A letter to the Editor of the Daily Telegraph which was published on 27th October 1998.

City Comment was wrong to suggest that “four million people making things” contribute about the same to the “national economic cake” as a quarter of a million people in the City (Oct. 22nd).

The numbers and value of manufacturing are vastly understated by economic accounting in this country, because it classifies everyone who is not actually employed by a manufacturing company as being in services.  Over the past 20 years, probably all manufacturing companies have out-sourced as many functions as they possibly can, even including key functions such as design and maintenance.  These out-sourced functions are classified as “services” even though they are actually part of manufacture.

Likewise, it is an accounting fiction that the City “produces” 20 per cent of our national output.  Much of its so-called “output” consists of elaborate financial manipulation directed at attracting a disproportionate share of real output to itself.  City folk don’t spend their money on more insurance policies, bank accounts, derivatives and other financial “products”.  They buy the products of the real economy – cars, clothes, houses.

At a time when Rover is once more under threat, it should be recalled that manufacturers contribute about £110 billion to our exports – about 70 per cent of the total.  Even City Invisibles, the organisation formed to promote the City, doesn’t claim more than £25 billion itself – about 17 per cent of the total.

One of our most buoyant “service” exports – engineering consultancy – is not finance at all.  Financial services and much of the City do not represent output – but are overhead costs on the output of the real economy.

The fact that we have a higher proportion of our labour force engaged in financial services than any other major economy is a weakness, not a strength.  Viewing Britain as an economic enterprise, we should be doing our utmost to reduce, not expand this overhead.