Recriminations and accusations abound as problems in UK PLC become increasingly evident..........
Astonishing attack on Bank of England : 'Incompetent, sloppy and suffering from mental paralysis'
By : Allister Heath November 20, 2005
THE Bank of England has been accused this weekend of incompetence, mental paralysis and disgraceful sloppiness in an extraordinary critique by a top economic consultancy.
The astonishing mauling, by leading London-based forecaster Lombard Street Research, uses unprecedented language and accuses the Bank's monetary policy committee (MPC), led by its governor Mervyn King, of producing research worthy only of the rubbish bin.
The attack, which comes as new figures reveal that the UK's economic performance has collapsed amid rising taxes and red tape, suggests a growing discontent with the conduct of economic policy in the City of London. Brian Reading, a director of Lombard Street Research, nicknamed last week's flagship quarterly Inflation Report on the prospects for the UK economy from the Bank "an un-believably incompetent and sloppy 'Inflated Report'."
He said that "the story it struggles to tell" is "drowned in detail and verbiage", despite being "essentially simple" and is an "exercise in futility".
"Any sensible person would by now have confined, unread, the 52-page Inflation Report to the dustbin," Reading said.
He accuses the Bank of England of being unable to make up its mind and of suffering from acute "mental paralysis". Reading added: "This report includes little if any analysis of recent monetary and credit growth. It provides absolutely no analysis of sector financial surpluses and deficits. In sum, it is a disgrace."
Lombard Street Research believes the Bank should focus more on the surge in the value of cash circulating in the economy and that it should be more decisive in fighting inflation. Usually, senior City figures are much more circumspect and deferential in their treatment of the Bank of England, even when they disagree with it.
The attack comes as the Centre for Economics and Business Research, another top consultancy, warns this weekend that the UK has collapsed to 19th out of 25 in the European Union economic growth league table in the first nine months of this year. The research deals a devastating blow to Chancellor Gordon Brown's claim to be presiding over a successful UK economy and will turn up the pressure ahead of the Pre-Budget Report on 5 December.
Fresh research seen by The Business this weekend reveals that the total tax rate on top earners is now about 60%, if employers' and employee national insurance contributions, income tax and indirect taxes such as value added tax are included. Cardiff University professor Patrick Minford said: "It turns out that the total tax system produces a top marginal tax rate of about 60%, which is the percentage of the wage paid by an employer taken by the state. Employees get £40 worth of goods and services valued at their true cost for an extra £100 paid for their labour by the employer."
If the UK grows by 1.7% year on year in the fourth quarter, as expected, it risks being overtaken by Poland and France and dropping to
21st out of 25, with only a handful of countries - Italy, the Netherlands, Finland and Belgium - doing less well. Even the struggling German economy overtook the UK during the third quarter, though planned tax rises from new premier Angela Merkel are likely to mean this will not last.Jonathan Said, economist at the Centre for Economics and Business Research, said: "Although the UK's advantages of flexible labour markets, a high employment rate and greater product market competition largely remain, some of the UK's other economic policy advantages from the mid-1990s are being eroded."
The OECD estimates that general government receipts (largely tax) as a share of gross domestic product (GDP) have risen in the UK from 38.8% in 1996 to 41.6% in 2005. In stark contrast, government receipts in the euro zone have fallen from 47.5% to 45.7% of GDP. The gap in government receipts between Britain and the euro zone has fallen from 8.7 percentage points to 4.1 points. UK public spending has surged even more significantly, and is set to reach 44.8% of GDP next year, according to the OECD.
Said added: "As the UK moves towards a more European tax environment, it may not be surprising that our relative growth performance is falling back."
Brown is also under fire this weekend for claiming that lower public borrowing figures mean he will not have to raise taxes to balance his books; critics say taxes have already surged by stealth, with supposed anti-avoidance measures tantamount to large tax rises on business. The money is partly being used to pay for a continuing public sector jobs bonanza. Manpower's Employment Outlook Survey, a quarterly report into hiring intentions, shows that the balance of public sector employers looking to take on more staff for the end of the year is +8%.