By Ian Jackson, Senior Lecturer in Economics and Finance.
The 2018 Budget delivered on Monday 29 October by the Chancellor of the Exchequer Philip Hammond is likely to be the last fiscal statement before BREXIT which is scheduled on 29 March 2019. As a result, the actions taken in the next few weeks and months will probably affect the immediate future so the United Kingdom Government must work hard continuously to deliver the best sustainable growth path for the whole economy going forward.
However, it is simply not credible for the Chancellor to announce the end of austerity without providing more effective plans for bolder government action. Virtually all fiscal decisions on taxation and spending take up to a year to filter through the economic system and often the lagged effects take even longer sometimes measured in years. If the government was truly serious about ending austerity then it should have started much sooner with more comprehensive plans to reinvigorate productivity through spending on education, skills and training as well as research and development.
There is no doubt that the United Kingdom suffered a huge economic trauma in the form the 2007-08 Great Recession. This is the worst peacetime recession since the Wall Street Crash of 1929 that triggered the Great Depression of the 1930s. The main difference between then and now is that today there is the benefit of the influential work of John Maynard Keynes, whose General Theory was published in 1936. Keynes was a member of the Bloomsbury Group that included Virginia Woolf and E M Forster; more importantly he is recognised as the greatest economist of the twentieth century. In essence, he advocated demand management policies through government spending during a recession to boost economic activity. This is known as counter-cyclical policies to help oppose the adverse effects of a downward swing in the business cycle.
The United Kingdom government since 2010 has effectively pursued pro-cyclical policies in the form of austerity in an attempt to balance the finances of the country during the recessionary period. On face value, this is a potentially noble set of policies; no-one in any household can live beyond their means for very long. Except a country is not a household and to assume they are the same is a false analogy. Any country has the added advantage of what is known as overlapping generations. That is, a government can spread out the repayments of debt over many generations and not simply a few years. To prove this point, in October 2018, the International Monetary Fund published a report about Managing Public Wealth based on estimates using data from Her Majesty’s Treasury. It shows conclusively that the net wealth in the United Kingdom on the Public Sector Balance Sheet has deteriorated significantly over the past eight years.
On the eve of the planned date for BREXIT, the Government of the United Kingdom should have been bolder in delivering counter-cyclical policies that would have boosted the manufacturing sector, promoted British exports and helped the regions including the Black Country as a vital part of the West Midlands economy. It missed that opportunity; and while there is no point endlessly bickering about the past decade, there should be a clear recognition that there are two formidable uncertainties in the years ahead. The continuing uncertainty of the 2007-08 Great Recession and the pending uncertainty of BREXIT. Hence, it would be a good idea for policy-makers to read carefully the work of John Maynard Keynes whose ideas helped created economic wealth and overall prosperity in the period after the Second World War.
Dr Ian Jackson is Senior Lecturer in Economics and Finance at the University of Wolverhampton Business School