Facts about the United Kingdom

by on February 23, 2012 at 1:10 am in Uncategorized | Permalink

Despite a 25 per cent devaluation of sterling, UK exports to Asia in the last three years have grown at a slower rate than those from Greece and Spain. In 2011, per capita gross domestic product in Ireland was greater than that in the UK. Meanwhile, the role of the state in the UK economy has grown and taxes have risen.

…More generally, individual risk and effort is not rewarded when the UK government share of GDP has risen from 38 per cent in 1999 to 51 per cent in 2011, the effective top rate of tax is over 50 per cent, and CPI inflation for the last five years has averaged 3.5 per cent.

That is from MP Liam Fox, more at the link.  Elsewhere (gated, at The London Times) I have written that the UK is especially vulnerable to The Great Stagnation.

Here is Tim Worstall on the Laffer Curve in the UK.

1 ccz February 23, 2012 at 2:27 am

All those saying that Portugal must leave the euro to be more competitive, should study the data: 2011 – Portuguese exports grew 15,4% (around 20% to extra-EU markets) German exports grew 11,2%.

Compare the exports growth rate between 2005 and 2010 for EU-15 countries: http://t.co/rbTkcUuD

Economists are dumb when they still cling to the model of perfect competition where the price is king… long live the Kaldor paradox

2 Merijn KNibbe February 23, 2012 at 9:11 am

It’s also fun to look at the development of Portuguese wages – not a sign of out of control increases. The increase of Unit labor Cost in countries like Portugal might be caused because of a shift of self employed to wage labor (Unit Labor Cost is calculated by dividing wages by total income, total income including income of the self employed) but basically not by higher wages. The ECD and Eurostat however give somewhat different metrics on Portuguese wages.

3 Andreas Moser February 23, 2012 at 2:30 am

I have been living in the UK for 2 years (until I escaped a few months ago: http://andreasmoser.wordpress.com/2011/11/13/leaving-london-moving-to-malta/) and I have not seen anything that gives me hope in these two years. No entrepreneurial spirit, an entitlement culture, everybody blames somebody else – the bank, the government, immigration.A sad place.

4 ccz February 23, 2012 at 2:32 am

BTW, speaking about exports of goods, the Portuguese evolution since 1993 was: http://t.co/MkGgJS5T
.
Can you see the shock, the impact of leaving the escudo and adopting the euro?

5 PK February 23, 2012 at 2:41 am

@ccz:

Portugal’s trade deficit is 10 pc GDP, while German trade surplus is 5.5 pc GDP (as of 2011 estimated data).

Portugal is second only to Greece, whose trade deficit swells up to 13 pc GDP.

Now what?

6 ccz February 23, 2012 at 2:59 am

Portugal’s trade deficit is another problem.
Austerity and exports are taking care of that.
Last year exports of goods and services covered 92% of imports. If you don’t consider oil, there is no longer a trade deficit.
.
You can see the evolution here http://t.co/IswnIbnM

7 dearieme February 23, 2012 at 4:18 am

“the UK government share of GDP has risen from 38 per cent in 1999 to 51 per cent in 2011”: why have you used the passive?

8 j February 23, 2012 at 4:24 am

I don’t think it’s the best place to ask questions to Liam Fox about his writing…

9 GiT February 23, 2012 at 4:24 am

Maybe you should ask MP Liam Fox, since you’re quoting a quote.

10 a February 23, 2012 at 5:33 am

How high are marginal rates of deductions in the UK?:

Consider an employee paid £50,000 gross who gets a £1,000 pay rise.

Let’s assume they are yet to pay off their student loan and contribute 7.5% to a (underfunded*) pension scheme and get 8% employer contributions to their pension.

Our employee’s employer will also pay the government an extra £218 pension contributions and national insurance (payroll) contributions, 8% and 13.8% of gross earnings respectively.

So the total increase in cost to the employer is £1,218.

Of their pay rise our employee pays £75 pension contributions, £90 student loan repayments, and £370 in income tax, giving total employee deductions £555.

This gives a marginal deduction rate of 63.46% (£445/£1,218).

If our employee buys goods which are liable for VAT they will lose a further 20%, resulting in a 70.77% marginal rate of deductions.

Oh and our employee must pay a local government lump sum tax of around £1,500 from their net wages.

So our employee faces a marginal rate of deductions 63.46% on non-VAT items, 70.77% on VAT items, and an average rate of deduction of 52% of pre-deduction earnings.

A similar analysis on a worker paid the minimum wage (around £12,500 a year), or £1000 above the minimum wage results in a marginal rate of deduction of 32% and an average rate of deduction of 52%. This ignores the withdrawal of means tested benefits.

Might this be the supply side explanation Scott Sumner has been looking for?

* UK private pension schemes currently have a £265bn deficit.

11 Ed February 23, 2012 at 7:47 am

While I broadly agree that the U.K. government and U.K. debt is bloated, isn’t Liam Fox a bit discredited?

12 bankerbanter February 23, 2012 at 8:39 am

This is totally preposterous! In the UK, we have the queen, tea, rain and the £. We also have the 2012 Olympics which we are prepared to give away (we cant afford them any more). We are entitled to bankers’ bonuses and tax cuts, not austerity and job cuts.
We won the world cup in 1966 and won two world wars. You try beating that with Blair and Gordon Brown at the helm of your country for almost 15 years! Go on, I dare you.

13 Merijn KNibbe February 23, 2012 at 9:08 am

Wasn’t it in 1937 that the gas lamps of Londen inspired Jan Romein to formulate his Law of the handicap of a head start?

14 JWatts February 23, 2012 at 10:32 am

I wish to thank the UK for their selfless sacrifice in providing empirical direct evidence of the Laffer Curve and an indication that it’s somewhere in the 50% tax rate range.

I realize only a very foolish person could argue that the Laffer Curve doesn’t exist, but none-the-less I’ve seen that implication written many times. And many that admit that it most theoretically exist still manage to claim that it doesn’t kick in until very high tax rates.

15 Bill February 23, 2012 at 11:56 am

J, So what you are saying is that England’s unemployment rate must be lower because that high paid worker didn’t have the incentive to work more hours, and therefore someone had to be hired to work the additional hours?

Very interesting.

16 Yancey Ward February 23, 2012 at 2:55 pm

Bill,

You have raised misunderstanding to an entirely new level of art. By all means, explain your point. I am waiting with bated breath. And, I know exactly what you were trying to claim, but am just dying to see you justify it.

17 JWatts February 23, 2012 at 2:56 pm

B, No I didn’t say that.

18 John Thacker February 23, 2012 at 12:49 pm

The UK is an example of “austerity” in the same way that the George W. Bush years were an example of austerity and libertarianism.

19 Yancey Ward February 23, 2012 at 1:10 pm

+1

20 Travers Naran February 24, 2012 at 3:10 am

Um, looking at Eurostat’s EU27 External trade – Monthly data, the 2011 export trend from March to December showed:

(Relative to March 2011)
EU 27: 5% up
UK: 7% up
Spain: 3% up
Greece: 23% up, but it wildly gyrated during this period.

The UK has problems, but picking on Asian trade numbers to try to make the UK look worse than it is. Is no one going to call him on that?

And Ireland’s per capita GDP thing is, as Krugman and others pointed out, it seems to be pharma driven: Very few people making very valuable (RE: Viagra) products to export.

Again, this cherry picking of statistics is very suspect and kind of undermines my respect for Tyler to quote this article.

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