BUSINESS FEATURES EDITOR
IN FEBRUARY this year, George Osborne gave a speech in which he vowed “to improve Britain’s global rankings for tax competitiveness and business regulation”. At least the Chancellor understands the problem. As discussed above, the latest Economic Freedom of the World report show Britain’s economic freedom declining from 2007 to 2008, only just making the world’s top ten below Australia and Mauritius. And as the Institute for Economic Affairs observes: “It looks certain that our level of freedom, as measured by the index, will decrease for at least the next two years – whatever the coalition does.”
With the hangover from Brown’s Britain colouring Britain’s standing in this league table for its next few iterations, can we turn elsewhere for comfort? Unfortunately not. As City A.M. reported this week, emerging rivals are snapping at London’s heels for the top slot among the world’s financial centres. Hong Kong is close behind London in the latest Global Financial Centres Index (GFCI) from Z/Yen. New York and London still share the first position in the GFCI, which is published twice yearly. But for the last three years Hong Kong has moved ever closer to the scores of the world’s top two financial centres. In March 2007 there were more than 70 points between Hong Kong and pole position. This time, there were just 10. The GFCI shows the world’s growing financial capitals are all Asian: Singapore, Shanghai, Shenzhen, Beijing and Seoul. With Europe threatening to crack down on the derivatives sector, the City’s Eastern rivals cannot be ignored.
That message only becomes clearer if we look to other important indexes that measure Britain’s global financial standing. The World Economic Forum’s Global Competitiveness Report 2010-2011 finds the UK’s competitiveness has been falling for a number of years and despite moving up one position this year, the UK remains outside the global top ten on this measure.
The Heritage Foundation’s Index of Economic Freedom doesn’t offer much comfort either. Again it puts Britain outside the world’s top ten at number 11. While Business Freedom is scored at 94.9, well above the global average of 64.6, the Heritage Index actually puts Britain below the global mean on Fiscal Freedom (61.8 in the UK; global average 75.4) and only just above it on Fiscal Freedom (73.7 in the UK; global average 70.6). The index measures on Financial Freedom, Property Rights and Monetary Freedom have all declined in the UK.
The website summary is damning: “Dramatic expansion of state ownership has taken place since late 2008. The government has nationalized or seized considerable ownership in some of the major banks. Deterioration in public finances is worse than in other leading economies. Welfare benefits, the biggest component of government spending, have been rising. The government deficit is widening rapidly, and public debt has climbed to around 60 percent of GDP”.
Britain still has much to offer the world, but in a competitive marketplace it needs to remember how its domestic policies play on a global stage. The coalition have said they understand this point, but actions speak louder than words.