Here we go again. Just as it looked like the recovery was on a firmer footing, and a little smugness had even crept in over Britain growing faster than other big economies, we’re hit with fresh warnings about a slowdown.
As gloomy news this week on manufacturing, construction and trade all pointed to a weaker close to 2014, George Osborne got the excuses in early. This was a “critical moment for the British economy,” he said as he headed to an International Monetary Fund meeting. “The eurozone risks slipping back into crisis. Britain cannot be immune from that. Indeed, it is already having an impact on our manufacturing and our exports.”
His warning echoes that of the British Chambers of Commerce, which pointed last week to slowing export and manufacturing growth. It was the “first alarm bell” about slower growth, said the group’s director general, John Longworth. But he rightly pointed out that this “need not be the case”.
If recession in the eurozone leaves the UK in trouble, it should serve as a reminder of the mammoth work yet to be done on rebalancing our economy. Amid assurances from government that the economic plan is working, it is worth considering two parts of the plan that are not: the target to double exports to £1 trillion by 2020; and Osborne’s call for a revival of manufacturing, his “march of the makers”. These are part of Osborne’s design for a more balanced economy – after the last crisis exposed the dangers of over-reliance on financial services and debt-fuelled consumer spending.
The progress on exports has been lamentable. To hit the target, exports would have to grow by around 10% a year. But they rose by less than 1% in 2012, and by just 2.1% in 2013, to £511bn. It was always clear that to meet the 2020 goal, UK exporters would need to conquer markets beyond the eurozone. It was clear, too, that they would need the kind of government support available to their competitors in countries such as Germany. The chancellor recently admitted to a business audience that “there is more work to do in this space”.
But the second promise, of a stronger manufacturing sector, was more important, and the export goal depends on it. It is all well and good setting export targets, but we need goods to export. Exports of services, – insurance, say, and legal work – are not going to cut it alone. Britain needs to keep making things, and it needs more people to make them.
But progress on the manufacturing front is similarly slow. The UK’s dominant services sector returned to its pre-crisis strength three years ago. But manufacturing output is still 4.4% below pre-downturn levels. Manufacturing makes up an important 10% of the economy and the UK’s goods are in demand as a rising affluent class of consumers in markets like China and India snap up luxury cars, western foods and pharmaceuticals.
But for manufacturing to expand further and thrive, successive governments will need to address the skills shortage, continue to support research and development and improve Britain’s infrastructure – hollowed out supply chains can only be rebuilt with the proper transport links.
The skills problem is key and will be solved only with a shift in attitudes to manufacturing. So it was welcome that Vince Cable last week proposed raising the minimum wage for apprentices. At the moment, 16-year-old apprentices get a minimum £2.73 an hour, while 16- and 17-year-olds on the minimum wage get £3.79 an hour.
Some business groups were quick to focus on the upfront costs. It fell to the manufacturers’ organisation, the EEF, to emphasise the longer-term gains of addressing an entrenched lack of respect for the apprenticeship path. Cable’s proposal would help boost the status of and demand for apprenticeships, the group said. The EEF itself had already called for the apprenticeship rate to be scrapped.
The change would also simplify payrolls and encourage employers to offer apprenticeships. Starts in manufacturing and engineering apprenticeships fell in the last full year for which data is available. There were 66,410 in the academic year 2012/13, down almost 5% from 2011/12. In contrast, the total number of apprenticeship starts across all sectors fell by 2% to 510,200.
As well as the lifeblood of young starters in the sector, manufacturers also need better access to experts from around the world. Warnings last week about Britain’s restrictive immigration rules from Nobel prize-winner John O’Keefe will have resonated with many businesses that have struggled to bring in new staff from overseas. US-born O’Keefe, joint winner of the prize for physiology or medicine, relayed his first-hand experience of trying to recruit 150 neuroscientists. Warning of the risks for Britain’s scientific standing, he said: “We should be thinking hard about making Britain a more welcoming place.”
Exporters say the same goes for potential trade partners, who are too often put off from coming to do business in Britain by lengthy visa application processes.
How soon we find solutions to all these obstacles will doubtless come down to priorities. But as spending cuts continue and politicians grapple with the immigration debate, they must not abandon Britain’s great rebalancing act. If another crisis is coming, let’s not go into it with an economy just as unbalanced and no more resilient.
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