United Kingdom’s Economic Policy Report (Assessment)

Introduction

When we talk of the United Kingdom’s economic policy, we need to realize that we are referring to a superpower nation that has been on top of the food chain for a relatively long period of time. It has been noticed that in recent past, United Kingdom has made substantial efforts in intensifying its existing efforts to motivate people from all walks of life and handicaps, to begin working as self reliant individuals. The absence of affordable childcare has depreciated the participation of women in the labor market; nonetheless efforts are on to make relevant policy changes to allow women to work as well. Likewise, UK also happens to be the lowest contributor to ALMP. This is when it is calculated from the annual GDP.

Labor market policy and actions

In Careers education support programme (2005) the labour market deals with the supply and demand of the labours. UK has always been a pioneer in providing jobs for its citizens. The incapacity benefit claimants are now being targeted to fulfill the existing benefit system. One of the main reasons why women and single parents refuse to participate in the labor policies is the lack of child care. Besides, the relaxed regime of the government from the point of view of single parents, is acting as a barrier to the labor progress rates. From the year 2001 onwards, the UK government has made it very clear that parents, who are claiming benefits, need to be also available for work. We would now discuss a few features of the labor market policy.

The requirement to search for a job is vitally important according to the United Kingdom laws. The job search requirements in the UK amount to 10 per month. Likewise, the laws of the state are very clear regarding the job search reporting procedures. In the United Kingdom, people are supposed to submit at least three job search requirements in a fortnight. This is a mandatory law as per the Labor Policy of the state. Thereafter, the employment agencies also take into account the verification of the employment status. They do so, on a fortnightly basis. The country also allows an unemployed individual to be given 5 intensive interview sessions, with each lasting over 30 minutes, in a year. In case an individual, who falls in the age group of 18-24, has failed to get employment for a period of six months, he/she is asked to take active part in the ongoing ALMP programs. Such policies motivate the unemployed individuals to start working on a regular basis. This is an indirect way of getting rid of the rising unemployment rates in the United Kingdom.

Anne and David (2009) suggest a few steps which the government took to improve its existing labor market policies.

1. There were noteworthy cuts in unemployment benefits. This was done to ensure that people from all walks of life in the United Kingdom were forced to seek employment in order to survive. This forced people to start looking for jobs, which in turn raised the percentage of employed individuals.
2. The employment services were intensified. Thereafter, with the inclusion of a moderate work force, the rate of unemployment fell drastically. This was a firm step on the part of the government agencies.
3. Numerous strategies were formulated through which, individuals were made aware of the true benefits of increasing employment opportunities. Workshops were organized on a regular basis and an effort was made to include most of the unemployed people to take active part in them.
4. In order to increase the existing rates of job retention, long terms training programs were introduced by the government. This had a great impact on the employment benefits in the long run. Soon, the unemployment rate started to dip.
5. The government decided to hire subsidies.
6. Certain long term programs were chalked out, which required active participation from the unemployed youth. This increased the existing motivational levels and helped lower the unemployment rates.
7. Workplaces were equipped with healthcare facilities to attract more employees. Medical benefits were also made compulsory amongst employed individuals.
8. Qualified individuals were provided with complimentary training programs, so that their existing employment standards could be further enhanced.
9. To build long term relationships in organizations, the management in companies allowed personal assistance to its employees. The personal touch gave rise to a feeling of loyalty amongst employees.

Fiscal policy and actions

The fiscal policy of the United Kingdom is designed in such a manner that it allows a low rate of inflation all around the year. For this very reason, the monetary as well as the fiscal policies are dealt with on a priority basis. Likewise, the price is kept stable to ensure adequate economic growth. The inflation, output and the employment is also kept under stable conditions, so that the chances of trade offs can be minimized and the employment opportunities increased.

According to economics help (2008) monetary policy is the effort to manage macro economic variables in a wealth by using interest rates. Monetary policy is a constantly shifting beast (Mark and David F., 1999). According to monetary policy in UK (2009), the key features of UK’s fiscal policy are as follows:

