O Rose, thou art sick
How healthy is our economy, really? The Chancellor is able to point to our high employment, low interest rates and low inflation to justify his record. Nor must he worry unduly about the productivity comparison announced by the Office of National Statistics this week. France beats Britain here because it has high unemployment and short hours (productivity is measured per employee and per hour worked) and because it remains more of a manufacturing economy than we do ( it is diffi cult to measure the productivity of services). We must not conclude from the ONS figures that we should follow France into the bog of the “ social economy”. Britain still has the highest GDP per capita among large countries in Europe.
As Adam Smith said, however, there is much ruin in a nation. We suffer a bad trade imbalance, with a lot of consumption but not a lot of production. This is probably because, as the World Bank reported this week, we are slipping down the league table as a place to do business. British companies pay more than twice as much in tax as American ones do — 53 per cent of gross profi ts against 22 per cent — and marginally more than both the French and the Germans. Just as bad, the cash wrung out of taxpayers is mostly spent on shoring up unreformed services and meeting the savage rate of public sector inflation. Britain has the worst fiscal profile in the developed world.
The OECD has repeatedly warned that while most countries are progressing towards fl atter, simpler taxes and lower spending, Britain is heading in the opposite direction. The average size of OECD countries’ state sectors is 40 per cent of GDP; next year in Britain it will be 45 per cent. This includes borrowing as well as tax: we suffer a budget defi cit of over three per cent of GDP, and this at the peak of the financial cycle, when we should be storing up treasure for the lean times ahead. The outlook is gloomy enough, with major public sector financial shortfalls and unfunded pension liabilities.
Derek Scott, the Prime Minister’s former economic adviser, has warned of the “ effect of cumulative changes that ‘fur up’ the economic arteries”. Britain’s health is worse than it looks.