Monday, 18 February 2019

Britain's potemkin village economy is collapsing

I do not wish to preempt any official statement from Honda but the news they intend to close their Swindon plant by 2022 can't be entirely divorced from Brexit, though many will go to extended lengths to claim that it is. As with FlyBMI, no one single factor causes a business decision but there's always that one final straw. Over the coming week I expect we will see plenty of speculation as to what those other factors are but Brexit remains the elephant in the room.

Either way, though, the loss of 3500 jobs is serious. Deadly serious. It could easily climb to three times that number when we factor in the secondary industries it supports locally. For Swindon it's a major blow.

This isn't the first news of its kind and probably won't be the last. Just last week we heard that Airbus is to cease production of the A380 at a cost of hundreds of jobs in the UK. Again, Brexit is not the main culprit but I can't see how it wasn't influential in the decision. The real impact on Airbus, though, has probably already started and it will already have switch suppliers and sought service provision elsewhere. The worst effects of Brexit won't be headline news like the Honda story. This is likely to have a devastating cumulative effect.

The point for me is that this was always on the cards. As much as there is a general trend toward economic nationalism and a retrenchment of global supply chains there is no way the UK can compete on wages. One notices that when a multinational manufacturer pulls out of the UK they don't tend to move somewhere inside the EU. I happen to know Airbus has been pushing out a lot of technical and IT work out to India.

Of what work we do retain, much of it comes down to tax sweetheart deals, government bungs and creative eco-subsidies. Nissan is famous for it. What we find up and down the country is entire regions propped up by centrally planned production. This is partly by design as the single market and EU regional development policy has encouraged interdependency and distribution of production. We cannot, therefore, be surprised that it all comes crashing in as we leave the single market.

The short of it is that without these regional development policies, subsidies, bungs and interest free "loans", the regions would have collapsed economies twenty five years ago. To a large extent that was already the case by 1990 and all we've really bought ourselves is a sticking plaster. A temporary one at that. This current model was never sustainable.

Just about every major regional employer is in some way propped up by Keynesian stimulus. Hull has been reinvented as a centre of renewable energy technology. Science parks inexplicably pop up in the middle of the Welsh Valleys. Aero-engine maker Rolls-Royce got £250m of government money in 2001. Low emission plug-in vehicle grants come to £3,500 per car.

Meanwhile nobody thought we were getting a good deal on the Hinkley Point power station but it;s jobs for the region so we went ahead with it anyway. This is also why the Severn tidal lagoon is an idea that refuses to die and it's why the government seems determined to piss away billions on HS2 even though nobody sees real value in it. I even wonder if we'd actually bother renewing Trident were it not for the 15,000 jobs it is said to support. Meanwhile Channel 4's decision to site a new cultural hub in Bristol comes with a healthy bung from Bristol City Council.

This is notionally what we call investment but all of this contributes to the overall cost of doing business. By prioritising boondoggles in the energy sector we are hammering our own competitiveness as well as putting added tax stress on ordinary people. Moreover, we're borrowing to keep it ticking over. Borrowing in the financial year ending March 2018 was £41.9 billion. This is when we're spending £24bn on housing benefit alone.

Politicians will call this spending "investment" but politicians won't ever question if there's a genuine return on such investment just so long as it props up the middle classes in the regions. Our entire system of retail politics is designed to placate rebellion in much the same way the CAP was devised. Productivity this is not. And, of course, there's a natural termination point to this in that any of this labour intensive spending is generally reliant of cheap imported labour when all the while we are sitting on a social timebomb of economic exclusion.

A recent report The Telegraph has it that the number of "silver renters" in England is set to treble to a million, analysis of official data shows, as more people are leaving it too late to buy their first home. According to analysis carried out by campaign group Generation Rent, the number of private renter households in England headed by someone aged 65 or older is set to increase from 370,000 in 2015-16 to 995,000 by 2035-36. The rise will come as the result of more people reaching their forties without having made their first step onto the housing ladder, at which point it becomes increasingly difficult to get a mortgage, the report said.

