Posted July 7, 2012 at 1:18 pm | Permalink

      Tesco, Sainsbury and Waitrose pay farmers 30p/pint as a minimum fair price. Morrisson and Coop don’t and they are now down to 24p. I shal be shopping at the former until they pay 30p.

      Don’t be surprised if the farmers don’ block the zil lanes to Dorset and start spraying pig slurry around London during the Olympics. And the M4 is cracking up too. Don’t Panic.

  20. waramess
    Posted July 7, 2012 at 10:42 am | Permalink

    Maybe it is all too late. Gesture politics in cutting the size of government will not do nor will targeted tax cuts,

    A long term recovery will depend on a low tax infrastructure and that will mean a permanent and continual cut in the size of government.

    Gone are the days when people would start up risky ventures in their garage because of the great rewards promised by the free market for their success. These are where the great companies are born but not if the government take is too onerous. Try starting up a business in the UK and you will wince at the cost you are required to pay the government before you have earned a penny.

    Look at where Dyson is after just a relatively short time, but not a lot will be willing to follow in his footsteps these days.

    This is where proper growth lies; where our export industries will revitalise, not in subsidies given to foreign companies to set up assembly plants here or in regional grants.

    Are the politicians up to it? I am not a UKIP follower however Farage would seem to be the only politician willing to talk sense, the rest seem to believe they will be able to produce instant growth by some form of magic.

    Do they honestly believe they can stimulate growth through monetary policy? I hope not.
    Like most politicians they might know what they should do but the expedient proves to be the imperative.

    • uanime5
      Posted July 8, 2012 at 9:50 pm | Permalink

      If you don’t make a penny you don’t have to pay anything to the Government because you’re taxed on the amount you earn. I believe there’s a special exception from most taxes for small businesses that have a low profit (less than £2,000 per year).

  21. Posted July 7, 2012 at 10:47 am | Permalink

    I agree that dtopping the massive degree of regulatory parasitism of the energy industries shouls be the first priority.

    I believe the restrictions on hiusebuilding also account for about 75% if the costs in that industry

    Taking the cost to industry of being regulated as 20 times the cost of government employing them means the 200,000 H&S and associated regulators destroy the productive work of 4 million workers. Since there is a close relationship between GNP 7 deaths (21 extra deaths per 100,000 per point GDP according to the lancet) it is obvious that the H&S bureaucrats kill 1,000 for evert 1 they save).

    Without such parasitism we would have no difficulty considerably exceeding the 6% growth rate of the non-EU world.

    If we wanted to do better yet we could support the space industry, already growing at 10% by taking the £275m cirrently wasted on ESA and using it to fund Space X-prizes as UKIP are committed to doing. According to an industry expert this would be “plenty” to get us a British spaceplane and make us, at least, one of the 3 world leaders in an industry poised to achieve even faster growth.

  22. Adam5x5
    Posted July 7, 2012 at 11:07 am | Permalink

    The government is intent on driving what industry remains out of the country with the ridiculous labour laws and green energy taxes.

    Not being able to fire someone means firms are more reluctant to hire, expensive energy means high transport costs, high production costs and high maintenance costs.

    Add to this a backdrop of the labour cost differential between here and places like china or thailand, the only areas we can compete are high technology (by definition energy intensive industries) and items which are too bulky (read expensive/not cost effective) to ship around the world.

    With other countries, notably America, recognising that the green rubbish is just that, more and more industries will move there to take advantage of the lower costs in energy and lighter workforce regulation. See Airbus, who are opening a new factory in Alabama…

    And what is our government doing? announcing inquiries into fuel price fixing at pumps because petrol is “too expensive”.
    hypocrites. they know, and we know, full well that the majority of the fuel price is tax and prices don’t filter through the system immediately – it takes a couple of weeks from crude to pump. This really makes me angry. If they want to help industry and families, cut fuel tax. It’s simple, quick, and due to the laffer curve will nnot result in a significant tax intake fall. Not to mention if people don’t have to spend so much filling their car, they’ll have more money to spend in other areas of the economy.

    • Bazman
      Posted July 7, 2012 at 6:35 pm | Permalink

      They can easily hire through short term contracts, agencies, self employed, umbrella companies etc. Do not perpetrate this lie without any facts. Like you did with your parking charges.

