Last week’s Autumn Statement confirmed that progress has been made towards our key economic goals. Despite conditions which have been more severe than anyone expected, we have brought the deficit down by a quarter from the disastrous level we inherited; over a million new jobs have been created by growing businesses; and we are currently on track to haul back the State’s share of the economy from the ruinous 47.7 per cent of national income it reached under Labour to 39.5 per cent within 5 years.
It is headline figures like these – the high-level analysis of the whole economy –that have predominated in the commentary on last week. Yet an overlooked – but very important –section of the Autumn Statement looks beneath those headlines, and it reveals an economy much of which is more resilient than many think.
If you look at the British economy in terms of the industrial sectors that comprise it, it is apparent that two – financial services and North Sea oil and gas – have had a particularly torrid time. The financial sector has contracted by 12½ per cent in real terms since the economy’s pre-crisis peak, while the North Sea oil and gas industry has shrunk by a brutal 38½ per cent. Both of these sectors are crucial to Britain’s future prosperity and in forthcoming Letters I will say something about how we can help revive them.
But if you strip out these two sectors from the economic data, then the standard perspective changes somewhat. The UK economy, when these two sectors are excluded, has grown by over 4½ per cent in real terms since the beginning of 2010. Not spectacular, not by any means full pelt, but nevertheless real growth averaging about 2 per cent a year.
The source of this growth is broadly spread: manufacturing, for example, has expanded by 4½ per cent since the beginning of 2010, and non-financial business services have grown by 11½ per cent.
Furthermore, finance and energy aside, the growth of the UK economy from 2010 has been consistently ahead of Europe.
The international environment in which we operate is very uncertain and we can’t determine the future from the past. But two truths are revealed by this analysis.
The first is that, for all the headline numbers about the low average growth rate, in practice, no-one ever experiences the average. A few parts of the economy have undergone a major reverse, but much of the economy has been quietly growing. Very many real businesses have been expanding their production, taking on workers and selling more goods and services. To do this needs investment. That’s why it was important to support that growth in the Autumn Statement by helping growing companies to fund their expansion. That is the reason for the tenfold increase in capital allowances, the cut in corporation tax and the £1½ billion of export finance. All of these measures release more cash to growing companies to fuel their progress.
The second is that, as well as pursuing the right macroeconomic policies, a focus on the average is not enough: the competitiveness of particular industries matters. Acting on Michael Heseltine’s recommendations in his recent report, which was endorsed by George Osborne in his Autumn Statement, we must ensure that there is the fullest possible understanding of the opportunities presented by individual industrial sectors, and a bespoke approach to seeing that the Government does everything in its power – regulatory, deregulatory, fiscal and promotional – to make the most of the contribution of each distinct industry.
The source of this growth is broadly spread: manufacturing, for example, has expanded by 4½ per cent since the beginning of 2010, and non-financial business services have grown by 11½ per cent.
Furthermore, finance and energy aside, the growth of the UK economy from 2010 has been consistently ahead of Europe.
The international environment in which we operate is very uncertain and we can’t determine the future from the past. But two truths are revealed by this analysis.
The first is that, for all the headline numbers about the low average growth rate, in practice, no-one ever experiences the average. A few parts of the economy have undergone a major reverse, but much of the economy has been quietly growing. Very many real businesses have been expanding their production, taking on workers and selling more goods and services. To do this needs investment. That’s why it was important to support that growth in the Autumn Statement by helping growing companies to fund their expansion. That is the reason for the tenfold increase in capital allowances, the cut in corporation tax and the £1½ billion of export finance. All of these measures release more cash to growing companies to fuel their progress.
The second is that, as well as pursuing the right macroeconomic policies, a focus on the average is not enough: the competitiveness of particular industries matters. Acting on Michael Heseltine’s recommendations in his recent report, which was endorsed by George Osborne in his Autumn Statement, we must ensure that there is the fullest possible understanding of the opportunities presented by individual industrial sectors, and a bespoke approach to seeing that the Government does everything in its power – regulatory, deregulatory, fiscal and promotional – to make the most of the contribution of each distinct industry.
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