In the UK we’ve got the economic balance wrong. We rely far too much on services - and not enough on manufacturing. Too many people believe that services keep our economy prosperous. But on their own they just can’t.
We need manufacturing to pay our way in the world. We need it to deliver the productivity increases which services cannot. We need it to offset the growing regional and socio-economic inequality which blights us.
Successive governments have ignored our manufacturing base. Our industrial heartlands have suffered; jobs and skills have been lost, possibly forever, and whole communities face an uncertain future.
There is still time to reverse this trend. But only if we act fast.
The UK is in trouble. We cannot pay our way in the world. We charge too much for our exports and we import far too much. Too few people buy British-made goods, because they are too expensive. They purchase them from Asia instead.
We have had a trade deficit every year since 1983. As a result, we have to borrow money from abroad every single year and the UK is falling deeper and deeper in debt. We have a trade deficit in goods of more than £100bn every year. This is only partly made up by a surplus on services.
Our foreign payments deficit means we cannot run our economy at full throttle. This is why we have such high levels of unemployment. There are about 5 million people in the UK who are not working. These people are willing to work if jobs were available at reasonable rates of pay.
Because so many people are not working and paying tax, the government cannot balance its books. So the government as well as the country has to keep on borrowing huge sums - as much as £120bn - every single year.
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The UK is uncompetitive because our exports are too expensive and it’s cheaper to buy most goods from somewhere else in the world. That means our imports are too high. It’s the exchange rate that determines how much we charge the rest of the world for all the costs incurred in producing goods and services for export. So while the exchange rate is high, the country suffers.
Imagine if Tesco charged 50% more for its goods than ASDA. You’d think that higher prices would mean more profit. But of course this wouldn’t happen because nobody wants to pay far more than they need to and Tesco’s sales would fall dramatically. This is what has happened to the UK.
In 1950, the UK produced more than 10% of all the world’s exports. Now our share of world trade is only 2.6% - a fall of nearly three quarters in ratio terms.
To enable us to compete in the world, to get our growth rate up to 3% to 4% every year and to get back to full employment, we need an exchange rate about one third lower than it is right now. Manufacturing would then revive, the number of jobs would soar upwards, businesses and individuals would pay more taxes, the government would stop running up debts and living standards would rise again.
If we got the pound down to a realistic level today, tomorrow we would all be much better off.