First published: prospect magazine.com, 15/01/15
In an ideal world, the sky is the limit for our economy, but the world we live in isn’t ideal
In a rousing speech to the Royal Economics Society, George Osborne has said that he thinks that the UK could be the richest country in the G7 by the 2030s, as measured by income per head. Is the Chancellor sharing new-found optimism, or is he just cheerleading?
Let’s begin at the beginning. According to IMF data for 2014, UK income per head was $44,000; we ranked fifth in the G7. As you might expect, the US headed the list with $54,600, followed by Canada, Germany, and France. Then came the UK, trailed by Japan and Italy. The IMF makes projections out to 2019 when the US still comes top at $67,000, followed by Canada and Germany as now. But the UK moves up to fourth place at $55,500, and is now followed by France, Japan and Italy.
Suppose these numbers are broadly correct. Could the UK surpass the US by 2030? The maths suggest it would be demanding. True, the UK’s projected 4.5 per cent per annum growth in income per head to 2019 is slightly faster than the US. If we project that growth rate to 2030, it’s quite possible that the UK could top Germany and France. But the main reason for that would be the consequences of rapid ageing in Germany and the assumption that, provided the Eurozone holds together, trend growth in the area would be low…“more:”