It was fun while it lasted and everybody drank too much, but the UK plc party is over and nobody can remember who promised to pay the bill.

The expat staff fled after coffee and liqueurs, feigning surprise when asked to contribute a tenner each for the wine. “We thought the British would pay for everyone,” sneered a man in an Armani suit.

A contingent from a northern manufacturing outpost pleaded poverty and repaired to a pub across the road. “Send the bill to head office,” shouted a red-faced man as he stumbled out the door.

Unfortunately, head office is no longer accepting expenses for entertaining. So bad is the situation that the company is considering moving the headquarters to Amsterdam where everything costs less and taxes are lower.

Who is left to pay for this junket, wonders Alistair Darling, chief accountant of UK plc, who has been left behind in the restaurant sweating over the huge bill.

The Government needs more money, but the Chancellor of the Exchequer has been forced to backtrack on every new revenue-raising measure, from the abolition of the 10 per cent tax rate to reforms that would capture more of the cash earned abroad by multinational companies.

First, the pampered non-domiciled expatriates kicked up a fuss, then left-wing MPs threatened to vote against the Finance Bill if the 10 per cent rate was not kept for the low paid.

Finally, the FTSE 100 committee of finance directors is investigating HM Revenue & Customs corporation tax reforms with a toothcomb, objecting to every anti-avoidance measure.

Mr Darling doubts the threat from Sir Martin Sorrell, chairman of WPP, that his company might relocate to a tax haven. Where would they go? Surely Geneva would be too sleepy for vain and fashion-obsessed ad executives. Dublin? Impossible. But it is quite trendy now.

Globalisation was not meant to be like this - a frantic race to the bottom where the Devil takes the hindmost. For a while, Britain seemed well-placed in a world where manufacturing was done by Asians.

The British competitive advantage was to be finance, trading and retailing - more pleasant than bashing metal, and most of the dirty manufacturing was destroyed during the Thatcher era, anyway. Why bother making mobile phones when you can earn billions just chatting on them?

But the lines went dead in the City of London. Nobody was talking, everybody was sweating and the cash was flying from London to more profitable locations in Moscow, Shanghai and Dubai.

When the cash is not flowing in your direction, where is the competitive advantage in the business of manipulating money? How do you make a living as a trader when everyone is building high walls to keep the other guy out?

This is not a world in which Britain can thrive easily. A key battleground in the US election is the blue-collar vote and, if Barack Obama wins the Democratic nomination, as seems increasingly likely, both Republicans and Democrats will seek to pander to the concerns of white, working-class Americans, a constituency with which until now Senator Obama has shown little empathy.

These voters want protection and less competition from foreigners. They are in continental Europe and Britain, too, and the voices of people who failed to profit during the financial boom of the past five years will become more strident as inflation erodes living standards.

For a decade and more, financial services, a speculative housing boom and retailing profits (the latter made possible by sweated labour in Chinese garment factories) allowed us to forget that globalisation cannot proceed without losers.

There has not yet been much “creative destruction”, the process by which businesses and sectors fail as capital is taken from the inefficient and given to the more efficient and profitable.

The transformation of a peasant society into a sophisticated dynamic economy requires more than the loss of French textile jobs and the closure of a few Italian white-goods factories. It means an enormous infusion of capital.

Money becomes the raw materials of industrialisation; in many cases literally for the copper and the oil needed across South and East Asia. A decade of capital shortage is the root cause of the present energy and food price increases.

Commodity inflation is likely to continue until we generate oil, mineral and food surpluses. It will cause havoc, dislocation and hardship everywhere as the world adjusts to a new orientation in the trade in vital raw materials.

Whether we like it or not, the flow of oil, food and raw materials will shift increasingly towards China and India, rather than towards America and Europe.

Life will become more expensive and more difficult for Europeans and Americans. As capital moves east, so will the jobs that service capital; the process is already under way in the expanding financial centres in the Gulf.

The relocation of service jobs has begun and it will probably accelerate as banks and financial institutions, battered by the recent credit crisis, look for new opportunities and cheaper ways of doing business.

The likely response to this threat will be defensive. Voices are already being heard in unusual quarters, arguing in favour of a less open embrace of free trade.

Lawrence Summers, a former US Treasury Secretary, has suggested that governments should co-operate in matters of income tax to avoid the race to the bottom that is troubling Mr Darling. It cannot have escaped the latter's attention that he has a common interest with other Europeans in protecting his tax revenue base.

Until now Britain has resisted tax harmonisation. It would be a crude response to the threat of capital flight, but difficult times require difficult measures and the temptation to throw in the towel will be difficult to resist.

carl.mortished@thetimes.co.uk

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