How to make the British economy grow post-Brexit

How to make the British economy grow post-Brexit

It is still, of course, far from clear what the outcome of the Brexit negotiations will be. Whatever happens, however, the UK is going to be faced with some very crucial economic problems, regardless of the form that Brexit finally takes.

For a start, the proportion of our national income which we invest in our future every year is far lower than it is almost anywhere else in the world. Furthermore, what we do spend money on tends not to be the most productive forms of investment – i.e. those in industry which produce big increases in output per hour. This is why productivity increases have stalled and living standards are static.

We have deindustrialised on a scale unmatched by any advanced economy. Even as late as 1970, almost a third of our GDP came from manufacturing. Now it is less than 10% and still falling. As a result, we have lost millions of good jobs; there is a huge disparity between the prosperity of London and our former industrial heartlands in Wales, the Midlands and the North of England; and we have missed out on the productivity increases which are much easier to achieve in manufacturing than they are in services.

In addition, because we now make so little, we do not have enough to sell to the rest of the world to pay for our imports. As a result, we have a balance of payments deficit every year averaging close to £100 billion. This may allow us to have a living standard 4% or 5% higher than we are actually earning, but only by borrowing money from abroad and selling off masses of UK assets to foreign owners. As a consequence, we have lost control of swathes of our economy while at the same time, both as a nation – through our government – and as individuals, we are getting deeper and deeper into debt.

These imbalances all matter hugely. The slow growth which is the result means that most of the population are no better off now than they were ten years ago, with little prospect of any improvement as far ahead as we can see. Our political class is drifting into more and more disrepute. We are falling further and further behind other countries. Our politics are getting more and more fractured as the country becomes increasingly deeply divided – both between the regions, the generations and socio-economic groups.

What can we do about all these problems? My new book, Economic Growth post Brexit: How the UK should take on the World, published by Bite-Sized Books and available on Amazon and elsewhere, tackles these issues head-on. Here is what we need to do. We need to change our primary economic goal away from chasing inflation down to 2% and to set ourselves a growth target instead. Inflation is largely tamed and the dire consequences of slow growth are a much bigger risk now than slightly more rapid price rises.

To get the growth rate up, we need to invest much more in technology, mechanisation and power, which are the main drivers of productivity increases. To do this we need to make it a lot more profitable than it is now to invest in industry in the UK, by making sure that we have a sufficiently competitive exchange rate on a sustained basis as key government and Bank of England policies.

To rebalance our economy, we need to get manufacturing back to being around 15% of our national income – not as high as the 20% it is in countries like Germany, Switzerland and Japan, because we are good enough at services to close some of the gap between them and us; but not all of it, because services on their own are too difficult to sell abroad in sufficient quantity. We will never pay our way in the world, or keep up with other countries, or get our living standards up in any other way than manufacturing more goods and selling them all over the world.

A huge problem about the way that the Brexit negotiations have been handled is that, ever since the 2016 EU referendum, they have distracted us from thinking about almost anything other than our involvement with the EU. If we are going to make a success of Brexit, this is going to have to change. We need to start thinking hard about how we are going to keep up with the rest of the world by getting the UK growth rate up to somewhere near the 3.5% per annum world average. This is a massive challenge but maybe the national rethink which Brexit ought to be producing will make it happen. It very badly needs to do so.

John Mills’ book Economic Growth Post Brexit: How the UK Should Take on the World is published by Bite-Sized Books and is available via Amazon