“A frightening deterioration in the UK economy”

The British Chambers of Commerce report today that orders, investment and demand for labour all fell heavily in the last quarter of 2008. This will be no surprise to people reading this site. These declines are continuing in the first quarter of 2009. It is the inevitable result of the monetary policy mistakes of a year or so ago, and the weakness of the banking system.

The government is now rolling out a couple of schemes that borrow from ideas put forward by the Opposition – a loan guarantee scheme, and a subsidy scheme for employers taking on new workers. Both schemes can be helpful, but both need careful work on the small print. If you are offering a subsidy for a new hiring you need to make sure you are not encouraging an old firing at the same time. If you are offering a guarantee to banks for offering credit, you need to leave the banks sufficiently on risk if the loan goes wrong so the banks do not lose interest in assessing risk properly.

As the Chambers of Commerce survey should remind us, these two subsidy schemes are not of themselves going to turn round the plunging economy. Companies need orders. They will not be hiring extra people if their order books continue to fall by anything between 5 and 75%. We heard this morning that JCB are currently producing just 25% of the volume they were making a year ago. No wonder they had to sack another 684 people this week. Companies do need overdrafts and short term loans to be able to pay the wages and pay their suppliers, but they cannot go on doing this on borrowed money if the demand is not there to justify the employee numbers and the material and component stocks.

I had a small example of what is wrong yesterday. The keyboard of my House of Commons supplied computer needed repair or replacement. The House authorities IT department told me they wanted it replaced. The new one turned up in a cardboard box marked firmly “Made in China”. This little transaction summed up so many transactions that have got us into our present plight. We no longer have enough repairers or component suppliers in the UK, and have got used to relatively cheap product from China which procurement departments find is cheaper to buy outright. The UK public sector will simply borrow a little bit more to buy the Chinese product.

The keyboard was produced by workers probably earning around one fifth of workers in the UK. Some of them are probably being sacked as we speak, as there is a sharp contraction of global demand for Chinese manufactures. They will enjoy little of the benefits and safety net that workers fortunately enjoy in the UK. These hard working and successful exporters are now experiencing more grief than we are, as they shed jobs more quickly in their manufacturing heartlands and leave people without a western style welfare fall back. The Chinese as a whole continue to save massively, and kindly invest some of their savings in UK and US government bonds enabling those governments to buy their products by lending them the money.

Recently the pound has nosedived. An importer told me the other day that he could go on offering low prices for imports for a bit longer, as he still had some stock bought at better prcies, and had some currency cover in place. However, in a few months time this will have run out. Then the UK economy is open to the full shock of a 25% increase in import prices from the collapse of the pound. The government hopes that this will not just choke off demand for imports, but will kick start home output at better prices to replace the lost imports. The issue is will it?

Normally such a big price movement would change things dramatically. I hope there will be some positive change this time as well. However, we need to factor in the possibility that China(and other low price producers) will actually cut their wages and do whatever it takes to lower their prices again. UK producers will find it difficult to obtain the money, the permits and the facilities to start producing the keyboards and all the other many products we have got used to relying on China to deliver. Prices and currency point to big scale import substitution, but UK companies are badly weakened by low or no profits, poor access to finance, and regulatory complications to expand capacity to drive out the imports.

There are no easy solutions to any of this. We do need a drive to substitute home made product for overseas, and need to get used to mending and improving using local labour rather than automatically reaching for the order form for a complete new overseas product. The currency move will push people in this direction. The danger is our companies are too weakened to respond as vigorously as we would like. In that case we will simply end up buying less and having fewer modern and working items, and will have missed another opportunity to strengthen manufacturing in the UK.


  1. Lola
    January 13, 2009

    Sort of off topic, but please will you have a quite word with George Osborne? He was on the Today programme this a.m. and he used the ludicrous ‘market failure’ phrase in discussing the plight of the banks. Your analysis on this blogs has completely debunked this lefty mantra, why doesn’t Mr Osborne get it?

