“Before we could sell across the EU, now we are all fishing in the same pond.”
Both the Labour Party and the Conservative Party may be accused of making up trade and industry policy on the hoof in an effort to embrace Brexit and its myriad opportunities.
A Case Study in Buying, Making and Selling More in Britain: Sheffield Forgemasters
We learnt on Wednesday 28th July that the Ministry of Defence is to acquire Sheffield Forgemasters for £2.56 million.
“The intervention will secure Sheffield Forgemasters’ role as a key supplier into the MoD for the long-term”. A practical example of Labour’s proposed policy of buying, making and selling more in Britain.
Rachel Reeves’ big idea and currently a central plank of Labour’s economic strategy for Government.
I confess that I shuddered when I read that Sheffield Forgemasters had “recently announced the purchase of a second hand 13,000 tonne forging press from Japan”.
One would be interested to know why a second hand press was felt to be a better investment than a brand new one. One hopes that the decision was made on more than just price.
I am, on principle, averse to State subsidies for industry. Too often, in the past, they amounted to no more than the taxpayer subsidising poorly run, failing businesses with no definite exit strategy for Government support beyond the possible failure of the beneficiaries.
The world as Mrs Thatcher once put it, although possibly in a slightly different context, does not owe us a living.
The rationale for the MOD buying up Sheffield Forgemasters is to secure defence outputs.
That will be its priority.
However, Sheffield Forgemasters will “continue to operate in commercial markets with” its “existing equipment and will also look to exploit opportunities that may arise from the UK Government’s net zero carbon agenda, including Off-shore Wind projects and the Civil Nuclear market.”
In other words, the MOD’s planned investment of £400m over the next 10 years will be ring fenced for the production of its military orders.
The MOD will be buying, making and selling more in Britain with Sheffield Forgemasters. However, the company will, all other things being equal, find it ever harder to compete for civil contracts at home and abroad, if it may not find the money to invest in new plant dedicated to such work.
If Sheffield Forgemasters must be saved for the nation then surely a better way may be found than by tying the business to the apron strings of the MOD and the vagaries of UK Government defence spending?
We are hearing a lot at the moment about strategic industries from the Opposition, particularly a rehabilitated Ed Miliband, as well as from the Government.
Steel is a strategic industry. We must secure our steel industry, because we may not trust the Johnny Foreigners of the developed world to supply us with steel to order for, say, building ships.
However, we had to trust the French to provide us with the steel for the hulls of the new Dreadnought submarines, because no British company makes the steel required to resist the pressures to be experienced at the depths in which the submarines are to operate.
Hulls that might be crushed like tin cans at such depths are understandably not what the Royal Navy wants in a submarine.
There are, it seems, good commercial grounds, probably limited demand, for British business to not seek to compete with the French supplier of such specialist steel.
We do trust other Johnny Foreigners (mostly of the developing world?) to supply us with the raw materials with which to make steel. We might, I gather, secure at least some of them by strip mining the Cotswolds and the Chilterns.
Steady on, old chap, I hear you cry. Green and pleasant land and all that.
Clearly there will be a limit to how far we are willing to go down the road towards full blown autarky under Labour or the Conservatives.
A British funded and made National Flagship to sell Global Britain to the world
The £200m budgeted for the National Flagship “would be far better spent on paying good annual salaries for a number of years to a team of experienced and capable trade negotiators, who would do far more good for our economy than this vanity project, which will no doubt end up costing far more than £200m anyway.”
We might also use some of that money to beef up the skills and number of staff dedicated to promoting UK trade and industry in our Embassies around the world.
I gather there have been issues in the past with both the competence and capacity of the Diplomatic Service in that line of work.
Labour thought it might be a good idea to spend the money on tackling crime, instead.
Buying, Making and Selling More in Britain
Let us turn now from the specific to the general.
I have said it before and will, I am sure, say it again that Rachel Reeves has a knack for coming up with policy ideas that will meet with the approval of the likes of Daily Mail readers and nostalgic Leave voting pensioners in Claire Ainsley’s focus groups.
Neither group should, however, be left in charge of a whelk stall at the end of a decaying pier, in a fading seaside town, over a half hour lunch break on a dreich Sunday in February.
“The UK spent £290 billion on public procurement in 2020. At about 14% of GDP, this is only likely to keep growing as a result of the government’s response to the COVID-19 pandemic. So why not do as Labour says and ensure that more of it goes to British firms?”
