Brexit, Johnson, Merkel, Macron – and 30 days in the wilderness

“We were also over-reliant on Angela Merkel, even after she showed us that she wasn’t as dependable a supporter as we might have wished,” wrote Daniel Korski, in his account of how David Cameron lost the EU referendum.  “She certainly seemed to take much more of a back seat during the final, crucial weeks of negotiations, giving advice, offering support and laying out red lines, but not getting too involved.”

An entire library could be assembled of stories claiming that Merkel would, at one time or another, come to the aid of a British Government during its to-and-fros with the European Union.  The claim is that Germany – as another pro-free trade, pro-American, pro-market economy country – is a natural UK ally.  But when push comes to shove, Merkel has stuck with France and the EU Commission.

Korski reminds his readers that she deserted Cameron over the appointment of Jean-Claude Juncker as the Commission’s President, to which she was originally opposed.   As with Cameron, so with Theresa May: as recently as February, the German Chancellor called for “creative” thinking on…yes, the Northern Ireland backstop.  “We can still use the time to perhaps reach an agreement if everyone shows good will,” she said.

And as with May so, now, with Boris Johnson.  Once again, Merkel has said that there is time to agree a deal – 30 days, to be precise.  “The backstop has always been a fall-back option until this issue is solved,” she said on Wednesday, during a join press conference with the Prime Minister.  “It was said we will probably find a solution in two years. But we could also find one in the next 30 days, why not?”

Some have put that remark alongside Emmanuel Macron’s declaration that “the framework that has been negotiated by Michel Barnier that can be adapted,” and concluded that the EU is preparing to blink at the last moment, climb down on the backstop, and present Johnson with an amended Withdrawal Agreement – which will then at last pass through Parliament, thus bringing this chapter of the Brexit story to a close.

According to one version of events, the Prime Minister himself believes that such an outcome is still possible, while others in his top team don’t.  If so, the balance of the argument strongly suggests that they are right, for four main reasons.  First, the EU collectively takes its ideology seriously, and this demands sticking with the Withdrawal Agreement, or an agreement so like it as to make no difference.

Second, it must show Donald Trump, and the rest of the world, that if it takes a position on a major strategic issue, such as Brexit, it will hold to it.  Third, Germany and France must ultimately be sensitive to the concerns of smaller EU countries, of which one is in the Brexit front line: Ireland.  Fourth, they have reason to wait, along with the rest of the EU, to see if the Commons, when it returns in September, blocks Brexit yet again.

Finally, it is worth remembering that Merkel’s position is not as dominant as it was during the Cameron years; and even then, to quote Korski once again, she was prone to “not getting too involved”.  Seen in this light, Merkel and Macron’s words – which in any event must be considered in the context of everything else they said – look more like more gambits in a blame game than a genuine change of heart.

Johnson wants to signal that he’s up for a deal: that was the point of his visits before this weekend’s G7 summit in Biarritz.  Macron and Merkel do, too: hence their hints of flexibility.  But the sum of the evidence is that “nothing has changed”.  In any event, it is far from certain that even a revised Withdrawal Agreement would get through Parliament.  That would require a Bill, which would of course be amendable, and time is very short.

If the EU had prized mutual gain over protecting its project, it wouldn’t have insisted that the Withdrawal Agreement precede trade talks.  Perhaps there will be a last minute shift after all, if Johnson can demonstrate that Parliament cannot stop the No Deal Brexit that his Government is actively preparing for: the European Council will meet on October 17.  But it appears that all concerned are now bracing for No Deal.

Some in Number Ten are hopeful that, if it happens, the EU will go for mass mini-deals – and so oil the wheels of economic co-operation.  That would be a rational response to the threat of recession in Germany and elsewhere, and the hard border in Ireland that a No Deal Brexit would bring.  But the EU’s clinging to the backstop, despite its commitment to seek alternative arrangements by December next year, suggests that rationality is in short supply.

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Patrick Spencer: What the new Government should do to ensure migrants are better skilled – and supported

Patrick Spencer is Head of Work and Welfare at the Centre for Social Justice.

