Exports and growth

Posted on 8 Feb 2011 by The Manufacturer

How can the economy grow? Howard Wheeldon, senior strategist at BGC Partners, has some ideas.

How nice it was of the Institute of Directors to drop its latest growth ideas on the mat of the Chancellor of Exchequer today calling for a target for corporation tax to be brought down to as low as 20% by 2020, while at the same time backing Mr. Osborne’s solutions for reducing the massive government deficit.

Nice too that the venerable ITEM Club nailed even more interesting colours to the mast forecasting annual UK export growth being around the 11.7% between now and 2020. If the ITEM club export forecast proves to be true it would go some way to providing some small part of the growth that the economy badly needs. Whether it can be done though depends not least on how sterling fairs and on our industry and commerce remaining competitive.

Think positive, though, as it is certainly true that UK exports are doing well right now but then again, with manufacturing accounting for such a small proportion of the country’s GDP (approximately 13% against a 29% figure in Germany) it might help if the government was to think in terms of laying out a bolder and more formal statement of industrial strategy.

Nevertheless, even if the UK needs to think in terms of doubling manufacturing as a percentage of GDP, we can at least be satisfied that our banking and service based industries are doing well and playing their part in overall exporting.

My inclination is certainly to believe that the ITEM club forecasts are well founded and achievable, though I would like to see far more effort being put into changing a miserable attitude that has been allowed to develop over far too many years toward engineering and manufacturing within the UK education system.

I would also like to see Universities do far more to assist would-be entrepreneurs in the UK develop ideas and bring them to fruition. If the future is about technology development as I personally believe then it must also be about changing bad attitude and creating incentives that have success writ large over them.

There is no doubt that if the British economy is to move forward it can only be done if we all have the can do, will do approach that we see in other nations. There can be no place in the ‘new’ Britain for moaners or those that live only to criticise. All must play a part and we may hope that the ITEM club forecast really does prove to be well founded but to do the job well will eventually require a lot more than the government can provide right now. For all that it does seem that increasingly even if some are using different tunes they are starting to sing the same words.

Back to today. I doubt that there are many in HM Treasury that rushed to read yet another ‘government must’ view from the Institute of Directors that was yet another attempt to convince government to create new incentives for growth by putting new cash on the plate now. There is no cash available and those that argue for unaffordable cash based incentives right now better get used to that fact.

There have certainly been one or two ‘U-turns’ by the Coalition government already, particularly regarding plans that were related to education. There may well be others yet, but ‘U-turns’ on the deficit plan are neither practical nor are they acceptable. In their own time and space and when and if they consider the deficit reduction plan is beginning to show initial rewards, we may be assured that eventually the Coalition government will indeed show greater inclination to incentivise for growth through the process of a funded plan. It is in their interests to do just that but that does not mean yet!

In the meantime, we must remind ourselves that to save for providing whatever help that it can in the form of wide ranging UKTI trade and industry support (that includes making available Export Credit Guarantee support) should not the job of a Tory-led Coalition government to create growth opportunity.

That job should be down solely to those within industry and commerce and that should in the most normal circumstances be allowed to work for their own best interest, those of their employees and shareholders on a level industrial and political playing field.

The EU’s unnecessary regulation and excessive bureaurocracy are too often allowed to get in the way of freedom of operation of those in business to get on with the real job they need to do. The point to remember, however, is that the last thing we in industry and commerce need is a repeat of what the last government wrongly did over the past decade and longer – to create artificially-based and unsustainable growth by using increased competition inadvertently or otherwise by ‘incentivising’ banks and lenders to break old rules toward lending and risk and consumers to ignore rules of common-sense affordability borrowing far too much.

In this time of so-called austerity the government’s part in the growth equation can in my view only be to lay down a reasonable framework from which existing industry and commerce, including the banking and financial sectors, can prosper and grow. The tax system that they all work under must be fair and appropriate and from a competitive point of view the environment in which they operate must be free, fair and level with others that have similar ambitions as ours. It is then industry and commerce rather than government that is charged with the real responsibility of growth and it is to them that the IoD should really be addressing a message of ways to seek growth.

Having said that, government can and should do more to provide incentive for new industries to be created and born. We ignore at our peril that, just like our friends and colleagues in the US, Britain is full of would-be entrepreneurs brimming with new ideas both good and bad waiting to find a way to market. To that end I would like to see the Enterprise Zone reborn and for those wishing to start a business small areas being set aside and small units developed on a free rent and rates basis for the first five years provided that they employ five people outside of their own families or more. To be fair, the government has done much to incentivise small and medium sized enterprise in terms of taxation, but there is more to be done.

Noting the ‘promise’ from Business Secretary Vince Cable that aims to create 100,000 new apprenticeships and the intention to raise funding for on-the-job training schemes to £1.4bn is confirmation enough to me that the government has realised not only the true value of the national apprentice scheme, but also that an apprenticeship scheme is crucial, if you are at the same time closing the door to some of those who might have chosen a higher education route.

There is no doubt that both those employers that have a fully developed apprenticeship scheme in operation and many of those that are the beneficiaries of such schemes agree on the virtues. However, it seems that a great many recipients drop out and this is something that has to be addressed.

Equally important is that the government must do more to incentivise those who do not currently operate these earn and learn schemes, if they seek to have 400,000 school leavers and others within apprenticeship schemes by 2014/15. Of course, it is important that industry-operated apprenticeship schemes are not seen by government merely as a solution to ensuring jobless numbers being considerably less affected than they could be by the number of new school leavers who would normally enter ‘the higher education system’ each year.

Clearly, higher tuition fees at Universities are now very likely to put a number of those who under New Labour might have chosen to attend a University off from going the higher education route. Apprenticeship schemes are a great possible option and alternative, but not only must there be sufficient incentive from employers for them to do this but also real and genuine long term commitment from those that would participate.