Scaling back

Stephen_Pollock.pngStephen Pollock on tackling the scandalous ongoing sell-off of UK assets

The UK is failing to pay its way in the world by means of our exports of goods and services.  Our current account deficit has risen to its highest level as a share of GDP since records began. The last recorded surplus was in 1984, when it was a modest 0.3%. At present, our deficit is running at 6% of GDP.  

We have managed to achieve the necessary balance of payments by selling our assets to foreign owners. This cannot continue indefinitely, since the supply of assets for sale is limited. It will eventually be exhausted, and we will find ourselves in an acutely impoverishment state.

The much publicised trade missions of the Chancellor and Prime Minister to China, India and elsewhere have succeeded not so much in promoting the sale of British goods abroad as in selling the ownership of our economic enterprises. Consequently, Britain’s financial sector has been greatly enriched, as each sale commands a sizeable commission. No wonder, we are most likely to find great enthusiasm for so-called inward foreign investment among those who work in the City.

The effect of such sales has been to raise the value of sterling to a level that has made our manufactured goods too expensive to compete successfully in foreign markets. Imported goods have become cheaper than our domestic products and our manufacturing sector has shrunk accordingly. It now accounts for less than 10% of GDP, contributing less than our financial sector.

It is startling to discover how much of Britain’s infrastructure is in foreign ownership, including our seaports, airports, power stations, railways and buses, water companies, and much else besides. Three quarters of UK rail franchises are owned by foreign state-owned or state-backed railway companies. Our passengers and taxpayers are subsidising a system that hands increasing profits to these operators, instead of investing them back into our country’s railways.

Large swathes of our manufacturing industry are also now in foreign ownership. This includes all of our car, steel and cement manufacturing industries, plus a large proportion of our food processing.

The UK has a unique openness to foreign ownership. By contrast, virtually all other developed countries retain the power to block foreign takeovers deemed not to be in the national interest. The takeovers of British firms have been facilitated by our lax rules of corporate governance that put few impediments in the way of mergers and hostile acquisitions.

Our financial sector should be diminished and its activities should be restrained - something unlikely to happen under the present government. But there is an obvious recourse that could be relied upon to diminish the value of sterling. The central bank, or some other agency, should be charged with purchasing foreign assets when the value exceeds competitive levels.

Such a collection of nationally-owned foreign assets is commonly described as a sovereign wealth fund. The money that has been devoted to quantitative easing might have been used for this purpose. Many countries have established such funds for the purpose of limiting the exchange values of their currencies. A leading example is China, which has fostered an export-led boom based on the cheapness of its goods in its overseas markets. We too should avail ourselves of this device.

Lord Stephen Pollock is a backbench Labour Peer

Published 24th November 2015

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