Education;
With the UK economy becoming ever more revolving around qualifications, the need to have a well-trained and educated workforce becomes vital. This without a doubt makes it one of the government’s main priorities, the latest example of this being Labours intention to raise the minimum school leaving age to 18, by offering apprenticeships, college courses, or work based training to every child. This would clearly require a increase in the budget allocated for education, which the government has provided.
- In the 2007 budget report the government announced investment in education and skills in the UK to rise to £90billion by 2010-11.
- More recently the budget has risen from £73billion spent in 2006 to £77billion in 2007.
Evaluation/ Analysis.
Although the government clearly has specific aims, and targets in relation to improving employment and training opportunities, it has not significantly increased its spending on this area in several years, and the spending has remained exactly the same this year as it was last. This would suggest that current government spending does not reflect its priorities, at least in employment anyway.
However this may not necessarily be the case, because although it is the governments priority to improve employment opportunities for all, you do not necessarily have to increase spending to do so, for example it may simply be a case of making sure the current budget for employment is being spent efficiently.
Also because of the nature of many of the current aims of the government relating to employment, are more about establishing links with big companies in order to get people back to work, and reviewing the current education opportunities for adults, they may not take so much funding to establish.
The benefits of sufficiently increasing the funding that is putting into training etc, would be the lowering of unemployment something which the government is constantly trying to reduce. The graph shows the productivity per worker (2006), putting more money into training & employment would also help the UK to raise its productivity per worker, to make it more competitive with other countries such as France, the USA and China. This is a vital step to take as the current leader USA has a 28% advantage in productivity per worker than the UK currently does.
Education would appear to be another one of Labours top priorities, and the substantial increase in spending does indicate this. In my opinion it would be nearly impossible to argue that the governments spending doesn’t reflect the fact that education is a priority, purely because of the sheer investment over recent years.
One of the reasons for this increase in investment may be due to the lower output per worker that Britain encounters, and also due to the need for more qualifications in order to survive in the modern world.
Priority Three; Defence/ The War On Terror.
Recent world events have caused defence to once again become a priority, and the government appear on the surface at least to be taking steps to improve Defence and to fight the war on terrorism.
In 2006-7 the expenditure on Defence was £32Billion however,
In the 2007 budget statement the government issued:
- A further £86million to strengthen the fight against terrorism.
- A increase in the Defence budget to £37billion by 2010. £500million of which will be used to create better accommodation for members of the armed forces.
Evaluation/ Analysis
This research shows clear evidence suggesting that the government spending on Defence does reflect the fact that it is a current priority of the government.
The fact that government is quite substantially increasing the budget over the coming years indicates that in the area of Defence at least the government is reflect the fact that it is a priority in its budget allowance.
According to the latest figures (2005), the UK is the second highest spender (in cash terms) on Defence in the world behind only the United States.
At 2.5% (2006) of GDP, the Defence Spending of the UK is above the NATO European average. We spend about the same proportion as France and more than Italy and Germany.
Priority Four; Health.
Health or more precisely the NHS has always been a key concern of the government and also a major source of expenditure. So with this in mind it is not a surprise to discover that the budget for health is ever increasing.
- In 2002, the chancellor announced the biggest ever increase in the health budget. A increase of £40billion by the time it reached 07/08.
- Further more in 2006 the health budget was £96billion, in budget 2007 this had been increased by £8billion to £104billion.
- Until 2010-11 spending on the NHS will be increased by 4% a year in real terms starting from 2007/8.
Evaluation/Analysis.
The government is quite clearly reflecting the importance of the NHS within the United Kingdom in its budget, with huge increases in spending over recent years.
However, the government is not just pouring money into the NHS and constantly introducing new reforms and legislations in order to try and make the NHS a more efficient and productive organisation, and in a sense could almost be related to kaizen, constant improvement using small steps.
However although the government would seem to class health as a priority, the question must be asked of whether more and more investment is the answer to improving the NHS, because as an organisation the NHS is very inefficient. It has been argued that the government may just be increasing the health budget in order to reach political objectives, and for a member of parliament to reduce the budget would be a dangerous move, which they may well be ridiculed for.
