The final part of Dr Tim Morgan's report on the UK economy has been released.
Quite a read, he seems to be on the money.
Here's the press release;
STRATEGY INSIGHTS ISSUE SEVEN
AVOIDING ECONOMIC ARMAGEDDON
DRASTIC MEASURES FOR DESPERATE TIMES
Tuesday July 26, 2011: The Government needs to push through radical supply side measures in order to stimulate growth and avoid a looming debt disaster for the UK economy, says a new report from Dr Tim Morgan, Global Head of Research at Tullett Prebon.
The report, Thinking the unthinkable: the final report of Project Armageddon, says the UK is caught in a high-debt, low-growth trap. Britain‟s flat-lining, debt-addicted post-bubble economy cannot generate sufficient growth to sustain levels of debt which are far higher than is generally realised. As a result, the Government‟s plan to reduce public borrowing hinges on assumptions about growth that are much too optimistic.
“The British economy, as currently aligned, is incapable of delivering growth at anywhere near the levels required by the deficit reduction agenda,” says the report. The underlying problem is that, during the bubble which preceded the crash, the UK became dependent upon private borrowing and public spending. A swathe of industries, encompassing real estate, construction, finance, health, education and retailing, and responsible for 70% of economic output, have been rendered ex-growth by the slump in private borrowing and the ending of unaffordable expansion in public spending.
Dr Morgan argues that the ruling Coalition is right to argue that the fiscal deficit must be eliminated and the Labour opposition is correct that fiscal tightening will undermine growth. Whilst the fears of both sides are accurate, neither set of prescriptions will work.
“The widespread assumption that the right blend of macroeconomic policies alone can overcome Britain‟s economic and fiscal problems is fundamentally mistaken,” Dr Morgan says. “With all the macroeconomic options exhausted, the only way to restart growth is to implement supply-side reforms designed to free small and medium enterprises from the onerous burden of regulation that blights their expansion.”
“Businesses in the UK are crippled by government interference and by the excessive demands of the state machine,” Dr Morgan argues.
However, Dr Morgan warns that, while such reforms are imperative if a full-blown economic crisis is to be avoided, there will be strong opposition from vested interests and public opinion may be against the scale of reform required.
“An early objective for government should be to put an end to the state of national denial over the true condition of the economy and to undercut the delusory sense of individual and collective „entitlement‟ that was fostered in the Labour years,” Dr Morgan says.
The conclusions are based on Tullett Prebon‟s Project Armageddon analysis of the scale and nature of Britain‟s economic plight, and whether the Government or Opposition has the right strategy to fix it.
The analysis shows that although the UK public debt is reported at 60 per cent of Gross Domestic Product (GDP), that rises to 75 per cent of GDP if measured on the Maastricht criteria used by Eurozone problem economies including Greece, Ireland and Portugal. Adding in unfunded public sector pensions and public-private finance commitments would lift the deficit to a staggering £2.46 trillion, or 167 per cent of GDP. Trend growth, the report argues, may struggle to reach even half of the 2.9% rate on which current plans are predicated.