On Monday 18 May, we launched our first research report - Manufacturing a Recovery from Coronavirus - on the impact of Covid-19 on the UK economy and possible routes to recovery.
Recovering the economy from this virus won't be easy for any nation, but it will be much more difficult for the UK than anywhere else. The global impact of coronavirus, combined with the UK’s poor-performing, unbalanced economy, may result in lower living standards in 2030 than in 2019 - or even in 2007, before the financial crisis. This current crisis has exposed deep-seated imbalances in the UK economy, which left the country unable to manage the pandemic effectively.
These imbalances are largely down to the level to which we have deindustrialised over the last 30 years and more, and it's resulted in a decade of low growth and low real wage increases.
We are calling on the government to take measures now to rebalance and diversify the economy by investing in the UK’s depleted manufacturing base. British manufacturing currently makes up less than 10% of the UK economy, but the evidence shows that investing in manufacturing – particularly the medium- and low-tech form – will produce more return on investment in terms of growth and complement the country’s strong service sector.
The report calls for a 50% increase in manufacturing of GDP to take it up to 15% of the UK economy. An increase in manufacturing output will enable less well-off regions to sell more to the rest of the world, create more sustainable job opportunities and increase productivity.
The government must lead the way on this by creating a competitive environment that will encourage British manufacturers to increase investment in the UK, and a new competitive exchange rate policy to help UK manufacturers compete globally.
Key arguments in the report:
- Unless the UK economy performs much better, living standards in the UK may be significantly lower in 2030 than in 2019 leaving today’s generations the worst off.
- The UK’s deeply unbalanced and fragile economy along with a decade of low growth has meant the UK’s economic recovery from coronavirus will be more difficult than elsewhere.
- The decline of UK manufacturing to less than 10% of the economy has hindered the country’s ability to respond to the global pandemic.
- The outbreak of Covid-19 and the economic damage it’s caused has exposed fundamental flaws in the UK economy which include deindustrialisation and a generally uncompetitive manufacturing base.
- The UK government must get the economy to perform better and increase the underlying growth rate to 3.5% per year once the virus has been defeated.
- The Government must rebalance the economy by investing in the manufacturing sector and bring it up to 15% of GDP – around a 50% increase.
- We must increase investment in the most productive categories in generating growth – mechanisation, technology and power – back to the world average.
- The Government must create a more competitive environment for UK manufacturing companies – particularly medium- and low-tech manufacturing – to compete globally including a new currency rate policy that brings down the exchange rate.
- Reindustrialisation will increase productivity and contribute more to the growth rate. It will also rebalance the economy between its regions.
Our founder and Chairman, John Mills, said: “Never before have we faced an economic challenge of this magnitude, but our prospects for recovery have been made more bleak by a decade of low growth and a deeply unbalanced economy.
“We face a very stark reality; a sharp fall in living standards for a decade and increased pressure on the public purse. The simple fact is unless we get our economy growing again, living standards may be worse in 2030 than they are right now.
“When we have defeated this virus, the UK government must begin to create a more competitive and favourable environment for British manufacturers. Increased private sector investment in mechanisation, technology and power will produce a larger return of GDP growth than other sectors. Our manufacturing industry has been depleted and left unable to compete globally, but with a 50% growth in this sector, our economy can begin to grow much faster than we have seen in recent times.
“Decades of deindustrialisation have not only compounded our international competitiveness and growth prospects, it left us vulnerable in our management of this current crisis as we had to rely on importing test kits and PPE from abroad.
“We need a new, bold economic vision which diversifies and rebalances our economy by investing in our manufacturing base. Going back to the norm of around 1% growth per year will not be sufficient to counter the impact this virus has had on people’s livelihoods and leave millions worse off.”
We are proud to have the support of former Labour minister and MP Caroline Flint, who penned the report's foreword.
Caroline Flint, former Labour MP for Don Valley, said: “Facing the greatest period of uncertainty in our lifetime, in a Britain that doesn’t train enough, invest enough or make enough, there is no certainty of a fair or sure recovery. I do not envy any Prime Minister or Chancellor faced with demands for hundreds of billions in bailouts and investments.
"But the challenges of this enormity facing this Government – and any Government in a post-Covid-19 crisis – cannot ignore a profound choice. We either shape our future and remain a manufacturing nation, or we see even more of our industry go to the wall. This report offers an answer to the question of which way forward.”
