The economy and even society itself seem to be in free fall at the moment, reminiscent of the 1970s. Growth has stalled and the nation is beset by public sector strikes. The Centre for European Reform has completed a study suggesting the UK economy is 5.5% smaller now than it would have been without Brexit, equivalent to £40 billion in lost tax revenues. At the same time, we seem to be headed for a repeat of the winter of discontent. It’s probably quicker to list public sector workers who aren’t striking over pay. The two stories are surely linked.
Without Brexit, the Treasury would have money to avoid most if not all of the recent tax rises and might be able to afford to increase the pay of government employees.
Bad as things are, I am regularly seeing tweets harking back to a ‘golden era’ in the 1970s when the national debt was low and we owned all the major utilities. Today, we owe well north of £2 trillion and most of our saleable assets have gone to predatory venture capitalists who are milking us dry. That’s not quite how I remember the 70s but there is some truth in what many people are starting to say.
This tweet is typical:
In 1979 the UK was £ 80 billion in debt but we owned all our utilities, coal, oil & gas in abundance. Now we are £2+ Trillion in debt, and the country owns nothing - well done Tories 👏 #bbcqt
— Martin 🇬🇧🏴 (@scootch234) November 24, 2022
I have no idea if the debt figure is correct but the sentiment is certainly right. I confess used to believe there was logic in privatisation but I’ve changed my mind.
Mrs. Thatcher seemed to think private companies would be happy to take over public utilities and provide electricity, clean water, and so on, invest in their business to make it more efficient, and take modest profits in dividends every year. Everybody would be a winner.
The consumer would enjoy improved services, shareholders in the pension fund industry would benefit and the government would be sheltered from the carping criticism coming from the unions and opposition figures.
I fear she was naive. As far as I can see, many if not most of the venture capitalists behind the complex web of companies that own these massive cash-generating monopolies have just one aim. To maximise profits. Worse, many of them are based overseas, usually in tax havens, and a lot of them are state-owned European companies, like EDF for example.
Prices have soared. Our water bill is stunning and we aren’t even connected to mains sewage! Rail fares are simply unaffordable and up here in Yorkshire, the services are just shocking. The power-generating industry is farcical with no overall policy direction at all. We don’t know where future power is going to come from, offshore wind, Solar farms, nuclear or what and we don’t know the price.
Having quit the EU energy market we appear to be paying the highest prices in Europe for our electricity.
All of this is quite depressing and it brings me to an article in The Times by their economics editor David Smith about the balance of payments deficit which is heading for a new record. This is sometimes called the balance of trade and is the difference between what we sell (exports) and what we buy (imports).
Smith says:”
"...over the latest 12 months, the UK’s overall trade deficit, covering both goods and services, has been a hefty £75.2 billion. To put that in perspective — and accepting that we do not yet have full figures for 2022, just the rolling 12-month total — it is more than double the record annual deficit of £36.1 billion, achieved in 2016."
"The UK’s trade deficit in goods over the latest 12 months has been a huge £221.9 billion, half as much again as the previous annual record, split between £104.3 billion with the EU and £117.6 billion in respect of the rest of the world. Not for the first time, we have reason to be grateful for our surplus on trade in services, £146.7 billion, but the size of the overall trade deficit helps explain why financial markets remain jumpy about the pound, despite the soothing balm provided by Jeremy Hunt and Rishi Sunak."
These are absolutely shocking numbers. We are importing £221 billion MORE in goods than we are exporting!
The reason the pound hasn’t tanked more than it has in the last few years is because of what Smith refers to as ‘capital flows’ - money coming into the UK to balance the deficit. Some has been used to buy up British utilities and other assets. It is selling the family silver as Harold MacMillan once called it. The problem comes when you run out of silver to sell.
At the heart of this is the sorry truth that we don’t make things anymore and we don’t export anything like as much as we should do. It’s the age-old productivity problem. If we ran a balance of trade surplus we wouldn’t need to sell the family silver.
Brexit has exacerbated the problem. It has made it far more difficult to export to what was, is and will always be our biggest export market. Anyone who is surprised by the outcome that David Smith has outlined hasn’t been paying attention for the last forty years or more.
We are buying foreign products manufactured by foreign machines in foreign-owned factories here and in Europe, delivered via foreign-supplied automatic warehouses and foreign-built trucks. Yesterday in Doncaster I noticed a van advertising a business that offered ‘turnkey solutions’ for machinery guarding. This is what we are reduced to. Supplying a bit of mesh guarding and some access control light barriers.
Years ago, we used to supply UK-built machinery to Ireland where local Irish companies made a bit of supporting metalwork and not much more. Now they buy German kit and we have become the soft market for EU companies.
Smith reports that it isn’t just EU exports that are down but even exports to the rest of the world. Again this doesn’t surprise me. Companies have shifted into the single market and if they used to export to the RoW we have lost that. Others who stayed here probably relied on EU parts which have become harder to get hold of and more expensive. In other words, we need EU companies in order to help us export.
The balance of payments deficit increase is symptomatic of a failing economy as is the wave of public sector strikes. This government will fiddle around with tax and other incentives to try and spur growth but none of it even begins to address the real issue.
It's clear to me the political class doesn't understand the British economy at all and Brexit has simply made matters worse.
