Category: Economics: Ch 23

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A mini-me Budget – the end of the 10p tax rate

In the face of a Labour backbench rebellion over the abolition of the 10p tax rate in the most recent Budget, the Chancellor, Alistair Darling, introduced what has been described as a mini-budget this month. In this mini-budget he significantly increased tax allowances to try to alleviate the impact of the removal of the 10p tax rate on some of the poorest families.

Darling’s solution could prove costly, say economists Guardian (14/5/08)
FAQ: Formula that bought off the Labour rebels Guardian (14/5/08)
Brown risks £2.7bn tax cut to end revolt Guardian (14/5/08)
Mini-budget will put money in pockets of 22 million voters Guardian (13/5/08)
Darling’s statement in full Guardian (13/5/08)
Institute for Fiscal Studies highlights Chancellor’s dilemma after emergency tax cut Times Online (21/5/08)
Q&A on the Government’s ‘Golden Rule’ Times Online (15/5/08)
Basic rate taxpayers to get £120 BBC News Online (13/5/08)
Q&A: Tax changes BBC News Online (13/5/08)
Full statement: Tax changes BBC News Online (13/5/08)

Questions

1. What was the effect of the abolition of the10p tax rate on income distribution (before the min-budget measures)?
2. Assess the extent to which these changes will alleviate the impact of removing the 10p tax rate on the poorest families.
3. Discuss the likely impact of this change in the government’s fiscal stance on the main UK macroeconomic targets.
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Brown damned by his Faustian pact

In recent years Labour has taken what might be described as a light-touch on regulation of City firms and financial institutions. In the article below the economics editor of the Guardian, Larry Elliott, argues that this ‘pact with the devil’ might have come back to haunt Gordon Brown as the impact of the global credit crunch continues to dominate economic news.

Brown damned by his Faustian pact Guardian (12/5/08)

Questions

1. What form has regulation of the financial sector taken under the Labour government?
2. Assess the extent to which this regulatory approach could be considered a ‘Faustian bargain’.
3. Discuss the extent to which tighter regulation of financial markets might have helped the UK economy avoid the impact of the global credit crunch.
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Labour’s public sector is a Soviet tractor factory

Public choice theory is an area of economics that uses standard economic tools to consider the decisions made by politicians and others within the public sector. In essence the theory applies economic principles to politics. In the article below Simon Caulkin argues that public sector reform and the application of public choice theory has failed and likens the public sector reforms that have been implemented to Soviet central planning.

Labour’s public sector is a Soviet tractor factory Observer (4/5/08)

Questions

1. Explain what is meant by public choice theory.
2. Describe the principal public-sector reforms that were implemented under the Blair government. 
3. Discuss the extent to which recent public-sector reforms have succeeded in delivering a more responsive and efficient public sector.
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Between a rock and a hard place?

The Chancellor Alistair Darling announced in February that Northern Rock – the beleaguered bank – was to be temporarily nationalised. The government had been unable to agree terms with prospective buyers and so decided that temporary nationalisation was the best way to proceed. The move has met with sharp criticism from shareholders and many commentators, but was supported by the Liberal Democrats who had argued from the outset that this was the best solution to the crisis.

Northern Rock shareholders will argue that nationalisation is theft Times Online (20/2/08)
Reaction to Northern Rock nationalisation Guardian (18/2/08)
‘Our shares are worthless’ say the Rock’s furious investors Times Online(18/2/08)
Northern Rock reclassified as public company Guardian (7/2/08)
Northern Rock staff warned of job cuts Guardian (7/2/08)
Q&A: Nationalised Northern Rock – what next? BBC News Online (18/2/08)
Northern Rock crisis (Special Report) BBC News Online

Video


Northern Rock nationalisation BBC News Online (February 2008)

Questions

1. Explain what is meant by nationalisation.
2. Examine the advantages and disadvantages of privatisation. Why was privatisation introduced as a strategy in the 1980s?
3. Discuss the advantages and disadvantages of temporarily nationalising Northern Rock.
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Taxing the non-doms

The government has proposed charging a levy to people who claim non-dom (non-resident) status in the UK. This levy of £30,000 will be charged on people with non-dom status who choose to shelter their earnings in overseas tax havens. An intensive campaign against the tax has been launched by various elements of the media.

It’s hardly Bolshevism to propose taxing non-doms Guardian (9/2/08)
Treasury adviser Bob Wigley slams non-dom tax Times Online (10/2/08)
Nabbing the non-doms Times Online (10/2/08)
Jones breaks ranks to claim non-dom plan hits low-paid Guardian (9/2/08)
Non-dom crackdown could hit low-paid Guardian (8/2/08)

Questions

1. Explain the way in which the non-dom tax levy would operate. How would this levy be classified – progressive, regressive or flat-rate?
2. Assess the arguments for and against the imposition of a levy on non-doms.
3. Evaluate two alternative policies for the taxation of non-residents of the UK.