Explain the Strategies Adopted by Governments Since 1997 to Reduce Unemployment

Economy

Jan 2010

No. 1 / Explain the strategies adopted by governments since 1997 to reduce unemployment.
dates should demonstrate an awareness that the following initiatives, each of which requires a brief explanation, have been introduced since 1997:
• The New Deal, aimed specifically at the long-term unemployed
• Working families tax credits to ensure that people returning to work will not suffer a loss of income
• Reforms of the eligibility criteria for the Disability Living Allowance to ensure that it is not being used as an alternative form of long-term unemployment benefit
• The national chidcare strategy to ease the return of mothers into the workforce
No. 7 / what extent have government policies since 1997 contributed to the recent economic recession?
dates should demonstrate an awareness that there are a range of views on this question, often closely aligned with the official positions of the main political parties, including:
• The arguments being advanced by the Conservatives that the world recession has had a particularly severe impact on the UK because of profligacy during the boom years
• The arguments being advanced by the government that the recession was ‘made in America’ and that the UK led the way in stimulating the economy to address the downturn
• The Vince Cable critique that a stimulus was needed but that it took forms, such as the reduction of VAT, that have been ineffective.

Jun 2010

No. 1 / How similar are Labour and Conservative tax policies?
Indicative content (this is not an exhaustive account of relevant points)
Candidates should demonstrate an awareness that, in many respects, Labour and Conservatives have very similar tax policies; both want to pursue non-punitive taxation policies. In relation to income tax, both favour a simple two-tier taxation system, with the progressive reduction of the lower tier.
However, there are also some significant differences.
• Conservatives have a greater inclination to shift the burden of tax to indirect taxation, such as VAT
• Conservatives would scrap taxes that disproportionately affect the wealthy, such as inheritance tax; reducing corporation tax
• Conservatives would be more inclined to reduce the higher tier of income tax if there were scope to do so.
• The Conservatives have raised capital gains tax at the lower end of the scale
• Labour has been prepared to increase national insurance and other taxes to pay for improved public services, whilst Conservatives have frozen council tax.
Responses that fail to detail both similarities and differences cannot access Level 3 marks.
No. 6 / ‘The Labour government’s response to the economic crisis of 2008 was reckless and irresponsible.’ Discuss
Indicative content (this is not an exhaustive account of relevant points)
Labour’s approach to the very sharp turndown of 2008-9 was a largely Keynesian one. They spent very heavily to save financial institutions on the point of collapse, followed by a massive stimulus package and VAT reductions to stimulate demand, as well as specific programmes of support for key sectors, such as the scrappage scheme for the car industry. Keynesians believe this will stimulate growth allowing the economy to emerge from recession, and would also preserve jobs and services – thus protecting both economic growth and people’s livelihoods.
Others, for instance, the initial Liberal Democrat position, broadly supported the Keynesian approach as responsible, but would have gone further in response to the initial crisis affecting the banking sector, taking into public ownership the institutions that were insolvent.
More neo-liberal positions, such as that of many Conservatives, initially supported the financial support and stimulus package to save the banking sector, but then offered a critique by arguing that high levels of government spending were creating a budget deficit that is now a huge burden on present and subsequent generations. They believe that a more responsible approach is reducing public spending and lowering taxes, and these are more likely to deliver an economic revival, a reduced deficit and lower debt burden.
Some neo-liberals believe that the failed banks should have been allowed to collapse, thus allowing much reduced borrowing by the government and ultimately creating a more competitive financial sector. Opponents of this would identify the damage this would have caused to individuals and businesses as reckless and irresponsible.

Jan 2011

No. 1

To what extent have tax policies since 1997 been used to redistribute

income?

Indicative content (this is not an exhaustive account of relevant points)

Candidates should demonstrate an awareness that the Labour Party has traditionally

seen economic policy as an instrument for the redistribution of wealth.

