How ‘competitive tendering’ is ruining our economy

Year on year, every year, contractors and suppliers have to do their job for less money. These days it is written into the contract that savings will be made next year and the year after, so it is no longer just about suppliers believing they can save money now, it is also about faith in a future that will somehow, from somewhere, deliver savings.

So if I bid for a contract to clean a residential street, I must calculate the cost of the worker and the cost of his brush and pan, and then I must seek to reduce it. Next year I must reduce it more, and the year following, more still.

The previous Labour government were very much a part of encouraging this process, because the economy used to be so inefficient, and there is no doubt that we have a more competitive economy as a result. However, there are costs to the never ending pressure on suppliers.

Currency War and Debasement

When is inflation not called inflation? Answer, according to Mr Carney, when it’s dressed with the words, “Targeting Growth”. In fact it’s impossible to create growth through inflation in the long run.

In the short, you’ll get growth for one year, then the money is worth less, which wipes the growth out, so you have to generate more inflation to get another burst of growth, which is wiped out again.

The reason George Osborne doubled the money to attract Mark Carney to the Bank of England, was that he was desperate for someone from outside to invent a debt reduction policy which doesn’t look like Plan B.

The good news about inflation is that debt gets eroded. Government debt, the fixed-interest UK Gilts worth £1.15 trillion, get eroded pretty double-compound quick. If there was sufficient inflation, the debt would be eroded faster than Osborne’s failed policies are adding to it, and that’s saying something.

If the policy was moderate, using moderate inflation to reduce our debt, then maybe this wouldn’t be such a bad thing. But the problem is that they are being sneaky, shifty. They are calling it one thing but delivering another. Why the sleight of hand?

The bad news about inflation is that the policy maker can lose control very easily.

The other effect of debasing the currency is that Sterling falls against other countries on the foreign exchange proportionately, which should give our exports a boost and our imports some stiff competition. Although it doesn’t take long for prices to adjust accordingly and for the advantage to be removed again.

If everyone else around the world started trying to do the same trick, then chaos could potentially follow. If we try to outdo the Japanese, who try to outdo the Chinese, who try to outdo the Americans, who try to outdo us, then we’re engaged in a currency war.

If the Bank of England increased the inflation target from 2% to 4%, then we would be able to judge the success or failure of the policy against the target. But by “targeting growth”, there is no specific number for inflation, which means there is no accountability.