Browns tax and spend policy is diminishing Britains economic performance.
"higher taxes will lead to an inevitable collapse in Britain's economic performance, a rise in unemployment and a decline in foreign direct investment."............
UK tax grab now even larger than Germany's
By : Allister Heath January 15, 2006
The news, which confirms that Chancellor Gordon Brown has Europeanised the British economy by stealth through a massive programme of extra public spending and higher taxes, was condemned by top City of London economists this weekend. They said higher taxes will lead to an inevitable collapse in Britain's economic performance, a rise in unemployment and a decline in foreign direct investment.
The UK fiscal burden - mainly taxes but also fees and other government income - will hit 42.4% of gross domestic product (GDP) this year, according to an analysis of Organisation for Economic Cooperation and Development figures published this weekend by Bank of America. By contrast, the fiscal burden in Germany will fall to 42.1% of GDP, less than Britain's for the first time in recent history. Britain will also outspend Germany from next year, the OECD figures also show. In 2007, German government expenditure will fall to 45% of GDP, while British public spending will hit a new high of 45.7% of GDP.
Holger Schmieding, an economist at Bank of America, said: "Anybody who believes that Germany is a high-tax, big government country and that Britain is lean and low-tax may want to look at the figures. The great convergence between Britain and the Continent has been a major theme. As Britain squanders some of its post-Thatcher advantage and the Continent embraces some reforms, the two sides of the Channel are becoming much more similar again."
The extent of the transformation of Britain's economy has been dramatic, Bank of America says. As recently as 1999, German taxpayers were saddled with a 46.4% of GDP tax burden, against 40.4% for Britain, a six-point gap that has now vanished. Public spending has exploded in the UK from 37.5% of GDP in 2000 to 45.4% this year, according to the OECD figures, which unlike those from the UK Treasury are internationally comparable.
David Smith, chief economist at Williams de Broë, said: "These new figures show that Brown has resocialised the British economy and squandered the Thatcher legacy. The British political class must answer a simple question: why should Britain's growth rate and structural rate of employment continue to be higher than that the pathetic rate of Germany or Italy now that we are adopting their tax and spending levels?"
Smith added that the transformation of the UK economy into a Continental-style social democracy and the absence of any real alternative from an increasingly left-wing Conservative Party would frighten away foreign investors at a time when they are desperately needed to pay for Britain's surging current account deficit. Smith said: "It is hard to see why any foreign investor would want to touch the UK economy with a barge pole."
Britain's long-term, trend rate of growth will collapse form
2.5%-2.75% to 2.25% a year or slightly less, close to the euro zone's
2% rate, according to Bank of America. Schmieding said: "The great fiscal convergence is likely to leave its traces in the growth statistics over time."
Brown's public sector recruitment binge has crowded out private sector job creation, according to fresh research from think-tank Reform. UK regions with the largest percentage growth in public sector employment experienced the lowest percentage growth in private sector employment. The surge in state workers has also coincided with a dramatic slowdown in the growth of private sector jobs nationally.
Between 1994 and 1999, public sector employment fell by an average of
45,000 a year, the research shows. If this rate had continued after
1999, there would have been a decrease of 270,000 public sector jobs between 1999 and 2005. In actual fact, public sector employment rose by
637,000 from 1999 to 2005.
Between 1994 and 1999, private sector employment rose by an average of
362,000 a year. If this rate had continued after 1999, there would have been an increase of 2,172,000 private sector jobs by 2005. In fact, only 955,000 new private sector jobs were created.
Corin Taylor, economic research officer at Reform, said: "The huge rises in public sector employment have caused a massive transfer of resources away from the productive private sector, hitting economic growth and productivity."
A GfK survey of 500 business leaders for the Institute of Directors on Monday will reveal that UK business confidence is flat. The survey shows there has been no significant change in optimism, performance, profitability, capacity utilisation and investment intentions over the past three months.
City economists believe there is only a 25% chance of a rate cut in February 2005, according to a poll of analysts by Ideaglobal. The consensus is that the next rate reduction will be in May, when rates would drop by 0.25 points from their current level of 4.5%.