The debate around immigration has become fraught to the point of complete intransigence in recent years. Events as close to home as the Grenfell Tower tragedy and as far afield as the Syrian civil war have brought the subject to the fore again. Inflammatory rhetoric here as well as in other countries hasn’t helped. As we leave the European Union, cooler heads must prevail.

The Centre for Social Justice (CSJ) is today releasing a report that brings a level-headedness to the debate that is sorely needed. Importantly, it places the interests of immigrants squarely at the centre of its proposals. Immigration policy should not just be about who is allowed to come and work in Britain, but also how we support those people who do, so that they can avoid the trappings of low pay, unsafe working conditions, crime, social marginalisation and poverty.

The reality is that uncontrolled immigration growth over the last 15 to 20 years has worked – to a point. Our services, manufacturing and agricultural industries have benefited from skilled and inexpensive labour from EU new member States.

However, the economic costs of low-skilled immigration have been both wage stagnation at the bottom end of the income spectrum – analysis at the Centre for Research and Analysis of Migration found that “an inflow of immigrants of the size of 1 per cent of the native population would lead to a 0∙6 per cent decrease at the 5th wage percentile and a 0∙5 per cent decrease at the 10th wage percentile” – and low levels of productivity boosting capital investment. High-skilled immigration has had the opposite effect though, increasing wages, productivity, innovation and capital investment.

In the long term, it is also likely that the British economy will demand less low-skilled labour. Automation, technology and changing firm dynamics are likely to mean a greater focus on hiring higher-skilled workers, and more fluid jobs in which individuals are expected to take on multiple roles and work across multiple teams. The CSJ argues therefore that is irresponsible to continue to operate an immigration system that is deaf to the demands of our changing economy, and risks leaving migrant labourers unemployed and at risk of falling in to poverty.

It is for this reason that the CSJ’s first policy recommendation for this Conservative Government post-Brexit is folding all EU immigration in to the existing Tier 2 skilled immigration system, and tightening up the eligibility for Tier 2 applicants so that they are genuinely skilled and can command a wage well above the UK median. Key to this recommendation is carving out occupations that are deemed of strategic interest to the UK economy, for instance nurses and doctors who come to work in our NHS, but do not earn above average salaries.

The Government’s responsibility to immigrants should not stop there. For those that do come to Britain legally, whether under refugee status or another route, we must make sure support is there to reduce the risk that they and their children become socially marginalised, end up in low-paid work or unemployed, and get stuck in the criminal justice system. It is naïve to think the immigration policy debate ends on day two.

In that vein, the CSJ also recommend more integrated support for refugees when they come to Britain, including better financial support, longer term housing options and help with English speaking skills. The report also calls for a beefing up of the Director of Labour Market Enforcement financial powers and reach. There are potentially thousands of foreign individuals kept in forced servitude in Britain today, and many more working in unsafe conditions for illegally low pay.

Finally, it is high time the Government addresses the huge disparities in economic outcomes among minority and indigenous ethnic groups. Generations of immigrants from some groups still perform poorly in the education system, labour market and criminal justice system.  The Joseph Rowntree Foundation found that poverty rates among Black and Minority Ethnic (BME) Groups are twice as high as for White British groups. Dame Louise Casey discovered that individuals of South East Asian and Caribbean descent were three times and twice as likely to live in deprived parts of the UK, when compared to White British groups. Just one third of Bangladeshi women living in Britain are in employment compared to three quarters of White British women. One in five Black African and Black Caribbean men and almost one in four Mixed Race men are economically inactive. Unless the Government addresses the problem with real gusto, it will persist.

This report calls for calmer and more long-term thinking on immigration policy that prioritises high-skilled immigration and increases support for parts of the country that have struggled due to uncontrolled low-skilled immigration. Public opinion reflects this – polling by Hanbury Strategy earlier this year found that 51 per cent of the UK public recognise that not all parts of the UK have benefited from immigration, while YouGov polling in 2018 found that ‘treating EU citizens who want to come and live in the UK the same as people from elsewhere in the world’ was supported by 65 per cent of respondents and scrapping the limit of high skilled immigrants was supported by 46 per cent of respondents.

This is a great opportunity for the new Government to fix this long-standing issue of contention in British politics for the long term.

