Boardrooms near panic: Industry leaders fear a slump as bad as the Depression of the 1930s and say that the Government's obsession with reducing inflation is eroding confidence and allowing recovery to drift further away

Click to follow
The Independent Online
IT HAS been one of the worst weeks that anyone in British industry can remember. Nearly 40,000 redundancies were announced, the highest figure ever recorded for a single week.

Unemployment hit 2.8 million, leaving one in 10 of the British workforce without a job. Lucas, one of the best-known manufacturers, announced lay- offs of 5,000. British Coal, at the behest of the Government, announced that it was closing more than half its remaining pits with the loss of 30,000 mining jobs.

Not even the one point cut in base rates to 8 per cent on Friday brought much cheer to industry, which seemed punch- drunk with bad news. And it is bracing itself for more. According to one senior partner at a leading insolvency firm, 'many receivers are monitoring on behalf of banks a number of plcs - some of them household names. By the end of the year, many of these could be in some form of insolvency.'

Meanwhile, Michael Heseltine, President of the Board of Trade, warned on Wednesday that thousands more job losses were likely in the shipbuilding and defence industries.

As depression and bewilderment among businessmen deepens, an ugly mood has begun to appear in industrial boardrooms. Industrialists who once compared this recession to that of the early 1980s are now openly likening it to the slump of the 1930s. After more than two years of recession, normally loyal Tory supporters have begun loudly laying the blame squarely on the Government.

There are two main complaints. First, the Government does not understand what industry is going through. And second, it has no policy for helping industry or for ending the recession.

'The Government does not seem to grasp what is going on,' said Martin Taylor, deputy chairman of Hanson plc. 'It has allowed the European issue to become too important in comparison to the domestic economy.'

He is also worried that the Treasury has become unhealthily obsessed with reducing inflation. 'The change in inflation has already occurred. At this point it is important not to deflate the economy.'

The motor industry remains one of the prime engines of the economy, employing a total of 600,000 people and contributing pounds 20bn a year in taxes. But it has been one of the sectors hardest hit by the recession. New car sales are down by a third on their level three years ago and are only expected to reach 1.55 million this year. There have been heavy lay-offs at Jaguar, Rolls-Royce, Lotus and, most recently, Ford, which has placed all its main car and van plants on short-time working and announced 1,500 redundancies at Halewood and Dagenham.

Ian MacAllister, chairman of Ford (UK), said: 'The Government could be clearer about what its policy is. I think Michael Heseltine at the DTI is trying to evolve a strategy. He has been willing to listen to what the motor industry has to say, but the extent to which the DTI can move is restricted by what the Treasury sees as the needs of the economy.

'We asked for 2 per cent off interest rates and that is what we have got in the last month, so we have got be pleased with the latest reduction,' he added. 'But consumer confidence is still very fragile. Since Black Wednesday, there has been a further shake-out of jobs in manufacturing industry. We have now had the coal closures and the knock-on effect on suppliers. All this may make consumers very concerned about the future and therefore make them unwilling to take money out of their bank accounts and spend it.'

At the other end of the industrial scale, Victor Frith, the founder of V&F Sheet Metal Co, a small Hampshire subcontractor, has remarkably similar complaints: 'The Government is too hell-bent on zero inflation and is killing a lot of things on the way.' Eighteen months ago, said Mr Frith, customers were still ordering weeks in advance. 'Now no one is ordering or planning any more. It's bloody chaos every day. Everyone's lost the confidence to do anything at all.'

What makes the latest bad news so sinister and what is causing near panic in Britain's boardrooms, is that recession is again hammering manufacturing companies. Two years ago, the biggest difference between this recession and the last one appeared to be that services were suffering this time as oppposed to manufacturing in the early 1980s.

While the weight of the current recession fell initially on the service sector, the damage has spread again to manufacturing. This time, with its fat already cut away, manufacturing is having to hack into its muscle. In the long term, that may be what makes this recession more frightening than the last.

Lucas is one example. The company was not overweight, but it was investing heavily in itself to keep up with international competitors. The financial strain imposed by three years of recession, however, finally made this expenditure unaffordable. After slashing its workforce and selling off businesses to stay alive, however, Lucas will find it increasingly hard to compete with foreign rivals.

Even worse than manufacturing is the plight of the construction industry. The slump in property values and the decline in new building is driving construction chiefs to the verge of apoplexy. The industry expects to shed 120,000 jobs by the end of the year and accuses the Government of failing to stimulate the economy. Sir Lewis Robertson, the leading Scottish industrialist and chairman of Lilley, the construction group, said: 'The length of the present recession is probably causing lasting damage. We need some steps to reactivate the economy rather than continuing to pursue the goal of zero inflation. There's enormous danger in holding on for yet another year of severe recession. The Government needs to let out the rope so as to encourage confidence. We need at least one more drop in interest rates.'

There is deepening scepticism, however, that the Government will do anything to help, or indeed is capable of doing anything to help. Its blundering over the exchange rate and the coal industry have weakened its support. Its lack of an economic or industrial policy causes cynicism.

For a growing number of British industrialists, a lack of confidence in the economy has become a lack of confidence in the Government. Now they fear that things can only get worse before they get any better.

(Photograph omitted)

Comments