The United Kingdom (U.K.) was one of the many countries that were “hit hard by the global financial crisis of 2007-2008, resulting in bank runs, several nationalizations, and government bailouts” (Alfaro, Iyer, & White, 1). Through a carefully thought out plan, David Cameron, the prime minister of the U.K., implemented “controversial austerity policies” that enabled the U.K. to weather the recession (Alfaro, Iyer, & White, 1). The policies have enabled the country to come out of the recession with numbers stronger than ever before and Cameron “was elected to a second term as the prime minister” earlier this year (Alfaro, Iyer, & White, 715-007). In spite of all that has occurred since 2007, this does not mean that the country is wholly out of the woods just yet, as the long-term growth strategy implemented for the country shows.
There are certain strengths present within the U.K.’s long-term growth strategy, including the institution of “strict monetarism and a tight fiscal policy (Alfaro, Iyer, & White, 6). As Margaret Thatcher stated when the plan was implemented, “Pennies don’t fall from heaven – they have to be earned here on earth” (Alfaro, Iyer, & White, 6). Caps on wages for civil employees, a reduction in employees, and a reduction in overall government spending were strong starts for a plan that was concentrated on long-term growth. As Thatcher’s statement implied, money does not magically appear out of thin air; in order to work to increase growth, one must first start with a targeted savings plan, including the reduction in spending. Tax rate reductions worked to further assist the government in getting out of the recession. The government can only make money on taxes if there is money to be made. The increases in value added taxes coupled with the reductions on both the top tax rate and the basic tax rate served as a means of providing the government with a long-term increase in revenues. The monies saved by the population on basic and top tax rates were funneled back into the economy by those individuals, who in turn paid the value added tax on the goods and services purchased, netting an overall gain for the government.
In spite of these strengths, the long-term growth strategy for the country had certain weaknesses as well. One of the actions taken by the U.K. as a part of the long-term growth strategy was joining “the European Exchange Rate Mechanism (ERM), under which the pound was fixed to the deutsche mark” (Alfaro, Iyer, & White, 7). This was followed shortly thereafter by a speculative attack on the pound, resulting in heavy losses and the need to withdraw from the ERM. While the policy was able to hold strong and carry the country through, the actions of governmental officials caused the Conservative party to fall out of favor, and with it, the faith in the long-term growth strategy decreased. Corruption among officials and sex scandals created a culture of distrust, resulting in a decreased faith in the programs themselves, in spite of the fact that the programs were working.
Though the long-term growth strategy of the country had several strengths and weaknesses present therein, an analysis of the results indicates that, in spite of the issues that arose, the policies were solid, and the country was able to use those practices to its benefit, working to bring the country back to a position of strength. Understanding the interplay of politics, policies, and social conventions serves to show the manner in which a policy, no matter how beneficial, can ultimately experience issues through no fault of its own.
- Alfaro, L, L Iyer, and H White. The United Kingdom and the Means to Prosperity. Harvard Business School, 2015. Print. 9-715-008.