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UK faces pressure over Brexit stance as economy dips

LONDON — The British government faces fresh pressure to contain the economic fallout of a possible no-deal Brexit after statistics Friday showed the country on the edge of a recession.

The U.K. economy contracted by 0.2 percent from April through June, its first quarterly decline since 2012, the Office for National Statistics said. Economists typically define a recession as two contractions in a row.

Chancellor of the Exchequer Sajid Javid played down the figures in a statement, pointing to “growth slowing in many countries.” He restated government policy that the UK would leave the EU at the end of October with an agreement or not.

But analysts said not all of the trend was down to trade tensions and more general weakness across the region.

“Today’s negative growth figures reflect a combination of Brexit uncertainty and global economic slowdown, with both challenges set to persist over the near term,” said Matthew Whittaker, deputy chief executive at the Resolution Foundation, a think tank. “That doesn’t mean we’re necessarily heading for recession, but the risk is certainly heightened right now.”

Capital Economics said in a note, “The U.K. should avoid a recession … unless there’s a no deal Brexit.”

The statistics point to weak manufacturing coupled with an end to Brexit-related stockpiling, which outweighed otherwise strong consumer demand. The services sub-sector was the sole growth area, gaining 0.1 percent.

Elizabeth Martins, HSBC economist, said that “the global story thus far has largely affected the manufacturing sector, not the service sector. So, for the latter to be looking so weak in the U.K. is worrying.”

“Whatever happens on October 31, the government needs to give business leaders a significant shot in the arm to return investment and productivity growth to the country after a prolonged period of uncertainty,” said Tej Parikh, chief economist at the Institute of Directors.

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Daniel Rossall-Valentine: Tech now underpins prosperity in every sector – so to thrive, we need more engineers

Daniel Rossall-Valentine is Head of Campaign for This is Engineering at the Royal Academy of Engineering, and Deputy Chairman of Sevenoaks Conservative Association. He writes in a personal capacity.

“It’s the same formula: it is education, infrastructure and technology —those three things”, so said Boris Johnson in June when interviewed by the Evening Standard about his agenda for government. According to Boris, those are the three principles which informed his time as Mayor of London and will be his priorities as Prime Minister.

These priorities are very welcome because they recognise the essential connections between three vital elements of wealth generation, and represent a more sophisticated view of economic growth than the one-dimensional and idealistic catchphrase of “education, education, education” which prevailed under a previous government.

The UK is involved in a long running battle to raise its productivity. We have long needed a better vision of what we need to do to boost productivity and I believe that this vision is now being developed.

Engineers and technicians must be at the heart of this new vision. Engineers are essential for innovation, they design, build and improve technology and have become central to national productivity, economic growth and living standards. Engineers are the people who turn scientific principles into practical application, social benefit and economic value. Our world is being unified in a new way; by a series of threats that know no borders. We face big challenges, including overpopulation, environmental degradation, malnutrition, biodiversity loss, cyber-terrorism and global warming, and technology is central to building solutions for each of these and making our world work better for everyone.

In truth, technology is not a sector anymore; it is now the driver of productivity and economic success (and indeed survival) for organisations in every sector. The analytical and design skills of engineers have become more and more valuable as the rate of technological change accelerates. No sector of the economy is now protected from the forces of technological change; healthcare, agriculture, retail, and education are just four examples of sectors which are currently experiencing rapid technological change; change that offers significant improvements in productivity and benefits for users.

Growing our domestic tech capacity offers great benefits to the UK. Tech firms have shown that they can scale very rapidly. The rise of “tech unicorns” (recent startups valued at over $1 billion) demonstrates the economic and social potential offered by tech. Engineering has been proven to be a very effective multiplier of economic growth. The UK should not be modest about its future in tech because we have significant advantages, including a trusted legal regime, access to capital and credit, access to support services, unparalleled access to tech customers, an educated workforce, world class universities, stable taxation and intelligent regulation.

However, the UK has one great and persisting tech weakness which threatens to impede our growth, and that is an inadequate number of engineers and technicians. The UK needs to grow its pool of engineering talent, to ensure that UK-based tech companies can remain in the UK as they scale rapidly, and to enable engineering companies to win big projects. If the UK doesn’t expand its pool of engineering talent we risk losing tech firms, tech projects and tech investment and the huge economic and social value that they bring. The proportion of jobs that require technical skill is growing and Britain should aspire to a growing share of this growing pie.

