(John Mills is an entrepreneur and Chair of Labour Leave. His latest book, Britain’s Achilles Heel – Our Uncompetitive Pound argues that the root of Britain’s stagnating and relatively low productivity lies in the long-term strength of the pound and the de-industrialisation that has ensued. He writes: ‘Reversing the process calls for a commitment to re-expanding the UK’s manufacturing base that must start with an active exchange rate policy designed to keep the value of sterling down’.

Here I ask John about the impact of ‘big government’ and other cultural changes on Britain’s stagnating productivity and ‘inequality’.)


Kathy Gyngell: You address two ‘inequalities’ in your book – one the stagnation of economic growth in the West by comparison with that of Asian economies. Two, the widening gulf between rich and poor in our own society. Which is your key concern or do you see the two as intrinsically related?

John Mills: I think the two are related. Broadly speaking, the more slowly the economy grows the more uneven the distribution of wealth and life chances tends to become. I think there are also other major sources of inequality apart from those, particularly between different regions of the UK and between generations.. 

KG: You argue that the root of our uncompetitiveness in Britain lies in a long term over-valuation of the pound and a declining, underinvested manufacturing base; but to what extent is it also down to the growth of the State – to ‘big government’, excessive debt and a public sector employment rate of 20 per cent?

JM: I think that “big government” and relatively high levels of public sector employment are more consequences than causes of our severely unbalanced economy. 

KG: Male participation in the labour market has declined as female participation has risen (from 57 per cent in 1971 to 73.5 in 2014, mainly in part time work). Has this impacted on productivity?

JM: Yes, I think it has had some impact. Gross value added per hour, as conventionally measured, is lower for women than for men, so having more women in the labour force will be inclined, other things being equal, to bring down the average. I think the effect here, however, has been very small compared with the much larger impact on productivity of low levels of investment, particularly in light industry where the scope for productivity increases is highest. 

KG: Generally, is our uncompetitiveness and low productivity really as much a function of cultural as of economic factors? From the growth of entitlement to the demands of ‘gender equality’?

JM: I am sure there are some cultural and attitudinal factors in play but, in my view, these play a minor role compared to economic incentives provided by the availability – or lack of them – of profitable investment opportunities. In particular, because service industries in the UK tend to be much more profitable than manufacturing, talent, power and influences concentrated in the former and not the latter. This creates conditions where services do better and better while manufacturing languishes. Most of our export earnings come from goods and not services, however, so this is not a viable and sustainable way to run the economy. 

KG: Would being self-sufficient energy wise – shale gas for example – eclipse all other influences on productivity?

JM: Energy self-sufficiency could be a big help in reducing our balance of payments deficit and thus rebalancing our economy but if it used – as oil was in the 1980s – just to finance more import-led consumption – it won’t make the economy grow any faster.

KG: Is increased international competitiveness the only way improve everyone’s standard of living?

JM: Yes. Our lack of competitiveness is, in my view, far the major cause of our deindustrialisation, low levels of investment especially where it is really needed, our trade and balance of payments deficits, our excessive borrowing, what little growth we have being driven by consumption based largely on asset inflation instead of by trade and investment, and the inequality which slow growth fosters.  

KG: Is sterling still over valued (since it dropped after the referendum result) or does it need to drop further?

JM: To rebalance our economy and to get it to grow sustainably I think we need to get manufacturing as a percentage of GDP up from its current less than 10 per cent to about 15 per cent. To do this, we have to make investment in manufacturing profitable and I don’t think this can be done on a sufficient scale without an exchange rate about 20 per cent or a bit more lower than it is at the moment – around £1.00 = $1.00 or €0.90.


  1. Great to hear such wise comment from a businessman who has undoubtedly created more wealth, and jobs and paid more taxes than 99.9% of the population. A person who actually takes risks with his own money rather than other peoples.

    Exactly the sort of person the MSM never really wants to hear from.Why have true wealth creators from the private sector? when you can have political hacks, biased ‘journalists’ lobbyists, and overpaid public sector leeches?

    • I spent some years in export marketing in the 70s and 80s working with a cross section of companies from some major corporations to a number of SMEs. By and large UK exporters did well against suppliers from other European countries and US firms. Interestingly, we had a very effective arm of government in the British Overseas Trade Board which sponsored and supported promotion of market reports, trade missions and trade fairs. The local support from British embassies varied somewhat from outstanding to mediocre. Chambers of Commerce have a vital role to play in this area and, especially for SMEs, they can make a big difference. There are many components in the mix and I would hope that Dr Fox’s department is pushing along with strategies to support exporters in the SME category who can always use extra help. I wholeheartedly endorse John Mills’ case for a devalued £ to par with the US$ although I’m well aware of the inflationary impact of this on imports, notably food. Given the drop in external tariffs on food imports post-Brexit, however, this should not have so much impact although it will create problems for UK agriculture and a new policy for this sector should allow for this. Once we get the English fracking industry underway, we shan’t fear the impact of imported fuel costs so much as this will reinforce the continued downwards pressure on world oil/gas prices.

