Wednesday, July 27, 2011
So why is UK growth so sluggish?
Well, that is a whole matter of debate, but what I can say is this: Birmingham is no longer quite the industrial hub it once was.
The problem is this: A lot of our industrial output, like cars particularly (but not exclusively) Nissan (capacity 340,00 cars per year), Honda (250,000 per year) and Toyota (137,000 per year) are reliant on parts made in Japan. UK manufacturers have also been affected as they are also reliant upon Japanese imports which have been cut short by the tsunami. In short, 0.2% growth is fantastic under the circumstances.
Now lets get back to the phrase "under the circumstances". It's actually quite important. Making cars in the UK is quite cheap particularly if you only have to deal with one union but making components here is less so when you have to deal with the tax office who want you to write off plant long after you have had to scrap it because it is cost-efficient. This is something for which the whining Ed Balls was responsible when he was telling Gordon what to do, but it was also the case before Labour got into power in 1997.
The boss of Nissan UK thinks he wants to buy more parts in the UK. Good. Get that past the Treasury and we are in a win win situation.
Meanwhile, Japan is recovering from the tsunami and so will our production. Growth next quarter will be 0.6 to 0.9% of GDP which will make Ed Balls look a bit silly.
That said, looking at tax rules on plant would seriously help in growth without being too costly.