Young people are avid consumers of technology, but we need more of them to aspire to mastering the engineering that underpins the technology so that they can become developers, makers and creators of technology, rather than mere users. We also need more young people who combine engineering skills with the entrepreneurial and managerial skills that will enable them to form and scale business enterprises; so that the UK can capture an increasing share of lucrative engineering value-chains; and provide the GDP and employment that flow from end-to-end technology development. Increasingly people who are not tech-savvy are at risk of being automated out of a job, so the need for upskilling the UK in technical skills is pressing.

This technical skills shortage has long been recognised and a multitude of projects have been started to encourage young people to consider engineering. And yet despite the number of initiatives, the shortfall of talent has not only persisted but seems to have grown larger over the last decade. We also need to diversify our talent pool and ensure we are attracting young people from all backgrounds; because only a diverse profession guarantees the diversity of ideas that technical fields rely on.

The UK has made good progress in raising the profile of engineering in the last few years. The Industrial Strategy and Grand Challenges of 2017 were very welcome developments at putting technology centre-stage. The Year Of Engineering 2018 led to a very significant change in the perception of engineering amongst school pupils. This year-long Government campaign also encouraged greater collaboration between the many professional engineering institutions that make up the UK’s complex engineering landscape. We can be optimistic that the UK has got into the good habit of paying far more recognition to the engineers and entrepreneurs who enable, create and democratise the technology which improves lives, saves time and generates wealth.

Too often we allow our natural British reserve about talking about wealth to prevent us talking about wealth creation. Social benefit and commercial success are too often portrayed as trade-offs, when they are mutually reinforcing; the best technology delivers for investors as well as society-at-large. Technological success is a stool with three legs; technical progress, commercial success and social benefit. Technology is more than technology: technology is inherently social, and inherently financial, and we need more technologists who look at the full picture rather than the purely technical aspects of technology. Without profit, technology is the greatest creator of loss and debt known to mankind, and without social benefit technology can be a force of social division, rather than a democratising force.

To maximise the benefits of technology we need to close the technology skills gap, and this requires action by many players. We cannot rely on Government alone to solve this persistent problem. We know that too few young people are studying engineering related degrees and apprenticeships. One major factor is the image of engineering. Unfortunately, a number of unappealing stereotypes have become attached to the profession of engineering. Many young people assume that engineering involves hard, manual work, and male-dominated workplaces. Too many young people also believe that engineering is a narrow specialism that offers only a limited range of job opportunities. The problem is particularly acute with female students. Inspiring more girls to pursue STEM subjects and careers will not only help us to address the skills gap in science and technology, but it will also help us to create a more diverse workforce that truly represents the world we live in.

The UK has a great tradition of innovation and enterprise but only by unlocking the interest of our young people by presenting a positive vision of business enterprise and technology can we continue to succeed in this increasingly competitive field. One recent example of success is the This is Engineering campaign which was developed by a number of the UK’s leading technology companies and launched in January 2018. The campaign presents young people with positive, modern, authentic images of careers in technology and engineering, through the medium of short films which are available on many social media platforms. The films also highlight the societal benefits that new technology delivers, the team-work that technology and engineering projects rely on, and the creativity that is required at every stage in the design and build process.

By helping to promote careers in technology and engineering we can ensure that more and more young people see technology not just as a range of products to be consumed but also as a range of careers to be considered.

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Bank of England holds rates as no-deal pressure grows

The Bank of England maintained its interest rate at 0.75 percent and stood by its assumption of a “smooth” Brexit, despite growing pressure from market participants factoring in a high probability of no deal.

While continuing to say it expects a Brexit deal — in line with government policy — the Bank of England acknowledged the differing view of investors, as implied by falling asset prices, such as the value of sterling against other currencies. Market movements are an important part of the bank’s economic projections.

The British economy is growing slower than expected, the bank said, with an expectation that output was zero in the second quarter, compared with previous projections of a 0.2 percent expansion. Brexit uncertainty in business coupled with global trade tensions are to blame, the institution said.

