Nicholas Comfort, author of Surrender: How British Industry Gave Up the Ghost, responds to Liam Fox's call for deregulation of the Labour market
Liam Fox’s call for tax cuts and labour market reforms to get the economy moving again is just the latest in a series of initiatives from various points on the political spectrum. Only the other day, Ed Balls was pressing for a cut in VAT, and the Liberal Democrats are pressing their Coalition partners to exempt more of the low-paid from income tax. Faced with the argument that cutting public revenues at a time when the government is tackling a record deficit would merely make matters worse, they respond either that the tax cuts will pay for themselves through increased demand or – in Balls’ case – that unless the cuts are made, tax revenues will fall even further as the economy sinks into recession.
Traditionally, tax cuts have stimulated demand, which is why politicians are advocating them now, and to the extent that this benefits the hard-pressed retail sector, an increase in demand safeguards jobs. But going on past form, tax cuts do little to stimulate our manufacturing sector, as the consumer goods the public buy on the high street, the shopping centre or the internet are mainly manufactured on the Continent or in Asia; in other words, cutting UK taxes creates manufacturing jobs in Germany or China.
How do we get round this? Turning round the economy is an immense challenge, but rebuilding a manufacturing sector that has been in decline for half a century makes that challenge pale into insignificance. The task is all the harder because we have opted out of a number of the technologies in which we were once world leaders – notably computing and nuclear power – and have seen our surviving key industries fall one by one under foreign control. Yet, matching the widespread support for an economic stimulus, there is a growing belief that, in the words of Labour’s John Denham, ‘The economy needs a critical mass of clearly British-owned, domiciled and led companies’.
Ownership does matter. Until the 1970s Vauxhall Motors was managed from Britain, but today the future of car production at Ellesmere Port is at risk because General Motors Europe is losing money. Despite the fact that Vauxhall sells far more cars in Britain than Opel does in Germany, there is a real risk that what GM’s management in Germany perceives as a fringe operation will be sacrificed.
Moreover, the tide of ownership is still receding. In recent months, four sizeable UK engineering companies – Charter International, Chloride, Hamworthy and Tomkins – have sold out to companies from the US, Switzerland/Sweden, Finland and Canada. No British conglomerate survives that was large or confident enough to acquire them. In future, decisions affecting these companies – and especially over whether to continue investing in their UK plants – will be taken overseas.
CBI director-general John Cridland was moved, after these takeovers, to urge leaders of medium-sized firms to think less of how they could be fattened up for sale and more of how they could keep growing under their present British management. He tempered his criticism with an awareness that we can only have a strong manufacturing sector if 'patient capital' is available for investment: the kind of investment Germany’s regional banks arrange for the family-owned firms that are still a bulwark of that country’s economy. The cultural inability of Britain’s financial services sector to see manufacturing businesses as more than casino chips has much to do with their present plight.
It will take more to turn British industry round, for the momentum is still offshore. The deal David Cameron agreed last week with Nicolas Sarkozy for France to help build Britain’s new generation of nuclear power stations reflects this. In the 1950s we built our own. But the lack of orders from the 1980s onwards led our industry to atrophy, and while Rolls-Royce (providentially, through its involvement in the nuclear submarine programme) still has a stake, the lion’s share of work will go to Alstom, Aviva and EdF. The only saving grace is that the deal will give a new lease of life to Alstom’s ‘centre of excellence’ at Stafford, one of the few surviving parts of the much-lamented General Electric Company.
Vince Cable has committed the Coalition to reviving British manufacturing, though cautioning that any such revival is bound to be limited in scale. At the very least the decline is bound to slow; if the sector lost 2 million jobs in this decade as it has in each of the previous five, it would cease to exist altogether. It will take more than tax cuts to turn the tide – but it has to be attempted.