What we believe

Why do it?

Objections

Data

Press & bulletins

Get in touch

Why do it?

Why do it?

Why does the UK need a much more competitive pound? We have to get the exchange rate down to a level which makes us competitive - otherwise we will never be able to pay our way in the world.

In the UK it is too unprofitable to export and too profitable to import, so too few people both in the UK and abroad buy British-made goods

The current situation

British-made goods are too expensive to buy. Everything from consumer electronics, clothes and machinery to vehicles, toys and home furnishings are all more expensive than equivalent products made abroad, especially in Asia. This is why Asian economies are doing so much better than ours.

The reason that the UK is uncompetitive is that most of the costs of goods and nearly all the cost of services are incurred in the local currency where they are produced. It is the exchange rate which determines how much these costs – otherwise known as our cost base - are charged out at to the rest of the world. Because sterling is much too high, we charge out all these costs at about 50% more than some of the countries against which we have to compete. No wonder people buy goods from more competitive countries, such as China, and our share of world trade has gone down.

The solution

We need to get the exchange rate down by about one third – to a bit more than £1.00 = $1.00 or around €0.75. This is the only way to enable us to compete especially with countries in Asia and in emerging markets such as Russia, China, Latin America and the Commonwealth countries.

We import goods from Asia because they are so much cheaper

The current situation

British people and UK business, like those in many other Western countries which have similar economic problems to ours, buy too many products made and imported from China, Japan, Taiwan and other developing nations such as Vietnam. They do so because their goods are cheaper than the same products made in Britain.

Asian-manufactured products are cheaper because exchange rates in Asia are much more competitive than they are in the West. Here are various reasons why Asian-produced goods are cheaper than British-made goods:

  • Wages in many Asian countries are lower than they are in the UK, although they are higher in others, such as Singapore, but this is not the reason why their export prices are lower. Wage costs make up quite a small proportion of direct costs. The reason why all these Asian countries, whether their wage levels are high or low, are competitive is because – allowing for different levels of productivity – their wage costs per unit of output are all charged out to the rest of the world at competitive prices.
  • Much more important than the wages paid by exporters are all the other costs which anyone selling abroad has to bear, including everything from travel costs to legal charges, stationery and printing to cleaning services, and also including rent and interest charges. All these sorts of charges have to be included in export prices and all of them are directly affected by the exchange rate used to charge them out.
  • Nor do countries in Asia buy in raw materials at significantly lower prices than we do in the West. There are world prices for most raw materials and for plant and machinery. It is all the other costs which have to be incurred to produce goods and services which are charged out to the rest of the world at higher or lower rates, depending on the exchange rate.

The solution

With a much lower exchange rate, UK made goods would become much more competitive in world markets. Plus many goods which it’s not worth producing in the UK at the moment would become cheaper to make here rather than bought in from other countries.

UK Manufacturing is in decline

The current situation

Because our cost base is charged out to the rest of the world at too high a rate – because the exchange rate is too high – we export too little and we import too much to enable us to pay our way in the world. As a result our manufacturing capacity, which is particularly exposed to world competition, has withered and weakened. Even as late as 1980, just under a quarter of our national income came from manufacturing. Now it is barely 10%. This is why our share of world trade has plummeted down and is still falling.

The solution

With a much lower pound, UK goods and services would all become much cheaper for other countries to buy. This is the only way to make our economy more competitive and to revive British manufacturing.

Unemployment is far too high

The current situation

Because we do not have enough to sell to the rest of the world to pay for our imports, the consequent balance of payments deficits are a constant drag on the economy. Because expanding the economy sucks in more imports, demand cannot be expanded enough to keep everyone in work. This is why we have so many people out of a job. The official figure is just under 2.5m unemployed – just under 8% of the labour force. But this does not include many people who have dropped out of the labour force because they are caught in benefit traps or because they have given up hope of ever working again. If all these people are included, the total number of people who could work but who are not doing so is about 5m. This very high total brings other major problems in train:

  • Unemployment in the UK is unevenly spread. It is much higher in regions outside the South East; places that used to depend on manufacturing. This is why there are such huge differences between average incomes in different parts of the country. Manufacturing now employs 300,000 fewer people than it did even in 2007.
  • The average age of the population in the UK is rising. This means that we have an ever-larger number of people in retirement, compared to those who are working. It makes no sense to have large numbers of people who could work out of a job when the number of pensioners is growing.

