As trade figures fall, is there an economic plan C?
The really concerning aspect of today’s trade figures is not that the £8bn deficit in goods trade is an 18 month low. It’s that this figure has occurred over two years after the pound depreciated by 25 per cent.
Clearly you would expect to see a boost to exports by now. It is an economic mystery of huge concern that this is yet to feed in to the trade numbers.
In 1997, when Gordon Brown arrived at the Treasury, the trade deficit in goods was £12bn a year. It peaked in 2008 at £93bn, and only dipped last year because of the recession.
Now the UK does benefit from surplus on its export of services, but today’s figures are a startling flash of lucidity for all those politicians talking about how to rebalance the economy.
Plan A for the UK economy was the bubbly over-reliance on FIRE (finance, insurance, real estate). Plan B appears to be a renewed golden era of industry, high tech manufacturing and of course exports. Today’s figures are a reality check on how easy that aim, shared by all the major political parties, will actually be to achieve.
The Conservatives chose today to try to outdo Lord Mandelson (“less financial engineering and more real engineering”) on the Rebalancing Britain agenda.
George Osborne seems to be rather excited about today’s Ingenious Britain report from the vacuum cleaner magnate James Dyson, saying that “it puts flesh on the bones of the ambition to build a more balanced economy”.
Dyson’s report is well worth reading, but If I could sum it up in two quotes they would be: “Four per cent of girls want to be engineers/ 32 per cent want to be models” and “we can end our overdependence on the volatile paper wealth created by the property and financial services sectors”.
Not all of his recommendations will make happy reading for a shadow Treasury team that is planning to scrap, for example, the R&D tax credit. It is a very ambitious document, long term in its proposals, identifying deficiencies in science teaching, infrastructure and the planning process.
If its vision was to be enacted it would amount to nothing short of a transformation of the fabric of the UK economy. You might call it “reindustrialisation”. A weak pound should help, but it appears not to be helping yet.
But most of the countries that have successfully pursued these types of policies have spent oodles of taxpayers’ cash pursuing these aims. Yet as Lord Sainsbury and Lord Waldegrave reported separately today, science and research budgets are under threat.
Lord Mandelson himself has already announced huge spending cuts to universities, the engines of this reindustrialisation. Overall investment spending is in the middle of being halved from £44bn to £22bn, so that’s bye bye (non Olympic) infrastructure.
Plan A failed us. Plan B is going to cost us money that we’re told we haven’t got. Has anyone got a plan C?