British Public Affairs (JN 805)

1. British Public Affairs (JN 805) Treasury and Economic Policy

2. Lecture Outline 1. Chancellor of the Exchequer 2. Economic Concepts 3. Budget Process 4. Bank of England 5. Business Innovation and Skills 6. Office for Budget Responsibility 7. Stock Exchange

3. Chancellor of the Exchequer • Chancellor of the Exchequer after the PM most senior member of the cabinet. • Chancellor of the Exchequer – George Osborne.

4. Chancellor of the Exchequer No 11 Downing Street Dorneywood Treasury – Whitehall Responsibilities : overseeing government’s public spending commitments by managing fiscal policy; managing the national debt; promoting economic growth; controlling domestic inflation and unemployment Treasury select committee shadows the department

5. Chancellor of the Exchequer Chief Secretary to the Treasury – Danny Alexander Financial Secretary – SajidJavid Exchequer Secretary – David Gauke Economic Secretary –Nicky Morgan Commercial Secretary – Lord Deighton

6. Economic Concepts Fiscal Policy – government use of revenue collection (taxation) and expenditure (spending). Post war – mixed economy Thatcher years – privatisation, neo-liberalism – (economist Milton Friedman) Monetary policy – Process by which a monetary authority controls the supply of money, mainly through interest rate adjustments. New Labour followed neo-liberal economic policy framework of Thatcher Fiscal rectitude – cutting public expenditure and reducing the amount of government borrowing.

7. Economic Concepts 2 types of taxation – direct (income, corporation taxes) and indirect (VAT, fuel duty). Progressive Income tax system Regressive basis of Indirect taxes Corporation tax paid by companies on profits Capital Gains Tax (CGT) paid by the owners of financial assets such as property Inheritance Tax – death duties

8. Economic Concepts • Neo-liberalism is a political and ideological project broadly defined by: •  A confidence in the market as efficient mechanism for allocation of scarce resources; •  A belief in global regime of free trade and capital mobility; • The creation of independent national reserve banks and tight control of money supply through interest rates; • A belief in limiting role of the State to facilitating market mechanisms; • A belief in labour-market flexibility, removal of welfare benefits, and use of private finance in public projects.

9. Economic Concepts • Privatisation – selling government assets, such as Royal Mail. • Public-private partnerships • Nationalisation – government owned

10. Economic Concepts Balance of Trade – difference in value between the total of all goods and services bought by British residents from overseas (imports) and all UK-made products sold abroad each year. £3.2 billion in Nov 13. Balance of payments – difference in value between the total of all payments of every kind flowing between the UK and other countries, including financial transfers and debt payments to foreigners.

11. Economic Concepts Gross domestic product (GDP) – market value of total output of goods and services produced within Britain each year irrespective of national ownership. http://www.theguardian.com/business/2014/jan/28/uk-economy-2013-fastest-growth-fourth-quarter-gdp Gross National Product (GNP) market value of all goods and services produced by British-owned companies, labour, and property each year irrespective of location around world.

12. Economic Concepts The national deficit – the annual difference between government spending and its receipts (mainly taxation) – government has to borrow to make up the difference. Current annual budget deficit of £120 billion. The national debt the accumulation of these annual deficits and the borrowing incurred to make up the difference. Borrowing occurs through the public sector net cash requirement .

13. Economic Concepts Inflation – rise in price levels which reduces purchasing power. Inflation measured by consumer price index (CPI) and retail price index (RPI). CPI excludes housing costs and mortgage rates. Current inflation rate (measured by CPI) is 2.0%. http://www.theguardian.com/business/2014/jan/14/inflation-falls-to-2-percent-bank-of-england-target http://www.bbc.co.uk/news/10612209 Bank of England inflation target rate of 2%. If more than 3% or less than 1% then Governor of the Bank of England has to write letter to the Chancellor saying why target of 2% has not been met and what will be done. Fear of stagflation – combination of high price inflation, high unemployment and low economic growth http://www.theguardian.com/money/2013/dec/29/why-britain-needs-pay-rise

14. Budget Process • Highlight of the Chancellor and the government’s year the Budget and the accompany Finance Act • 19 March budget • Comprehensive Spending Reviews (CSR) • http://www.theguardian.com/politics/2013/jun/26/comprehensive-spending-review-need-know

15. Budget Process Budget speech designed to forecast short to medium term movements in the economy 1-3 years Announces new taxes, tax breaks, and or benefits to finance investment Other measures of help to low paid, the elderly etc likely to be in short supply in the age of austerity

16. Budget Process Finance Bill speaker designates it a ‘money Bill’ Budget is fast tracked through Parliament Speech regarded as first reading 2nd reading must be heard within 30 days Scrutiny at committee stage 3rd reading steamed through on same day as report stage then Royal Assent Lords can’t interfere Leader of the Opposition responds (difficult Parliamentary occasion as there are likely to be surprises) Debate on the floor of the Commons

17. Bank of England New Labour gave independence to the Bank of England in the first few weeks following their landslide first victory (1997) Established Monetary Policy Committee chaired by Governor of the Bank (Mark Carney current Governor of BofE) Responsibility to set interest rates. Takes the decision out of the political arena New Labour set up regulation system Financial Services Association (FSA)( (widely accused now to have failed when it came to the global banking crisis – new coalition govt abolished it)

18. Bank of England • Interest rates set by Bank’s governor and the monetary policy committee

19. Bank of England Quantitative Easing – The BofE responded to global financial crash by pumping liquidity into system (increasing supply of money) to encourage more lending. http://www.bbc.co.uk/news/business-15198789

20. Bank of England • Carney said in August that interest rates were unlikely to be raised before the jobless rate falls to 7%. Current unemployment rate is 7.1% - forward guidance. • http://www.theguardian.com/business/2014/jan/22/uk-unemployment-rate-forward-guidance-rate-rise

21. Business Innovation and Skills (BIS) Vince Cable - Secretary of State for Business, Innovation and Skills and President of the Board of Trade BIS promotes trade, invests in skills and education, oversees consumer law and business regulation. BIS includes David Willetts, Minister of State for Universities and Science BIS select committee shadows department

22. Business Innovation and Skills (BIS) Competition and Markets Authority (created out of merged Office of Fair Trading and Competition Commission – part of BIS, starts April 2014) https://www.gov.uk/government/organisations/competition-and-markets-authority

23. Office for Budget Responsibility The Office for Budget Responsibility (OBR) was formed in May 2010 to make an independent assessment of the public finances and the economy for each Budget and Pre-Budget Report. http://budgetresponsibility.org.uk

24. Stock Exchange Shares in public limited companies (plc) traded on global stock market – one of the biggest London Stock Exchange Limited liability companies (ltds) – small and medium-sized enterprises (SMEs), liability limited to nominal sum. Includes theatres, charities and voluntary trusts Private Limited companies – Also SMEs, shares not publicly listed, liability limited to values of shares initially issued Public Limited Companies (plcs) – floated and listed on the LSE

25. Stock Exchange FTSE (Financial Times Stock Exchange) Indexes track company share prices. Leading index is the FT100 Share Index (now about 6,510 pts). The FT All-Share Index lists all stock market companies. http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/indices/summary/summary-indices.html?index=UKX