The international implications of such a policy are set out below and challenge the contention that Buying, Making and Selling More in Britain would be good for the UK’s export trade.
I have been unable to discover how much the UK Government spends on imported goods and services.
Neither it would seem has Labour or else surely they would be quoting it in support of their big idea?
The lack of a definite figure does rather undermine the importance of such a policy “to build on the Britain of today“.
Procurement at a time of Covid
Labour does reference a National Audit Office report that estimated that between February and July 2020, the UK Government “spent £12.5bn on Personal Protective Equipment, five times as much as it would have cost in normal times, much of which was spent overseas rather than with British suppliers”.
Never mind the quality of the PPE that was purchased, but focus on from whence it came?
“One of the most celebrated tenets of trade policy is the principle of targeting. Roughly speaking, it states that the most effective policy to correct a market failure is one that acts most directly on it. If the policy’s ultimate objective is to create jobs and improve the dynamism of British businesses, there are more direct ways to achieve this. The apparent corruption in some of the UK’s Covid procurement contracts for PPE, for example, would be a good place to start.”
I imagine that in the first instance National Health Service staff do not care about the geographical location from where their PPE comes as long as it meets, if not exceeds their requirements.
To boldly bully the public sector in the name of transparency
Perhaps Labour hopes to come up with a figure for how much the UK government spends on imports with its plan by passing “a law requiring public bodies to report on how much they are buying from British businesses including SMEs”?
I do see the appeal of such a law to those who think the public sector works best when under constant supervision and cornered like a rat in a trap.
As I say, Reeves knows how to pitch to the tabloids. I am sure they would appreciate easy access to ammunition with which to bully public sector procurement managers.
I do not see why the head of an individual, state funded school should be expected to provide a journalist with detailed information about from where they source their pencils (see below).
Tough love, all stick and no carrot will just demoralise staff and to what end?
We are, of course, only talking about procurement by the public sector. There is no suggestion of a Labour Government urging the private, and voluntary and community sectors to take the pledge and sign up to the policy.
The policy has, though, been endorsed by James Meadway, former adviser to John McDonnell MP when he was Shadow Chancellor.
A ringing, credible endorsement …
Unpicking the High Speed Two supply contracts
HS2 is proving an ever more contentious project and one, I suspect, that may not meet with the approval of many Guardian readers so, perhaps, it was not surprising that this paragraph appeared in the Guardian:
“Labour will also highlight how only one UK-based firm was shortlisted for £2.5bn of contracts for track and tunnel systems of the new HS2 high speed rail network.”
HS2 is going over time and budget so how would trawling through the geographical origin of its supply contracts help matters?
Complicating UK Government procurement processes
Labour’s five proposals to underpin its Buy, Make and Sell More in Britain policy set out here would add to UK Government procurement processes. Whatever else they achieved, they would increase the cost of UK public sector procurement.
The Department for Work and Pensions orders its stationery at business unit level from a centrally appointed supplier.
What would Labour in Government do, if DWP’s supplier, although based in the UK was actually the subsidiary of a foreign owned company?
What would Labour in Government do, if DWP’s supplier, although based and owned in the UK carried an inventory with a significant number of products either imported from abroad or produced in the UK by a foreign owned business?
And what if the inventory contained products made abroad, but by a UK owned firm?
I purchased HP A4 paper from Tesco a couple of years ago. Tesco plc is a British multinational groceries and general merchandise retailer, headquartered in Welwyn Garden City. HP Inc is registered in Palo Alto, California, USA. HP Europe is registered in the Netherlands. The paper originally came from Brazil.
The UK imports goods, services and raw materials to help it produce goods and services for domestic consumption and for exports, both visible and invisible.
If Labour has evidence of sizeable public sector contracts being awarded to companies overseas that are not Value For Money in comparison with the same good or service that might have been purchased from UK based businesses then they should say so and hold a debate on the issue in the House of Commons.
The International Implications of Buying, Making and Selling More in Britain
Peter Ungphakorn, who worked for World Trade Organisation’s Secretariat between 1996 and 2015, has wondered on Twitter, if Labour have looked in detail at the UK’s commitments and obligations under the WTO Government Procurement Agreement.
Ungphakorn has some suggestions as to how Labour might proceed with their policy and the likely implications of the options available to them.
Make a loud noise about this to win votes, but do not actually do it. Britain would not violate the WTO’s GPA. This is not an original thought. Politicians do it everywhere.
