UK Public Finances: From Crisis to Recovery

Abstract

The financial crisis of 2008 and associated recession caused significant permanent damage to the UK's public finances: the UK economy is not expected to regain the economic growth trajectory that was predicted pre‐crisis. In response, UK governments have planned and (so far, partially) implemented a significant fiscal tightening to cut borrowing from a post‐war high of over 10 per cent of GDP to a planned overall surplus. This fiscal tightening is heavily weighted towards spending cuts, which are expected to comprise 86 per cent of the measures. The spending measures imply not only a significant reduction in spending as a share of GDP but also a significant change in the composition of that spending – with benefits for pensioners, health care and schooling now taking up a much larger share of overall spending than they did pre‐crisis. Overall, the new tax and benefit measures have included some welcome improvements to the structure of the system, but many of these have probably happened in spite of, rather than because of, the need for fiscal consolidation. Opportunities to make many significant improvements have been missed, while in other areas new policies have made the system less efficient and less coherent.

European Public Finances and the Great Recession: France, Germany, Ireland, Italy, Spain and the United Kingdom Compared

“…for France, Blömer et al. for Germany, Keane for Ireland, Figari and Fiorio for Italy, Martí and Pérez for Spain and Emmerson and Tetlow for the United Kingdom. Each paper looks at the evolution of GDP, employment and unemployment rates, and the public finances in the run‐up to, and through, the financial crisis.…”

Fiscal stability during the Great Recession: putting decentralization design to the test

“…However, such improvement in both aggregate and central fiscal budgets during financial distress is basically obtained at the expenses of the sub-national sector through cuts in intergovernmental transfers in order to financing national public policies necessary to tackle the crisis. This sounds like a familiar theme to what recently happened to sub-national governments in many advanced economies when consolidation programs and fiscal adjustment measures have been implemented to restore national public finances after the financial crisis and during the ongoing economic downturn (see, for instance, Emmerson and Tetlow, 2015 for UK; Foremny et al, 2017 for OECD countries).…”

“…In the United Kingdom, an also relatively high degree of centralization facilitated central government measures to implement large cuts in public service spending during the crisis (Emmerson and Tetlow, 2015). In addition, a newly created independent institution--the Office for Budget Responsibility--was engaged to guarantee better postcrisis official fiscal and economic forecasts, in line with the general trend experienced in other European countries.…”