• An objective regarding the monetary policy is set, along with a target of inflation which is in remit. The policy objectives as well as the targeted inflation are to be renewed on an annual basis.
• It is the responsibility of the Monetary Policy Committee to meet the inflation target set by the government. The ideal scenario is a two percent increase in a yearly consumer price index. This has to be maintained at all times by the Monetary Policy Committee.
• This target is considered ideal and any deviation, regardless whether it is above the target or below the target, is considered worth penalizing.
• It is the duty of the Monetary Policy Committee to publish the minutes of its decision on a two weekly basis.
• The governor of the Bank of Chancellor is supposed to produce a letter of authority whenever the target deviates a percentage above or below the targeted value. This Open Letter is considered a necessity in such a scenario. The letter is supposed to contain the reason for the deviation, the steps being taken by the Monetary Policy Committee to correct the deviation, the time lime of the deviation, and finally, the proof which would allow this deviation to remain within the prescribed framework of the government’s policy objectives. Over here, we are referring to the economic policy objectives.
• It is the responsibility of the Monetary Policy Committee to publish a Quarterly Inflation Report.
• The existing fiscal and monetary policies of the UK government are transparent and accountable in nature. The enhancement of the macroeconomic policy is possible only when both arms of the government work hand in hand. The latest framework, as according to the UK treasury, is supposed to be better framed and more feasible.

Exchange rate policy and actions

The United Kingdome believes in the concept of floating exchange rates. With regards to its inflation forecast targeting policy, the measures to target refers to the consumer price index. Owing to the floating exchange rate, the central bank had the leverage to make use of the existing monetary policy, so that it could peruse the targeted inflation on a direct basis. According to tiscali encyclopedia (2009) the relationship between inflation and exchange rate can be drawn in accordance to the New Keynesian Model. With regards to this model, it has been found that the correlation between inflation and exchange rate are inconsistent. This is with regards to the United Kingdom’s evidence.

The Optimizing theory is perhaps the best way of describing UK evidence. It has been further observed that the relationship between the exchange rates and inflation is rather weak. This is despite the strong rates of pass through. In accordance to this strategy, it is appropriate to target the inflation in the consumer price index. The relationship between exchange rate and inflation is directly dependent on the monetary policy regimes as well. Owing to the pass through to import prices, the United Kingdom evidence seems to be consistent. In order to avoid the real shocks which hit the economy on a regular basis, the UK government often adjusts the relative price of the imports on a regular basis. In order to achieve this goal, the aggregated price level may have to be increased on a one time basis. As per the statistical data, the UK government required only a slight deviation from the targeted inflation in order to achieve the desired results (Allsopp et al 2006)

While there have been widespread criticisms regarding the targeting of exchange rates in accordance with the deviation in the consumer price index, the fact remains that both are interrelated and indispensable in nature. Hence, if one of them is disturbed, the other is automatically affected. (Allsopp et al 2006).

International trade policy and actions

The international trade policy of the United Kingdom, with special regards to the developing countries includes trade in terms of goods and services, investment, migration, aid and remittance to and from the developing countries. As far as the imports and concerned, there was a substantial increase in the volumes. In the year 2004, it totaled USD$124 billion. As far as UK’s foreign direct investment is concerned, it has been on the rise since the last few decades. As far as UK’s personal financial assistance is concerned, it exceeded the official aid figures in the 1990’s. As far as the bilateral aid is concerned, UK has been on a steady increase ever since 1970 and currently it shares 30% of the world’s contribution.(Dirk and Massimiliano 2006)

With regards to the trade, reduction of poverty and the overall development figures, the UK government is supposedly formulated strategies, which have helped aid in the overall development of its international trade policies. In accordance to the 2000 DFID White Paper, it was noticed that the main role of UK’s trade policy, was to initiate an open rule based trading system which aided international trade with developing countries. It also supported in the minimization of the barriers in terms of international trade so that developing countries could develop by taking advantage of the liberal trade rules. (Dirk and Massimiliano 2006)

Total aid for trade by donor and by year (US$ ‘000)

Years (Commitments) 2001 2002 2003 2004 2001–04 (Dirk and Massimiliano 2006).

• Japan 4,076,888 3,541,488 3,380,556 4,077,637 15,076,570
• EC 2,259,363 2,364,378 2,179,817 2,594,250 9,397,809
• United States 982,630 1,446,475 1,261,755 5,067,599 8,758,458
• Germany 635,743 408,412 482,782 656,377 2,183,314
• France 197,215 231,778 332,122 452,672 1,213,788
• United Kingdom 187,195 179,715 444,264 206,237 1,017,411
• Netherlands 191,413 279,033 177,310 200,109 847,865
• Spain 98,806 196,170 293,738 161,953 750,667
• Denmark 25,993 128,879 155,135 210,128 520,136
• Total All Donors 11,151,490 11,216,131 12,312,349 17,798,386 52,478,356

