PM’s trade targets missing the point

 
Allister Heath
TRADE missions look good on TV but in reality are little more than an expensive distraction. They allow politicians, including David Cameron, to travel to China, a bevy of CEOs in tow, and to take the credit for contracts and deals. Nearly all of these would have happened without the PM’s help; unfortunately, he appears to believe otherwise, going as far as to imply that trade is somehow being driven by centrally imposed “targets”.

Don’t believe me? Then take a look at his comments yesterday, where he claimed that “we are working to agree a new target to double the value of our bilateral trade with China by 2015 to more than $100bn a year…we intend to raise UK exports to China to $30bn…”. I’m sorry, Prime Minister, but that’s not how it works. That is the kind of error Gordon Brown might have made, or a Marxist technocrat schooled in 1960s-style development pseudo-economics, not something one would expect of a Tory PM.

Of course, it is vital that the British government helps to eliminate trade barriers and puts pressure on the Chinese to allow its currency to appreciate – but that’s all it can achieve. It cannot set meaningful “targets”, merely come up with forecasts of what might happen. And who is the “we” who are working on the centrally-planned doubling in commerce? Trade is not something that happens between governments and bureaucrats locked in smoke-filled rooms, it is something that emerges spontaneously from the interaction of private individuals and firms, as well as a myriad of other variables.

These sorts of trade missions are merely a way of distracting attention from the real problem, which is Britain’s declining competitiveness. While the coalition understands that the UK’s education system and labour force need radical reform, and is doing something about it, it is continuing to allow London’s attractiveness to be eroded. The only good news is that corporation tax will gradually drop to 24 per cent; on everything else, for all the rhetoric about reducing red tape, removing restrictions or ensuring that the UK is now open to business, the situation for firms small and large is deteriorating.

The real story is the relentless rise of Asia as a financial centre, how UK-based banks are reallocating their resources to the region and how thousands of jobs that could have been created in the UK are now being created instead in places such as Singapore, where income tax is a tiny fraction of what it is here. I know this first hand: two friends of mine are shortly relocating to Singapore, which is fast positioning itself as a new centre for wealth management, an Asian Switzerland even. Another is moving to Hong Kong. All three will be working in financial institutions. On Friday, HSBC became the latest giant firm to warn of London’s declining attractiveness; today, we report that Standard Chartered is recruiting an extra 4,000 people in Asia.

The City will remain a very large employer. But we in Britain are missing a huge opportunity to properly leverage centuries of expertise in finance, investment and professional services to cash in on Asia’s growth. Much of the action could be conducted from London; instead, it will take place in regional financial centres. The tragic truth is that Cameron’s trip to China won’t have made a blind bit of difference to London’s gradual emasculation in the global race for capital, jobs and prosperity. allister.heath@cityam.com