      • Adam5x5
        Posted July 9, 2012 at 7:36 pm | Permalink

        That wasn’t the point I was making.

        The point remains that if you have someone on a permanent contract and their performance drops it remains difficult to remove them.

        A move towards the at-will employment end of the spectrum would be better for employers.

        As for the parking charges, I did actually get stung by them in Nottingham, which is why I have refused to return this year and made plans to visit somewhere else.

  23. Manof Kent
    Posted July 7, 2012 at 11:36 am | Permalink

    The AGW Climate Change Act and various NGOs all seem to be part of a new Scientology Cult .
    How has a non-scientific cult managed to infiltrate so much ?

  24. Manof Kent
    Posted July 7, 2012 at 11:40 am | Permalink

    Should have added –
    … and to the detriment of our economy.
    We ,the public and business particularly manufacturing ,simply cannot afford all this rubbish.

  25. forthurst
    Posted July 7, 2012 at 12:10 pm | Permalink

    “The UK is having some success with increasing its motor industry output. It has good positions in areas like pharmaceuticals, food manufacturing and aerospace engineering.”

    Not so long ago, R-R was saying they were having to expand in Germany because there was an insufficient skill pool in the UK. Several years ago, the entire Cambridge graduating class of engineers disembarked for the City. Does the City need engineers? Do they make a a better class of fraudster?

    We seem to move in the wrong direction continuously. Turning some services into profit making activities is no substitute for real industry: the examination system has become no longer fit for purpose but the ‘suppliers’ make profits. The universities, after a massive expansion, are filled with Arts graduates being groomed in cheap and worthless courses about evil Nazis, Enoch Powells and the slave trade whilst their science departments are full of foreigners. Our hospitals have become a source of enrichment for PFI spivs. Some activities yield the wrong outputs when they are turned into profit centres and that fact needs to be faced.

    Our industrial base is too small and as a direct result of government action is shrinking. Meanwhile, Mr Gove issues prescriptions for what every child should know at age 11. Perhaps Mr Gove might like to ask Mr Higgs what he knew at 11 and ponder the question of how at age 26, Mr Higgs was able to derive a concept beyond the imagination of most of us including Werner Heisenberg; is it because some people are born brighter than others? Perhaps, instead of an education system compartmentalised into profit making activities, we need one that simply recognised that latter fact. (For those, confused by a rather bad precis by an Arts graduate in the MSM conerning the Higgs’, there are a couple of posts on ‘Dark Buzz’, a science blog which are illuminating).

    Drawing a chalk circle round a chicken constrains its movement; we need a government with the appearance of more intellectual rigour than a chicken (You don’t have to start WWIII, Willy, it’s really not necessary even if the neocons have told you otherwise). We need genuine added value creating industries; robbing Peter to pay Paul is no substitute.
    As the fact that Banksterism is fraudulent and illegal becomes more widely understood, the need for more legitimate business activities becomes more urgent.

  26. Richard
    Posted July 7, 2012 at 1:25 pm | Permalink

    Interesting you are talking about rebalancing the economy, because I think we also need to think about rebalancing Government spending.
    We need to differentiate between public spending which supports and helps private industry and public spending which does not.
    I dont think Lord Keynes would be impressed with Government spending on Overseas aid, the Environment Agency, the Culture Media Arts Ministry, the Energy and climate change Ministry, the Ministry for Women, the Health and Safety Agency, to name just a few.
    Yet we cut back on help for industry through the ending of the useful Business Link organisations and huge cut backs in defense industry spending, for example.
    It is about using Government spending to generate jobs in the private sector and in my opinion so much of it is self serving and wasted.

