How would Brexit affect British manufacturing and is Hull most at risk?

The majority of Brexit campaigners have accepted that their will at least be an immediate short-medium term hit to economic growth in the event of a leave vote occurring next Thursday. This is the result of the uncertainty such an event will likely cause, with the potential job losses and turmoil being described in the Sunday times as "difficulties". Indeed such “difficulties” have already began to show themselves with over £100 billion disappearing from UK stock markets in the last 10 days alone affecting both levels of investment and the very assets our pension funds depend on. But what would this mean for the future of the economy in terms of what we make, produce and sell to the world and, in particular, what would it mean for Hull?

In a recent interview a prominent Brexit campaigner admitted when discussing the likely changes to the UK economy which will occur following a vote to leave that, whilst he thought the economy would thrive eventually, it would largely mean an end to manufacturing production within the UK. This candid and rather stark omission seems more befitting of a pre-financial crisis analysis of the UK’s economic future with the then typical adulation of the financial services sector.  It is really quite striking how far debates have come since 2007 that it seems, at least to me, so jarring with current political consensus on the future of the economy and the re-balancing agenda. This can be seen, even as presented by a conservative chancellor George Osborne, on the need for the UK to re-balance and the talk of the Northern Power house.

That said, whilst it may seem at odds with much political discourse on the economy, it does contain a large element of truth on what would likely occur in the event of a Brexit to UK manufacturing. In the event of a Brexit there are at least 4 major risks to UK manufacturing;

1) Any increases in tariffs will make already expensive UK exports even less competitive

2) Any trade deals with big blocks like China, the EU or USA will likely favour their terms and, in the case of China, almost certainly mean the UK economy opening up earlier to free trade than in China, with terrible consequences for UK companies. 

 3) A loss of investment as EU institutions, which have favoured industrial regions in the UK, such as Hull, plus a further loss as companies looking for an EU base for their production look to EU locations rather then an isolated UK ( e.g Hitatchi, Toyota). 

4) If the UK does move more to financial services, as would likely be the case, it will lead to massive strengthening of the pound due to the inward flows of capital and a further increase in the price of UK exports making them less competitive.

But why does this matter if, as many people believe, “we don’t produce anything anymore” . The problem is that this often spun misconception simply is not true, industrial production has never actually declined in the UK and the country remains one of the largest exporters of manufactured goods in the world. The only change which has occurred is the total share of employment within industry which has declined, as productivity has increased with new technologies and innovations. Indeed even in spite of this change in productivity many northern industrial belts cities still contain some of the largest industrial shares of employment, ranging up to nearly 20% employed directly within manufacturing. This is then supported by many more employed in ancillary services supporting those industrial companies. 

This is unquestionably true of my home city of Hull. As can be seen from the industrial employment share map of the UK above, Hull's share of employment in manufacturing is one of the highest in the UK. Not only this, but it is also one of the most industrially diverse manufacturing cities which has not fallen into  the regular trap of specialising in one particular type of production like steel making. Many big household names have large production sites in Hull and East Yorkshire, including Reckitt Benkisser one of the worlds largest pharmaceutical companies which started in Hull, employs 1200 people and is investing over £100 million in the city. As well as this, Hull's thriving caravan and temporary building construction industry is one of the biggest in the UK and relies on exporting to the continent. The sector employs nearly three times as many people in Hull, as proportionally in the country as a whole. Other big companies with big shares of employment and production in Hull include BP, Smith and Nephew, Henner, Cranswick Foods, Arco and now the massive Siemens renewable energy investment in Hull creating 1000 jobs and representing a £160 million investment. 

The proposed Green Dock and Turbine proposed by Siemens representing 1000 jobs

In addition the largest share of Hull exports goes to the European union and would be at risk both from increased tariffs in any form, but also from the disappearance of European direct investment in the UK. This includes investment from companies looking for a European Union base for their production, but also the direct funding from European economic institutions which have favoured the region.

Hull has the second highest level of investment per head of all English regions by European economic institutions, such as the European investment bank. I accept the argument that this is UK money going via the EU, but does anyone in Hull really believe that a likely Boris Johnson led Conservative, or even Labour government would prioritise the region? They have never done so before and even the "Northern Power House" agenda has largely ignored the city. None of the big transport projects will be coming to the region and so the argument that a UK government would maintain the investment or, even increase it to Hull, is at best frankly farcical and at worst down right insulting.

