We have I think done three big things right

We have, I think, done three big things right.First, we have managed to create a climate that encourages employment That has been Europe’s failure. Just today, two professors at the London School of Economics, Richard Layard and Stephen Nickell, published a report arguing that the UK, with Denmark and the Netherlands, have fine-tuned their welfare systems and employment laws to cut unemployment and boost jobs. France, Italy and Germany have so far failed to do so, with the result that all have unemployment above near 10 per cent.Second, and this was more by accident than by design, we were swift to get out of areas where we were uncompetitive. There were huge social and human costs in closing coal mines or scaling back mass manufacturing. It is too far away to see the balance between tax increases and slower growth in public spending but I’m sure we will have to get used to much slower growth in consumption. Instead of spending 3-4 per cent more each year, we will be able to spend only 1-2 per cent more.But it is possible to believe that we have borrowed too freely and still buy the basic proposition that by European standards at least, this is a very competitive economy.

To take just one measure, more mortgage loans are being taken by people seeking to rent out property than by first-time buyers. The housing boom means that the ratio between house prices and earnings is at the top of its post-war range, at around five times earnings It cannot prudently go much higher. So the housing market is vulnerable and were house prices to fall, many people would feel the need to cut back on their spending.Government borrowing looks more manageable in the sense that by historic or international standards it is not that high. But we have had a huge swing from budget surplus to deficit, a swing almost as large as that in the US, so the plain fact is that a lot of the demand in the economy has come from public borrowing.My guess is that there will indeed be a reckoning and that for whoever wins the next election there will be three difficult years.

As far as personal borrowing is concerned, there is little doubt that we are close to the prudent limits. His own government has borrowed much more than he expected even a year earlier and his future spending plans are reckoned by many to be impossible to meet without tax rises.So it is a fair question to ask whether our economic success is really durable, as the Government would argue? Or whether we have just puffed ourselves up with other people’s money, as the Opposition claim?The trouble is that there is some merit in both views. Yes, the underlying economic success looks pretty solid but there is no doubt about the reliance on borrowed funds. The trick is to gauge correctly the balance between the two positions, for on that will turn whether the British economy has another successful decade or a rather disappointing one.It is easier to make a judgement about the dependence on borrowing than it is about the comparative advantage that the country seems to have sustained.