The UK Budget: Can you make a new supply chain?

Today is ’Budget Day’ in the UK. A rather antiquated tradition, where the government outlines its financial and economic policies for the next twelve months.

Of course, it is constantly tweaking and adjusting policies over the course of parliamentary term, but the day provides the drama and attention that political parties crave, and provides a set-piece for tax advisors, accountants and business to base their plans.

One of the strands of discussions upon which the Chancellor, George Osborne, will be pulling relates to the manufacturing base. The issue of the dramatically diminished British output in physical goods has been a heated issue in a country which once considered itself the ’workshop of the world’.

Outsourcing operations to low-cost countries and a greater economic reliance on the services sector had created a vulnerability – for many commentators – in the British economy to events such as a financial crisis. The solution seems to lay behind offering the country a more resilient portfolio of productive activities by strengthening the manufacturing base.

In response to this, Osborne aims to lead the ’march of makers’, and resume industry to the heart of the British economies. Undoubtedly, fine words, but can we so easily restore the dark satanic mills?

The PIU’s CPO Strategy 2012 found that one of the main obstacles to companies sourcing goods from local suppliers is the lack of availability. The lesson seems to be: once you have sold the family silver to China, it will never return.

Osborne’s problem is the inherent complexity of modern business. Supply bases are fiendishly knotty: suppliers buy goods from their buyers; the second and third tier weave in and out, suppliers merge, spin-off, implode, off-shore, collude and engage in a whole range of unpredictable ventures. The contracts are long-term and the relationships deep. The skills required are difficult to find and take many years to train.

It is frankly delusional to suppose that you can recreate these complex supply chains at a whim. Moreover, that you can do so fighting against the tide of recent economic history.

It may be unfair to judge prematurely. The details of his proposals have yet to be released (a comparatively rare non-leak prior to the big moment), but aside from the imposition of Stalinist five-year plan it will be hard to see how the government can fix a sector of the economy which may be permanently broken.