To what extent are government still able to exert meaningful control over the UK economy?

Topics: United Kingdom, Monetary policy, Macroeconomics Pages: 6 (2197 words) Published: November 18, 2013
To what extent are government still able to exert meaningful control over the UK economy?

The extent to which government are able to exert meaningful control over the economy is subject to the power government has. In most Mixed economy such as the UK, government usually has control over Fiscal policies, which is the use of government spending and taxation to influence the economy, however how much they spend depends on the party that is governing the economy at that time. Traditionally Labour is viewed as “tax and spend” party, whilst Conservative encourages Free trade, deregulation of the economy, and lower taxes. They aim to reduce government spending and national debt. Nevertheless, government has to consider the wider economy and the global financial market before resulting in polices as the policies they implant can result in an economy that is either booming or an economy which is on the verge to bust. Government may lack control over the UK economy, due to their membership with the European Union, which has created many legislation that has made it difficult for the UK government to entrench policies nationally. In additional, Government no longer has control over interest rates, which means they no longer have control over the supply and demand for money but The Bank of England is accountable to government, so if government wishes they could intervene. In this essay, I will outline few of the main reasons that enable government to exert control over the economy, I will also evaluate these points along with reasons that prevent government from controlling the UK economy. Government controls fiscal and supply side policies in the UK, Fiscal policy is the control of the amount of public expenditure as well as the revenue they can create via taxation. Whilst supply side policies are government policies which increase the amount of ‘supply’ that is capable of being produced over the long term .Thatcher’s monetarist government in the 80s were very keen on Supply Side polices, Thatcher argued that government intervention led to dependency culture, where there is no incentive for firms to improve efficiency and choice, so Thatcher wanted markets to be free from government, she wanted to increases productivity and competition in the economy. Thus the thatcher government applied various polices such as privatisation, deregulation, etc… to encourage competition and decrease long run average cost for firms. Before the 1997 election, the Tories had portrayed the Labour party as being irresponsible (in terms of their fiscal and monetary policy) and incapable of running the economy effectively, they were viewed as tax and spend party in government which supported nationalisation of key institutions. However, when New Labour came into power, they were more responsible and had more control of the UK economy, they took supple side economics further than the Tories, introducing market forces and competition in the utilities and telecommunications, they took steps to maintain and increase labour flexibility, they were no longer dependent on the Trade Unions, and Labour took the social chapter and established Minimum wages, which were set very low. Labour stressed the importance of highly trained and educated workforce, hence focused on improving education. The aim was enable the workforce to compete and handle new tasks, thus standards in education was increased, they introduced schemes such as EMA to increases more teenagers to stay on education, they also presided over an expansion of nursery education and pledged to put at least 50% of 18-30 year olds in higher education. Brown was seen as the first Labour Chancellor who had been successful in avoiding economic disaster, he managed to keep low inflation, unemployment and interest rate all in his first term, showing control over the economy. New Labour had pledged in their manifesto to maintain Tory spending limits for the first two years of the government, which meant...
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