An End to Austerity. The Economic implications?

  • By Politeia
  • October 12, 2018
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Friday 12th October: An End to Austerity: The Economic Implications?

Last week at Prime Minister’s Questions, Theresa May confirmed the message she had given to the Conservatives annual conference in Birmingham, the age of austerity was over and the government would, having got public spending down, take the lid off public spending. Two economists discuss the likely impact on the fortunes of the UK.

 

A Dangerous Pledge? by David B. Smith

The public spending ratio expressed as a share of GDP was only just entering the zone of fiscal sustainability following ten years of hard slog before Theresa May’s recent spending pledges. These commitments – that do not seem to have been discussed in advance with HM Treasury, which has to raise the funds required – mean that the UK government finances are now probably unsustainable in the medium term. This is particularly so, once allowance is made for the adverse effects of high governmental spending and tax burdens on aggregate supply and the sustainable rate of economic growth, which now seems to have slowed to some 1½% each year. Read on

Fiscal Change after Brexit? by Patrick Minford

This government has been consumed by the Brexit process. This is not surprising as governments typically can only manage one big project at a time. However, with Brexit now only six months away, it is time that the government thought about fiscal policy, which has been drifting in an ‘austerity fog’ since the 2015 election. The Treasury has trodden water, refusing to give way on its basic austerity-set plans for spending, while maintaining the overall tax rate approximately unchanged. The result has been a rather rapid move towards surplus: in 2015/16 the PSBR was 3.8% of GDP and in 2018/19 this will have fallen to about 1.4%. Read on

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