Category: Economics 10e: Ch 22

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.

Concerns have been growing that the UK faces a downturn in economic growth during 2008. The articles below consider this possibility. With a credit crunch taking place and manufacturing output falling, the concerns for a recession may well not prove unfounded.

Is this the big one? Guardian (3/1/08)
Your survival plan if a recession strikes Times Online (5/1/08)
Top of the flops – 10 pointers to a downturn in 2008 Guardian (6/1/08)
Recession fears as manufacturing drops Times Online (11/1/08)
Crash that ‘won’t happen here’ looms large Guardian (3/12/07)

Questions

1. What are the key indicators of an impending recession?
2. Assess the likelihood of a recession in the UK in 2008.
3. What policies could the UK government adopt to avoid a recession during 2008. What would determine the success of such policies?

The article below by William Keegan is a discussion of a recent seminar he attended on ‘Black Wednesday and the rebirth of the British economy’. The seminar led him to consider whether policy makers should be guided mainly by rules or discretion in the development of policy. Many would argue that we have moved away from discretion and moved more towards fiscal and monetary rules for the implementation of policy, but the article discusses the extent to which this may be true.

When the going gets rough, can our rulers rely on the rule book? Observer (18/11/07)

Questions

1. Explain, using examples as appropriate, the difference between policies based on fiscal and monetary rules and discretion.
2. Explain how the MPC “largely ignores the cumulative dangers of a high exchange rate” in its determination of interest rates for the UK economy.
3. Discuss how effective the adoption of an inflation target has been in management of the British economy in the past decade.

The Governor of the Bank of England, Mervyn King, has signalled that the next year may be the toughest for 15 years with lower economic growth than previously forecast. So, is the UK economy going off the rails?

Questions

1. Explain the main reasons why the Governor of the Bank of England expects a worse than forecast level of economic growth in 2008.
2. Discuss the extent to which a cut in interest rates will help prevent an economic slowdown. What adverse effects could follow from such a policy.
3. Discuss one other policy that the government could adopt to try to reduce the extent of the forecast slowdown in economic growth.

The Northern Rock crisis has caused significant repercussions in the UK financial system. It may continue to do so as the various groups bidding to take over the beleaguered bank try to persuade the government to write off the interest owed on the money borrowed in the run-up to the crisis. In the Guardian article below the build-up to the crisis is considered in detail, while in the other article Anatole Kaletsky argues that central banks need to stand firm against pressure from financiers.

Questions

1. Explain what is meant by the term ‘moral hazard’.
2. Examine the main factors that led up to the Northern Rock crisis.
3. Summarise the main reasons why Anatole Kaletsky argues that central banks need to stand firm when pressurised by City financiers.
4. Assess the likely impact of the Northern Rock crisis on the performance of the UK economy over the next year.