The solution

With a much more competitive rate for sterling, there would not be a balance of payments problem and the economy could be expanded much more rapidly. It would then be possible to get unemployment down to about 3% - with less than a million people altogether out of work – a fifth of those unemployed at the moment. It would also be possible to get employment much more evenly spread throughout the country.

People don’t want to borrow and companies don’t want to invest

The current situation

Because economic prospects in the UK currently look so poor, consumers are very cautious. In the past, they were willing to borrow to increase their expenditure, which helped expand the economy. Now they are much less willing to do so. Businesses are similarly affected and investment by companies is at a very low level. The result is that neither consumers nor businesses are boosting the economy at the moment, which is one of the major reasons why there is so little growth.

The solution

If we had a much more competitive exchange rate, the resulting boom in exports and return to the UK of manufacturing currently done abroad, would rapidly increase consumer and business confidence. The resulting increased demand would be a major factor in getting the economy to start growing again.

The government is borrowing much too much money

The current situation

At the moment, the government’s revenues from taxation, fees and charges amount to about 40% of our national income. Government expenditure, however, is now running at about 47%. The 7% gap between these two figures has to be made up by borrowing.

  • Part of the reason for this state of affairs is that it’s difficult to run the economy with about 5m people out of work. With so many unemployed the government has a very large welfare bill. And while people are out of work they’re not paying any taxes either.
  • The government borrowing more and more money is not necessarily a problem if the capacity to meet interest charges and to pay the money back is increasing as the economy grows. But if the economy is stagnant, however, the position is much more serious. The ratio between government debt and the size of the economy will just go up and up. This is what is happening to us. By 2015, UK government debt is likely to be about 100% of our national income and becoming unsustainable.
  • Many people seem to think that the government could reduce its deficit if they cut expenditure. But as experience in southern Europe shows, this is an illusion. Cutting expenditure makes more people unemployed and reduces the government’s income, making the outcome likely to be the same size deficit as there was before but with an even more depressed economy.
  • The reality is that in present circumstances, it is the government deficit which is holding economic output as high as it is. If the deficit was not there, the economy would plunge downwards but it is no good us relying on continuing deficits which we cannot afford.

The solution

We need to get the government’s finance back under proper control. We need to ensure than the government either does not have to borrow at all or the rate that borrowing increases is less than the rate at which the economy is growing. The only way to do this is to get the economy expanding by generating more exports in relation to imports and regaining consumer and corporate confidence. This will allow increased private expenditure to fill the gap left as the government deficit comes down. But an expanding economy will not mean that public services will be cut. On the contrary, there will be more government revenues to pay for better public services.

The country is getting deeper and deeper in debt

The current situation

It is not just the government which is getting further and further into debt. So is the UK as a whole. Every year we have a balance of payments deficit - we have to borrow from abroad exactly the same sum as the deficit. During the 2000s, for example, the total amount of money we had to borrow abroad to finance the shortfall between our national earnings and payments abroad was just under £300bn. We only managed to finance this massive sum by selling off a huge proportion of our national industries to foreign owners – including everything from rail franchises to energy companies, ports to airports, vast amounts of housing and an iconic chocolate company. We cannot go on mortgaging up our future like this.

  • Selling our national assets to finance our deficit is not only irresponsible in the short term, it is also laying up big trouble for the future. The more that companies operating in the UK are controlled from abroad, the more vulnerable we become to policies implemented in favour of their home countries instead of ours. Because we have lost ownership, we lose the profits they make and the increased value they may attain. Where our deficits are financed by loans, we have to pay the interest charges. All this makes it more and more difficult to avoid bigger and bigger deficits in future, unless there are big policy changes.

The solution

Again, we have to increase our exports in relation to our imports to avoid running a deficit every year and the only way to do this is to make exporting more profitable and importing less so. That means we need to charge the rest of the world less for our exports to increase sales, and to reduce the amount of goods imported from abroad which instead we could make for ourselves. The only way to do this is to have a more competitive exchange rate.

But what about the objections?

Naturally there are some objections to our reasons for wanting a competitive exchange rate. Read through all of the objections and see our response.

Objections >
Copyright © 2014-2016 The £ campaign
Website by Right Angles