  2. Tony Makara
    January 13, 2009

    The fact that we have lost our manufacturing base, and with it our capacity to export, means that our economy is totally dependent on domestic demand. There is no longer the safety-valve of exports, this is particularly important under the system of floating exchange rates as a mechanism to re-balance our staggering trade-deficit.

    We have to question whether reviving the service-sector, as the prime minister seems bent on doing, is the right way forward? The service-sector of course has its place, but it is a soft and fragile section of the economy, based on part-time work, low salaries and is increasingly dependent on state wage top-ups and credit to provide its employers with a decent standard of living. In effect the sprawling service-sector has produced a pin-money economy.

    We need to promote investment in hard industries, those industries that have the capacity to produce, to supply the domestic market and to export. Industries able to provide decent and better wages out of productivity and innovation.
    The service-sector, being at the tail-end of the economic process, cannot do this, and the bigger the service-sector, the more we will become dependent on imported goods and dependent on credit to top-up living-standards.

    The service economy, in its current form, must be allowed to die, so that, in its place, we see the type of investment that will lead to a more balanced economy. An economy that can fight on all fronts, with the capacity to export, to supply the domestic market, to create longstanding jobs and a network of apprenticeships, the vital secure pathways into work so desperately needed by up and coming generations.

    1. DWL
      January 14, 2009

      Hi Tony.

      Why do you always have to present a false dichotomy between manufacturing OR services?

      Rolls-Royce – A typical ‘hard’ manufacturing industry of the type you like, right?


      A typical Rolls-Royce turbine is worth it’s weight in silver. It it is entirely possible that certain RR turbines are sold at a loss.

      So Why are RR so successful?


      RR make their money on after-sales service and maintenance contracts. They have a particularly advanced and impressive ‘real-time’ monitoring centre that can literally read out the engine stats of any plane whilst it is flying, and the team at Derby can advise on maintenance routines before the plane lands at it’s destination.

      This is pure SERVICE, and yet is so sophisticated that it allows RR to earn a huge margin.

      You will find this pattern repeated time and again in British industry.

      So let’s have less of this 1970’s style ‘either/or’ manufacturing versus services; it is a false dichotomy.

      In truth, our industrial future probably lies with a hybrid approach.

      1. Tony Makara
        January 15, 2009

        Hello DWL, the reason I’m so concerned about a top-heavy service economy is because apart from a few select areas like finance, services are built on a low-wage, low-hours working environment, one that cannot produce better wages out of productivity, unlike, say, manufacturing or agriculture. This leads to people working in the service sector having to have their living standards topped up with state subsidies like tax-credits and/or credit. Its true that compared to the sweatshop economies of the East our wages are relatively good, but in real terms our wages are poor, particularly if people aspire to home ownership.

        I don’t wish to denigrate the service sector, on the contrary we need a service sector to act as the final point of our economy, but when the service sector makes up 3/4 of our entire economic structure and is largely in the process of selling on imported goods that we could be producing ourselves, it becomes a problem, and makes our economy as a whole unbalanced and more subject to the vagaries of credit and cash-flow, imported inflation, mass unemployment and so on. What we need is balance, so that our economy fires on all fronts, with the capacity for an internal market and sustained exports.

        Economists and others will argue as to what constitutes a service sector, but none can deny that the sprawling service sector as we have known it is dying on its feet, starved of the credit that fueled the artificial demand that fed it. Therein lies the problem, a one dimensional economy that has been killed stone dead with one blow. We need balance and an economy with many strings to its bow.

  3. Pete Chown
    January 13, 2009

    Because Britain is a high-wage economy, it’s going to be very difficult to make money out of commodity manufactured items like computer keyboards. Cheap keyboards only cost about £10, and there are no special technologies required in making them.

    If we want to do more manufacturing in Britain, we need products that play to our strengths. A product that requires a lot of technological input would be good. At the same time, because our workforce is comparatively high wage, assembly of the product should require the minimum amount of time by assembly line staff.

    Specialised products could also work, I think. General purpose computer keyboards may not work, but there are lots of variants on keyboards for special uses. It might not be worth setting up a factory in another country to make these keyboards, because the demand is not high enough. Instead they could be made here, by the company which sells them.