Labour governments have used tax revenues to invest heavily in public services, which

disproportionately benefits the poor, but this has not been a redistributive policy as it

has not required the wealthy to carry an additional financial burden.

Taxation levels were, however, reduced for the poorest sections of society to try to

keep people out of the ‘poverty trap’ e.g. the creation of the 10 percent taxation

band for low level incomes in 1997.

In almost all respects, therefore, Labour governments have not attempted to promote

redistribute wealth, as shown by:

Reducing the standard rate of income tax and not increasing the higher rate

The new tier of income tax is for deficit reduction, not redistribution of wealth

Business taxation has also been reduced

Programmes to support the poor, particularly benefits and social housing, have

not seen a boost in funding.

Tony Blair frequently expressed admiration for ‘wealth creators’

Other taxes which affect the large sections of the population have crept up

(e.g. fuel duty, council tax)

The 2008-09 recession, saw the Labour government introduce additional tax cuts for

the poorest sections of society and new higher tax rates for higher earners (those

earning over £150,000) of 45% from late 2008 and then 50 % from April 2009. Critics,

however, would argue that these were moderate redistributions of the taxation

burden.

The coalition has also pledged to increase the income tax threshold, funded by not

going ahead with the cut in the employee element of the national insurance

contributions (NICs) and also increasing capital gains tax for non business assets.

The coalition has largely focused on spending cuts rather than redistributing income to

tackle the economic recession.

No. 7

To what extent are governments still able to exert meaningful control over the

economy?

Indicative content (this is not an exhaustive account of relevant points)

Candidates should demonstrate an awareness that the question implies that governments

were once the main factor shaping economic policy (on an ideological basis) and that this

is no longer the case.

Points that could be developed to support such a view include:

The withdrawal of the government from strategic areas of the economy, as a result

of privatisation, and no expectation that this will change

Devolving power over interests rates to the independent Bank of England and also

making regulation of the financial sector the responsibility of independent agencies

The sheer scale of global economic and financial forces that have the capacity or

overwhelm, and dictate, government policy as happened on ‘black Wednesday’ and

in the aftermath of the collapse of Lehman Brothers in 2008

The requirement to adhere to EU economic regulations, especially in respect of the

Single Market where decisions are made by QMV

Points that could be developed to challenge such a view include:

Governments set taxation levels

Governments decide on the distribution of expenditure across policy areas

Regulatory agencies and the Bank of England are ultimately answerable to

governments

The UK government is a leading player in international bodies that shape and

respond to the global economy

The UK has retained control on monetary affairs, by not joining the Euro, and has

consistently resisted proposals for increased co-ordination of fiscal policy across

Europe

Jun 2011

No. 4

What is economic globalisation, and how does it affect economic

policy-making in the UK?

Indicative content (this is not an exhaustive account of relevant points)

Economic globalisation is the increasing integration, across international borders, of

trade, finance and labour.

The implications for national economic policy-making include:

The need to recognise that the UK economy needs to attract inward investment

from large overseas and transnational companies

It has become more difficult for governments to manage money supply and

interest rates, and their impact on imports and exports

Seemingly domestic policies, such as privatisation, can actually deepen

globalisation as companies may not remain wholly UK-owned

The need to recognise that some preferred policy options, particularly relating to

taxation, may be impractical in view of the ability of commercial organisations to

evade them by moving assets or their entire organisation

Rules and regulations, such as those proposed in respect of the financial sector

after the crisis of 2008/9, increasingly require international agreement if they

are to be effective

Effective control over the movement of labour has become more difficult (and

has been relinquished altogether in respect of the EU) making attempts to

preserve “British jobs for British workers” largely meaningless

It is far more difficult to manage exchange rates to give UK businesses a

financial edge

The UK’s involvement in the global economy is deeper than that of the EU, and

so may form a barrier to the UK’s entry to the Eurozone

No. 8 ‘There is more rhetoric than substance in the disagreements between

the major UK parties over the budget deficit.’ Discuss.