Surveys carried out by the central bank show businesses expect Brexit uncertainty to persist until 2021 — longer than shown in its May report.

At the same time, a majority of the 240,000 U.K. businesses that trade exclusively with EU clients are unprepared for border checks that would ensue in a no-deal Brexit, the bank found. They have not yet obtained the necessary registration number or taken other steps required to continue exporting, the BoE said.

The odds of a recession in the medium term have increased to one in three, from one in four in May, according to the monetary policy report.

A Brexit deal would propel the economy into “robust” growth, the BoE said, and also drive up the value of sterling, which fell to multiyear lows in recent days due to no-deal fears.

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From ‘Blade Runner’ to Brexit in England’s industrial north

MIDDLESBROUGH, England — Boris Johnson has a plan to turn the U.K.’s old industrial port towns into freewheeling outposts of “global Britain.”

The plan means setting up so-called free economic zones offering lower import taxes and looser regulation to lure investment in up to 10 ports. It chimes with the swashbuckling Brexiteer vision of an outward-facing British economy restored to its glory days, and also spins a positive view of the country’s future outside the EU.

“Let us begin work now to create free ports that will drive growth and thousands of high-skilled jobs in left-behind areas,” Johnson pledged outside 10 Downing Street after becoming prime minister. In one of the candidate areas, Teesside, on Friday, International Trade Secretary Liz Truss will announce the appointment of a panel of ministers and experts to figure out the “world’s most advanced free port model” that will generate “thousands of jobs.”

But will it work?

Ben Houchen, the 32-year-old Conservative mayor of Tees Valley, a cluster of deprived cities in the northeast of England, wants to get the green light to start a pilot project around the mouth of the River Tees. He reckons free ports offer a “physical representation” of how Brexit can “deliver more control and say over international trade policy.”

The 20-minute train ride from Thornaby to cheery seaside town Redcar trundles past the skeletons of shuttered factories and steel plants.

“I get extremely frustrated as people talk about this very dismissively,” Houchen said in his office overlooking the river just days before Truss’ visit. “One of the reasons we came up with the concept 18 months ago is that there was such a negativity about Brexit.”

He’s pushing to make a free economic zone out of a 4,500-acre site around a shuttered steel works, six times the size of London’s City banking district. The goal is to transform the region by attracting new clean energy companies and manufacturing at the deepest port complex on England’s east coast, he said.

The plan may be novel for the Tees, but it isn’t new. A U.S. Congress report estimated there were more than 3,000 free economic zones worldwide in 2013. Britain closed its last free port in 2012, although there’s one on the Isle of Man, a U.K. crown dependency outside the EU. There are more than 80 across the EU offering various kinds of relief from taxes and tariffs to spur growth.

The top of Eston Nab in North Yorkshire, which looks down at the view over the industrial area of Teesside and Middlesbrough | Dan Kitwood/Getty Images

But the U.K. is dreaming bigger.

“What I’m talking about is not comparable to those in the EU,” said Houchen. “What they consider a free zone is basically a large warehouse.” Instead, outside the single market, customs union and the EU’s state aid restrictions, he’s aiming for zones similar to those that have helped supercharge growth in the United Arab Emirates and the United States.

The plan

Whatever Brexit brings, the Tees Valley, which in 2016 voted heavily in favor of the U.K. exiting the EU, will feel the impact. Once a heavy industry jewel in the British economy, its horizon of furnaces, chemical works and docks inspired the opening cityscape scene in the 1980s dystopian thriller “Blade Runner.”

But its days of industrial glory are long gone. The 20-minute train ride from Houchen’s office in a newbuild complex at Thornaby, through Middlesbrough’s dilapidated central station, to cheery seaside town Redcar trundles past the skeletons of shuttered factories and steel plants.

In 2015, a steelworks overlooking the beach was closed at Redcar, costing 3,000 jobs. That delivered a body blow to the local economy, although chemicals processing and oil rig-scrappage plants still dot the landscape.

If Johnson’s team gives the go-ahead for the free port project, Houchen thinks 37,000 jobs can be generated within 20 years and around £2 billion added to the local economy. He argues that at least half of that will come along anyway owing to a shift to wind energy and hydrogen production in the region, but will be “turbocharged” by a free port zone bringing new manufacturing to the area.

