New records

London news

Britain: a case study in low-growth economic mediocrity



BRITAIN is stuck in a rut. No wonder that investors and credit rating agencies are losing patience: the coalition doesn’t have the guts or decisiveness needed to jolt the UK out of its present mediocrity, while the opposition is busy dreaming up new taxes, thinks that a slightly looser fiscal policy would transform our prospects and has no real understanding of the extent of our fiscal crisis.

Britain’s tax receipts confirm that the economy continues to do poorly, albeit not disastrously. So far this fiscal year, receipts from Vat are up 2.2 per cent, less than the rate of inflation. Income and capital gains tax receipts are down 0.2 per cent and corporation taxes are down 8.4 per cent: while in both cases there have been tax cuts (a higher personal allowance and lower corporation tax rates) these don’t explain such shockingly bad numbers. Very limited pay rises, a drop in reported income from the highest earners and weak profits are among the answers. National insurance contributions are up a healthier 3.4 per cent, though this not anything worth shouting about.

What all of this suggests is an economy that is either stagnating or growing a little, but by no more than a few tenths of a per cent. At best, the situation looks only marginally rosier than the official GDP figures; at worst, there is no difference. Mediocrity undoubtedly rules OK.

While revenues are poor, any progress the government is making in trimming overall expenditure on wages, benefits and other current spending is being more than cancelled out by increased interest on the growing national debt. During April 2012-January 2013, central government current expenditure hit ?525.7bn, 2.7 per cent higher than in the same period of 2011-12.

Depending on which measure of inflation one uses, real current spending was therefore either up or down slightly. The real cuts are happening in capex, the one area where state spending can be useful for long-term growth (though the private sector, if it were allowed to, could take over many projects). So far this year, central government net investment was minus ?6.4bn – with depreciation overwhelming gross investment – a massive ?27.7bn lower than in the same period of the previous year. So we are still seeing the wrong kinds of cuts, stagnant growth and weak tax receipts. Unless something drastic changes soon, it is not just credit rating agencies that will be running out of patience with the government.

One of this column’s themes is that we are now facing a world of low real returns across financial assets, with high inflation gobbling up nominal gains, and that the bond markets, after years of astonishing returns, are set for a crash. There is lots of evidence to back up this thesis in Barclays’ latest annual equity-gilt study. The conclusions are stark. Over the next five years, Barclays expects cash to provide negative inflation-adjusted returns of about -1.5 per cent per year (with compounding effects, that means a very sharp drop in value), “safe haven” government bonds -2 per cent – in other words, even worse than cash – and equities annual growth of 3-4 per cent. The authors believe that the bull market in government bonds – which peaked last year – will end in a whimper, rather than in a 1994-style crash. I suspect the authors may be too optimistic, but their case is that a shortage of “safe” assets, combined with a decision by the authorities to keep the monetary floodgates open, will do the trick. One thing is clear: savers are going to suffer.

Follow me on Twitter: @allisterheath

To comment on this topic please see our guidelines in the


Pages: [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24]

0000 Mini Cabs 1 2 A Kilometre Heathrow Cars 1 To Call Cars 101 Motors
1A Ace Vac Chimney Sweep Services 1st Choice Roofing 1ST Connection 1ST Impressions
1st Whitton Scout Group 241 Pizza Ltd. 3 C'S Counselling Service 3 D Computers Ltd.
3 In 1 Business Solutions Ltd 3 Technology 7th Heston Scout Group 8 Till Late
A & A Antiques A & A Hogan Ltd. A 1 Airport Minicabs A 2 B Radio Cars
A A A Speed Bird A A Accountants A A Communications A A Letting & Management
A A R International Inc A A S A Abhilash A B C Gardening
A B C Pressings Ltd. A B Heathrow Cars A B M Motors A B Pharos Marine Ltd
A B Pharos Marine Ltd. A C I Courier Ltd A C I Express UK A Desaur
A E G Video Productions A E J Travels A F C A F C International Ltd.
A F Pannell (Gardening) Ltd. A Family Dental Practice A G Walford (Electrical Wholesale) Co A J Hutton
A J Hutton & Associates A K S Consultancy Services Ltd. A La Pietra A M Couriers Ltd.
A M Y Building Services A P Motors A Page A Q Butt & Co
A Q Butt & Co. A Q Qurashi Architects A R K (U K) Ltd A S Transport
A Sandhu A T G Printing A U M Financial Services A U Sheikh
A W T UK Ltd A Woodrow Associates Ltd A.K. Jain & Associates A1 Chauffeurs & Travel
A1 Heathrow Airport Minicabs A1 Radio Cars Group A1 Reliable Removal Service A2 Airport Cars
A2 Mini-Cabs A2B Parcels Express A2z Communications A4 Auto Parts
AA 5 Star Heathrow Cars AAA Shaunak Motors Ltd AAH Abacus Europe Ltd.
Abba Cars (Heathrow) Ltd. Abbeyfield Hounslow Society Abc Cleaning Services ABC-Auto Body Centre
Abdul Brothers Ltd Aberdale Engineering Services Ltd Able Metal Finishing Ltd. Abletech Refurbishment Ltd.
Abree Swift Gas Absolut European Ltd Absolute Hospitality Ltd. Acacia Gardens & Horticulture
Accelerated Mortgage Corporation Access Security Systems Accounting Economics & Law Tutors Accounts Community Accountancy Project
Accuratair Ltd. Ace Collections Ace Forwarding Ltd. Ace Plumbing & Heating
Action For Employment Ltd Adam Crease Adelaide Nurseries Adept Tax Form Service