There are also massive none economic projects in Hull which have relied on European Union investment. The deep received £9.4 million of European Regional Development Funding, the Kingswood development was funded by the same scheme, Hull and East Riding museums have received over £1 million in funding, the Hull truck theatre received £1.5 million towards it's development, £25 million is being invested in Hedon Parklands to turn it into a business centre, the Gypsyville transformation too, Ferensway and also Bridlington Spa have benefited. Many of these within the Arts and Culture sector have become reliant on European funding at a time when the UK culture budget has been decimated by an austerity focused conservative government. 

A look at the employment shares within Hull below shows just how dependent Hull is on manufacturing compared to the rest of the UK. A number of 1.0 means that the employment within that sector in Hull is proportionally the same as across the country. Any number above represents a higher share of employment in Hull then across the country as a whole, with vice versa any number below less. For example the share of manufacturing employment in Hull is 1.8 compared to the UK as a whole, meaning manufacturing makes up proportionally nearly twice as much of Hull's employment as the national average. This could potentially mean dire economic consequences for Hull should manufacturing indeed be hit in the event of a Brexit.

Source:Office For National Statistics

There are clearly many other arguments to leave which I have not touched upon here, the point of this is to show just how vulnerable Hull is to a Brexit, if as is likely manufacturing were to be hit. Hull is a proud trading city which, increasingly rarely for the UK, has a very diverse industrial sector which it should be incredibly proud of. Hull exports all over the world and indeed massively to the European Union. An outward looking Britain being an active part of a dynamic European Union makes Hull stronger not weaker. This international focus has been and continues to be the key to some of our biggest success stories. In the event of a Brexit manufacturing will be massively at risk and the economic future Hull has been working for and deserves will  be needlessly put in jeopardy.  The rules of the European Union mean regions like ours who have been hit hardest by the recession and changes in the global economy are prioritised for funding. Does anyone honestly believe that this funding would be given back to us in the event of a Brexit by the very domestic institutions and politicians that have ignored us for so long? I doubt it. When you hear those promises from the likes of Boris Johnson, Michael Gove and Nigel Farage, remember the past. They have never delivered for us before so we would be a fool to believe them now.....

Trade Deals: Does Europe really need the UK more than the UK needs Europe?

At this point in the referendum the proliferation of various claims from each side can become daunting with the sheer volume meaning little scrutiny or perspective can actually be given to both their truth and also the bigger picture. One such claim is with regards to the economy and the economic impact on our prospects and also investment in our country in the event of a Brexit. 

The central claim of the leave campaign is that any post Brexit trade deal would not be difficult to organise as the incentives to trade will not vanish, which is true.  Additionally as the 5th largest economy in the world Britain is an important market, also true. Moreover a Brexit would free Britain to create new trade deals with the US and China, also true. 

So far so good I hear you say, however this is where the argument becomes unstuck. As Farage claimed in yesterdays ITV debate, Europe needs us more the we need Europe and it is businesses that organise trade not governments.....NOT TRUE. 

The incentives to trade would not dissipate but one of the central tenets of the trading game is that the terms of trade matter, just ask any developing country or even Japan and the USA trying to trade with Europe. There is massive pressure to protect your strategic industries and institutions which are important to electorates; just look at the furor over TTIP and TPP and you can see how difficult these are to settle. With this in mind you can understand why countries would fight tooth and nail to set the terms of trade, including tarrifs and rules of production in their favour.

This brings us to the position of the UK in establishing trade deals with both Europe and other large countries and blocks such as China, the USA and ASEAN. What can be seen from the image above is that by GDP PPP (which takes account of currency movements and different prices) the UK is a significantly smaller market then those with which it would seek to establish an advantageous trade deal. It is true that the UK is the 5th largest economy by nominal GDP, but this is not the best measure. By GDP PPP the UK is actually 9th and growing slower then many developing countries. In addition, the UKs' key industries services and financial services have major competition in each of the big blocks it would seek to create a trade deal with; Frankfurt in Europe, Wall Street New York in USA and Hong Kong in China. What this means in the cold hard world of trade deals is that each would seek to set the terms of trade which would help them steal business from the UK. To expect anything else would be naive. 

What Europe gives the UK is the power to set terms of trade in our favour and to protect our key industries in a way our economic size alone would not. This is not to talk down the UK, but to set out in a clear and realistic way the options we face and the advantages remaining in the European Union give us in negotiating terms of trade which would protect our jobs and allow us to grow more quickly. This applies not just to economics but politics, the power to influence other countries by harnessing Europes collective economic heft magnifies British power, it does not diminish it.