Whither UK? Wither, UK...
It seems the winds of change are beginning to blow, although their effect may not be apparent for some time.
A lot of media space has been given to analysis of the rejection of the EU constitution by the French and Dutch voters, and then the shilly-shallying by Tony Blair over the UK referendum, and finally the collapse of the push for ratification elsewhere in Europe. More has been written about this than was written in analysis of the constitution, and it's implications for member states, before the referendum. Despite all the coverage, there is still space for an examination of the future of the UK, in both a European context and as a nation state.
As a nation state, the UK government is ostensibly very proud of it's economic achievements (recently trumpeting 62 consecutive months of growth). In comparison with Europe, we are indeed economically vibrant, but that is a bit like comparing someone who runs for fun with an asthmatic couch potato; our record ain't much to write home about, and it is taking a turn for the worse. In fact, it is ironic (and often the case) that just as the biggest banners are unfurled by the government to proclaim their achievements, the economy is about to stumble, if not fall flat on it's face, possibly just as Europe starts a resurgence.
Why are we not the economic powerhouse so many seem to believe we are - what has sapped our economic gusto? There are two telltale elements, neither of which is headline news in the press, but which, between them, tell the story of our slow decline:
First, there is the extension of the time it takes for your earnings to start accruing to you, rather than the government. 10 years ago it took until about the 25th May for you to reach the "free" level, i.e. anyone on PAYE would pay the equivalent of 5 months wages to the government in a working year. Now, in 2005, that period has extended to early June. It may not sound like much, but that is over a week of extra unpaid labour. Imagine your employer asking you to work one Saturday a month, for nothing; not something you would agree to without a fight.
Whether or not you think this extra taxation is a good thing will depend on your politics; your political bias should not, however, blind you to the potential for sapping economic vigour that this drift has. There is plenty of analysis of the impact of increasing government spending (as a share of GDP) on investment, and thus growth, and the reasons behind that. It also has a psychological effect, which I would be willing to bet is becoming apparent to a large slice of the population, caused by the diminishing disposable income available for discretionary spending.
This situation may be about to become a lot worse, as both tax revenue streams shrink (due to a slowing economy and some bad results in court on various tax matters) and various items of public debt which were quietly being hidden off-balance sheet are revealed (probably under duress).
All this says to me that PAYE workers, who now find their pensions under-funded, their children under-educated (unless they pay for private education) and their houses over-mortgaged, are beginning to feel the pinch, a situation which is about to deteriorate. Psychologically I expect this to introduce risk-aversion on an individual level, the cumulative effect of which will both drag down the consumer spending side of GDP, and reduce entrepreneurial activity. The effect will not be as discernible as, say, Ford shutting a car plant in Dagenham (couldn't bring myself to say Rover), but just because you can't see it, don't mean it ain't there.
The second big element contributing to our slow decline is the implementation of the ideology that says if a flaw in an area of activity is uncovered, legislate or regulate to prevent it in future. This both ignores basic precepts of the human condition (if a mistake can be made, it will be, eventually), and over-estimates the ability of rules to change behaviour. Adherence to this ideology has been one of the worst aspects of our present government, as it has often presented new laws or regulations as a solution to a problem, when in fact they are merely the wallpaper covering the cracks, or the band-aid on the wound.
The (gradual) outcome of the new rules and regulations is a slow constriction of economic activity. Again, it is not something you can see taking shape as it's impact is so gradual; however, if you know someone with a small business I doubt they have been quiet about the effect of regulations.
These two elements are major factors in the UK's slow decline; why have I mentioned them in the context of Europe? Because, ironically, despite the likelihood that a referendum on the European constitution in the UK would probably have shown us as the most eurosceptic nation, we are actually becoming more European than the Europeans, in some ways. As we become more constricted by red tape, Germany (and to a lesser extent, France) are taking steps to eliminate some of theirs; as our government takes bigger slices of our income in tax, the French and the Germans are seeking ways to reduce theirs.
That is not to say that we will embrace a European social model, just as our neighbours eliminate it; rather that we may wake up and discover it has come about without us noticing, probably surprising our political leaders as much as the public in general. It will be like inheriting an old house, in an area nobody wants to live, and with major repair bills arriving on a regular basis.
Still, one good thing: however "European" we become, the French will never like us.
