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Theresa May’s Secret Weapon – the UK Economy

by John Brian Shannon | November 29, 2016

Some things are expected, and some things sure aren’t. And one of the things that wasn’t expected even by the most vociferous Brexiteers prior to the June 23 referendum, was the strength of the UK economy.

Gross domestic product (GDP) in current prices of the United Kingdom (UK) from 2010 to 2020 (in billion U.S. dollars)

Britain’s GDP from 2010 to 2020. To view the interactive chart, visit Statista.com

In the run-up to the referendum, Bremainers used the fear of an economic crash in the UK to good effect, lowering support for Brexit from a high of almost 70% down to 52% in the final two weeks of the campaign.

Even so, Britons ‘knowing’ in their hearts there would be high economic costs to exit the EU (because famous Op/Ed journalists told them so) they still voted for more democracy, more sovereignty, and more control over immigration

The latest OECD report, informs us that GDP growth in the UK next year will be a healthy 2% — beating major Western and developing nation economies, and the following year is estimated to be in the 1.5% range. Not bad, considering the doom that was supposed to be upon us and considering that the OECD itself had earlier predicted UK growth to be at 1.5% and 1.2% (at best) over the same two-year period.

Sure, some things need to be carefully navigated. Raising the minimum wage for UK workers over age 25 (called The National Living Wage) could be an additional cost for some employers and could thereby increase the unemployment rate among workers. But it’s an overstatement to say that could happen in a growing economy however, if the economy begins to contract it becomes incrementally more serious.

Something else that bears watching is the fall in the value of the pound — which is seen as a desirable thing by economists as it increases exports in almost every country where currency devaluation has ever occurred — but if it doesn’t happen, a speedy remedy must be found. A falling currency with no appreciable increase in exports has no value at all, and only serves to make foreign goods and foreign travel for Britons, more expensive. Government intervention must therefore be instant and right on target in order to rectify the problem.

The UK economy is largely service based (due to the historical high valuation of the British pound) and with a falling pound manufacturing exports should rise in tandem with the falling currency (with plenty of lag time, as it isn’t an instant process) yet if it carries on for too many months, government must intervene to help exporters.

Help is not ‘help’ unless it is actually help.

Providing the right kind of assistance to British manufacturers is key here. There’s no use having the international trade office providing help to access foreign markets if transportation bottlenecks are the problem! Likewise, if limited access to rare-earth metals is the thing restricting manufacturers, lowering the corporate tax rate won’t help.

It’s about listening carefully to the needs of exporters

It’s about meeting every manufacturing CEO and giving them a full and fair hearing in regards to their corporate needs. And then, solving the problems surrounding their inability to export in huge volumes.

It’s doubtful that a one-size-fits-all solution is going to work in Britain’s case. It’s likely that a range of issues need to be addressed. Certainly, companies have a different challenges. For example, some have never exported railway steel (due to the historically high pound) while others that export designer clothing (the high pound just isn’t a factor in this particular market) but face competition from nations which allow ‘knock-offs’ of Britain’s famous clothing brands.

In previous decades, governments threw money at corporations or give them massive tax breaks to allow them to take care of the problems, themselves. But those days are past.

In our time, governments simply don’t have multi-billions to hand to industry as the massive economic growth that was a consequence of massive population increases (courtesy of the baby-boom generation) are long past — and massive corporate tax breaks just aren’t possible as the present corporate tax rates can only be termed ‘marginal’ compared to the ‘heavy’ corporate tax rates of the 1950’s – 1990’s.

All of this means that the British government must begin to see UK companies as ‘part of the solution’ to Britain’s economic future as opposed to ‘part of the problem’ — which is how the corporate world was viewed by government in the pre-2000 era.

High growth is a wonderful thing for senior executives, it’s a great thing for a sitting government, but it means the people in the bottom-three quintiles face ever-lower wages, more unemployment, resulting in a lowered standard of living for those citizens. And let’s not forget, lower standards of living directly and always equate to higher healthcare costs so there’s no savings anyway. At least, not for governments or families.

While the days of fixing everything with one silver bullet are over, there is still plenty the UK government can do to boost GDP; By assisting manufacturers to re-learn how to export and find new markets, helping industry to boost productivity by redirecting education towards the always changing needs of industry, by providing additional R&D tax breaks for companies — and to provide decent jobs for those left behind via massive and ongoing infrastructure spending programmes, rather than have them rely on eternal government support.

It’s clear that Building a Better Britain begins and ends with Building a Better Economy

Therefore, as important as every other matter before government is (including Brexit!) it’s all for naught if the economy begins to fail, because when the economy fails, so does industry, society, and governments, which tend to fall… hard. Just ask any former politician.

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