Supply side policies Flashcards
(15 cards)
What is a supply side policy
Policies which aim to increase the productive capacity of the economy and efficiency
Give 5 factors which aim to increase supply in the economy
-Decrease in corporate tax
-Increase in minimum wage (increasing incentive to work)
-Increase in investment (increase in capital stock)
-Tariffs
-Education
- Reform welfare
Give 5 aims of SSPs
ICGSD
- Increase occupational & geographical mobility of labour
- Promote competition and stimulate innovation
- Economic diversification (more varieties)
- Encourage start ups of new businesses
- Improve incentives to work & invest in peoples skills
What do we mean by the UK has a productivity gap
This means that in general, our workers have less productivity and we grow more slowly than our rivals (last 20 yrs)
Give 5 reasons why the UK has poor supply side policies & poor long run growth
- 9.2m people of working age economically inactive as of early 2025
- Ageing infrastructure - rise in pollution & risk to floods
- Regional economic imbalances
- Low investment in R&D - shareholder culture & high marginal tax rates
- Productivity gap
- Strict planning laws
- Ageing population
Give 8 current examples of UK SSPs
- Heathrow expansion & aiming to reduce planning permission restrictions
- HS2 and Network North improving geographical mobility of labour
- Corporation Tax Cuts – The UK reduced corporation tax from 28% in 2010 to 19% by 2019 to encourage investment (but recently increase in national insurance contributions for employers may hinder this)
- Free childcare places to allow for parents to work
- A to B scheme
- Mobile T levels
- Government pledged to boost housebuilding to 305k per annum
- Europes silicon valley
What do we mean by regional economic imbalances
GDP per head in LDN is higher than everywhere else in the UK (North/south divide)
How does the effectiveness of SSP’s affect long run growth - draw the diagram
What have the OBR said about UK potential long run growth (link to the diagram)
If SSP’s aren’t effective, LRAS will not shift all the way to LRAS1 and will only shift to LRAS2 if SSP’s not effective - leading to lower GDP than if they were effective, and a higher price level (P to P1) - meaning it is inflationary growth.
OBR said UK economy is now only capable of reaching 1.7%, represented by LRAS2, rather than 2.75%, represented by LRAS1, the theoretical target for UK long run growth - demonstrating UK’s poor SSP’s in the last decade
Even if UK SSP’s are effective, what else may limit LR growth - draw a diagram
Assumes that there are no external events/shocks which limit LR/SR growth
(E.g. - America & tariffs leading to cost push inflation from P to P2 due to increase in costs from SRAS to SRAS1)
Give a policy which aids in the shortage of skilled labour workers in the UK economy that also contributes to geographical mobility
T-levels allowing 20% of learning to be done at home, with up to 50% for digital courses, which potentially lowers geographical barriers
What is rezoning
Updating zoning laws to allow for higher density housing in urban areas
Give 5 to reduce economic inactivity in the UK
Health and Disability Support:
Workplace Adjustments and Disability Support (allowing older people to work from home/flexible working hours)
Childcare and Family Support - Affordable Childcare Programs & Elder Care Support:
Reforming Benefits to Support Work Transitions - New unemployment insurance benefit
Addressing Regional Imbalances
Incentives for Older Workers - Tax Incentives for Staying in Work
Who are those who are economically inactive
Those of working age, but are not seeking employment
1 liner about why the UK has poor SSPs
The UK has poor supply-side policies due to a large productivity gap, economic inactivity, strict planning laws, underinvestment in infrastructure and people skills, and persistent regional imbalances.
What are the SSPs to remember
Heathrow third runway - 180k jobs and lower planning laws across UK
Corporation tax cuts - Decreased every year from 2010-2019 but 2023 marked first increase in main rate since 1974 + NI gone up so not really working
All the childcare stuff - helps with the job market stat but NI conflicts it
A to B scheme - only for certain courses etc etc
T levels to be done at home - increase Ocu and geo mobility of labour - also in theory helps with job market but Ni gone up so lower employment
HS2 and network north - geo mobility of labour but taking ages
Labour said will upgrade housebuilding to 305k houses a year by 2029, slight upgrade from 1.5m in autumn budget - but in Q125 house building rates have declined
Europe’s silicon valley
