What a State!

State spending now accounts for over half the UK economy, for the first time ever. And that excludes bailouts for the Banks!

In 1997 the figure was 40%, but it now stands at 52% according to the OECD. This is the highest proportion since its figures began in 1970. The previous record high was 49.4 per cent in 1981 as Britain recovered from near bankruptcy in the 1970s.

The OECD report goes on to suggest that structurally the gap will continue to rise. According to the report’s author, Henrik Braconier, only a few developed countries – like France and Sweden – have a higher proportion of State -v- Private Sector economies; and (take a deep breath before reading on) if one adds in the banking bailout UK state spending approaches that of Communist states.

Braconier’s summing up?…….the figures “definitely” signified that something was wrong in the economy. “This won’t go away by itself,” he said. “There need to be cuts in expenditure or rises in tax to balance this situation over the longer term.”

New analysis released yesterday has already shown that the UK has the highest income tax rates in the G8 group of the world’s biggest economies. Overall, the average Briton now pays twice as much tax as they did in 1997 and already face a series of tax rises. The new 50p rate of tax for high-earners will be introduced next month. Next year National Insurance will also increase.

All of the above means that demand will be flattened and companies will need to be competitive to survive. Attacking costs – wherever they may be – is absolutely paramount. £10k of non-core overheads saved is equivalent to £100k – £120k of annual sales growth for the typical UK company.