    (Don’t forget, high wage is good! It shows that Britain is a prosperous country, with a skilled workforce that international companies are prepared to pay for.)

  4. Ian Jones
    January 13, 2009


    Glad to see you received a new keyboard otherwise we would get no blog!!!

    Of course soon the Treasury will not even bother to borrow the money needed to buy keyboards, it will simply require the Bank of England to print money to buy the debt to fund the spending! This is the genius idea of “quantatative easing” except for the fact once the economy recovers, the Bank has to reverse the process. How will the Treasury give back the money it has already spent nevermind bring down Government spending to a level that can be funded without printed money!? This is the biggest threat to a possible Conservative Government being elected in 12-18 months time and must be stopped before it starts!!!

    January 13, 2009

    Many pundits avoid the Sun but Trevor Kavanagh is one of Fleet street’s best.

    We’ve extracted parts of yesterday’s article as readers of this blog will recognise a kindred soul.
    Let’s hope the readers of Trevor’s column read, react and riot!

    TREVOR KAVANAGH – THE SUN 12/01/2009

    It was an astonishing public confession that the Conservatives have been saddled for three years with the wrong economic policy.

    In a throwaway sentence, he dumped his barmy promise to match Labour spending and “share the proceeds of growth”.

    “I now see just how unaffordable Labour’s spending plans are,” he confessed.

    Well, it was a long time coming.

    Now we must hope the Tories will stop trying to soft-soap worried voters and start telling us the hard facts of life.

    Now Gordon insists the only way to avoid hellfire and damnation is to throw more taxpayers’ cash on the flames.

    It might work. It might not.

    But it certainly won’t if we keep spraying money at the unproductive State.


    Yet any alternative view is denounced by enemies of caution as Tory “cuts”.

    Ministers lay into anyone who dares criticise Whitehall’s bloated £650billion budget.

    “What would you cut?” they sneer — and helpfully offer a list of hospitals and schools, along with sick and starving children, that would be thrown to the wall by heartless Tories. The sheer arrogance of this attack is breathtaking.

    How does Gordon Brown have the gall to suggest he alone knows how best to spend our money?


    Do you believe this will be money well spent?

    You don’t have to study recent history — the 10p tax fiasco, the pointless but costly £12.5billion VAT cut, thousands of civil servants paid to stay home — to know the answer.

    Bungling ministers waste a fortune on social engineering projects which do little to make Britain stronger but a lot to boost Labour’s core vote.

    The Government keeps a standing army of five million benefit claimants while leaving our armed forces on short rations. A fortune goes on fattening the State cow, with six million people — one in four workers — now paid by the taxpayer.

    That’s 11million straight away who can be counted on to vote Labour.


    One day this slump will end — but only if Britain finds new motors for economic growth to replace the bankrupt City and punch-drunk consumers.

    The Tories should be asking why, if we really must double the national debt, don’t we spend it on something useful?

    Like raising the starting point for income tax by £5,000 a year — instantly hauling millions out of poverty and reliance on welfare?

    Why not slash National Insurance — a penal tax on jobs — and cut tax on business?

    Let’s cut stamp duty and get the housing market moving again.

    Economists have dreamed of such a tax and welfare revolution for years. It was just too expensive.

    But so is Gordon Brown’s eye-bleeding boost for State projects.

    They say every crisis offers an opportunity.

    This one gives us a chance in a lifetime to create a dynamic, low-tax high-achieving economy and take on the world once it’s over.

  6. AndyRich66
    January 13, 2009

    You may well be right but I don’t see it happening.
    Put simply the current generation of business men are not interested in UK based production. Their entire mindset is to find cheap labour abroad and then flog the finished ‘widgets’ here at a huge margin. The bean counters have taken over and all that will happen in response to currency devaluation is that even cheaper locations will be sought.
    Many years ago I was taught never to compete purely on price as there will always be someone who will do it cheaper – I suspect China is about to find this out.
    I have some sympathy with China they have effectively subsidised our inflated western lifestyles but what’s the betting that your next keyboard is marked “Made in Burundi”.