Indicative content (this is not an exhaustive account of relevant points)

The Conservative Party recognised the need for a financial package when the economic

crisis hit, but then criticised Labour’s Keynesian reaction to the budget deficit as it

relied too heavily on spending, so creating the budget deficit. They have adopted the

neo-liberal position that public spending should be reduced rather than increasing

taxes to reduce the deficit.

In opposition, their pledges included:

£6bn in cuts, targeting all areas except health and foreign aid

Push for an international agreement to stop banks engaging in large-scale

trading using their own money and a global levy on banks

Raise Inheritance Tax threshold to £1m

Scrap Labours planned 1% national insurance rise for people earning less than

£35,000 and Stamp Duty for first-time buyers on homes up to £250,000

Cut headline rate of corporation tax to 25p and the small companies’ rate to

20%

Cut civil service costs by a third over five years

Freeze public sector pay for one year in 2011, excluding the one million lowest

paid workers

Cut ministers’ pay by 5 per cent, followed by a five year freeze

Liberal Democrats in opposition found themselves more often in agreement with

Labour than their current coalition partners, with policies such as supporting Labours

fiscal stimulus and bank bail-outs, and reducing structural deficit at least as fast as

Labour plans while protecting frontline services. Where the Liberal Democrats differ

from the other main parties, however, is in addressing areas of policy not always

tackled by Labour and the Conservatives, such as redirecting £3.1bn of public spending

for a one-year "Green Stimulus", investing in green technology to create 100,00 jobs.

The Liberal Democrats also would have taken the more radical step of nationalising

failing banks. They also prefer to raise taxes rather than cut spending amidst fears of

impacting of the most vulnerable members of society, and so would have raised the

threshold at which people start paying income tax from current levels to £10,000 and

imposed "mansion tax" on the value of properties over £2m and increase capital gains

tax to bring it into line with income tax. However, their policies have been limited by

the need to maintain unity with their coalition partners.

In coalition, the Conservative Party has tended to dominate economic policy. They

have, however, compromised with the Liberal Democrats on delaying plans to raise

inheritance tax thresholds and work towards taking the lowest earners out of the tax

system.

Policies include:

Coalition has pledged to:

£6bn cuts to non-front-line services within the financial year 2010/11 and use

some of those savings to support jobs.

Reducing spending on the Child Trust Fund and tax credits for higher earners.

Reducing the number and cost of quangos

Introducing a banking levy

Labour argues that the Coalition’s programme of cuts will hit the ‘squeezed middle’

hardest, as the cost of living outstrips wages. Ed Miliband has suggested that

companies could be given tax incentives to pay a ‘living wage’ and to invest in training

for employees. They also claim that many of the coalition’s plans, such as the £11m

efficiency savings plan, were underway when Labour were in power. Labour also argue

that the Conservatives are demonstrating their inability to deal with the budget deficit,

as they are turning to the policies they followed in the 1980s, with increases and VAT,

spending cuts and proposing ‘enterprise zones’.

Jan 2012

Question Number Question

3. Why have governments made limited progress in reforming

the banking system?

Indicative content

Candidates should demonstrate an awareness of some of the proposed reforms to the

banking system.

Reasons why it has proven difficult to reform the banking system include:

The Labour government continued to pursue a ‘hands-off’ approach to the economy reforming the banking system would contradict this

The UK government now part-owns some banks- but this was always a temporary

measure intended to last only as long as the banks were in crisis- by November 2008

an ‘arms-length’ company had been set up to manage the government’s shares

The increasingly globalised nature of the banking system means that is almost

impossible for one government alone to carry out such reform

An international agreement on such reform would most likely have to include setting

up international financial systems, such as a financial regulatory authority

The banks themselves are likely to resist reform

Slashing banking bonuses in the way the media often demands could potentially

damage the investment banking operations of UK banks, and lead to business

moving overseas- with the associated loss of revenue for the UK government, and