Why Britain is no longer Great

Richard Dean pens an open letter to UK economy minister Alistair Darling, on why he's returning from London to Dubai.

Dear Alistair,

I'm off.

Sorry to disappoint you. I know I'm the sort of person Britain desperately needs right now: Educated knowledge worker, relatively high earner, decent taxpayer. I tick all the boxes. But years of bad economic policy are driving me away, and I'm not alone.

Britain's woes are complex, but we can boil them down to three main areas. Tax, time-wasters and teaching.


TAX

It's too high, for both people and companies.

When I worked in London, the government took more than 30 per cent of my salary before it reached my bank account. Then there was municipality tax and VAT. One senior London stockbroker told me the government takes about 70 per cent of everything she earns, through one tax or another.

Little wonder so many talented financiers – as well as second-rate journalists – are leaving the City of London to work in places like Dubai, Dublin and Zurich. This matters, because services account for about three quarters of the UK economy. Drive these people away, and you drive away the main drivers of the economy.

Now some of your leading companies are deserting. Take Shire Pharmaceuticals, a Dhs18 billion British drug company that relocated to Ireland this year. Ditto United Business Media. Others say they may follow, including GlaxoSmithKline, Intercontinental Hotels and WPP.

Again, tax is the main reason. In the UK, the basic rate of corporate tax is 28 per cent. In Ireland, it's 12 per cent. In Dubai, it's zero. Today, global companies can build headquarters pretty much anywhere. How does a Chief Executive justify to his shareholders paying a hefty tax bill, when he could boost net profit by a quarter simply by relocating? Certainly, the UK has attractions – the world's fifth biggest economy, a talented workforce, great legal system etc. But are these really worth such a high price?

Crucially, the tax burden is getting heavier, not lighter. Public spending now accounts for about 45 per cent of the UK economy – up from 41 per cent a decade ago.

Look at some of the tax increases just since I moved there in January 2007.

- Raising income tax on low-income workers by scrapping the so-called "10p" tax rate.

- Raising tax on entrepreneurs and private equity firms through scrapping so-called "taper relief".

- Raising taxes on wealthy foreigners living in the UK – many of whom are the heartbeat of London's booming banking sector.

- Raising tax on profit that companies make outside the UK.

Which leads to my second point.



TIME-WASTERS

The tax bill is so high because the economic system rewards laziness.

To be fair, Alistair, you're by no means wholly to blame. Over the past half-century or so, the UK has nurtured a greedy, state-funded monster that must be fed. As one prominent UK fund manager told me recently: "If the UK was a developing nation, the World Bank would immediately diagnose a bloated public sector, and demand reform." But you're powerless to fix it, even if you want to.

Of the working population in Britain, about one in five works for the government. Outside London and the prosperous surrounding region, it's one in four. OK, some of them do a good job – the dustbins must be emptied – but the public sector is notoriously unproductive. You can't cut it, though, because the labour unions won't let you. Worse still, the welfare system is bloated.

Today in Britain, only about one million people are "unemployed", not bad for a population of about 65 million. But another 2.7 million people receive "sickness benefit", because they have been declared unfit to work. The government's own advisor David Freud says of these, only about 700,000 have legitimate claims. The rest are bogus.

This year, the UK government will spend about one fifth of its total budget on welfare and sickness benefit. I'm all for a social safety net, but this is going too far.

Don't blame the bogus claimants: they're only acting as rational profit maximisers under the current cock-eyed system. Why go out to work in Starbucks when the government will pay you to sit at home? After 18 months in London, I can count on one hand the number of times a Brit made me a decaf skinny cappuccino.

I truly believe, Alistair, that you want to fix it – indeed your colleagues outlined sensible reforms just last week. In practice, though, the genie is already out of the bottle. You can't suddenly stop giving handouts to almost 4 million people - there'd be mayhem.

It's a classic vicious circle. You must keep raising taxes to finance the bloated public sector. But the more you raise taxes, the more taxpayers like Shire and me will leave.

One way to fix the problem is through education, which leads to my final point.



TEACHING

The UK education system is creaking.

This year, the UK welfare budget will exceed the education budget. Also this year, well over half British teenagers will leave school without meaningful qualifications (five basic GCSE exam passes, the government's own benchmark). Britain can't afford to educate its children properly because it's paying their parents to watch TV all day. Madness.

The anecdotal evidence is even worse. One head teacher I know at a London school says her main task now is to stop the children fighting or even stabbing each other. Educating them is way down the pecking order. Outside centers of excellence such a Oxford and Cambridge these centers of excellence, general standards are declining - while the rest of the world ups its game.

For Britain, it's probably too late. It cannot hope to create more world-beating companies such as Vodafone, BP and HSBC when facing crippling taxes, an increasingly inept workforce and a flagging domestic economy.

For others, though, there's a lesson to be learned: don't kill geese that lay golden eggs.



Yours sincerely,

Richard Dean

P.S. It's refreshing, on my return, to see the UAE confronting these challenges head on. Since I left in January last year, Dubai has begun charging people to drive, and the UAE is considering a modest VAT. That's absolutely correct: Citizens should contribute to the upkeep of their society, so long as the burden is not too great. Emiratisation aims to boost private sector employment, though no one pretends this is easy. And on teaching, I was greatly encouraged to read comments in the Financial Times last week from Sheikh Nahyan bin Mubarak Al-Nahyan, Minister of Higher Education and Scientific Research. He acknowledged the limitations of the UAE education system – and pledged to fix them.



- The writer is a freelance journalist. He has worked in Dubai as a correspondent for Reuters, the Financial Times and The Economist, and as a presenter of The Business Breakfast on Dubai Eye 103.8.

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