  7. Steve Tierney
    January 13, 2009

    Our country’s wealth is a myth based on borrowing. That myth has now been debunked. We must get back to producing wealth ourselves instead of this ludicrous penchant for borrowing money from the seller to buy their goods. Anyone who ever thought this was anything other than the road to ruin is a fool.

    Nice blog post, Mr Redwood. Sorry about the rant. : )

  8. anon
    January 13, 2009

    Hi John

    This news report alludes to fiat currency: FKN News.

    Hope it is of interest.

    Do you see the end of the nationstate on the horizon?

  9. Cliff.
    January 13, 2009

    I agree with your thoughts John.

    I have thought for a long time now that we need to relaunch the “I’m backing Britain” campaign however, when I thought about it further, I suddenly realised that we don’t actually make anything anymore in this country as our manufacturing base has been all but destroyed. I also expect that it would be against some EUSSR directive or other to put our own national interest first anyway.

    To bring the contents of the above comment into focus, I was recently driven down Western Road in Bracknell and I noticed that all the buildings that were factories which made products and employed a huge manual workforce, are now offices and service industries and nothing, as such, is made on that industrial estate.
    When I moved to Berkshire some Forty one years ago now, many manufacturing companies, especially high tech ones, such as Ferranti, Racals, Sperry Gyroscope etc etc were based in this area and were very successful and profitable, now we have nothing…..That lack of manufacturing base and therefore a reliance on imports is indeed at the heart of our nation’s problems; Not everyone has the capabilities to be a computer programmer or lawyer, we need manual jobs for those that are not suited to be rocket scientists. By having few unskilled jobs in the economy, we are breeding an underclass of people with no future and hence the rise in state dependency. It is cruel to lead people to think that just because they have attended one of the “new” universities and have completed one of the new courses that leads to a new degree, that they are now academics and that work that requires a level of manual dexterity is beneath them.
    We need to promote the status of engineers and scientists so that youngsters find the idea of pursuing such a career attractive rather than wanting to be celebs or pop stars.

    Happy New Year John and keep up the good work!!

  10. rugfish
    January 13, 2009

    3 months ago or more, I said to the missus, that the country will spawn large numbers of mobile “Mr Fix its” and “Mr Gadgets” and DIY will go through the roof for fixing cars and home maintenance. Within 6 months ( from when I said it ), we’ll have people knocking doors to fix roof tiles, mend drains, check your heating, etc etc etc, a plumbers, electricians. bricklayers and joiners will be readily available.

    Is it not time Mr Brown really got to grips with skilling up the population Mr Redwood ? Is it not time that Cameron’s civil partnership programme was given more due attention ? Are the colleges full to capacity teaching kids engineering, electricals, plumbing and other trades such as computer engineering and programming so we have the internal labour capacity to handle all this type of thing, or will 30,000 sit in’s be enough ?

    Also, what of those graduate posts. Are those graduates all from British stock or does Labour’s plan make the same distinction to give anyone but us first shout ?

    The people are finished being fooled by the man Mr Redwood.

    1. TCD
      January 13, 2009

      Having taught mathematics to engineers for many years, I have to say that there are many faults in the education system.
      One is that it is almost impossible to fail a student. First of all, the pass mark is 40%, then an exam usually has a choice of questions (e.g. 4 out of 6) and then, in the marking, the student is often given the benefit of doubt. The teachers/lecturers are under pressure not to fail students, because that reflects badly on the institution. The result is that the student can pass without knowing any part of the subject properly.
      Another problem is that there are far too many mickey mouse subjects, and students do not see the advantage of studying a difficult subject like mathematics, science or engineering, and as a result getting a lower average mark.
      Finally, in subjects like history, I suspect that there is far too much social engineering, instead of teaching of facts.
      Since I am at it now, I might as well add that many schools pride themselves at having many computers per student, and indeed Tony Blair made that a general aspiration. Although the internet is in principle useful, in practice is has led to a lot of copying rather than learning. I would rather if schools pride themselves on having microscopes and telescopes.
      End of lecture.

