The competitiveness question

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The UK government isn't the only one to have recently commissioned a report on improving economic competitiveness.

In France, former EADS Chairman Louis Gallois was tasked with identifying measures that would reform the French economy, boost productivity and growth and create jobs. His final report was released last week and some of the symptoms of the erosion in France's competitiveness will have made for difficult reading. Their share of global trade has almost halved over the past couple of decades, relative production costs have risen, the government faces a big hole in the public finances and a growing trade deficit. Some of this might sound eerily familar on this side of the channel too.

The conclusion was the need for a signficant 'competitiveness shock' - essentially a €30billion cut in payroll taxes, paid for through higher sales taxes, and some more funding for innovation and improved training. The government's (fairly swift response) was to commit to a smaller package (around €20 billion) of employment tax cuts rolled out over four years.

In some respects the overall package fell short of what businesses had hoped for. But it is perhaps more significant that the debate is evolving from getting to grips with the public finances to the nitty gritty of an overall economic strategy that ensures developed economies can stay ahead of the pack in the longer term. This will necessarily involve difficult home truths about where economies may be falling behind in terms of innovation capacity, skills development, ability to attract global investment or increase their share of trade in overseas markets. It will therefore be tempting to leave the more difficult reforms until 'later'.

In the UK, we had some similarly blunt messages from our own Gallois, Lord Heseltine. While the jury's still out on whether the host of recommendations will - as a package - kick start better balanced growth, the Autumn statment must start to see government set out where our economy needs to get to over the rest of parliament. This will start to narrow down the priorities for government action and more widely target the areas of our economy that need the biggest competitiveness injection.


Chief Economist

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