EVERYBODY knows that financial services have been the hardest hit sector during the recession, right? Wrong. Manufacturing has been by far a greater drag on UK plc than services, including finance; factories have suffered more than offices, including trading floors. Virtually all our beliefs about the slump turn out, on closer scrutiny, to be incorrect.
The stats are tragic. Manufacturing output peaked in February 2008; since then, production in our factories is down an astonishing 14.3 per cent, despite the collapse in sterling. The last time the UK produced so little was in 1992, just after we were kicked out of the European Exchange Rate Mechanism, an event which was meant to kick-start a renaissance in UK manufacturing. Yet the meagre growth of the past 18 years has been totally wiped out. In fact, current output levels are exactly what they were back in 1973 (they subsequently fell back, taking 15 years to return to that level again in 1988). Bottom line: over the past 37 years, the UK has failed to sustainably grow its output of manufactured goods. Some of the lost ground of the past 18 months will be recovered, of course, but globalisation, poor education and skills and high costs (including tax and red tape) guarantee a bleak outlook. By contrast, business services and finance have slumped only 6.2 per cent and are back to 2006 levels. The sector (which includes law, consulting and so on) remains up by 81.7 per cent since 1995, when the figures start. Manufacturing’s sharp collapse over the past two years was partly caused by a crash in word trade and a crunch in trade credit, both now reversed. But ultimately, the lesson is clear: we need a sensible, reformed City to return to growth. Like it or not, business and financial services are what we do best.
WELFARE STATE NEEDS GOLDMAN
Goldman Sachs is the bank everybody loves to hate. It is undoubtedly an arrogant beast – but I’m afraid that this is no good reason to want to chase it away from London, which is what many of its growing army of enemies would like to see. Given the parlous state of our public finances, the stark truth is that we need more firms like Goldman in London, not fewer. Please hear me out.
Goldman will contribute around £2bn in tax to the Treasury in 2009 in corporation tax, national insurance and pay-as-you earn income tax – and that is before the special 50 per cent bonus tax on banker bonuses above £25,000. Quite a lot more will have been paid by its 5,500 staff in stamp duty and value added tax. Many others are indirectly employed by the firm – lawyers, IT workers, support staff, retailers and so on. Unlike the likes of RBS, the firm didn’t take a penny in handouts from the British government.
Many of those who hate Goldman would also like to see public spending maintained or increased. But you can’t have it both ways: shutting down or chasing away our biggest taxpayers would be a recipe for financial suicide and make swingeing reductions in spending inevitable. In fact, given that our budget deficit is about £180bn, another 90 Goldmans would do the trick and balance our books without requiring any cuts. Joking aside, even those who hate and loathe everything about Goldman need to understand that London needs to attract big financial firms and encourage them to employ more people here – not drive them away to more welcoming shores.