  27. Socrato
    Posted July 7, 2012 at 2:46 pm | Permalink

    Is it not the case that as the monetary transmission mechanism is broken, QE is not having the desired effect ie banks are not increasing lending to private sector (either because they are deleveraging, or are risk averse, or there is simply a lack of demand from business). If this is the central problem, why don’t we print £50 or 100 Bill and issue some infrastructure bonds – specifically targeted at supporting large scale infrastructure projects… HS2, Heathwick, housebuilding, urban regeneration and general transport infrastructure improvements. Surely this would attract private sector money and a positive multiplier effect can start. Buying gilts and other asset classes from banks simply isn’t working in terms of creating demand and subsequent employment – a typical aim of counter-cyclical policy. Once these projects are completed – they could be sold off and and bonds redeemed – when demand returns to more normal levels. Capital Markets don’t mind capital investment spending as long as there is a saleable asset created at the end/ or permanent increases in productivity result / +ppf etc. Capital markets do mind spending on welfare and bolstering unrealistic consumption of government services. This is why it is essential to reprofile expenditures from unproductive low to no multipliers with the outcome of increasing liabilities (eg too much healthcare spend might be a bad thing if it elongates lifespans and pensions whilst productive lifespans stay fixed) towards those which bypass the broken banking system and act directly on stimulating private sector to invest from balance sheet cash piles whilst generating assets which have future revenue streams / saleable values / ppf gains.

  28. Alan Wheatley
    Posted July 7, 2012 at 2:55 pm | Permalink

    I offer an interesting contrast that gives an insight as to why technology and engineering in this Country gets such a poor deal from the UK Establishment.

    Today the media is stuffed full of Andy Murray. He certainly deserves a hearty mention for his achievement of getting to the Men’s Singles Final at Wimbledon.

    Contrast this with very thin coverage in 1997 when the team led by Richard Noble broke the World Land Speed Record. This was not simply the latest in a sequence of faster speeds, but they took the record through the sound barrier for the first time. This was a quantum leap forward, and remains a unique achievement. There have been lots of Britons to win the singles; Andy Green is the only person IN THE WORLD to have a driven a car above the sound barrier!

    And what did they get: an OBE for Noble and a MBE for Green, but nothing for the technical team who made it possible, and but a fleeting, low-key mention in the media.

    It is also worth noting that Richard Noble led an overtly pro-British project, and the team were proud to be doing it for Britain. The previous record that Andy Green beat was held by Richard Noble; Noble led a project that if successful was going to deprive him of being the record holder, which shows an attitude that places the ideal above the personal, an attitude that seems sadly laking at the top of a some of our institutions and companies in recent times.

  29. Steven Whitfield
    Posted July 7, 2012 at 3:59 pm | Permalink

    The skills needed to make useful things have mostly all gone anway. We kid ourselves that the few remaining production lines employing people to assemble imported parts for foreign owned companies represent ‘high skilled jobs’. They do not.

    These jobs could be shipped abroad tomorrow …and often are to territories having much less of a burden of taxation and regulation . The tools, expertise and know how have all been sold off for a quick profit in such a short space of time … aided by a class of politician that knows next to nothing about making real wealth. Why bother getting your hands dirty when banks can conquer up large sums of money by trading derivatives they thought.

    For too long we have turned our noses up at the high skilled jobs that we excelled at – forging – casting etc. and have been too slow to exploit new technology. We need more politicians came from an engineering/scientific background and far less union and policy wonks.

  30. Barbara Stevens
    Posted July 7, 2012 at 4:15 pm | Permalink

    Well Mr R you hit the button once again. I agree with you about transport, but not one good line is enough we need a national railway system that is modernised. The money proposed to save 35min journey is beyond belief, that money could be used for all the system not just one line. In fact, who will use this line? Certainly not ordinary people, who will not be able to afford the ticket. This isn’t good thinking at all.
    As for encouraging industry to get growth I’m all for that, but we desperately need tradesmen and women to fill the places in the future. Electricians, plumbers, carpenters, they are few and far between, unless you have a Polish one.
    The public sector does need to be thinned down, but we should be careful how far we go; we do have to have a certain amount to deliver the services they provide. I do believe they should also provide their own pension funds like the private sector do now.
    Banks should be made to fund small businesses don’t we have over 50% of our money in one of them?
    I have been disgusted with banks this week; particularly one, who supposed to answer questions, he didn’t. He was let off far to lightly and should be called back.
    We see that the government has saved some 12 billion this year from last, well done! However, bleeding those who have the least may back fire on the goverment. Unemployment is awful, you know if you have had it, personally and as a family. When jobs cease to exist it’s harder still. In the 80’s that was the case, it appears nothings changed 30 years. To hit people harder who may have tried through their lives is not the way forward; those who have done nothing should take what they hit with. Fairness, coupled with training and educational needs should be the way forward. If any government fails to do this, it has lost morally. Once that is lost are they really worth a vote?

