James Cooper is the former Chief Executive of Associated British Ports.
For too long, the UK’s trade deficit has failed to attract the attention of UK policymakers. Yet the deficit clips our economic growth, reduces our pay cheques, and requisitions our savings.
So the Government’s announcement of its intention to create up to ten freeports around the UK is to be warmly welcomed.
Whilst I was at Associated British Ports (ABP), we were keen advocates of a “trade first” policy and firmly backed the idea of freeports. ABP wanted to bring “port-centric”, export-led manufacturing back to our deep sea ports. Blessed with great infrastructure and significant underutilised land banks in often deprived regions, they offer ideal locations to help redress three significant imbalances – imports vs exports; the north vs the south; and manufacturing vs services.
And while you might expect ABP to support measures that would encourage the growth of trade in physical goods, my personal position has always been that I don’t really care whether it is exporting an episode of Doctor Who, a bottle of whisky, an Aston Martin, or a degree from Imperial College – as a nation we need to pay our way in the world and we can do that by designing, making, and selling high quality products.
But our trade deficit, especially with the EU, tells its own story – while we excel in certain areas, sadly, we don’t excel in enough areas at scale. The Bank of England, Treasury, and a whole range of economic experts point to a shortfall in productivity as the British malaise. But I am not sure that they are aiming at the right target.
The real issue for the UK is not productivity but product. It’s not that we don’t know how to use Google efficiently, the problem is that we didn’t invent, finance, and sell Google. We need to move away from the focus on productivity, a focus which comes across as simply telling our workforce that they either have to work harder or work for less pay or a combination of both. These are the economics of a ‘tee-shirt economy’, and is that what we really want?
Instead we should be encouraging business to develop high-value, high-quality products that the world wants to buy. Every part of Government should be turning its hand to this endeavour. Yet the Government’s website for those wishing to file a patent advises in no uncertain terms that the process is “complicated”, “expensive” and “long”. We need to address that, to make a necessarily robust process simple, affordable, and swift.
And for those that battle their way through the process to create a commercially successful product, how do we facilitate their research of the overseas markets we need them to succeed in? We know that SMEs in particular see accessing overseas markets as expensive and risky. Government could do more to provide high quality advice to prospective exporters, and should consider subsidising international travel costs for SMEs. And what about reducing the rate of corporation tax on the export earnings of SMEs?
Those who build and maintain our infrastructure have a key role to play. Highways England and Network Rail should be specifically required to address the needs of trade (not just freight) in their planning. The Department for Transport should hold these state bodies to account for their role in supporting our exporters. New infrastructure – both physical and digital – that links British exporters to global markets needs to be built. As an island nation, our competitiveness and our ability to trade depends on connectivity.
Our educators need to focus on delivering a workforce capable of designing and making the quality products the world wants to buy. We should incentivise the development of creative, technical, language, and financial skills to the highest level, and the Apprenticeship Levy needs to be withdrawn and instead replaced with an incentive for business to deliver high-quality in work training.
The Treasury needs to embrace more policies that encourage our entrepreneurs and the UK’s world leading capital markets to build global giants at home, in the UK. We are too willing to sell our most successful young companies just at the moment they are poised for take-off, leaving the rewards of our creativity for others to reap. It’s a familiar point, so let’s get on with reforms that finally enable us to address the problem.
The UK’s trade deficit is currently £46bn per annum, a surplus in services partially masking a £150bn deficit in goods. This represents real cash flowing out of the UK, cash that is financed either by borrowing or by selling assets. It is one of the reasons we end up selling “crown jewels” to overseas buyers.
Just imagine if that flow was the other way, finding its way into people’s pay and pension funds and, yes, ultimately into the Government coffers that finance hospitals, schools, our police and military.
Our vision has to be creating a much more powerful British economy that sells high-quality, high-value goods made by a well-paid and highly skilled workforce. Every part of government, industry, education, finance, and society as a whole must share that vision and be willing to strain every sinew to achieve it.
This may be challenging but ultimately the lesson for the British economy is painfully simple; to improvise on James Carville’s refrain, “it’s the products, stupid”.