We are often told Britain has a problem with how productive its labour force is. We are warned that we are not pulling our per-capita weight relative to our past, or measured by comparison to our rivals.
The argument runs that we should not be surprised that the pace at which wages are growing across Britain is poor, given that our productivity does not make us worthy of “natural” income inflation. Indeed, some see wage inflation in the face of static productivity growth as an inflationary push and a degrading of our poor global competitiveness. We are told that our competitiveness must be bad since our balance of payments figures show us to be so much in the red.
Were all these concerns not enough to darken our mood towards Britain’s economic future, we are warned we face housing and regional tensions and a not-unrelated immigration crisis, as well as a pensions time-bomb among a number of debt-led detonations – one emanating from a highly leveraged property market, another from within a heavily indebted state sector.
I do not believe in the arguments underlying these misconceptions, nor the accuracy of the figures used to support them. For while the UK economy does have its challenges, we should be careful how we measure them. The reality is that Britain’s economy has nothing like the productivity or balance of payments problems many claim it has. And the reason for this is that the data relied on to support these claims is unreliable. Nor does it have an endemic problem with household incomes, housing supply or a widening regional wealth gap.
Britain’s economy is performing better than traditional performance measures suggest because there is nothing really traditional about it. Britain is the prototype modern high-value-added economy, open to making engineered goods and business services sold across the emerging world and educating the world’s young for a not inconsiderable price.
Modern Britain is also enjoying a dispersion of wealth around it that will be spurred on by an enlarged PRS and devolution of tax and spending powers from London to Scotland and Wales and widely across England.
What I need to emphasise is that, by virtue of the markedly conflicting political hues painted by policy in Westminster as against Holyrood, we will see quite different approaches to fiscal management. We are in effect set to see a control experiment in practice.
rom the approach in Holyrood to student fees, across to its strategy on public sector rental housing and general residential and commercial property-based taxes, I can only see Scotland coming out over future years as a relative laggard across the UK. Even the anti-GM crop sentiment from Holyrood suggests the same.
As much as I expect England’s economy to outperform Scotland’s across a range of asset price and real growth metrics, those looking for the best relative performance across the former should focus their attention to the Midlands and North West. These regions in particular will benefit from their strength in automotive and other engineering sectors as well as their extensive university coverage. They will also benefit from the arrival of households and businesses relocating from the South East. Devolution will not widen our regional splits, but will tackle the stubborn regional dispersion in household wealth and economic growth.
It seems that the biggest problem faced by our economy is that we are inclined to exaggerate its problems and understate its strengths, a sort of national economic dysmorphia.
Just consider Norway, Qatar, Singapore and China, a quartet that has amassed considerable sovereign wealth funds. All have deployed sizeable chunks of these into savings overseas. And if one were to track where these savings have gone’ there is one particular destination that is common to all four: Britain.
Wouldn’t you agree that this says something rather positive about how others see us?
Savvas Savouri is chief economist at Toscafund
