The Fall and Rise of the British Economy

Chart 1: demonstrates the decline in manufacturing as a share of economic output (GDP) from 1970 to 2000 using official data and then forecasts from 2009 to 2020.UK National Output 1970-2000

This chart demonstrates the changes in the British Economy as it has moved away from an economy of ‘making things’ to becoming an economic culture based upon provision of services, notably financial services.

There was a time when millions of workers streamed into factory gates within the length and breadth of the United Kingdom every day, every morning and home again later in the day. Our manufacturers made products surplus to home nation demand and the nation became a leading exporter of manufactured goods to the rest of the world.

Most people expected to have a job for life in their local community’s dominant industry, just like their parents and grandparents.

Chart 2: using official data shows a similar pattern for employment from 1980 to 2009.

UK employment from 1980 to 2009.

As employment in manufacturing declined the employment of Britons in The Public Sector ballooned and there was a steady increase in employment within the  Financial and others Service Sector.

The problem for the country is that to employ one person within the Public Sector needs income tax levied upon several people and their employer within the Private Sector and, if there is a shortfall in the amount of National Tax Revenues to subsidise the Public Sector job the UK Government can – and successive UK Governments have – borrowed money to ensure that jobs in the Public Sector flourish.

This was fine and dandy until 2007 when the global debt bubble burst and brought the Financial Institutions and their biggest borrowers – Governments – almost to their knees. In fact things would have been much worse if some of the World’s Governments had not subsidised the banks at the expense of billions of US Dollars. The UK Government under Gordon Brown subsidised several  of the uK’s largest retail banks to stop them going in liquidation and their customers being left penniless.

This sacrificial investment by the UK Government created a problem. Now the Government was not only already in debt to the Financial institution in order to subsidise the Public Sector but was now whole or part-owner of some of the very banks to which they owed money. The problem was exacerbated by the fact that successive British Governments had steadily borrowed more and more on maintaining the status quo of employment in the UK and had reached a point where some of the debt would have  repaid by future generations. With the saving of the British Banks the UK Government has basically borrowed so much that now too much is spent of the UK’s Tax Revenue on debt interest payments in order to service the debt and there is not enough money left to continue to subsidise the UK’s Public Sector share of the British Economy.

This has led to the recent plans, not yet finalised, to reduce public sector capital spending and this action has been colloquially named “The Cuts”.

The problem at the moment is that “The Cuts” are not yet fully identified and have not actually been announced but we already have much rhetoric stating “The Cuts” should be deferred, special-interest lobbyists (such as the Police, Educationalists, Trade Unions, Charities, Councils, National Assenblies and, worst of all the BBC, etc.) are lining up spreading doom and gloom as to what effect “The Cuts” will have on Law and Order, Universities, Trident, the War in Afghanistan, Local Government initiatives, the Welfare Society, the NHS, people’s jobs, price of houses, … the list is endless and the rhetoric entirely without any concrete knowledge of what is to come.

“The Cuts” are to be announced on 22 October, 2010 and until that date no one knows how severe or, indeed, how mild they may be.

The real solution to the problem is displayed in the graphs above.

The UK needs to spend less on supporting the Public Sector and that is inevitably going to happen when the current UK Government announces it Autumn Review of Capital Spending. What the country then needs to do is invest, as a nation in revamping the Private Sector so that the pride of the nation in its former role as a leading export manufacturer is recovered.

The country will never be able to compete with the emerging global economies for the manufacturing of product but we can invest in high-tech industry and export our expertise and technical knowledge to all corners of the Globe. On our road to recovery, by investing in the Private Sector of the British Economy we can create pride, employment and revenue for the Government to continue to provide the necessary (and I do mean necessary) public services the British people deserve.

The pact that the Government must have with its people is that their money, taken from them in the form of taxes, is spent wisely, efficiently and in the most cost-effective way. Anything less will eventually doom the UK to return to the present times were “The Cuts” may well be more severe, more hurtful, and at greater loss to the pride of the British as they descend to the depths of potential for becoming a Third World Nation.

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