The tanker Louise Knutsen is moored alongside an oil facility on the banks of the River Tees | Ian Forsyth/Getty Images

“This site is chemicals, processing, clean energy and energy production, it’s manufacturing and it’s heavy industry,” said Houchen. “We’re not trying to store goods in the zone [but] the reintroduction of the kind of jobs we haven’t seen in this area for decades.”

To do that Houchen talks of abolishing corporation tax, employee national insurance contributions and business tax rates for companies moving in, in addition to offering direct subsidies for research projects that will help foster innovation. The Department for International Trade said in a statement that the zones can relieve businesses of “unnecessary checks and paperwork, and include customs and tax benefits” while noting that some of the most successful areas mandate “liberalized planning laws.”

Around the Tees, it’s all about investing in industries that fit the region, he said, rather than trying to attract tech firms.

“We know we’re not going to become the next Silicon Valley,” said Houchen. “So we’re quite happy to exclude consumer tech; the Amazons and the Googles of this world. Stop them relocating to this area just to get tax breaks.”

The catch

But not everyone is as starry-eyed about the prospects for a free zone on the Tees.

“I think there are so many flaws in it that it’s unlikely to get a lot of traction,” said Peter Holmes, an expert on trade at the University of Sussex. “None of this is going to develop high-skilled jobs. They would be jobs in warehouses and assembly plants. These are not the kind of things that transform a region.”

Despite recent improvements, unemployment sits at just over 6 percent across the region — 2 percentage points higher than the national average. In Hartlepool, the furthest north of the conurbations covered by the Tees Authority, it’s close to 10 percent. Locals complain that while the number of jobs may be up, they aren’t the high-paying ones lost in the steel plants.

Slashing environmental and labor rules offers one option, but that’s something the Tees authorities insist they won’t do.

Comparisons to U.S. special economic zones aren’t entirely valid either, as companies there take advantage of higher tax on components than on finished goods. For example, car assembly plants benefit from importing parts to a customs-free zone and only pay taxes on the finished vehicle, which is taxed at a lower rate than the individual parts.

“This has absolutely no relevance with the EU tariff system,” Holmes said.

That pours cold water on the insistence that the 250 zones employing 420,000 people in the U.S. offer a model for Britain. “If the U.K. model is implemented as successfully, it could have a significant economic impact,” the Department of International Trade said.

It will also be a struggle to persuade the U.K. Treasury that the plan won’t displace investment from elsewhere in the country, and just siphon tax revenues through Teeside that would otherwise head straight for the public purse. Houchen insists that’s not the case, and incentives offered would attract new investment.

In addition, the move comes just as Brussels takes a keen look at free ports and their potential for crime and deregulation. The European Commission this month labeled such sites an “emerging threat” that offer crooks a way to launder cash and shift counterfeit goods, but this isn’t the model Teesside is looking at.

Stanley, one of the cheapest places in the U.K. to buy a house. Much of the North East of the United Kingdom voted to leave the European Union | Dan Kitwood/Getty Images

Depending on how hard the U.K. crashes out of the EU, the plan wouldn’t be covered by watchdogs in Brussels anyway.

Regardless, Houchen counters he’s got legal advice that is clear there won’t be a problem. “The one thing free zones don’t do is turn a completely useless site into a brilliant site,” said Houchen. “You can’t turn a site in the Sahara into an amazing free port.”

The quick take on special economic zones is pretty alluring — look at the transformation of sleepy towns in China and the Middle East into forests of glass skyscrapers and factory complexes. But the reality is trickier, especially in developed countries. Shannon, a once vital Irish refueling stop for transatlantic aviation but otherwise a provincial backwater, was turned into a hub for big business thanks to its free zone. Despite that success, Shannon has created only 7,000 jobs, a fraction of what Houchen is proposing.

Slashing environmental and labor rules offers one option, but that’s something the Tees authorities insist they won’t do, ruling out making the port a haven for migrant labor.

A British Steel manufacturing site in Skinningrove in 2017 | Ian Forsyth/Getty Images

But that may hobble the dreams of creating an economic powerhouse, Holmes said. “You’re not going to make much difference to this region unless you give a substantial change in the cost [for business]. The cost saving from the free zone itself is going to be minimal.”

