Implications for Growth

Without policy measures to offset the negative impact of the bonus culture, investment, productivity, and growth are likely to remain depressed. Given the slow growth of the working age population, the UK’s trend growth rate will thus be 1 per cent and that of the US 0.87 per cent, unless productivity improves. An alternative method of estimating US trend growth from the value data for tangible capital stock provides a slightly better rate of 1.1 per cent per annum. The prospects for the UK and US are so poor that policy measures to stimulate growth are vital. All growth is the result of changes in either TFP or NTV, so one or other must improve to avoid stagnation. There is no way to improve the former, but changes in NTV can be brought about through a lower hurdle rate, which requires the damage from the bonus culture to end.