As soon as anyone suggests that the UK exchange rate is too high and that the pound is overvalued, there's an immediate reaction - and not usually a good one! But the problem is that the high pound is causing us all sorts of difficulties and it's affecting every man, woman and child in the UK right now, today.
The hard fact is, the high pound makes everyone worse off. It affects all our lives. It cripples the country's ability to grow. It increases the amount of debt the country owes and this gets reflected in more government borrowing. It stifles businesses' ability to prosper and so to create more jobs. It makes it incredibly hard to get unemployment right down and it consigns millions of people, young and old, to the employment scrapheap. Basically, a high pound is a very bad thing all round.
In the UK we have real difficulty facing up to the fact that we have, arguably, one of the most overvalued currency in the world. I, along with many other economist and businessmen, use words like 'strong' to describe our currency. In most other areas of our lives, strength is a good thing. It can indicate power and self-reliance; control and capability. But in the case of our currency, strength is a very bad thing indeed and until we face up to this we'll never really turn the economy around.
Having an uncompetitive exchange rate, a 'strong' pound if you will, ultimately means fewer jobs and, importantly, lower wages and fewer pay increases for everyone in work. So whether you believe it or not, having a currency that today stands at $1.68 per pound is not great. It's nice if you're going to the USA on holiday. But it also means your wages never go up in real terms, your bills get more expensive and you've got a good chance of losing your house when your firm goes bust due to much cheaper products coming in from China. I know I'd rather have stability, prosperity and long-term security than a cheap holiday in California.
There's also another insidious problem with having a high pound: it breeds inequality. The massive increases in the disparities in income, wealth and life chances in the UK which we have seen in recent decades both geographically and socio-economically are very largely caused by the disproportionate growth in services in some areas of the country matched by the decline of industry in others. Manufacturing is far better at producing high quality blue collar jobs than services and it is the decline of industry in areas of the country which have traditionally been our industrial heartland which has caused most of the enormous disparities which now exist. This distressing inequality can't be ignored by politicians from every party forever.
Our high exchange rate makes British-made goods much more expensive than cheaper Asian imports. In 1950, the UK produced more than 10% of all the world's exports. Now our share of world trade is only 2.6% - a fall of nearly three quarters in ratio terms.
Because our manufacturing base is crippled by our exchange rate, we do not have enough to sell to the rest of the world to pay for our imports. This means the country's balance of payments deficits are a constant drag on our economy. Therefore there are fewer jobs and fewer people paying taxes and our public services suffer.
So what's the solution? We need a change in UK economic policy. We need a government that will take steps to tackle our uncompetitive pound. If our leaders acknowledged the issue and planned to realign sterling we would see almost instant, highly positive results.
With a much lower exchange rate, UK made goods would become much more competitive in world markets. Plus many goods which it's not worth producing in the UK at the moment would become cheaper to make here rather than bought in from other countries. Exporting would become profitable once again.
A sustainably expanding economy would attract ever-greater inward investment. The government would have the money for infrastructure projects and support for the regions. New businesses would be created; new jobs and new types of career opportunities would follow. Young people would see the correlation between a good education and job prospects. Public services would be better funded through increased taxation and government debt would be greatly reduced. Innovation would increase and wages would rise. We would be a proud, outward looking nation; a new economic force.
All our politicians need now is the will to take action; the strength to face the problem head on, and the vision to embrace the solution. If we had a more competitive pound today, tomorrow we'd all be better off.