the times | Saturday April 30 2022 51

Business

Services are Britain’s great strength, but that

doesn’t mean governments can boost them

Dominic O’Connell

become a dangerous distraction, some

economists think. A report this week

by the Resolution Foundation (in

collaboration with the the Centre for

Economic Performance at the London

School of Economics) makes the case

that government policy should focus

on what we are good at — and what

we are good at now is services.

In 2019, Britain was the fourth-

largest exporter of the Organisation

for Economic Co-operation and

Development countries, ranking

behind Japan, Germany and the

United States. What makes us

different is the proportion of exports

taken by services — just over 45 per

cent, about twice the OECD average.

It is not a new phenomenon.

Services have dominated since the

1980s, before manufacturing began its

steep slide, and the areas that were the

top exports then still are now.

Business services (financial, insurance,

law) are the real stars, taking more

than double the share of exports in

other comparable countries.

The authors’ conclusion — that we

should concentrate on services and

look to develop new industries in

areas adjacent to our best-performing

specialities — is compelling. A return

to an economy where manufacturing

is a quarter of the economy is fighting

the tide of history. Mass manufacture

has departed to where energy and

labour is cheaper and governments

more accommodating, and it is not

coming back any time soon.

What is harder to work out is how

to make services bigger and better.

Quite why Britain is so good at this

kind of export is a “mystery”, Gregory

Thwaites, one of the report’s authors,

cheerfully told me on Times Radio

this week. It was a slightly tongue-in-

cheek comment, as there are some

obvious reasons. Language is the big

one; it helps a great deal to be able to

sell to large markets with a shared

language and shared customs. There

are also some happy accidents of

history. The City has hundreds of

years of being a global hub for finance,

just as the British courts and legal

system are a convenient and respected

venue for refereeing international

disputes. That helping hand of history

extends into cultural exports; buyers

of films, books, music and televised

If you find yourself

in the West

Midlands, I highly

recommend making

time for a pilgrimage

to the Soho Foundry. It’s in

Smethwick, just off the A41 on the

northwestern outskirts of

Birmingham. Spoiler alert: you’ll

probably be disappointed. There isn’t

much left to see — just the old

foundry gateway flanked by some

elegant pillars and some workers’

cottages behind.

It is an underwhelming monument

to one of the most important

industrial sites in Britain, if not the

world. Even the blue plaque, put up by

the Smethwick Local History Society,

undersells it: “Bolton & Watt’s Soho

Foundry, established in 1796 for the

production of their renowned steam

engines.”

Matthew Boulton and James Watt’s

engines were the wonder of the day,

but what made the Soho Foundry so

important was the way they went

about making them. It was the first

modern factory, with specialisation of

labour, standardised parts, production

lines, proper accounting and even

management development

programmes. In short, most of the

things we attribute to Henry Ford

more than a century before he got

going in Detroit. It is, therefore, a

reminder that for a couple of centuries

Britain was the world’s pre-eminent

manufacturer, harnessing ideas and

technology to labour and capital and

in the process completely changing

how people lived and worked.

That dominance has been whittled

away in the past 150 years, with

America and then Asia becoming top

dog. Yet as recently as 1970 making

things accounted for a quarter of gross

domestic product. It has fallen to a

shade under 10 per cent and

successive administrations have

strained wind and limb to drive that

number up. Michael (now Lord)

Heseltine promised to intervene

before breakfast, lunch and tea to

promote industry; Peter (now Lord)

Mandelson spoke of “industrial

activism”; George (now banker)

Osborne coined the phrase “the

march of the makers”. All hankered

for Britain to be more like Germany, a

modern European nation with a big

industrial sector, rather than a post-

industrial economy with a dangerous

reliance on financial services.

This focus on manufacturing could

Pandemic

drives work

absences to

12-year high

Ben Martin

The pandemic pushed the rate of sick-

ness absence among workers last year

to its highest level since 2010.

The Office for National Statistics

said that the rate had risen to 2.2 per

cent, up from 1.8 per cent in 2020. Two

years ago it had reached an all-time low

after the widespread shift to home

working.

The end of the furlough scheme last

year, workers returning to offices and a

fall in the number of vulnerable people

shielding meant there was a rise in

people calling in sick. New variants of

the virus also contributed to the rise.

An estimated 149.3 million working

days were lost in 2021 to illness or

injury, or 4.6 days per worker, the statis-

tics office said. Covid accounted for

24 per cent of all sickness absence, up

from 13.9 per cent in 2020.

The rise in the 2021 absence rate was

driven by increases between last

October and December.

The furlough scheme was gradually

wound down between the beginning of

July and the end of September, which is

expected to have contributed to the rise

in days off due to illness.

In addition, while 200,000 people on

average were at home shielding

between July 2020 and December

2020, this number had fallen to 173,000

between January last year and June,

before dropping to “negligible” levels

afterwards, the statistics office said.

“This group of people would normally

have a higher sickness absence rate

than those not shielding,” it added.

The end of shielding coincided with a

more general reduction in working

remotely in the wider workforce.

“Home working may have allowed

people to work when they were a little

unwell,” the office said. “They might

not have travelled to a workplace to

work but felt well enough to work

from home”.

football games can’t get enough of

British-made products.

That doesn’t answer the question of

how to make more of it, or make it

better. Services are an elusive, even

unpopular thing to grasp, something

that politicians intuitively know. There

are more votes in a photo opportunity

featuring hard hats or giant aircraft

engines than the trading floor of a

bank or the offices of a video games

developer. Trade negotiations focus on

goods rather than services and while

the post-Brexit trade arrangements for

the former are hardly ideal and have

led to a sharp decline in trade, there

was almost nothing for services.

By coincidence, this week there was

an opportunity for ministers to show

how they have grasped the issue in

one booming sector, broadcasting.

Such has been the surge in demand

for content from the likes of Netflix

that Britain now has more studio

space than Hollywood, according to

the British Film Institute.

The broadcasting white paper

should have been an opportunity to

catch this rising tide, but it was a very

mixed bag. Changes to public sector

remits for big channels made sense, as

did the retention of production tax

reliefs, but the privatisation of

Channel 4 and an unsubtle threat to

the BBC licence fee make no sense. It’s

right to be suspicious of public sector

organisations that are in competition

with the private sector, but Channel 4

and the BBC have fostered the

cultural exports boom, not hindered it.

If the government were to set up a

corporation to invest in manufacturing

it would be praised; Channel 4 and the

BBC, via their nurturing of talent and

support of independent production

houses, have done that job in their

sector — and should be left alone to

keep doing it.

Their success reveals an

inconvenient truth about government

interventions to try to foster

particular industries: there are few

successful examples and they often

happen by accident. Perhaps ministers

should concentrate on things that

reliably produce results — decent

schools, top-quality universities and

excellent

infrastructure. Get

those right and

hopefully businesses

will do the rest.

‘‘

’’

Dominic O’Connell is business

presenter for Times Radio

6 Britons on average have £16 a

week less to spend on non-essentials

than they did a year ago, a measure

of consumer spending power

suggests. In March households

suffered the biggest monthly fall in

discretionary purchasing power

since at least 2008, according to the

latest Asda Income Tracker index.

After essentials including mortgage

payments, families have £231 a week

left for discretionary spending, down

by 6.5 per cent on March 2021.