Joss Bolton
A lot of media space has been given to analysis of the rejection of the EU constitution by the French and Dutch voters, and then the shilly-shallying by Tony Blair over the UK referendum, and finally the collapse of the push for ratification elsewhere in Europe. More has been written about this than was written in analysis of the constitution, and it's implications for member states, before the referendum. Despite all the coverage, there is still space for an examination of the future of the UK, in both a European context and as a nation state.
As a nation state, the UK government is ostensibly very proud of it's economic achievements (recently trumpeting 62 consecutive months of growth). In comparison with Europe, we are indeed economically vibrant, but that is a bit like comparing someone who runs for fun with an asthmatic couch potato; our record ain't much to write home about, and it is taking a turn for the worse. In fact, it is ironic (and often the case) that just as the biggest banners are unfurled by the government to proclaim their achievements, the economy is about to stumble, if not fall flat on it's face, possibly just as Europe starts a resurgence.
Why are we not the economic powerhouse so many seem to believe we are - what has sapped our economic gusto? There are two telltale elements, neither of which is headline news in the press, but which, between them, tell the story of our slow decline:
First, there is the extension of the time it takes for your earnings to start accruing to you, rather than the government. 10 years ago it took until about the 25th May for you to reach the "free" level, i.e. anyone on PAYE would pay the equivalent of 5 months wages to the government in a working year. Now, in 2005, that period has extended to early June. It may not sound like much, but that is over a week of extra unpaid labour. Imagine your employer asking you to work one Saturday a month, for nothing; not something you would agree to without a fight.
Whether or not you think this extra taxation is a good thing will depend on your politics; your political bias should not, however, blind you to the potential for sapping economic vigour that this drift has. There is plenty of analysis of the impact of increasing government spending (as a share of GDP) on investment, and thus growth, and the reasons behind that. It also has a psychological effect, which I would be willing to bet is becoming apparent to a large slice of the population, caused by the diminishing disposable income available for discretionary spending.
This situation may be about to become a lot worse, as both tax revenue streams shrink (due to a slowing economy and some bad results in court on various tax matters) and various items of public debt which were quietly being hidden off-balance sheet are revealed (probably under duress).
All this says to me that PAYE workers, who now find their pensions under-funded, their children under-educated (unless they pay for private education) and their houses over-mortgaged, are beginning to feel the pinch, a situation which is about to deteriorate. Psychologically I expect this to introduce risk-aversion on an individual level, the cumulative effect of which will both drag down the consumer spending side of GDP, and reduce entrepreneurial activity. The effect will not be as discernible as, say, Ford shutting a car plant in Dagenham (couldn't bring myself to say Rover), but just because you can't see it, don't mean it ain't there.
The second big element contributing to our slow decline is the implementation of the ideology that says if a flaw in an area of activity is uncovered, legislate or regulate to prevent it in future. This both ignores basic precepts of the human condition (if a mistake can be made, it will be, eventually), and over-estimates the ability of rules to change behaviour. Adherence to this ideology has been one of the worst aspects of our present government, as it has often presented new laws or regulations as a solution to a problem, when in fact they are merely the wallpaper covering the cracks, or the band-aid on the wound.
The (gradual) outcome of the new rules and regulations is a slow constriction of economic activity. Again, it is not something you can see taking shape as it's impact is so gradual; however, if you know someone with a small business I doubt they have been quiet about the effect of regulations.
These two elements are major factors in the UK's slow decline; why have I mentioned them in the context of Europe? Because, ironically, despite the likelihood that a referendum on the European constitution in the UK would probably have shown us as the most eurosceptic nation, we are actually becoming more European than the Europeans, in some ways. As we become more constricted by red tape, Germany (and to a lesser extent, France) are taking steps to eliminate some of theirs; as our government takes bigger slices of our income in tax, the French and the Germans are seeking ways to reduce theirs.
That is not to say that we will embrace a European social model, just as our neighbours eliminate it; rather that we may wake up and discover it has come about without us noticing, probably surprising our political leaders as much as the public in general. It will be like inheriting an old house, in an area nobody wants to live, and with major repair bills arriving on a regular basis.
Still, one good thing: however "European" we become, the French will never like us.
Joss Bolton
posted by Jambutty at 10:47 am
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