Chapter 25

Chapter Summary

Economic policy went through a long period when it was ‘depoliticised’, particularly after the transfer of the setting of interest rates to the Bank of England. This reflected the influence of the ‘rules v. discretion’ debate in economics, which argued that the more policy decisions that were rules-based the better as politicians were liable to be influenced by short-term electoral considerations. The GFC has seen a reintroduction of politics into economic policy, which has become more central to the political process once again, something that was reflected in views expressed in the referendum campaign that many people had seen their standard of living deteriorate as the results of the effects of globalisation. Although the Gini coefficient as a measure of inequality was actually improving, there was concern about the growing gap between the very rich and the rest of the population, many of whom had become reliant on food banks. There was a widely held view that economic policy was simply not delivering for large parts of the population.  The Labour Government elected in 2024 faced a highly challenging economic environment that threatened the achievement of its programme.

Learning Objectives

• To identify the nature of economic policy.
• To explain the economic policy-making process.
• To explain shifts over time in the conduct of economic policy.

Quizzes

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Discussion Questions

1. Different parties, different politicians, and different periods in time have seen different approaches to the economy. To what extent should the government intervene in the economy? Should policies prioritise fiscal responsibility (e.g. reducing deficits) or economic growth (e.g. increasing public investment)?
2. Since 1997, the Bank of England has had operational independence in setting interest rates. Should the UK government have more control over monetary policy, or does the current system ensure better economic stability?

Weblinks

HM Treasury – The UK government department overseeing economic policy, taxation, and public spending. (www.hm-treasury.gov.uk)

Bank of England – The UK’s central bank responsible for monetary policy, financial stability, and regulating interest rates. (https://www.bankofengland.co.uk/)

Institute for Fiscal Studies (IFS) – An independent think tank analyzing tax, public spending, and economic policy. (https://www.ifs.org.uk/)

National Institute of Economic and Social Research – A leading UK economic research institute studying macroeconomic trends and policy impacts. (https://www.niesr.ac.uk/)

OECD (Organisation for Economic Co-operation and Development) – An international organization providing data-driven analysis of global and UK economic trends. (https://www.oecd.org/)

Resolution Foundation – A think tank focusing on living standards, employment, and economic inequality. (https://www.resolutionfoundation.org/)

Flashcards

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