Economic growth and development policy and actions

The progress of a country in the global market is determined by its economic growth and development.(Robert and Xaveir 2003). In order to establish a market oriented economy, the government in the United Kingdom, with special regards to the period between 1980 and 1990, made an attempt to reform the country’s existing economic policy. These changes led to the improvement in the existing productivity, improved employment opportunities and reduced the inequalities in income. UK has been striving against all odds for the past twenty five years to establish an economic policy which would ensure suitable living conditions for its citizens. There was a time when UK had a highly regularized economy, wherein industries were nationalized and there was an essence of a welfare state. Then came a time wherein UK came to be considered as the least regularized country, wherein the economy survived on the basis of in-house benefits.

According to seeking of premier economy (2004) there are a few changes in the economic policies of UK, which made all the difference.

• Mass scale privatization of industries, including a majority of government functions.
• Introduction of active labor market policies, according to which, people who were unemployed, were supposed to receive lesser benefits. There was also a substantial increase in the in-house benefits.
• The existing union powers were limited and only selected personnel were allowed to take active interest in the overall decision making process. This resulted in the change in the attitudes of the union policy makers and this in turn led to the overall growth in production.
• The existing education system was revamped, wherein students who were above the age of four to the university level, were granted easy access to a centralized education system. They were also introduction to a national curriculum.
• The introduction of company pension plans gave rise to help shift the burden from the state authorities to the concerned individuals. This helped the state government in saving money as well.
• New laws on taxation were introduced wherein employees were encouraged to take their share of ownership.
• The existing housing ownerships were increased by allowing the sale of council housing complexes to the citizens of the state.
• The existing limits on capital flow were reduced. This allowed a free flow of capital from all sectors on a regular basis.
• The old wage councils were either eliminated or altered to suits the needs of the existing economy. This led to the introduction of the national minimal wage council.
• League tables were publicized on a regular basis, wish special regards to the public sector. This was essential to gauge the effectiveness of schools and medical institutions.

Conclusion

The reforms adopted by the UK government proved to be the turning point for its sluggish growth. The decline of the country’s productivity and its per capita income, when compared to the other developing countries, came to an end. Within a few years, UK was leaving behind most developed countries in terms of the level of employment and the total number of people per population, which were included in the employed category. Owing to these market friendly changes, the macroeconomic evidence clearly suggested that the economy of United Kingdom had allowed substantial growth in terms of its infrastructural growth and development.

There was a time when UK’s economy was considered as the best in the world. As time passed and sluggishness crept into the system, the existing norms led to the destruction of the economy. While growth suffered terribly, the economy of the United Kingdom was declared a failure. Thereafter, the government geared into action and formulated new economic policies, which allowed infrastructural as well as socio-economic changes at a rapid pace. Owing to the introduction of liberal policies, the sluggish economy was allowed to break free of its mire and yet again, emerge as a leader. One of the main reasons why UK emerged victorious was because its policies, which when measured on a macro economical basis, proved to be exceedingly competent and successful.

While there were some concerns based on the cost in rising, the fact still remains that as the real wages rose substantially, the changed policies did not cause an adverse effect on the economy. There has often been a debate that, had more such policies been formulated, there would certainly have been a definite impact on either an increase or reduction of existing level of poverty in the United Kingdom. Whenever we talk of the advanced countries, then UK is considered to have the most market friendly economy in the entire globe. Owing to the creation of aggregated indexes by marketing think tanks, the overall growth in the economical sector was substantial and well worth the effort, which was applied to make things work in favor of the sluggish economy. Product markets were deregulated and nationalized industries were privatized. Besides, the lack of labor protection meant that the economy of the United Kingdom was directly dependent on its markets.

References

1. Mark, R. and David, F(1999)’ Inflation and UK Monetary Policy’. London. Heinemann
2. Robert J. and Xavier, S.(2003),’Economic growth. UK.MIT Press
3. Anne, D. and David, E. (2009) ‘Active labour market policies in international context: what works best? Lessons for the UK’, Department for work and pensions, p.59 [internet].
4. Allsopp, C., Amit, K. and Edward, N. (2006) ‘ U. K. Inflation Targeting and the Exchange Rate’, Federal Reserve Bank of ST. Louis.
5. Dirk, W. and Massimiliano, C.(2006).A political economy prespective of UK trade policy.[internet].
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8. Monetary policy in the UK (2009). HM Treasury. [Internet].
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10. Understanding the labour market (2005).The career education suppport programme [Internet].