Abstract:We assess fiscal policy from the perspective of fairness between generations and the relationship between this and national saving, in the context where the United Kingdom is the lowest-saving of all the OECD economies. Cross-section and pooled data suggest that governments are in a position to influence national saving and we set out a simple overlapping generation model to show the effects of national debt, of pay as you benefit systems, of legacies and movements to land prices as means of effecting transfer… Show more
“…This doubling of net debt—below 40% to over 90% on the Barrell and Weale (2009) projection—is a reflection of the support that the U.K. government has given to its domestic economy after the near‐meltdown of the U.K. financial sector.In addition to the direct and indirect effects of the global financial crisis on net debt and GDP, the Office for National Statistics (ONS) has reclassified some banks to the public sector on the basis of control by government; the liabilities of such banks are therefore included in the ‘broader’ measure of net debt, while the corresponding assets are disregarded unless they are liquid financial assets.The United Kingdom has been particularly vulnerable given the large size of its financial sector which makes a much more than proportional contribution to tax revenues (Giles, 2011). 13 The U.K. government was running a budget deficit 14 during the long boom, not having adopted the substantively prudent approach of certain other countries, including Australia.…”
Section: : the Scale Of Fiscal Damage To Uk Public Financesmentioning
“…This doubling of net debt—below 40% to over 90% on the Barrell and Weale (2009) projection—is a reflection of the support that the U.K. government has given to its domestic economy after the near‐meltdown of the U.K. financial sector.…”
Section: : the Scale Of Fiscal Damage To Uk Public Financesmentioning
The U.K. Whole of Government Account (WGA) has been conceived by the Treasury as having a macro‐fiscal role. This WGA is about fiscal transparency at the aggregate level, rather than at a more disaggregated level with regard to public sector decision makers at tiers of government, each with their own chain of accountability. This paper analyses the U.K. conception of the WGA, examining its theoretical background and evolution since the 1995 decision to convert central government accounting from cash to accruals. The definition of the area of consolidation is governed by statute, the declared intention being to align as far as possible with the national accounts definitions that provide the basis for fiscal aggregates, thereby overriding IAS 27. Net liabilities per WGA is mapped in this paper to macro‐fiscal aggregates, including public sector net debt (the U.K. preferred measure), general government gross debt (the EU preferred measure) and public sector net worth (national accounts). Conceptually, the WGA measure is situated between net debt (against which only liquid assets are netted) and the long‐term cash projections developed by the Treasury. Insights are provided into the damage inflicted on U.K. public finances by a period of over‐optimism about fiscal performance and the economy's heavy exposure to the global financial crisis. Fiscal retrenchment in all countries can have a substantial illusory component, as proposals may reduce some measures of deficit and debt at the expense of the public sector balance sheet, to which the WGA draws attention. These measures may include: privatizing state assets; neglecting existing public sector assets; cutting public sector capital expenditure; substituting public–private partnerships for conventional procurement; and posting bills to the future. The U.K. WGA may also institutionalize some protection against accounting arbitrage that distorts policy choices and fiscal reporting. Well‐documented reconciliations between figures derived from national accounts and from IFRS‐based financial reporting are therefore imperative for fiscal transparency.
“…national saving) and the change in the national debt which is a consequence of the financing of current expenditure rather than capital accumulation. Barrell and Weale (2009) compare the share of national saving as a proportion of GDP with the budget current deficit (which equals government current dis-saving). They pool the data and, after removing country fixed effects, find that a £1 increase in the government current deficit reduces national saving by just over 50p.…”
Most discussion of the Government's fiscal position seems to focus on the immediate risks associated with a rising national debt. There is concern that the UK's credit rating will be reduced and fear that this might lead to a further fall of the exchange rate. It is sometimes suggested that if the budget deficit is not reduced sharply in the reasonably near term there will be a significant risk that the UK might default on its debt.
“…As Barrell and Weale (2009) stress, debt is a burden for future generations, reducing their ability to consume. Paying off the debt requires either higher taxes or lower spending, and both mean lower consumption now.…”
The increase in UK public sector net borrowing in the past year, plotted in figure 1, has been in part a result of the decline in economic activity, and also a consequence of the change in housing and financial market transactions. The former is predictable with every 1 per cent decline in output below trend producing a decline in net revenues of of between one third and three fifths of a per cent of GDP depending upon the reason for the decline in output. The loss from the decline in asset-related revenues is harder to judge, but the April 2009 budget suggested that revenue losses might be more than 1 per cent of GDP.
Economic crises have historically set the stage for the reconfiguration of the economic borders of the state. Current concerns focus on debt and associated intergenerational issues, such as pensions, infrastructure, and the environment. The sustainable state is designed to put in place a framework for integrating these intergenerational issues, alongside the traditional focus on macroeconomic policy, static market failures, and transfers. The building blocks include the accounting framework and, in particular, a national balance sheet setting out assets and liabilities, and providing for capital maintenance over time. To support these assets and to provide for sufficient investment, the sustainable state requires an appropriate level of savings, and institutions to translate these savings into investments. Two components are: the deployment of regulatory asset bases to underpin long-term sunk and fixed costs, given the time inconsistency problem in government's commitments; and the development of financial intermediaries such as an infrastructure bank.
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