  11. Jim Gumbley
    January 13, 2009

    Hi, usually this blog is a bastion of decent sense however the replacement rather than repair of a PC keyboard is a standard practise. These things are very basic and usually cost less than £2 in bulk. Otherwise the point is well taken.

  12. kevin
    January 13, 2009

    Why do the Labour and Conservatives both agree that we should spend tax payers money on companies to create new jobs for people that have been unemployed for such a long time surely its the economy that create the jobs and using tax payers money is wrong its a short term fix to a long term problem which is the state of the uk economy that needs address to get credit flowing again and government dept bought under control also the weakness of the value of the pound needs to be fixed first you cannot create jobs out of a bubble you need to build upon the framework first and thats to get dept under control and lower taxes to help bring in investment into uk or has everybody forgotten that?

  13. chris southern
    January 13, 2009

    It’s not surprising that the infrastructure has fallen apart when you consider the facts.

    Goverment has increased taxes on business (on every one in general) at a higher rate than inflation for some time now whilst wages haven’t risen for the majority on par with this.
    Taxes such as business rates, increased income tax (which does effect employers,) utility bills being increased by goverment tax on the utility companies just to name a few.

    Companies can’t make as much if anything at all anymore in the UK due to the ridiculous tax levels (which go towards paying the EU, it’s fines as well as over paid council workers and the goverments non job schemes) which is why many now are going under, even without the banks not giving out loans (which only allow more companies to stay afloat through debt) it would only be a matter of time for most brick and mortar based companies due to excessive taxes and customers not having the income to buy (or pay for services) products.
    the tertiary industries employ the most and they pay roughly minimum wage for the majority of their employees (roughly £6) meaning that most people are actualy earning 10-12k a year before tax, not the 20-25k that goverment claims.

    Reduce tax (working towards eliminating nearly all of it) and encourage the growth of our exports as well as essential needs such as food production.
    These things are only possible by withdrawing from the EU and trading with them on our terms.

  14. Iain
    January 13, 2009

    I see our Balance of payments deficit has widened to a record £8.3 bn in Nov.

    As much as we like to delude ourselves, claiming to be in a new economic environment where the old realities didn’t matter, it always comes down to the nations balance sheet in the end. The exasperating point is that we have to keep having to learn the same lesson over and over again, for in 1987 we were told trade deficits didn’t matter, that was until the crash, now we are having to learn the same lesson all over again. Aaaaagggggghhhhhh!

  15. mikestallard
    January 13, 2009

    One thing the government could do with immediate and enormous effect – and at almost no cost – is to start cherishing people who are actually encouraging employment and those who are actually earning the country money from abroad.
    (A couple of personal comments left out-ed)
    What about, for example, some Oscars for outstanding factories? Expensive holidays for Stakhanovite workers? An MBE for the Dragons in the Den? A knighthood for Ewan Davis? Prince Charles and his Trust?
    Most important, get the lap dog BBC to publicise it. How about, for example, a few plays by Linda la Plante, where the middle aged lady shows all those effete men how to make a billion in two weeks?
    How about showing some apprentices in action? Just hard working people of the sacred working class (short “a”).
    The government does not seem to be able to cherish people very well. The army needs to be cherished. The Police need to be cherished – and they once were (Dixon of Dock Green?)
    Business people are seen, far too often, as either fat cats or else failures. As this blog shows, they are, actually, normal, charming people.
    Please let me quote my second favourite American president: Ulysses S Grant:
    “The labor of the country was not skilled nor allowed to become so. The whites could not toil without becoming degraded, and those who did were denominated “poor white trash”.
    We have to reverse that – fast.

  16. Matthew Reynolds
    January 13, 2009

    Can we not just:-

    1)100% suspend employers NI for all of 2009-10,

    2)100% suspend stamp duties on share & property deals during 2009-10,

    3)100% freeze government expenditure in real terms from 2009-10 until 2012-13 to weed out waste and slash public borrowing.

