Britain has one of the best climates for doing business in the world, with tax, trade and labour market policies helping it to steal a march on all of its competitors in continental Europe, a German think-tank has found.

The Munich-based Ifo Institute for Economic Research put the UK in sixth place in a ranking of advanced economies based on analysis of the impact made by governments on business activity and growth.

The data showed that Britain’s strength grew through the 1990s. The UK was in tenth place in 1994, yesterday’s study found, rising to seventh place in 1998 and then hitting sixth place in both 2002 and 2006.

Tax policy and the quality of basic institutions were the factors with the clearest link to growth rates, the think-tank found, followed by the fiscal burden, the efficiency of human capital and the health of labour markets.

By basic institutions, the study said, it meant the protection of property rights, the enforcement of law and order and the prevention of corruption. It also looked for strong levels of spending on schools but low government spending overall.

Across the board, the study found that these factors were able to explain 44 per cent of the variation in economic growth rates between the 24 countries in the OECD.

Averaging out its position during the different years which the study looked at, the United States came top. But in 2006 Australia beat the US to the top position, the study found, because of improvements in its workers’ ability to find high-earning jobs. Other English-speaking countries did particularly well.

The study showed a decline in Japan and Switzerland’s abilities to generate growth, but a strong improvement in the prospects of countries such as New Zealand and Finland that have embraced institutional reform.

“Within the past two decades, New Zealand and Finland have improved their positions considerably,” the institute reported.

“New Zealand has liberalised and opened up its economy. Finland has introduced a transformation process towards a knowledge and innovation-based economy,” it said.

Ifo order

1 Australia

2 US

3 Netherlands

4 Canada

5 Ireland

6 UK

7 New Zealand

8 Finland

9 Denmark

10 Germany

11 Switzerland

12 Norway

13 Sweden

14 Japan

15 Austria

16 Belgium

17 Spain

18 Portugal

19 France

20 Greece

21 South Korea

22 Italy

23 Mexico

24 Turkey

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