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]

10 Joy 14 F Squadron 259 Hairdressing for Men 4 Front Networks Ltd.
4front Technologies U K Ltd. 97 Broadhurst Gardens Management Company A & A News A A H Pharmaceuticals
A A Oaklands A B C Playgroup A Elsdon A F Curtis
A F M Security A F Young A J M Electrical Contractor A J R Decorators Ltd.
A Karim A M C (UK) Ltd A M Newton Electrical Contractors A M O Security Systems
A Mouskis A P Hills A P R (Cars) Ltd. A R Carpets & Upholstery Cleaning Services
A S E G A Ltd A S J Painters & Decorators A S Peck Engineering A T & E E T H Hopkins
A-Plan Insurance Group A.R. Management Co Ltd Abbey School Of Motoring Abbeyash Ltd
Abbots Glass Ltd Absolute Logistics Ltd Accoutre Management Ltd Accurate Flooring
Ace Cv's Ace Industrial Cleaning Co Ace of Spades Acorn Youth Club
Action Replay Sports Activity Benchmarking Activity Benchmarking Ltd. Activity Nurseries
Acuherb Adare Adrian School of Motoring Advance Cash Registers Ltd.
Advance Deterant Technology Ltd Advance Property Preservation Ltd. Advanced Arb Services Ltd Advantage Computer Services
Agi Agencies Ltd. Ainderwell Limited Alan John Associates Aldwicks Hot Bread Shop
Alex Alagappa & Co All About Flowers All Building Services All Clear Light Removals
All Fence Allforms Ltd. Allied Roofing Allmodels Engineering Ltd.
Allparts Car Factors Allum's House Clearance Service Alperton Supplies Ltd Alpha Laundry Systems
Alphen Business Consultants Ltd Altnacraig Shipping Plc Altons Altons (Menswear) Ltd.
Altons Baby & School Childrens Wear Always Associates Always Under Pressure American Biochemical & Pharmaceuticals Ltd.
American Snack Food Ampere Consulting Andrew Saxby Andrew's Barber Shop
Andsome Prints Andy Shennan Angel Continental Bakeries Ltd. Anne Houghton Mobile
Anne V.V. Nobbs D.O., & Larae.G. Seymour bsc. (Hons) Ost Anne's Annies Dry Cleaners Anthony Deavin
Anthony R Ellingham Haulage Antoria Carriage Co Apex Leather Craft Aplom Ltd
Appcourt Ltd. Applied Planning Partnership Aquarius Fish Restaurant Architectural Advisory Service Centre
Architectural Review Arden House Veterinary Hospital Aristocrat Technologies Europe Ltd. Arjay Carpentry