'We don't make anything any more': Is it true that the UK is just a giant service centre?

"We don't make anything any more."

Capacitors on a production line

I expect you have heard this said about the UK economy on many occasions. Indeed, the last 40 years have seen a significant decline in manufacturing’s contribution to Gross Domestic Output (GDP). Where once it accounted for a third of GDP, now it only accounts for around an eighth, with the most dramatic decline taking place in the last 10 years.

Yet, despite this, manufacturing is one and a half times the size of financial services, somewhat undermining the idea that the UK’s future can rely on being the world’s global financial centre.

So does the UK’s declining share of manufacturing matter? Maybe we shouldn’t try to compete with the high skills base of Germany, or the low labour costs in China. Perhaps we should concentrate on the provision of services where many believe our comparative advantage lies.

One obvious problem with this argument is that services (financial, knowledge intensive or otherwise) do not exist in a vacuum; they all profit from a strong industrial base. The manufacturing sector is directly responsible for almost 4 million jobs nationally; a further 2.4 million UK service sector jobs rely directly on manufacturing.

So the ramifications of a declining manufacturing base are clear – without a strong manufacturing sector the UK would suffer economically, both domestically and globally.

Another problem with the idea that the UK doesn’t make anything any more is that it just isn’t true. Whilst we have seen a decline in the UK’s global manufacturing position, analysis of the Index of Production produced by the Office for National Statistics, shows that the value of what we produce has risen steadily since the 1970s.

This suggests we are making more complex, higher value goods, more productively, but using far fewer workers. However, this growth in the value of our manufacturing is nowhere near enough to counter the ballooning trade deficit.

More alarmingly, successive governments have failed to devise an industrial strategy to encourage the regrowth of manufacturing to plug this trade gap.

What can be done? Please contribute your ideas as to what vision and leadership we need by joining the debate in the comments section at the foot of the page.

Matthew was writing in response to the second episode of Made In Britain, a BBC/Open University co-production exploring manufacturing's role in the UK today.

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