  31. uanime5
    Posted July 7, 2012 at 5:50 pm | Permalink

    How ironic that on a blog about the economy you’re economical with the truth. Manufacturing started to decline after Thatcher went to war with the unions and continued to decline while the Conservatives were in power. When Labour came to power manufacture continued to decline and the Conservatives didn’t care because like Labour they were more interested in supporting the City. So pretending that this problem was only caused by Labour is a blatant lie. Both partied neglected manufacture, which is why it went from 20% of GDP to 10%.

    Your comments about a well trained and flexible workforce show your lack of understanding. There isn’t a well trained workforce because businesses refuse to train their employees and prefer to hire immigrants that alredy have the skills they need. A flexible workforce is only good for the business, not the employee, so all it will result in the most talented employees leaving the UK or not entering these industries in the first place. Had you approached the problem of the lack of suitable employees from the perspective of the employee, rather than the business, you wouldn’t have made these mistakes.

    Also as “flexible workforces” usually means a workforce where employees have no rights, sick pay, holidays, minimum wage, or set hours try to guess why this prevents work being more rewarding than being unemployed. Believing that you can have a first rate workforce that will work for third rate pay and conditions is a nothing more than a delusion.

    In conclusion to have a better industry you need to make the pay, conditions, and training better, not worse.

    • JimF
      Posted July 7, 2012 at 7:13 pm | Permalink

      Would you accept having to buy a particular make of car, which didn’t start all the time because the company who made it had employees who thought they’d just make it the way they wanted? When you arrived at the supermarket the doors would be closed because the employees didn’t feel like turning up that day. When you had to resort to going to eat in a fast food outlet, there were no employees available because they decided that was their lunch hour.
      The employees in these organisations are all happy because they’re being paid adequately, can take holidays and lunch when they wish to and can never be sacked or laid off.
      Is this your dream world?

      • Bazman
        Posted July 8, 2012 at 5:58 pm | Permalink

        Servants being your dream world?

      • uanime5
        Posted July 8, 2012 at 10:01 pm | Permalink

        No idea why you’d think I would want any of those things. I clearly said that a flexible workforce was bad for employees and would discourage people from working in these industries.

    • Mark
      Posted July 7, 2012 at 10:15 pm | Permalink

      Here is the long run data:

      http://timetric.com/topic/industrial-production-indicators-ons-uk/

      You will note the choppy, poor performance during th1970s. 1979 produced the Iranian revolution, soon followed by the Iran Iraq War that started in September 1980, which events caused a very sharp increase in oil prices that in turn resulted in global economic recession. You will recall that the miners’ strike wasn’t until 1984, by which time industrial production started to recover and grew with remarkable consistency until just after Thatcher left power.

      The next downturn is associated with the period while sterling was shadowing or part of the ERM. Growth resumed after we left, and continued while the Blair government pursued the economic strategy bequeathed to them. Once they changed their strategy, manufacturing output stalled before collapsing in the latter part of the Labour years.

      • uanime5
        Posted July 8, 2012 at 10:07 pm | Permalink

        According to the graph manufacturing output fell sharply in 2008-2009, which corresponds to the recession caused by the sub-prime mortgage crisis. So it’s clearly not the fault of Labour that manufacturing collapsed and hasn’t yet recovered.

        • A different Simon
          Posted July 9, 2012 at 9:01 am | Permalink

          Uanime5 ,

          There is a continuim of the destruction of manufacturing going back well before 2008 .

          You could say it went back to 1945 .

          The West Germans concentrated on manufacturing with their factories reequipped with the best equipment and instituted sustainable housing and social policies .

          The UK , after a brief dalliance with sustainable housing reverted to usury and that is how it has been ever since .

