Our over-reliance on imports is harming the recovery

It is new markets, not existing ones, that are key to securing long-term economic growth for the UK

For all the disagreement about how to fix the UK economy, there are a few truths about the roots of the present slump that most people accept. In the good years leading up to the crisis, Britain lived beyond its collective means, and built an economy that couldn’t last. Part of this excess was fuelled by cheap, irresponsible credit; part of it was built on the UK’s huge and long-standing trade gap. Since 1997, the UK has consistently imported far more than it exported, creating a serious imbalance that paved the way for the financial crash.

Our research, published today, provides new insights into how the UK economy became so unbalanced. Over the last 15 years, the UK has performed extremely poorly by not providing the products which consumers increasingly want to buy. Consumers appetites for certain products has proved insatiable; in 2009 we bought over eight times more consumer electronics and twice as much clothing as we did in 1997. The problem is that most of this growth was met through an increase in imports, and not domestic production.

Many observers see patterns such as these and assume they are driven by well-established economic arguments about international competitiveness, with the high cost of production in the UK preventing more manufacturing taking place here. Whilst this is undoubtedly true of some low cost products - clothing springs to mind - this line of reasoning often falls down, even for low-tech industries. Recent research showed that the UK now imports more than half of its bacon from the Netherlands and Denmark, where wages in meat processing are twice the level here. Even more concerning is our performance in high-tech sectors such as consumer electronics, where the high value of the goods produced tends to override cost concerns. The UK is an anomaly amongst other advanced economies in being extremely weak in these markets.

What is most worrying, however, is the sheer scale of this shift, and the fact that increases in our imports of consumer products have not been compensated by a large enough rise in exports. Take clothing, consumer electronics and vehicles. Together our poor trade performance in these product markets accounts for more than 40 per cent of our goods deficit. This suggests our difficulty in providing consumers with enough of the things they want to buy, even in just a few key markets, can and is acting as a large drag on the UK economy. We have some outstanding consumer facing businesses in the UK, such as Unilever and Dyson. The problem is we don’t have enough of them to reverse the persistent UK trade problem.

So what should the government be doing to put this right? Part of the response should be to try and increase exports of those things that we are good at, including business services like consultancy and architecture. But that will only take us so far - we also need a greater emphasis on trying to foster the emerging consumer markets of the future, and on making the UK a world leader in these areas. This isn’t just about inventing more technologies – it is about how we use them. The UK’s world-class science base is excellent at generating new ideas, but businesses need far more support to overcome the barriers they face in turning these technologies into high-growth markets.

Take 3D printing as an example. The ability to print personalised goods on demand has real potential for the UK economy in the future, but there are many state-controlled levers that need to be co-ordinated to make it actually work in real life. Without the right regulations to foster consumer and business confidence, without standards to make software and materials compatible with each other, without the necessary physical and electronic infrastructure, 3D printing will remain a niche market in the UK, and will probably take off in another country first. We need to get these things right, and quickly, if the UK wants to be a world-leader in 3D printing – and these principles will apply to many other emerging technologies over the next decade.

Policymakers already lay out and co-ordinate their long-term strategy for many established sectors. Just yesterday the Department for Business, Innovation and Skills published their strategic vision for UK aerospace, for instance. But we want to see this approach applied to those new and innovative markets that have the greatest potential for exports and domestic demand. We would argue that it is the new markets, not the existing ones, that are key to securing long-term economic growth for the UK.

A port in Hamburg. Britain must cut back on its import addiction, according to a new report from the Work Foundation. Photograph: Getty Images

Spencer Thompson is economic analyst at IPPR

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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