    By making it pay to employ people and to trade in property & shares you would give the economy a major boost by addressing real problems. By offsetting any losses to the Treasury via this new stimulus package by taking a hatchet to the client state people might spend more if they had confidence that taxes would not soar in the years ahead. The Brown-Darling tax hikes are pure economic insanity and a decent accountant could find the savings to freeze state spending in real terms so that the budget deficits of future years can be slashed without higher taxes.

    As tax & spend has failed why not shrink the state and let taxes fall so that productivity can rise and the economy recover ?

  17. Peter
    January 13, 2009

    Where would you find someone to fix your computer? Where would you find parts?

    A few weeks ago I had to repair an old Dell I used to solely for programming the ECU in my Caterham 7 – it needed a new motherboard.

    Becasue of the rapid changes in technology and design, a new replacement board was not available from the manufacturer, I sought out a used one on e-bay. When it came – about 10 days later – I had to field-strip my old machine for the processor, memory chips, modem, etc, then build a new computer from the bits and pieces. Total time…about two weeks. Could you be without your business computer for two weeks?

    Like it or not, in the world of electronics, replacement and not repair is the norm. And not without good reason.

  18. David Eyles
    January 13, 2009

    The idea that a low value pound increases the cost of imports and so helps home production has been received wisdom ever since I went to college……..about thirty odd years ago. It only applies if we have retained sufficient industry of our own to take up the slack. But we haven’t and the repetition of this mantra by Gordon and Alistair amounts to yet another Labour lie. As others have pointed out, we have all but lost our manufacturing base. Even those items still manufactured in the UK have a very large proportion of their components made elswhere, and mostly in China. When even basic materials such as structural steel is made elswhere because we have all but lost this as well as high-tec stuff.

    Rugfish is right, as he often is, and there needs to be a massive effort to up-skill. But even if this happened with wartime emergency type speed, I fear that it would still take nearly a generation to put right the damage done by Labour in just ten years – never mind pay for it.

  19. Adam Collyer
    January 13, 2009

    Your little vignette about the keyboard just about sums up the stupidity of our clueless government. In short, they borrowed money to buy that keyboard for you that was made in China. Because they borrowed that money, it wasn’t available to lend to a private company that will probably have to sack somebody because of that and similar transactions.

    So much for additional government spending boosting the economy. Why are we wasting breath on arguing about whose loan guarantee scheme is best when the real elephant in the room, the outrageous and growing public sector deficits in the UK and the US, never seems to get mentioned?

  20. Mike Gill
    January 14, 2009


    I’m afraid your keyboard example is questionable

    The advance of Western economies has been driven by the concepts of specialisation and mass production/automation, which in turn have driven globalisation. A recession does not invalidate these. It will never be possible for a local enterprise to compete with a factory in a low cost region making a million keyboards at a time.

    The above factors also mean that it is hopelessly uneconomic to mend things in many cases. No “Mr. Fixit” can access the specialised knowledge or parts to do so. Repair of complex items such as cars or white goods is effected by module replacement guided by automated fault analysis. Even the white goods example is marginal.

    You should enquire about the cost of Parliamentary IT. The cost of replacing your keyboard is overwhelmingly dominated by the cost of getting it to you, not the cost of making it.

    Its all about productivity. You might find this link interesting:


  21. Bazman
    January 14, 2009

    Which keys wore out John? The back and return? It’s not realistic for small items to be repaired. Collection and recycling using the minimum amount or energy is the way to do it. We will be growing our own tea next!
    Businesses in the last two decades have done little to train people in the form of apprenticeships, but have instead poached from each other not seeing that many employees return to the original company bringing their experience back. Or have instead lowered standards of work by employing anyone from anywhere as long as they are cheap. All at he same time as bleating about the youth of today and the education system. Often whilst making large profits and not wanting to invest or pay taxes in any country, or even believing they should. Thinking the state exists to subsidise them instead of putting in the right conditions to do business. A lie followed by many politicians allowing instead of free competition. To be free from competition. They should sing their own songs of capitalism to themselves.
    What we are seeing now is a privatisation of profits and a socialisation of losses on a massive scale. An indisputable process of taxpayer bailouts rightly or wrongly, going on right in front of our eyes. The Emperors really did not have any clothes. Cost, job and wage cutting for everyone whilst awarding themselves massive pay rises and bonuses. For what? Leaving the state and the public to pick up the pieces.

