David Cameron's onshoring dream is unlikely to become a reality says top economist

 
Guy Bentley
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A recent report by PwC predicted that as many as 200,000 new roles could be created over the next decade, thanks to companies that had relocated their operations outside of the UK returning, a process commonly known as onshoring.

The trend of companies bringing jobs back to the UK could boost the nation's wealth by between 0.4 per cent and 0.8 per cent – roughly £6bn to £12bn over the next 10 years in today’s values, according to the report.

PwC chief economist John Hawksworth said:

This trend to reshore is still at a very early stage, but our analysis suggests that the impact on jobs and output could build up gradually to material levels over the next decade or so.

At this years's Davos meeting, David Cameron announced he wanted to make Britain the "reshore nation."

While the PwC report will certainly be welcomed by the government and those stand to gain directly from onshoring, the benefits of this process may have been overstated

Roger Bootle of Capital Economics is sceptical that Britain will enjoy great gains from onshoring. He warns that that there are signs onshoring is in fact diminishing rather than increasing, going so far as to say that a "reverse process of onshoring could already be in train."

Onshoring is not, in Bootle's view, likely to extend much beyond the manufacturing sector and will be unable to provide the boost to the economy that its advocates hope for.

Labour costs in emerging economies remain significantly lower than the UK, giving labour intensive firms particularly in the service sector strong incentives to move offshore.

However, Bootle recognises that there are a number of non-labour related costs drawing some companies back to the UK. The first being that the quality of goods that can be produced in the UK is often higher than what can be produced overseas. This is also likely to remain the case for sometime, according to the London-based consultancy.

Onshoring would also mean reduced transport costs, which come from relocating the supply chain back to the UK .

There may be cost savings over the long term as the long-term, as emerging economies' exchange rates appreciate, increasing the sterling cost of production. If the UK exploits shale gas to a significant degree there is also scope for energy prices to fall.

However, even if all manufacturing had been offshored since 2001 returned to the UK by the end of the decade, the boost to GDP growth would be a meagre 0.2 percentage points per year, with only a small impact on employment.

Bootle concludes:

So onshoring is unlikely to be a panacea for the recovery. Nevertheless, alongside other factors, it might suggest the decline of UK manufacturing is coming to an end