Claim this is necessary for national security. Again, this is not an original thought. It comes straight out of the Donald Trump play book. But it does create havoc for the rules-based international trading system.
What the hell, let us just ignore our international commitments. Yet another unoriginal thought. In this case it would not distinguish Keir Starmer’s Labour Party from the present UK government of Boris Johnson.
Do it in the constraints of UK’s GPA commitments. In other words, not for any of the agencies listed except for small contracts worth less than the thresholds.
These are the commitments.
That 34-page list includes almost every central and local government agency. Here are the thresholds in pounds. A school in West Leeds, for example, can insist on UK-made pencils, but only in batches worth less than £189,330.
Withdraw from the GPA. This may be done without leaving the WTO. GPA is a stand-alone plurilateral agreement (signed by only some WTO members). However, leaving it means UK companies would lose automatic access to government contracts in present and future signatories.
Leaving the GPA would mean UK businesses losing rights to procurement contracts in Armenia, Canada, Australia, EU, HK, Iceland, Israel, Japan, Rep Korea, Liechtenstein, Moldova, Montenegro, NZ, Norway, Switzerland, Singapore, Taiwan, Ukraine and USA.
In addition, UK businesses would lose rights to procurement contracts with future signatories: Albania, Brazil, China, Georgia, Jordan, Kazakhstan, Kyrgyz Republic, North Macedonia, Oman, Russian Federation and Tajikistan.
Time for a rethink, Labour?
Steve Peers, Professor of Human Rights Law, World Trade Law and European Union Law at the University of Essex, pointed out to Peter Ungphakorn that the GPA includes Consultations and Dispute Settlement (Article 20).
Countries may also modify their commitments under Modifications and Rectifications to Coverage (Article 19). Others may withdraw “substantially equivalent commitments”. A blanket policy means withdrawing everything. Other countries would also withdraw all rights from the UK.
Fans of Jim Hacker will know that the success or failure of his personal initiatives are measured by the degree of positive coverage afforded to them in the media.
Labour would seem to be proposing to put a portion of the UK’s export trade at serious risk for the sake of some approving headlines and column inches as well as the uncritical appreciation of a few focus group members.
And, yet, Rachel Reeves believes that buying, making and selling more in Britain would help UK based businesses export across the world rather than as would seem to be the case helping the companies of other countries.
Moreover, buying, making and selling more in Britain to boost British exports might or might not boost British exports, but it would definitely boost the foreign imports needed to help produce goods and services in Britain for domestic consumption as well as to turn out invisible and visible exports.
Not so much a return to the 1970s, but potentially a 1960s style Balance of Payments crisis.
The UK currently already has a deficit on its visible trade, but a healthy trade surplus on invisibles. That surplus is not, however, as secure as it once was when the UK was a member of the EU.
I think UK businesses would appreciate boring, mundane policy designed to make exporting into the Single Market less difficult than it has become since Boris Johnson’s Hard Brexit came into effect at the start of 2021.
Rachel Reeves is opposed to any replication of the conditions of Freedom of Movement for labour. Where then would the labour come from to buy, make and sell more in Britain, given the growing labour and skill shortages being suffered now by British business and caused by the end of Freedom of Movement?
The Tories tell businesses ever more locked out of the Single Market to sell more half way around the world as though they are not looking to do that already, if it is profitable to do so.
Labour says to the same businesses, try selling more at home to the public sector.
Buy, make and sell more in Britain seems to be more of a displacement activity and like Global Britain, a denial of the reality of Hard Brexit, than a credible economic policy.
The Hard Brexit which, incidentally, Labour under Keir Starmer freely endorsed.
As British companies pull out of export markets around the world, there are now signs that some of them are starting to eat each other in their domestic market …
“Spurrell is now pursuing the domestic market with greater vigour but says the cost of marketing has gone “through the roof” because all his competitors are having to do the same.
“Before we could sell across the EU, now we are all fishing in the same pond. We used to be the biggest online sellers but now we are absolutely bombarded with attacks by all our cheese rivals because they are buying all the ads on Google to try to beat us. These are competitors who would never have bothered us before,” he said.”
“Offshore wind firms have to submit plans showing how they will ensure more parts are made in the UK by 2030 in a move to bolster British firms.
But the EU say that this risks breaking World Trade Organisation rules.
A Whitehall source told The Sun: “With Britain snapping up offshore wind factories and the thousands of jobs they come with, it’s no surprise Brussels are throwing their toys out of the pram.”