Fiscal 2024 Stats

• Fiscal policy is a big Hot Topic area for macro exams this year
• Fiscal policy questions are often linked to key themes in the UK economy
• You need to be aware of what those themes are to weigh up arguments nicely in your essays
• You can use context and stats to back up the arguments you're making
• Heavy contractionary fiscal policy is being used in the UK right now
• During the COVID-19 crisis, the UK government used massive expansionary fiscal policy
• Budget deficit


  The difference between government spending and tax revenue
• At the heart of the COVID-19 crisis, the UK government's budget deficit was 15% of GDP
• Prior to COVID-19, the government's budget deficit was around 2% of GDP
• The UK's structural budget deficit is around 2% of GDP
• Prior to COVID-19, the UK's national debt was 80% of GDP
• The UK's national debt has now jumped up to around 100% of GDP
• The government has spent more than £100 billion per year on servicing debt interest
• The expansionary fiscal policies during COVID-19 contributed to very high inflation in the aftermath
• The "Truss and Kwasi Kwarteng mini-budget" in September 2022 announced more unfunded expansionary fiscal policies
• This caused panic selling of UK government bonds, driving up interest rates dramatically
• Since Rishi Sunak became Prime Minister, heavy contractionary fiscal policy has been used
• Contractionary fiscal policy


  Policies to reduce high budget deficits and national debt levels
• Fiscal drag


  When income tax bands are frozen, pay rises can drag workers into higher tax brackets
• The income tax band freezing policy is forecast to raise the government an extra £45 billion per year by 2028
• Scotland has also increased income tax rates and expanded their income tax brackets
• The overall tax burden in the UK is forecast to be 37% of GDP, the highest since the late 1940s
• The government is also squeezing spending, with cuts to welfare, education, health, and local council budgets
• The intentions of the contractionary fiscal policies are to promote confidence in government finances and reduce interest rates on government borrowing
• These contractionary policies can harm aggregate demand and potential growth, and negatively impact living standards and inequality
• Concerns include the impact on growth, unemployment, potential growth, living standards, and inequality