Meanwhile, other reports indicate that about 15 million people have no pension savings and face a bleak future in retirement. The Financial Lives survey of 13,000 consumers by the FCA, the biggest of its kind, found that 31% of UK adults have no private pension provision and will have to rely entirely on the state in their retirement. The full state pension is £159.55 per week, but that is only available to individuals who have a complete record of national insurance contributions.

Of particular worry is the group of people aged over 50 who are not paying into a pension and have few years left to build one up before they reach their 60s. When the FCA asked why they had made no provision, 32% said it was too late to set one up, 26% said they could not afford it and 12% said they were relying on their partner’s pension.

Auto-enrolment has brought millions of people into pension saving for the first time, but millions of self-employed and part-time workers are not in the scheme. Then turning to another report in The Guardian we see that British workers can expect among the worst pensions in the developed world. This is as councils are set to spend more than 40% of their budgets on adult social care.

We are now at a point where wages are generally stagnating and we are paying all the tax we can and it's still not going to be enough to prop it all up. We're already dismantling the fundamentals of civic governance just to pay for our elaborate set of entitlements, all of which has to be paid for somehow and business is slowly concluding that it can clear off elsewhere.

Right now business is looking at the writing on the wall. The next political political party to win by a landslide will be a socially conservative but economically left wing party. This spells an increase in the minimum wage, heavier taxes on business and more entitlements we can't afford. This is already why call centres have decamped to India and I see that process accelerating to cover more complex and high skill work. Honda can probably adapt to tariffs but not our wage and welfare demands.  

Without a major remodelling of our economy, politicians are going to seek to maintain the status quo and they will seek to borrow to keep bringing voters and propping up the regions. They won't try anything radical or necessary precisely because it will lose them votes. They were always going to keep doing this until there was a national emergency. Even now, as we drift toward a no deal Brexit, they still think in these exact same terms.

This is all against a global backdrop of an epoch change that none of us fully understands yet. Everything is changing. Britain is especially vulnerable because in tying up all of our trade and external relations into a single treaty construct, we have put all of our eggs in one basket. Leaving the EU even with a deal throws a great deal into doubt. As much as it has shone a torch on the dysfunction of our politics it is also revealing just how flimsy our Potemkin village economy really is.

Now I don't claim to have a master plan. All I do know is that government cannot provide the answers. this system of centrally planned distributed spending is not working but in a world where we are increasingly making work as we know it redundant, we are going to have to find a new way of living and a new way of doing things. Before we can even begin to do that we need to stop doing all of the wrong things - which is the central function of Brexit. 

This is where we can think about a new approach. The way we live is completely obsolete and unsustainable. Every day, millions of people get in their cars every morning to sit in a traffic jam for at least an hour. I can't think of a more depressing waste of time and money. Much of this could be eliminated by public transport but public transport in most cities just isn't good enough because there isn't the economy of scale.

So what we need is bigger cities. We need to encourage agglomeration by way of benign neglect. I don't think we should be propping up the regions anymore. We can never again give purpose to places like Huddersfield. These are dead towns. The only reason Bradford has improved is because it has grown in population. What we need to do is to encourage more city living and get people to move back into the city centres to eliminate the need for cars. Cars are a massive waste of money and infrastructure spending for cars costs too much.

If towns are to be regenerated then it is with private capital. It cannot be done by our system of quangos and councils. As working class people move to the cities to improve their chances, middle classes will move out with their money to regenerate the regions in ways that centrally planned spending cannot. We can then delondonise the economy. London is now becoming its own deterrent through price but more can be can be done to accelerate the exodus by way of giving other cities control over their corporate tax rates.

Presently politicians are only capable of two dimensional thinking. Their answer to everything is to either tax it, subsidise it or ban it. After decades of this paradigm there is a morass of complex subsidy and tax along with bizarre entitlements which (if Shamima Begum and the Grenfell fraudsters is anything to go by) has a perverse effect on social attitudes in the UK. Generally if we see a problem we attempt to spend our way out of it. We no longer do intelligent policy, not least since big handouts equals big headlines.

