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The Economy

The Economy. Responsibilities of the Treasury Industry & Utilities. Managing the economy. Economy management is vital for country How a govt runs economy reflects political as well as economic assumptions Conservative government reign Labour economy. History of the Treasury.

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The Economy

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  1. The Economy Responsibilities of the Treasury Industry & Utilities

  2. Managing the economy • Economy management is vital for country • How a govt runs economy reflects political as well as economic assumptions • Conservative government reign • Labour economy

  3. History of the Treasury • Henry I (1126) • Charles II (1667) • First Lord of the Treasury

  4. Role of Treasury • HM Treasury (Great Office of State) • Responsible for formulating and implementing national economic policy • Works with other govtdepts • Chancellor receives twice yearly report on economy and future prospects from Panel of Independent Forecasters • Responsible for legislation which regulates banks, building societies, etc

  5. Fiscal Policy • Governments spend money on wide variety of things • Supply of money to economy • Expenditure funded in different ways Taxation Printing money Borrow money

  6. Keynesian Approach • To improve govt finances the CoE will RAISE income tax (employee’s take home pay is cut and so is spending power) • This reduces demand for goods and services which stops inflation (rise in cost of living) • Raising taxes means Govt can spend on services without borrowing

  7. Taxation DIRECT TAX • Income tax/Corporation Tax/national insurance • Inheritance tax INDIRECT TAX • Vat • Excise duties (alcohol,tobacco) • Fuel tax

  8. Inflation • Expressed in terms of the percentage rise in the RETAIL PRICE INDEX • RPI records the price of goods and services purchased by householders (consumer demand) • Rate of inflation is the key to whether the economy is healthy • Balance of Payments - difference between value of goods and services exported and imported

  9. Bank of England • Founded by Royal Charter and Act of Parliament in 1694 • Its capital stock acquired in 1946 by Government and in effect is UK Central Bank (nationalised) • Role is to maintain a stable and efficient monetary and financial framework within which UK economy can operate • Governor of Bank of England plus Monetary Policy Committee decide UK interest rate

  10. Trade Policy • Trade (commerce) exists for many reasons • Trade sanctions • International trade tariffs

  11. Pre Budget Speech • Progress report on UK economic position and govt finances • Describes approach govt will take in Spring when budget is presented to Parliament

  12. Budget Speech • Covers taxation (increases/decreases), benefits, pensions • May mention govt spending proposals but usually this is down to the relevant S of S • Tax changes have to be authorised by a Finance Act

  13. Regulation of investment • Financial Services Authority responsible for regulation of investment business and banks • Role is to strengthen the protection of investors through authorisation and supervision • ‘Frontline’ regulation carried out by a number of recognised bodies on behalf of FSA – Consumer Protection & Markets Authority, Prudential Regulatory Authority; Financial Policy Committee

  14. Stock market & Companies • Shares in plcs traded on stock markets • LSE; FTSE; Dow Jones; Nikkei • Types of Company – public limited company (plc); private limited company; limited liability company • Competition Commission – monitors competition to ensure monopolies do not form (when 1 company will have more than 25% market share)

  15. Recession “recession” is where an economy that had previously been growing slows down. The level of production declines, unemployment rises and consumer spending dries up - in the worst case scenarios, as happened in the depressions of the 1930s and the 1980s, so few people are spending money that businesses sack staff to cut costs.

  16. 2008 Credit Crisis • Investors and irresponsible banks pushed America to brink of recession • UK Government had to bail out British banks • This resulted in wage cuts, unemployment heading for 3 million.

  17. UK Banks • Nationwide merged with Derbyshire BS • HBOS taken over by Lloyds TSB in £12bn deal • Bradford and Bingley - nationalised • Gordon Brown raised limit on guaranteed bank deposits from £35,000 to £50,000

  18. What were the problems? • Large personal debt • Overblown housing market now weakening • Huge trade deficit • Business investment plans “fallen off a cliff”

  19. East vs. West • China and India now own 40% of GDP • China no longer reliant on exports • Fear of protectionism • Collapse of western capitalism • East production slumped when west stopped spending

  20. Utilities • Post war all utilities were nationalised under Labour • 1980s Conservatives privatised utilities – British Telecom; British Gas; British Rail, water

  21. Private funding • Private Finance Initiative (1992) • Public-Private Partnerships (1997)

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