Graphs to show governments previous two years spending;
2006 (left)
2007 (right)
The two pie charts show the governments spending of each area from the previous two years (2006-2007). In this space of a year the government has spent an extra £35billion in total (£552billion in 2006 - £587billion in 2007), the benefits of this increase in expenditure can be seen throughout most areas of the budget such as the large increase in spending in areas such as Health and Education. However it is not right to say that the governments budget reflects all of its current priorities, for example expenditure on employment & training did not increase despite the need to increase the UK’s productivity- output per worker, and unemployment levels.
Monetary policy
The role of the government is to keep a sustainable economy.
The monetary policy is the process by which the government/ bank controls the supply of money, or trading in foreign exchange markets. Monetary policy is generally referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy has the goal of raising interest rates to combat inflation (or cool an otherwise overheated economy). Monetary policy should be contrasted with fiscal policy, which refers to government borrowing, spending and taxation The governments main aim is to keep inflation low, in order to sustain a stable economy in which consumers have trust in, the bank of Englands target for inflation is 2% per year.
As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate in December, at 2.1 per cent, was below the provisional figure of 3.2 per cent for the whole of the European Union.
The fiscal policy.
Fiscal policy refers to government policy that attempts to influence the direction of the economy through changes in government spending or taxes. Fiscal policy can be contrasted with the other main type of economic policy, monetary policy, which attempts to stabilize the economy by controlling interest rates and the supply of money. The two main instruments of fiscal policy are government spending and taxation. Changes in the level and composition of taxation and government spending can impact on the following variables in the economy:
- Aggregate demand and the level of economic activity
- The pattern of resource allocation
- The distribution of income.
The fiscal policy – golden rule.
The Golden Rule is a rule that provides a guideline for the operation of fiscal policy. The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not to fund current spending. Therefore, over the cycle the current budget (ie, net of investment) must balance or be brought into surplus.
A government study into the long term sustainability of fiscal policy showed that the UK’s public finances are broadly sustainable over the long term. And that the UK is also well placed to face future challenges relative to many other developed countries.
Also that the Government can continue to meet the golden rule and the sustainable investment rule throughout the projection period, while allowing current public consumption and public sector net investment to grow at around the assumed rate of GDP growth.
Conclusion.
To conclude, in the majority of priorities government spending does reflect the priorities and sufficient increases have been made compared to the spending in 2006, and in some cases the government is clearly investing large amounts of money into areas that it sees as crucial for Britain’s future.
However it would be wrong to say that the governments spending reflects all of its current priorities, as in employment and training government funding has not been increased at all, despite a total of £35billion extra being spent in 2007 compared to 2006, and despite the fact that it is a priority, hence the reason why it is only right to say that the governments budget does reflect its current priorities to a great extent but not totally, there is certainly need for more investment in certain areas.
Although the government aims not to borrow a lot of money, net debt was £512.4billion at the end of January, compared with £480.1billion a year earlier. The pre-budget forecast for the net debt at the end of March 2008 is £542.2billion. this in its self may be a cause of the governments inflation problem, because in theory they are falling victim to the credit crunch just as any other person with large credit card bills etc, however just on a much larger scale.
As one of the main government priorities is to keep unemployment low, they have been investing large amounts of money into training schemes and other projects, this subsequently led to the unemployment rate falling to 5.2% in February 2008, this was down 0.2% over the quarter and down 0.3% on last year. 29.4million people were in word in the period October to December, this is the highest on record, up by 175.000 on the quarter and up by 296.000 on last year. Unemployment in October to December was 1.61 million (5.2%) - down by 61,000 unemployed on the quarter and down 86,000 from this time last year. this recent drop in unemployment could also be the result of the governments investment in education. This clearly indicates that the government is at least being partially successful in managing the economy, however it is certainly not fair to say that the government is totally successful in managing the economy, with such things as interest rates and inflation on the rise.