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Prospering amid recession: Lessons from Landrover?

In less than forty eight hours the Chancellor may have to make some pretty unpleasant admissions. In the autumn statement on Wednesday, essentially a mini-budget, he is expected to have to admit that the government's plans to pay off the deficit are running behind, and that the government is not right now on course to meet its other big target to get the debt falling as a share of the country's entire income by the next General Election.

There will be more detail of how cuts that are already planned will shake down, but he will also have to to spell out additional areas of spending that are to be hacked back, and it's expected, say that cuts will go on for way past 2015, perhaps up to 2018.

George Osbourne Credit: Owen Humphreys/PA Wire

A few points it is important to remember before the hue and cry around all of this ramps up;

  • The deficit is the gap between what the government spends and gets in from taxes every year. And consistently, government has been spending more, so the deficit has been getting bigger every year.
  • The debt is the total of everything the government has borrowed that has built up over time. One way to think of it roughly, is as if the deficit is your monthly credit card bill. If you've been spending more than you earn using your flexible friend you have a hole in your finances every month. The debt is a bit like the scary bit on the bottom of the bill that racks up, including interest, if you keep spending more and more every month, and never pay anything off apart from the interest.
  • It's also worth knowing that despite the government's cuts, the total amount they spend has actually been increasing and will continue to do so. There are cuts in real terms at different government departments, that is evident from the decisions government has made about cut backs. But the absolute total is still going up and up because ministers haven't been reducing spending at anything like the rate that would be required to get it down.
  • And there is the not insignificant question of having to pay that interest on the debt too.

On Wednesday, all sorts of very important details will emerge; the squabbles over who won what in the coalition; did the Conservatives win out with a tighter squeeze on welfare? Did the Lib Dems manage to get a tougher approach to taxing the rich?

One very important detail will be if the economy is judged to be in permanently worse shape than had been thought, or if the poorer than expected performance is temporary and we will bounce back. But in the big picture, the main difficulty for the Chancellor is that his sums don't add up as he expected, because the economy hasn't grown as he hoped.

The rebalancing to manufacturing away from financial services hasn't happened as planned. Nor have UK firms been able to move to exporting in the way it had been hoped. So we spent the day with one of the most successful companies working in this country who have been manufacturing, and exporting, to see what lessons there might be.

Jaguar Landrover exports a whopping 80 percent of the cars they make in the UK. And time after time their financial results impress when, just a few years ago they were in very real financial trouble. Since Tata, the Indian company, bought them in 2008 they have invested heavily in staff and in products and design, and focused on moving assertively into emerging markets which have now, the executive director Mike Wright told me, 'emerged'.

Ahead of Osborne's statement on Wednesday he says the government must continue to focus on infrastructure, training and the education system. But despite the company's big success, he says in fact, they're 'playing catch up' with their competitors from different countries. Their rivals were moving 'into China 15 years ago' he says. This Indian backed British success story says there is 'work to be done' if we have any hope of getting level with competitors like Germany.

New Land Rover cars at the Landrover and Jaguar Halewood plant in Merseyside Credit: Peter Byrne/PA Wire

As the company has intensified its focus abroad it has also made big changes at home. The production line at the Solihull plant is spotless, looking in parts more like a science lab than how you might imagine an industrial plant. Craig Fitzgerald who spent 18 years working on the line tells me when he started there were 'twice as many people making half the number of cars'. Now some of his colleagues are robots.

The highly advanced factory does not require as much muscle power as in years gone by but such is demand for the products that the number of staff has been going up again the last couple of years. Craig tells me last year, 28,000 people applied for 1,400 jobs. He says workers at the plant are loyal, and it is clear he is immensely proud of the turnaround at the company.

In part though, he says the atmosphere has changed because staff appreciate 'how hard things are outside the factory'. Several of his friends who worked elsewhere lost their jobs, others are working 2, 3 or even 4 jobs part time because they can't find full time work.

A short drive away is Sertec, one of Landrover's suppliers, that has powered out of this recession, and is expanding, taking on more staff. Sertec has seen off several recessions. But Dave Steggles the Commercial Director says the way firms have to do business is 'unrecognisable'. He says 'you can't afford rest on your laurels and to think OK I have an order that will last for five years, I'll get the next one. Somebody will catch up with you. They may not be in this country, they may be in Europe or further afield, but you will get caught out.'

Right now, in this economy, from staff at Landrover from the boardroom to the factory floor, perhaps even the best in British business are having to work harder, and smarter, to survive and succeed. Later this week, with a weaker economy, a longer wait to achieve his plan, the Chancellor's own supporters, not just the opposition, may ask the same of him.

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