It has long perplexed me why we are forking our £24bn a year on housing benefit. I'm not sure why I'm paying council tax on what I earn to pay £700pcm for someone else's home when it goes directly to a private landlord. Housing benefit sets the floor price which is why landlords feel they can charge £550pcm for a one bedroom flat. This we could easily deflate but we don't. Instead it keeps pace with inflation and then we wonder why we are running out of money for public services and swelling the ranks of economically excluded citizens.

Brexit is a problem we are going to have to think our way out of and the beautiful thing about it is it deprives government of its one and only tool. Money. Frankly I couldn't care less about the UK's standing in GDP rankings when so much of that relates to the City of London and never goes anywhere near ordinary people. We can be a poorer country and live better than we presently do.

As it happens I'm not at all sure that being a wealthy country is doing us any good. We have one of the worst teenage literacy rates in the OECD which again is another symptom of our big spend mentality. Since the 90's we have "invested" in schools, where most secondary schools now have modernised facilities and decent enough IT, but British education for all the cash we've firehosed at it is not getting results. It's not about cuts either. Mud huts in Ghana can churn out doctors for the NHS, so why can't a Bradford comprehensive? We can't keep on with the NHS in this way either. We need a wholly new approach.

For as long as we have the Hondas and the Nissans as part of our house of cards ponzi economy, we can just about hold the country together, but only until our social timebomb hits in which case those jobs will be the reserve of the well to do and just a job becomes a symbol of class and status. Since it's all going to explode anyway, I don't see that a controlled demolition is such a bad thing. Brexit might well be fixing the roof while the sun is shining - in ways our politicians never would.

One way or another, making our towns hopelessly reliant on disloyal, crooked, tax-dodging, subsidy sucking multinationals was not a good idea. Locking our economy into the EU political structure was an equally stupid idea. Undoing that is going to cost us considerably. Since we're evidently going for a hard Brexit, it looks like it's going to hurt more than it ever needed to. But being that we are the first in the West to be addressing these issues at a time when the whole world is in flux, I'm quite pleased that we're getting a head start - and if we get political renewal into the bargain then it's still worth it.

The remainers are ultimately the head-in-sand conceited ones. They will no doubt make the most of all the bad news and turn it to their political advantage, but none of them have any solutions to the deep set economic and social decay and certainly no answers outside of the command and control spending paradigm. If what they propose worked then there's a good chance we wouldn't even have voted for Brexit. Everything they propose we are doing already.

All of our metrics show that the UK model of welfare is totally unsustainable and in a globalised economy other countries are more than happy to take business off us and highly mobile corporates don't feel they owe us anything. Our establishment, though, resides in a non-interconnected world where economic policy can be imposed unilaterally without regard to the global context, where increasing tax on upwardly mobile corporates and high earners inevitably leads to increased revenues without risk of relocation, where the City's hegemony is inevitable and can be squeezed for new revenues as though other nations are incapable of competing for business.

If Britain is to compete (or even survive) we need to lose our legacy sense of collective entitlement. As Brexiters keep pointing out, the rest of the world is catching up to the west. India and China both have aggressive trade policies, increasingly cutting the USA and the EU out of the loop. Trade conditionality and western finger-wagging is increasingly unwelcome. Though Tory exceptionalism and superiority is taking centre stage in the UK, globally, the EU is perceived in much the same way. More to the point, it's time we stopped propping up these flabby corporate monopolies.

Of course, all of this goes down like a lead balloon with left wing progressives. Like all stripes of the left, they are children who don't like to be told what they can't have. The endless wailing about Brexit is symptomatic of a political class who've had it all their own way for decades at the expense of everyone else. They most certainly do not want to be told that the free ride is over. Their lofty position of squandering other people's money to feather their own nests and bribe their own electoral cohort has served them well. They are struggling to come to terms with the idea that the jig is up. But the show is coming to an end whether they like it or not. Tell the fat lady... she's on in five!

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