Keeping locals onside with the plan is key to satisfying one of the underlying causes of Brexit — a feeling of disenfranchisement outside the country’s rich southeast. While lawmakers argue over multibillion pound new infrastructure schemes around London such as a third runway at Heathrow and a rail scheme to Birmingham, the north has been relatively starved of public investment.

“The north is just all rusted up,” one local on Redcar’s high street said, declining to offer a name given the febrile political climate. “It’s a brilliant idea if it actually emerges.”

This article is from POLITICO Pro: POLITICO’s premium policy service. To discover why thousands of professionals rely on Pro every day, email pro@politico.eu for a complimentary trial.

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How to make the British economy grow post-Brexit

It is still, of course, far from clear what the outcome of the Brexit negotiations will be. Whatever happens, however, the UK is going to be faced with some very crucial economic problems, regardless of the form that Brexit finally takes.

For a start, the proportion of our national income which we invest in our future every year is far lower than it is almost anywhere else in the world. Furthermore, what we do spend money on tends not to be the most productive forms of investment – i.e. those in industry which produce big increases in output per hour. This is why productivity increases have stalled and living standards are static.

We have deindustrialised on a scale unmatched by any advanced economy. Even as late as 1970, almost a third of our GDP came from manufacturing. Now it is less than 10% and still falling. As a result, we have lost millions of good jobs; there is a huge disparity between the prosperity of London and our former industrial heartlands in Wales, the Midlands and the North of England; and we have missed out on the productivity increases which are much easier to achieve in manufacturing than they are in services.

In addition, because we now make so little, we do not have enough to sell to the rest of the world to pay for our imports. As a result, we have a balance of payments deficit every year averaging close to £100 billion. This may allow us to have a living standard 4% or 5% higher than we are actually earning, but only by borrowing money from abroad and selling off masses of UK assets to foreign owners. As a consequence, we have lost control of swathes of our economy while at the same time, both as a nation – through our government – and as individuals, we are getting deeper and deeper into debt.

These imbalances all matter hugely. The slow growth which is the result means that most of the population are no better off now than they were ten years ago, with little prospect of any improvement as far ahead as we can see. Our political class is drifting into more and more disrepute. We are falling further and further behind other countries. Our politics are getting more and more fractured as the country becomes increasingly deeply divided – both between the regions, the generations and socio-economic groups.

What can we do about all these problems? My new book, Economic Growth post Brexit: How the UK should take on the World, published by Bite-Sized Books and available on Amazon and elsewhere, tackles these issues head-on. Here is what we need to do. We need to change our primary economic goal away from chasing inflation down to 2% and to set ourselves a growth target instead. Inflation is largely tamed and the dire consequences of slow growth are a much bigger risk now than slightly more rapid price rises.

To get the growth rate up, we need to invest much more in technology, mechanisation and power, which are the main drivers of productivity increases. To do this we need to make it a lot more profitable than it is now to invest in industry in the UK, by making sure that we have a sufficiently competitive exchange rate on a sustained basis as key government and Bank of England policies.

To rebalance our economy, we need to get manufacturing back to being around 15% of our national income – not as high as the 20% it is in countries like Germany, Switzerland and Japan, because we are good enough at services to close some of the gap between them and us; but not all of it, because services on their own are too difficult to sell abroad in sufficient quantity. We will never pay our way in the world, or keep up with other countries, or get our living standards up in any other way than manufacturing more goods and selling them all over the world.

A huge problem about the way that the Brexit negotiations have been handled is that, ever since the 2016 EU referendum, they have distracted us from thinking about almost anything other than our involvement with the EU. If we are going to make a success of Brexit, this is going to have to change. We need to start thinking hard about how we are going to keep up with the rest of the world by getting the UK growth rate up to somewhere near the 3.5% per annum world average. This is a massive challenge but maybe the national rethink which Brexit ought to be producing will make it happen. It very badly needs to do so.

John Mills’ book Economic Growth Post Brexit: How the UK Should Take on the World is published by Bite-Sized Books and is available via Amazon

The post How to make the British economy grow post-Brexit appeared first on BrexitCentral.

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