      • Interesting post. The pound was priced to high and Brexit has certainly helped that.
        I think that pretty much the only way now for the western countries to get back on top of their national debts is to get some sort of inflation back into the system.
        A degree of inflation helps all of us with mortgages and also those with personal debt.

        • Interesting, and I suspect valid – although I don’t know enough. I do know this anecdotally. I buy considerably more British products since the pound has come down, in my case, mostly technology like Raspberry Pi, and foodstuffs, particularly since quite a lot is available on Amazon, although that works against my local grocer, who, as I have written, has embarked on a policy of reducing quality while maintaining or increasing prices. He obviously hasn’t thought through (or perhaps he knows his market better than I do) what his competition is. Would I buy more if the pound was equivalent to the USD? I don’t know, but it’s certainly possible. Now if the Royal post would institute tracking like the USPS and UPS do, I might buy even more. Logistics that isn’t dependable and predictable doesn’t work well in this economy. And all of those things are the products of light manufacturing.

          • If you ever get the chance to read ‘signals’ by Pippa Malmgren then please do. She is an extremely bright and original American women. She certainly changed my view of economics and inflation.
            She also predicted (on the record) both Brexit and Trump wins, way in advance.

          • It looks very good, and is now on my book list. From the reviews that is a lot of the problems with econ, at some point everything competes with everything. For me it’s a tradeoff of time (and a little money) to buy from Amazon or spend the gas and even more time to go to a better store, or simply deal with what’s available here, for me Amazon wins, for others it won’t. I’ll watch her I squared debate tonight, as well.

            I had my doubts on both, but neither surprised me very much. Pippa Malmgren is such an American construct, not many Swedish Phillipas about, at least that I’ve heard of.

          • “the Royal post”. I presume you mean the ‘Royal Mail’ which is now a privatised company like UPS, DHL and TNT (although I believe the Dutch government is the majority shareholder in TNT). The Royal Mail does tracking, I don’t know what it is like for items travelling overseas but I have used their tracking system a few times within the UK.

  2. “an exchange rate about 20 per cent or a bit more lower than it is at the moment – around £1.00 = $1.00 or €0.90”

    That would be a disaster politcally and inflation would be 5% or more. Wages would rise wiping out at a stroke the gains for the 10% of the economy.

    The real problem is that manufacturing is 10%. The Gov could do much to support and encourage industry as the Germans regularly do. Where would the moneyt come from? £3Billion for the new rail line nobody will use would be a start, aid second

    The thing is 10% does not count for much politically. (Unless you are a vocal minority “rights” pressure group. Minority “rights” cost us all money, but get all the attention and as much financial support (taxpayers money) that they ask for.)

  3. “long term over-valuation of the pound”.
    In the complexity of world trade and the economics therein that seems to be a bit of a red herring. Sterling has been plunging for decades against that of a lot of our trading partners. I can remember when the pound bought 2 USD; 7 Singapore dollars; 14 Hongkong dollars; 7 Saudi Riyals; 3.75 AUSD.
    Look at the currency charts going back some 20 years. The few where Sterling is gaining tends to be Zimbabwe, Russia and Argentina.
    If one plank of the argument is seen to be false, how many others are of a dubious nature?

  4. Someone is always calling for a weaker pound. The pound is no longer at its weakest but it is still low by historical standards and manufacturing and the economy is still awaiting the promised renaissance. A currency’s strength is not the only factor affecting export potential. Quality also counts. The world’s appetite for German cars and technology never prevented it from importing them even when the DM was high.

    When governments or central banks force a country’s money lower, the immediate effect is the higher cost of imports which tends to be inflationary. Britain imports most of its raw materials, most of its food and most of its energy with a consequent effect on domestic prices.

    The products we export are theoretically cheaper for foreigners to buy although if they’ve been manufactured from imported materials and energy which have made them more expensive to produce, that advantage is reduced. The supposed benefits of devaluation also take time to work their way through the manufacturing process while the disadvantages affect domestic consumers is immediate.

    There is also no guarantee that foreign buyers who resisted your widgets at £X will be enthusiastic when the price is £X-5%, especially if they didn’t think much of your widgets in the first place.

    Meanwhile currencies are not devalued in a vacuum. Unforced devaluation usually occurs because politicians talk them down which negatively affects confidence or because interests rates are lowered which causes problems of its own. Add inflation to the mix and consumers may feel that your devaluation was fool’s gold.

    We have this argument twice a year like clockwork as if it were some sudden magical panacea but the basic argument remains the same and it doesn’t look good for devaluation. What devaluation does do however is help to magic away the government’s debt overhang which is good for the selfish interests of politicians.

  5. There is still an elephant in the room here which is the decline in UK ownership. It is far easier to close a company in the UK than, say, France, so a non-UK owned multinational will close a profitable UK company to balance it’s books overall. Similarly, investment is often made in a “home” country in preference to a “foreign” one.

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