Monday, 5 September 2016

The Service Sector and its Problems

I’m delighted to see the rise in output in the service sector announced today because it means more people have a job of some sort however poorly paid. But we really should be looking at the manufacturing sector to try to get a proper picture of economic performance.

The problem of the service sector is that it is predicated on the nonsensical belief that we can get richer as a country by cutting each others hair more often and that is just silly, but that’s how it works. Without an improving manufacturing base the service sector is no more than a giant ‘Ponzi’ scheme; a hoax perpetrated on us by city spivs, treasury wide-boys and political con-men and it will end in tears as all ‘Ponzi’ schemes inevitably do unless we do something about it.

Prior to the introduction of VAT we had a Selective Employment Tax which was more or less revenue neutral. What it did was to increase the Employers’ National Insurance in industries classified as ‘service’ and reduce the same tax for employments classified as ‘manufacturing’. It was very successful in diverting new investment into the manufacturing sector. Maybe it’s time to bring it back and Brexit might just offer that opportunity if government is bold enough. But I doubt whether they are.