Topic 6: Economics (1997-2007) Flashcards
1
Q
3
Describe Gordon Brown
A
- Shadow CX since 1992
- Handed sole control of economic policy
- Spending injections increased from 2001
2
Q
4
Describe Brown’s aims in 1997
A
- Inherited favourable economic circumstances in 1997
- Keep inflation low
- Keep government spending under control
- Prove that labour was pro-business and economically competent to escape old ‘tax-and-spend’ adage
3
Q
3
Describe Bank of England policy under Brown
A
- Brown granted BoE independent monetary control
- Mandated 2% inflation target
- Cemented anti-inflation policies developed by Clarke and Lamont after Black Wednesday
4
Q
3
Describe the impact of BoE independence
A
- Hailed as masterstroke policy
- Inflation kept low at 2.5% in 1997, 2.75% in 1998, 2.5% in 1999
- Interest rates declined from 7.5% (1998) to 5.5% (1999)
5
Q
5
Describe tax/borrowing policy under Brown
A
- Set borrowing rules through treasury rather than No10
- Did not raise basic or higher rates of income tax
- Aimed to shake off ‘tax-and-spend’ image
- Reduced starting rate of income tax from 20% (pre-1997) to 10% (1999)
- However raised tax thresholds in line with inflation rather than earnings, leading to fiscal drag
6
Q
2
Describe spending plans under Brown (1997-2001)
A
- Subscribed to Tory spending plans in 1st term
- Allowed for growing economic stability to permit greater spending on public services in 2nd term
7
Q
3
Describe spending plans under Brown (from 2001)
A
- Greater injection of spending into public services
- Biggest increases in education (new schools and teacher pay rises) and health (pay rises for doctors, nurses)
- Exam results went up and waiting lists went down
8
Q
4
Descrbe PFIs (Private Finance Initiatives)
A
- Introduced by Major in 1992 - expanded considerably under Blair
- Used private funding through contracts to enable improvements to public services
- Private companies take on short-term burden of raising capital
- Government and taxpayers repay private firms over long term
9
Q
3
Describe the impact of PFIs
A
- Avoided raising taxes
- Aided pro-business image to Middle England
- Critics argued it placed greater amount of debt on ‘off-balance-sheet’
‘off-balance-sheet’ - financing not on govt balance book
10
Q
3
Describe a stat that shows the impact of PFIs
A
- 2003-08
- 69% PFI construction projects completed on time
- 65% delivered at agreed price
11
Q
4
Describe the 1997 budget
A
- Corporation tax cut from 33% to 31%
- Corporation tax for SME cut from from 23% to 21%
- £5.2bn to be raised through windfall tax
- Stamp duty increased by 2% over £500k
12
Q
2
Describe the 2002 Budget
A
- 1% increase in NI contributions
- Allocated to NHS spending
13
Q
3
Describe redistributive wealth under Brown and Blair
A
- Redistribution schemes such as tax credits
- Received little fanfare (to avoid criticism)
- Poorest 10% gain 13% of national income (1997-2010)
14
Q
3
Describe Brown’s 5 economic tests
A
- 1997, Brown and Balls (SPAD) set out 5 tests for Britain committing to euro
- e.g. economic structures and business cycles compatiable with other nations to allow for comfortable integration into euro interest rates
- Treasury assessments in 1997 and 2003 deemed that British convergence and economic flexibility was insufficient
convergence - minimise structural differences
15
Q
4
Describe the positives in the economy under Blair
A
- Decade of economic stability, consistent high growth, low inflation
- Low employment
- Monetary Policy Committee highly effective
- Remained outside Eurozone
16
Q
5
Describe the positives in the economy 1997-2007 (stats)
A
- GDP doubled from $1.5trn (1997) to $3trn (2007)
- Govt debt as share of GDP remained relatively level at average 33%
- Interest rates stood at 5.25% (2007) against 6% rate (1997)
- Unemployment fell from 2m to 1.7m
- Zero deficit in 1999-2000 before 2001 Budget surplus
17
Q
4
Describe the negatives in the economy under Blair
A
- Level of debt broke £1trn barrier
- Public finances in precarious state before 2008 GFC
- Extra revenue increased through higher NI contributions and fiscal drag
- Big business argued fiscal drag ‘stealth tax’ threatened competitiveness
18
Q
4
Describe the negatives in the economy 1997-2007 (stats)
A
- Personal debts ballooned - avg household held personal debt equivalent to 160% of household disposable income in 2007
- Mortgage borrowing spiked to over £1trn
- House prices rose at avg 11% a year
- Avg household saw £3100 increase in taxation due to fiscal drag
19
Q
4
Describe the positives in trade and industry (1997-2007)
A
- ‘Fairness at work’
- Economic growth averaged 3.2% from 1997-2000 (though had dropped to 2.4% for 2001-06)
- Productivity gap with USA/Germany/France narrowed due to private investment in machinery (capital spending)
- British inward investment increased from £153bn in 1997 to £483bn in 2006
20
Q
4
Describe ‘fairness at work’ measures
A
- 1998, Minimum Wage introduced at £3.60 for over 21s
- Legal recognition for trade unions
- Signing of European Social Chapter
- Welcomed by TUC
21
Q
3
Describe negatives in trade and industry (1997-2007)
A
- 2005, Rover goes bust
- Decline in manufacturing industry employment
- Took 9 years to determine energy policy
22
Q
4
Describe the liquidation of MG Rover Group 2005
A
- Last domestically owned mass-production car manufacturer
- 2005, entered administration
- Labour and Patricia Hewitt (Trade and Industry Sec) criticsed for not being interventionist enough
- Yet Stephen Byers, Hewitt’s predecessor, had worked extensively to prevent collapse
- 30k jobs lost directly and through related supply industries
23
Q
4
Describe the decline of the manufacturing industry (1997-2207)
A
- Manufacturing – 1997 4.5m jobs, 2006 3.2m
- Motor industry – 1997 234k, 2006 175k
- Industrial unions such as Amicus and TGWU criticsed Government for not protecting well-paid jobs
- Yet productivty rise and investment ensured national employment remained close to full
24
Q
4
Describe energy policy under Blair
A
- Took 9 years to decide policy
- 2003, ducked issue of nuclear power in favour of renewable energy
- 2006, Labour gave go-ahead for nuclear power to prevent reliance on Russian and Iranian gas
- 2007, High Court thew out 2006 Energy Review plans (go-ahead not given until 2008)
25
Q
4
Describe Blair’s attitude to globalisation
A
- embraced globalisation as opportunity to expand economic growth
- Focussed on skills and R&D to develop ‘knowledge economy’ to utilise new technologies
- Spent hugely on R&D tax credits, totalling £580m by 2005
- Productivity gap in comparison to Europe and USA narrowed due to increased efficiency
26
Q
2
Describe privatisation under Blair
A
- Arguably extended further than Thatcher/Major years
- Dismayed trade unions
27
Q
3
Describe examples of privatisation under Blair
A
- Air Traffic Control organisation
- London Undergound moved to private-public partnership
- Discussions about privatising Royal Mail, which Major had dared not do
