UK politics │ Tax cuts and increased public spending

9 November 2008 │ 12 November 2008

Speculation is rife that Mr Brown’s government is planning a twin-track policy of tax cuts and increased public spending to prevent a sharp recession. Mr Prudence metamorphoses into Mr Generous (a.k.a. Mr Tax Cutter / Mr Big Spender). Well, I have no idea about economics – the subject is too difficult for me – but I’m not entirely sure if this policy will work.

Anyway, I’m led to understand that tax cuts will revive consumer spending and increased public spending will stimulate the economy by creating more jobs etc. Less tax income from a weakened economy and tax cuts as well as more expenditure must mean a lot of debt for the country. The UK enters into a national debt binge. Hmm ...

There is one major question: will it work? Would it be enough to prevent a really bad and steep recession? That’s where I have some questions. Given a large number of people living in job insecurity and with debt, would not any tax cuts be spent on servicing personal debts and repaying mortgages? Oh, we have some extra money thanks to Mr Tax Cutter, now shall we (a) spend it all in the shops or (b) be responsible and repay our debts / put the money into a savings account that gives us 1% interest? Also would not any public spending kick in too late to boost the economy? Mr Big Spender, projects need proper scrutiny, (sham) public consultations and meticulous planning. However, the budget can go out of the window. A few million extra? No problem, as long as it employs more people and revives the economy.

So I’m a little sceptic about the efficacy of the policy but I suppose it’s better than doing nothing. The difference may well be between a ‘bad’ and ‘catastrophic’ recession. It’s going to be tough and bad, but the question is how tough and how bad. Gulp.

The tax cuts will be ‘moderate’ and will be followed by tax increase in the medium term. I wonder what happened to the programme of increased public spending. The UK economy and the British currency seem to be in a very precarious position at the moment.