    • Gordon
      Posted July 7, 2012 at 10:50 pm | Permalink

      Amigo,
      I am trying to connect any words in your diatribe with anything contained in the blog that Mr Redwood posted. I think that you need to do some research and support your statements with data.
      Try these chaps for a start Red Robbo, Hugh Scanlon, Arthur Scargill etc. I lived through the seventies trying to do a decent job in exports, whilst never knowing whether Liverpool docks would be ‘working’. (My local port)
      Did Mrs Thatcher close Liverpool docks, no, people like me did, by using non communist controlled outlets for our products, who provided the certainty that if our product was delivered by the ‘closing date’ it would be shipped. (At that time Felixstowe, Southampton and Rotterdam on the continent. got the business)
      Research with an open mind!!!!!

      • uanime5
        Posted July 9, 2012 at 9:32 pm | Permalink

        Allow me to simplify my point for you.

        As long as employers want trained staff but refuse to train them, want work experience but refuse to hire those without work experience, want experienced employees to work for the wages of unskilled labourers, and demand that their employees work unsociable hours they will continue to have problems finding enough people for these roles.

    • Electro-Kevin
      Posted July 8, 2012 at 12:31 am | Permalink

      Uanime5 – I’m inclined to agree with some of that.

      When one of the unionists told his members to “get your snouts in the trough” we were talking about a whole different order to what the expression means today. But I do understand that they were trying to stage a Left wing coup and had to be faced down.

      Unfortunately that coup perpetuated throughout our institutions.

      I was looking at photos of my family when I were a lad. Carpets worn to the floorboards and pyjamas that were second hand rags. Icicles used to hang from inside the window frames. I don’t wish to go all Monty Python on you but, by ‘eck, we were poor.

      My father was a London police constable at the time. By comparison to miners and ship builders we were rich.

      The most they aspired to was central heating and double glazing – perhaps the chance to buy a second hand car and go on holiday to the Costas now and again.

      Jobs were lost but things did get better in general. I noticed our own fortunes change when Dad got his first credit card and a freezer that could be stuffed with meat bought bulk from a local farm.

      “Snouts in the trough” now means politicians claiming second homes and bankers buying new yachts with their bonuses. A far cry from anything that the unions wanted.

      Perhaps our lifestyles have improved on the London-centric orientation of our economy – but I can’t help thinking that we would have been a lot safer had we balanced our economy better than we had.

      It’s going to make it very difficult indeed for this Government to tell the rest of us that we are going to have to cut our cloth.

      Mr Cameron is facing a gravely serious credibility issue here.

  32. Lady Carole
    Posted July 7, 2012 at 6:34 pm | Permalink

    At last some clarity of vision ,cheap affordable fuel and energy ,the key to industial sucsess.How did we ever loose sight of that? The euro /green nonsense must be abandoned at once ,all contracts torn up and wind farms ect scrapped we need the easiest cheapest power possible without subsidies and cheap transport costs as well .All you have to do is look at the worlds number one economy for the last hundred years to see why we are going wrong .How many New York cabs are Hondas? how many US police forces use mercedes benz cars ?We in Britain can make any product in the world and should do .Until we joined the EU we had the most efficient farming and fishing industies on earth ,we are an island buil of coal surrounded by oil and gas .less than half north sea reserves have been used up as yet in the 40 years or so they have been used .So why is it difficult ?

  33. Barry
    Posted July 7, 2012 at 10:24 pm | Permalink

    John
    Recovery and growth of the UK industrial sector has some new crippling challenges. A number of latterly large UK Defence Companies have been acquired by the French and Italians. Many of these UK companies are now restricted to the UK market. Their successful track record in exporting has been supressed by exports now being solely handled by their French and Italian based companies. Given the shrinking UK Defence Market, this could be the final demise of a previously major element of our industrial base.

    Sadly, this is yet another example of the lack a UK industrial strategy other than that of selling our assets to foreigners who do have a strategy. Unfortunately (and not surprisingly!), the French and Italian will not allow their ownership of the UK industrial base to be in conflict with their own national based companies. The French and Italian defence companies are effectively removing the diminishing UK defence industry from the global market. The UK Defence Industry will continue to decline at the expense of the French and Italians.

    Does the Government neither realise nor care?

