Indermit Gil says that tax burdens are reaching record levels, and the state is bloated.
According to the World Bank’s chief economist, Britain’s bloated government has caused the country to look more like France rather than America. This trend is harming the economic growth.
Indermit Gil said that a recent rise in public spending has put the British state’s size on a path which makes it more like its Gallic neighbor.
In an interview with The Telegraph, Mr Gill stated: “The UK used to be Europe’s most similar country to the United States. You guys have decided to become more continental European.
Look at the percentage of government expenditures in relation to GDP. You are more like France than the US.
After Rishi Sunak, the UK’s chancellor, announced large taxpayer subsidies for paying people’s salaries during lockdown, UK public spending increased from 38pc to almost 50% of GDP at the peak of the pandemic in 2020.
The spending has dropped to 44pc but is still higher than it was before the pandemic.
When asked whether the growth of the British government was detrimental to the economy, Mr Gill replied: “Yes.”
The UK’s Chancellor, Jeremy Hunt has acknowledged that the surge in spending is putting taxes on a course to reach a record high.
Mr Hunt has said repeatedly that economies with low taxes “grow the fastest” and “are more dynamic, more energy, more entrepreneurial”.
His desire to reduce taxes is based on the necessity to decrease welfare spending and to increase productivity in the public sector. The UK’s state spending has risen dramatically following a series economic shocks. Furloughs during the pandemic totaled P£70bn.
The UK government spent around £78bn to subsidise bills and give extra help to the poorest households in response to Russia’s invasion. employment in the public sector has also grown, from around 5.4m before the pandemic to close to 6m by the end of 2023.
In 2022, the French state will still be larger than Britain at 58pc GDP. The size of the British government – 44pc GDP – is larger than that of the US where public spending is 36pc GDP.
Mr Gill said that the US is better prepared to handle shocks due to its less generous welfare system, local decision making and willingness to let poorly performing companies fail.
According to IMF data, UK public spending was 38.5pc pre-pandemic. It had been closer to US levels since 1989.
The IMF predicts that the US will grow by 2.7pc in this year. This is far more than Britain, which is expected to grow at a rate of 0.5pc, and France with 0.7pc.
Mr Gill said that America’s dynamism is one of the main reasons why the US recovered so quickly from the pandemic, surpassing the size of its pre-Covid population within a year after the first lockdown.
Mr Gill said that the US approach to shocks is much more effective.
He said that the willingness of America to “experiment”, rather than impose blanket lockdowns, meant that states could make different decisions.
“There were many more experiments.” Some countries maintained their schools and markets. As a result of this, if you were in desperate need of a job you would go to South Dakota. I also think there is enough pressure for people to return to work, because the safety net does not extend that far. Thirdly, you find there are a lot of new and dying firms.
He said that low-income economies who copied the subsidies given by governments in Western countries were now suffering from high debts and slow growth without any reduction in poverty.
The World Bank warned that there is a “silent crisis” of debt in emerging markets, where borrowing has spiraled out of control due to higher interest rates.
These countries are struggling to create jobs because of debt costs.
Ajay Banaga, president of the World Bank, said that 1.1 billion people will reach working age in developing countries over the next decade.
M. Gill added that the public sector could also become too large in these economies, as workers struggle to find stable employment.
He said, “There aren’t many government jobs in these countries but [workers] line up for them.” This puts pressure on the government to create more jobs in the public sector.
“Once this happens, a lot of problems arise in that they are not productive within the public sector due to the fact that there are so many of them. The fiscal bills increase, but their salaries remain low.
The public sector’s payrolls are both too large for the government to handle and too small to provide a decent standard to living.