x Abu Dhabi, UAEThursday 20 July 2017

Just a word about the economic decline of Britain

I know The Economist is not everyone's idea of a fun read, but from time to time it really does have the right stuff.

I know The Economist is not everyone's idea of a fun read, but from time to time it really does have the right stuff. "Standing still, but still standing," was a brilliant headline in that publication the week the Dubai World story broke. Last weekend it did it again for me by introducing me to the Arabic concept of "shamata", which I had never encountered in my time here in the Middle East. It translates roughly the same as schadenfreude, the German word for "taking joy at another's pain". Why does English not have a simple one-word term for this exquisite sensation, rightly identified by Germans and Arabs as worthy of its own individual place in the dictionary?

In that vein, here is my own little burst of "shamata". The UK chancellor of the exchequer, Alistair Darling, will today unveil his pre-budget review to the House of Commons. It is universally expected to be the most gloomy, pessimistic and downright spiteful bit of economic policymaking to come out of Britain in many a year. The economic background is truly awful. The UK, with its overwhelming dependence on the twin pillars of property and financial services, was the worst affected of any of the big industrial nations by the credit crisis. It is still mired in recession while the US, France and Germany have pulled out.

The precise statistical evidence of Britain's decline is well known and I do not propose to rehash the dry numerical evidence here. Soaring government, corporate and personal debt, falling property prices, rising unemployment, declining currency, shrinking exports - I could go on, but will not. Instead, it will take just three "freakonomic" facts to illustrate the extent of the UK financial morass.

One: The Bank of England (BoE) has noticed a sharp rise in demand for £50 (Dh301) notes. Since the Lehman Brothers collapse last year, and throughout this year, the British public has been clamouring for the big pink-brown bills with a picture of Sir John Houblon, the first BoE governor, on the reverse side of the image of Her Majesty. Conclusion: Britons have lost faith in the reliability of their banking system, once the envy of the world, and are hoarding the £50s, stuffing them in the safe or mattress to keep them from being blown by their bankers in some ill-judged investment in trashy US mortgages.

Two: Britain may lose its place among the 10 largest economies in the world by 2015. The Centre for Economics and Business Research says there is a distinct chance that in just six years Britain, fourth in 2005, will have been overtaken by China, France, Italy, Brazil, Russia and India. Conclusion: The credit crisis will prove to be the decisive stage in a process of economic decline that has been inexorable since the end of the Second World War. The UK will be the main casualty of the shift of economic power towards Asia.

Three: HSBC, the big global bank that began life in Hong Kong and Shanghai and is returning to its Chinese roots, estimates that 85 per cent of UK property loans made over the past five years are in breach of their lending agreements. Conclusion: The British property sector, the national totem of financial and psychological security since time immemorial, is, for the foreseeable future, bust. It cannot be the dynamo of economic recovery in the country.

I doubt that Mr Darling will raise any of these "facts" in his speech. Instead, he will announce a ferocious increase in income taxes to an eye-watering 50 per cent of earnings. He will include some equally draconian measures against bonuses for financial services executives in what has become known in the British press as "banker bashing". He has to raise more money to pay for the huge bailout packages to the banks he took over last year to avert a total collapse of the UK financial system. He also has to bash bankers because it is about the only popular thing he can come up with in a pre-election period. By all sensible prognoses his boss, the prime minister Gordon Brown, has only six months left at 10 Downing Street.

I had dinner in Dubai this week with an old media pal from the UK, a household name in press and TV and as staunchly British as they come. Over a glass he said gloomily: "I'm going to have to get out if they put tax up to 50p. I pay enough already and then on top of that I have to pay 17.5 per cent in sales tax whenever I buy something. "It's intolerable. Now, just when do you think the recovery will kick in here?"

Call it schadenfreude, call it shamata. Even revenge. Whichever, it feels great. @Email:fkane@thenational.ae