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.