  34. terry sullivan
    Posted July 8, 2012 at 3:36 pm | Permalink

    REMEMBER NORCROS JOHN NORPRINT-DOW MAC-CRITTALS-BUTTERLEY-AUTOTYPE-TEMPERATURE-WINDLEYS=DARLEYS-PAYNES-HYGENA-PLUS MANY MORE FIRST CLASS COMPANYS DOWN ON YOUR WATCH.IS THIS THE WAY TO REBALANCE THE ECONOMY.

    Reply: I seem to remember when I resigned as Chairman of Norcros it was very profitable and successful. What is your problem with what I did there?

  35. Jon
    Posted July 8, 2012 at 4:08 pm | Permalink

    I agree with the need to rebalance as most people seem to. One of the cornerstones of that are an abundance of shareholders with money to invest in UK companies.

    One side of the financial services sector is the pensions and savings industry which is where much of that investment for growth comes from. For the 15 years that amount of money has remained flat at barely £1.5 trn.

    The larger companies should be getting their funding from this area leaving the smaller companies to use the money that should subsequently be available from the banks.

    This long term pensions and savings industry is being squeezed out through being the most regulated in the world (opposite to the banking industry) and operating on margins that can give the break even cost as much as 16 plus years.

    Most of our pension and savings fund monies ends up in the FTSE helping to expand all industries, providing further jobs to people who they themselves pay taxes.

    Labour have wrongly given the message that a strong savings industry means people are not spending so money is not going into the economy. The opposite is the case but also it is spread across all industries not just retail that Labour focus on.

    We don’t just need to rebalance the economy in terms of industries we also need to get back to saving and not in this unbalanced world of credit and debt.

  36. Steven Whitfield
    Posted July 9, 2012 at 12:26 pm | Permalink

    Uncle Redwood, What is your view on the 50billion extra Quantitive easing announced by the BOE recently ?.

    Reply: Not the way to stimulate the economy

  37. Lindsay McDougall
    Posted July 9, 2012 at 1:16 pm | Permalink

    Most of all it involves the government spending a lot less. It has reduced capital expenditure more than it should, so it is high time that the searchlight shone on current expenditure. There is no excuse for index linking public sector remuneration, public sector pensions, unemployment and other benefits.

    The government should be bearing down hard on all aspects of expenditure on the retired elderly, including expensive drugs with severe side effects and public funding of care homes. Here is one sobering statistic. If you classify as ‘dependent’ those aged 0 – 14 and those aged 60+, the percentage of the population that is dependent is set to rise from 51% to 73%. We should steadily raise the retirement age to 70.

  38. Lindsay McDougall
    Posted July 9, 2012 at 8:41 pm | Permalink

    Nobody has given Patliament permission to ‘launch an attack’ on Barclays. The select committtee’s remit is to investigate all aspects of LIBOR rate fixing. For the chairman to denounce Bob Diamond’s testimony as incredible before hearing any other witnesses is a disgrace. What is incredible is the denial by the BoE that they were involved in a systematic attempt to reduce the LIBOR by any means necessary. The Governor of the BoE is desperately trying to rescue his career by scapegoating Barclays.

    We also know that Baroness Vadera, a trusted advisor of he who ‘saved the world’, produced a paper headed ‘Reducing LIBOR’. How was that to be achieved except by fiddling the rate. The process for setting LIBOR is meant to be routine and mechanical.

  39. uanime5
    Posted July 9, 2012 at 10:01 pm | Permalink

    I found a report by the by the Department for Business Innovation and Skills from 2010 regarding manufacture in the UK. It compares UK manufacturing industry to other countries and concludes the following.

    1) The UK has a comparative advantage in all the higher technology sub sectors and notable strengths in Chemicals and Medical, Precision and Optical Instruments.

    2) The UK has the largest comparative advantage in high-technology sectors such as Aerospace and Pharmaceuticals, areas where emerging markets are comparatively weak.

    3) Areas of comparative disadvantage for the UK are Textiles (where emerging markets are particularly strong), Plastics and Rubber, Metals and Machinery.

    4) Between 1984-2005 manufacturing by UK owned firms has declined, while manufacturing by foreign owned firms had increased.

    5) The UK has one of the lowest barriers to entrepreneurship in the world.

    http://www.bis.gov.uk/assets/biscore/business-sectors/docs/m/10-1334-manufacturing-in-the-UK-supplementary-analysis

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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