CUTTING PUBLIC SPENDING

Cutting Public Spending

Cutting Public Spending

Introduction

Please Note that the Discussion: “Cutting Public Spending is not the best way to improve the British economy. Rather, there should be increased public spending and increased taxation” are derived with the help of different resources; such as, Hay. C.'s book on Global Financial Crisis, Dearlove and Saunders book for British politics and also using different publications and research journals and HM treasury (Budge, 2001,, 53) (Budge, 2001,, 53).

Economic Background of UK

The UK economy is considered to be trading and financial hub. UK economy is among the largest economy in the world, with GDP of US $ 2trillion. The country is in a phase of transformation from a manufacturing economy to service sector economy. Service sector is growing at an accelerated pace, led by the Financial sector mostly Banks and Insurance and emerging technologies. UK is also major gas and oil producer in Europe (Budge, 2001,, 53) (Budge, 2001,, 53).

In 1980s, UK started to reform its economy by introducing various economic policies. These changes include independence of Bank of England, fiscal adjustment and inflationary targeting. After a decade of rapid growth, UK economy was hit by global financial crisis, and because of large financial sector, soaring household debt and strong interdependence, UK faced severe crisis. To curtail the crisis, government impose a number of fiscal and monetary tools, including asset protection on distressed banks, Public spending, tax cut, limit the liquidity of banks and massive capital injection into the economy. Even though, the economy is still recovering from the financial crisis, because of growing exports and rising domestic demand, but the economy is still facing the week capital and consumer spending (David, 2010,, 3) (David, 2010,, 3).

Economy is still facing a number of risks, consisting of instability of the banking sector, heated inflation and decreased home prices. Future outlook looks dull mainly due to passive consumer spending; modest house hold income and tight credit conditions. (HM-Treasury, 2012) (David, 2010,, 3) (David, 2010,, 3).

Positive Factors of Public Spending

There are a number of benefits of Public Spending, both short and long term. Some of the benefits are discussed below:

The fiscal and monetary policy plays a prominent role in any economy. Public spending is a part of fiscal policy. Government spends money on issues that are not catered by the private sector. Public sector spending includes defense, infrastructure such as roads and bridges, health services, unemployment benefits and education. (Hay, C. 2011) Public spending commonly provides long-term benefits. For example, if a country wants to increase the quality of life and human resource, government spends money on educations sector. On the other hand, there are issues that do not provide benefit such as defense, but are mandatory to do so. Government also wants to regulate the economy, so it injects money in the economy. (Hall, 2010, pp. 3-27)

There is long term connection between government spending and public finance. History of 150 years prove the positive link that exist between them, and this is not just for European ...