The increase in public spending in the UK is slowing down economic growth and making the country seem to be operating more like France than the US, says the World Bank's chief economist.
ADVERTISEMENTThe recent increase in public spending has made Britain seem more like France than the United States, according to the World Bank's chief economist, Indermit Gill.
The result is a slowdown in economic growth, Gill said in an interview with The Telegraph newspaper.
"The country that used to be the most like the United States in all of Europe was the UK. And you guys decided to go and become a lot more like continental Europe," Gill pointed out.
"Take a look at the share of government spending to GDP. You look like France, not like the US."
France's GDP at 58% of public spending in 2022, is still significantly larger than Britain's. However, UK public spending, at 44% of GDP, is considerably larger than that of the US, where it represents 36% of GDP.
Before the Covid-19 pandemic, UK public spending in 2019 was 38% of gross domestic product (GDP). However, it rose to nearly 50% during the peak of the 2020 pandemic after then Chancellor Rishi Sunak announced significant taxpayer subsidies to cover people's wages during lockdown.
Although spending is now down to 44% of GDP, it is still significantly higher than its pre-pandemic level.
Economic shocks: Where did the UK have to spend so much?
Several "economic shocks" have led the UK to increase public spending, The Telegraph pointed out.
Russia's invasion of Ukraine was one which led to a hike in energy prices and left the UK government allocating approximately £78 billion (€90 billion) for an energy support package, to subsidise bills and provided additional assistance to low-income households. At the same time, public sector employment rose from some 5.4 million before the pandemic to nearly six million by the end of 2023.
The pandemic also came with a hefty price tag. According to the OBR, the UK's official independent fiscal watchdog, the total cost of "pandemic-related support measures" in March 2022, was estimated to be £311 billion (€360 billion). This averages out to around £4,631 (€5370) per person in the UK.
Gill noted that the US is more adept at handling shocks because of its political system, which features less generous welfare, decentralised decision-making, and a readiness to allow underperforming companies to fail.
The sharp increase in public spending in the UK has also led to an historic peak in taxes as the government seeks to find ways to bring its borrowing down.
