Bhattacharyya warns UK against catching a dose of ‘The British Disease’
MANUFACTURING advocate Lord Kumar Bhattacharyya, chairman of WMG, has warned that the UK could be on the cusp of another boom-bust era fuelled by escalating property process in London.
The professor, who described the situation as “The British Disease”, he was fearful the country could be at the start of a cycle where out of control London property prices forced both interest rates and the pound higher to the detriment of investment and exports.
Speaking in the House of Lords, he cautioned that Government plans to deliver growth over the long term could come into “conflict” with the need to restrain the capital’s booming housing market.
“With property prices up nearly 9% this year, we already hear calls for higher interest rates,” he said.
And, despite efforts to push British exports – the West Midlands is one of the region’s leading exporters, helped by the likes of Jaguar Land Rover – higher sterling made life much harder for businesses.
He said this sent a “chill through our manufacturing sector just as it finally begins to show signs of vigour”.
He said: “For a British manufacturer, exporting finished goods to fast growing markets, for every billion of export revenue, a 10% appreciation of the pound reduces income by a hundred million.
“That damages profitability and competitiveness in markets like China and the US, which have both seen sterling appreciate by over 12% this year.
“This reduces the amount that is available to be invested in the UK.”
He said while international businesses could mitigate this by sourcing supplies and materials overseas, this ran the risk of reducing investment in the UK.
“I have helped bring many industrial investors to Britain. I know how rising sterling makes the UK a less attractive place to invest, especially when coupled with a longstanding lack of skills. For smaller businesses too, higher rates and higher sterling limits the ability to invest in the future, leading to a worsening of the British disease, an economy with low business investment,” he said.
Ahead of potential rate rises, the Government, he urged, should press ahead with plans to support manufacturers and exporters by investing in developing skills; make progress on their ambitions for deregulation; and deliver on their promises for lending, through an expanded British Business Bank.
Lord Bhattacharyya said such a programme would not be partisan, or electorally divisive, but represented a common agenda for a long term economy.
“Surely, on this issue, we can all be in it together?” he added.
Making his maiden speech to the House of Lords was Lord Bamford, chairman of excavator manufacturer JCB.
He said while Britain was now a “freer, happier and more prosperous country” there had been changes that would “sadden and disturb any lifelong manufacturer”.
“In 1975, manufacturing represented over 27% of our GDP; today, it represents just 11%. In 1975, manufacturing employed over 7m people, more than 30% of the total workforce; today, it employs 2.5m, less than 8%. In 1975, manufacturing contributed to a healthy balance of payments; sadly, this has been in deficit since 1984,” he said.
“These are concerning numbers for those of us who want a strong, vibrant, stable and balanced economy. But I believe that there is much to celebrate about UK manufacturing. Britain has many world-class manufacturers, making innovative, high-quality and high value-added products. We have companies, in other words, that make products that the world wants to buy – small, specialist and world-class businesses, as well as much larger industry leaders, such as Rolls-Royce, GKN, BAE, Jaguar Land Rover and, yes, JCB, which exports 80% of its UK-manufactured products.
“So manufacturing still matters to the British economy. In fact, it matters a great deal.
“Financial services account for just 12% of UK exports; the figure for
manufacturing is 46%. So manufacturing is neither dead nor dying. On the
contrary, it is showing every sign of life, with clear potential in value-added
industries.”