    1. Iain
      January 14, 2009

      “What we are seeing now is a privatisation of profits and a socialisation of losses on a massive scale”

      Wasn’t that what mass immigration was all about?

  22. markyg
    January 15, 2009

    I listen the the daily news with growing incredulity. The wall in my room is dented from me repeatedly banging my head against it.

    There seems to be a pretty good consensus as to why we are where we are.

    In reality the short term measures proposed by the conservatives and, if you like, adopted by the government are not that dissimilar.

    The short term is a moot point for you guys anyway because you are not in power (yet).

    Talk about Britain’s future. Talk about exactly where we are going to invest in our domestic economy. We all know we can’t compete on wages. We all know we can’t rely on JUST The City to pay everyone’s benefits all over our country.

    Apart from demand from consumer borrowing (from inflation driving, more expensive imports) where is growth going to come from to rebuild our nation?

    I don’t exactly know myself but I would have thought that we should be: investing in software in Thames Valley, investing in biotech in E Anglia, investing in organic food production, investing in GM (yuk), investing in green energy, investing in the arms industry (yuk), investing in pharmaceuticals,…strategically how can we get these areas (and similar high potential areas) going? That is where our future lies. Where are our economic STARS and CASH COWS? Where is the LONGTERM economic roadmap to get us there?

    I don’t beleive that the laissez-faire free market alone will do this as governments everywhere must surely be after the same cherries.

    But why is Britain doing so well for a little island? Is it just the time zone we are in, the closeness of Europe or, as I suspect, is it our attitude to hard work and the current dominance of English as the global business language. If it is JUST that, then we could quite easily fall from grace.

  23. basementcat
    January 15, 2009


    From a procurement perspective there are barriers to sourcing locally, if the buyer is operating within the public sector. We can encourage the private sector to source locally, buy British, and support the local economy, but we cannot do the same in the public sector.

    As a parliamentarian you are no doubt aware of the Harmon case, in which the contract for windows for Portcullis House was awarded to a British contractor over a French owned company for the simple fact that the procurement team at the House of Commons decided – or were instructed – to ‘buy British’. This is a violation of the Treaty of Amsterdam, a delightful bit of EU Legislation that prevents discrimination against a supplier, effectively based on their geographic location or nationality.

    Unless we stick two fingers up to the EU and tell them that their nice new airfix model of Europe (Entropa, I believe) was entirely accurate in omitting us, we’re off, thanks, there is no getting around that in the public sector. Procurement hands will be tied into lengthy, cumbersome and restrictive processes that actually prevent negotiation with suppliers once the contracting process has started. That is, however, an argument for another time.

    The current government seems to believe that throwing money and incentives at businesses will create jobs and stimulate the economy, when in fact I believe they are creating a false economy, simply stealing from Peter to pay Paul.

    Tax cuts on businesses will help stimulate the economy, giving CEOs more money to spend on employing staff and improving their products/offerings. The public sector is bloated with non-jobs and poor management practices, poorly planned IT projects and a belief that throwing more money at it will fix it. Strangely enough, what the government seems to be doing to the private sector. Jonah Brown, indeed.

    What we need is a government brave enough to call time on public sector spending and start to rationalise. We need to take a long look at where the money is going and start a dispassionate, cold and calculated clean-out. In short, we need a government willing to cut jobs in the public sector and create a leaner, more efficient machine. That will lower the cost to government, allowing for lower taxes, meaning more wealth generation by entrepeneurs and businesses, who will then be able to start employing those who once sat in unnecessary jobs.

    Politically it would be a brave move, but if done gradually, I believe it could help place Britain in a much stronger position when the recovery comes.

    I’d be interested in hearing some thoughts on that – in terms of practicality if nothing else.

    Reply: The Conseravtive Parliamentary party including me voted No to Amsterdam. Of course we need to get out of these procurement rules. In the meantime there are ways of getting more local sourcing – break out contracts into more manageable sizes, include service and transport costs etc.

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