Wednesday, 2 November 2011

The new £50 note celebrates manufacturing - oh the irony!

The Bank of England releases its new £50 note today. The note portrays two innovators with Birmingham connections, namely Matthew Boulton and James Watt, who were instrumental in bringing the steam engine into the textile manufacturing process.

"Boulton and Watt's steam engines and their many other innovations were essential factors in the nation's industrial revolution," says Bank of England governor Sir Mervyn King. "The partnership of an innovator and an entrepreneur created exactly the kind of commercial success that we will need in this country as we rebalance our economy over the years ahead."

You'll have to forgive me for noting a certain irony with all of this. Business is facing an unprecedented squeeze on its lines of credit, which has brought investment to a standstill. The very entrepreneurs that the Governor wants to encourage can't find the cash to put into new ventures. In this environment, Boulton and Watt wouldn’t have been able to raise a penny and yet the Bank of England, the lender of last resort, puts both of them on a new note as a celebration of our entrepreneurial and manufacturing spirit.

Back in the real world, figures for the British economy released yesterday showed that manufacturing had unexpectedly slowed during October. As one client put it to me recently, "the bubble hasn't burst but it's definitely deflating and we can't find the hole."

If we carry on like this, the ultimate goal of ‘rebalancing’ our economy will recede ever further away. What can the Government do? Well, in my opinion, the Government’s role is to create the right environment to encourage companies to invest – but all too often the environment in the UK, in particular interest rates, has deterred long-term investment. The irony now is that with interest rates at historic lows the banks won’t lend business any money!

If we are to rebalance then what extra support does industry need? Well I’ll first tell you what it doesn’t need, namely grants to individual sectors of the economy or to geographically specific areas. Government cannot pick winners, if history tells us anything it’s that. I would argue for something much more subtle, such as the ability to write down capital equipment costs against tax. That would be a boost which both Boulton and Watt would support I’m sure!


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