The Chancellor’s pre-Budget report was a massive political and economic gamble. The government has clearly recognised the potential seriousness of the economic situation and, in an attempt to avoid a prolonged recession, has injected £21bn into the UK economy in the form of tax cuts and spending increases. The headline grabbing changes were a cut in VAT and an increase in the top rate of income tax to 45% for those earning over £150,000 per year, but there was a raft of other changes including £3bn of public-sector infrastructure projects being brought forward.
Will this fiscal kick be enough to prevent a deep recession? The Chancellor clearly thinks so. He has amended his forecasts for economic growth to acknowledge that GDP will fall by 1% in 2009, but he believes growth will bounce back to 1.75% in 2010. The links below are to a selection of articles relating to the pre-Budget report, but there are plenty of other sites offering discussion and analysis of the issues relating to this unprecendented Keynesian fiscal boost.
Pre-Budget Report: Alistair Darling’s £1 trillion debt gamble Times Online (25/11/08)
Pre-budget report 2008 Guardian (25/11/08)
Pre-Budget report 2008 BBC News Online (25/11/08)
Average earners lose out in PBR BBC News Online (25/11/08)
Pre-Budget Report – the documents BBC News Online (25/11/08) Links to all pre-budget report documents as pdf files
Robinson and Peston analysis of PBR BBC News Online (25/11/08) Video from the Daily Politics show
Darling needs to cure a nation hooked on debt Guardian (24/11/08)
Darling unveils borrowing gamble BBC News Online (24/11/08)
Analysis: is this the death of New Labour? Times Online (24/11/08)
Alistair Darling announces £20bn economic boost Times Online (24/11/08)
Alistair Darling’s £20bn tax giveaway Times Online (24/11/08)
The mother of all gambles Guardian (24/11/08)
Obama and Darling: compare and contrast Guardian (24/11/08) Video comparing the packages announced by Alistair Darling and Barack Obama
The £21bn tax gamble Guardian (25/11/08)
Call this a cure? Guardian (25/11/08)
Questions
- Write a short paragraph outlining the main policies set out in the pre-Budget report.
- Evaluate the likely success of the policies announced in the pre-Budget report in preventing a prolonged recession for the UK economy.
- Discuss the short-term and long-term impact on the UK money markets of the high levels of borrowing required to fund the tax and spending changes set out in the 2008 pre-Budget report.
- Assess the likely impact of the increase in the top tax rate of income tax to 45% on (i) consumer expenditure growth, (ii) tax revenues, and (iii) the incentive for higher rate tax payers to work harder.
- Discuss whether a fiscal solution, such as that set out in the pre-budget report, or a monetary policy solution will be more effective at preventing a prolonged recession in the UK..
The possibility of recession in the UK, the USA and Europe has attracted a great deal of media attention and in this podcast Andy Beharrell considers whether there is any real evidence of recession. The podcast considers the definition of recession, the causes of recession and the different approaches taken by governments to try to keep their economies out of recession. While the UK and Europe have adopted essentially rules-based policy approaches, the USA has taken a more interventionist and discretionary approach with a significant loosening of both monetary and fiscal policy.
A recent report from the World Bank has suggested that developing countries need to grow significantly if they are to avoid high levels of poverty. The report suggested that without rapid and sustained growth up to 4 billion people could be living in abject poverty by 2050.
‘Choose growth or accept poverty for billions’ Guardian (22/5/08)
The Doha dilemma The Economist (29/5/08)
Questions
| 1. |
Summarise the main findings of the World Bank report. |
| 2. |
Is rapid economic growth (a) a necessary condition and/or (b) a sufficient condition for alleviating poverty in developing countries. |
| 3. |
Evaluate two policies that a developing country could adopt to raise levels of economic growth. |
Russia has been growing rapidly. Average earnings have recently been growing at 20% a year and consumption growth has not been far behind this. Moscow apparently has more ‘6-series BMWs’ than any other city in the world. With Vladimir Putin now the prime minister he has promised to rein in inflation and boost social spending on housing and infrastructure. So what are the prospects for Russia in the next decade?
Russia: giant of a new economic world order Observer (25/05/08)
Vladimir Putin pledges to transform economy of Russia into a world leader Times Online (9/05/08)
Putin in 2020 pledge on economy BBC News Online (8/05/08)
Questions
| 1. |
Assess the recent economic performance of the Russian economy. |
| 2. |
Examine the importance of oil to the Russian economy. What can the Russian government do to reduce the dependence on oil revenues? |
| 3. |
Discuss the importance of infrastructure and spending on other social capital for the development of the Russian economy. |
Rapid economic growth in China has pushed inflation to an 11-year high of 8.7% in February 2008. This was driven significantly by higher food prices, with the price of pork rising by nearly 64%. This higher level of inflation has led to concerns that policy may need to be tightened.
Sweet and sour pork The Economist (13/3/08)
China inflation hits fresh high BBC News Online (11/3/08)
Chinese inflation alarms authorities Guardian (11/3/08)
Chinese warn on decade-high inflation Times Online (5/3/08)
Chinese inflation shoots to 11-year high Times Online (11/3/07)
China tries to apply brakes to economy Guardian (4/3/08)
Questions
| 1. |
What are the main causes of rising inflation in China? |
| 2. |
Assess the extent to which policy needs to be tightened to counter the rising level of inflation in China. What would be the possible downsides of such a policy? |
| 3. |
Discuss possible policy changes that could be implemented by the Chinese government to reduce the level of inflation. |
