Download Kent Week 6 Treasury amended13jj

Week 6
Treasury – the department with the
power
The Chancellor of the Exchequer – the real Deputy
Prime Minister?
Joy Johnson
Key texts
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Morrison –Essential Public Affairs
Coalition Agreement
22 Days in May – Laws
So you want to be a Political Journalist: ed Sheila Gunn, ch
17: It’s the economy stupid! Prof. Steve Schifferes
If time various books on the financial crash; inc.
Beyond the Crash: Overcoming the first crisis of
Globalisation: Gordon Brown
The Gods That Failed; Larry Elliott and Dan Atkinson
False Dawn The Delusion of Global Capitalism: John Gray
End This Depression Now; Paul Krugman winner of the
Nobel Prize in Economics
Levers of Power
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Control of spending
Fiscal policy
Budget process
Comprehensive Spending Review
Independent Central Bank – Bank of England
Monetary Policy Committee
Office of Budget Responsibility
Office of Fair Trade
Privatisations
Private Finance Initiatives (PFI) – fund investment for infrastructure
projects - Initially introduced by John Major
• Embraced by New Labour as PPPs (Public Private Partnerships to
fund schools hospitals etc – scandals now on how much they cost in
the long term)
Issues
• Cutting the deficit (number one priority for the
coalition government as stated in the coalition
agreement)
• Growth
• Public spending cuts
• Reform of the Banks – tensions with Chancellor
and Secretary Of State for BIS
• Unemployment (particularly young people)
• Inflation
• Interest rates
Relationships that matter
Chancellor – George Osborne & his
Liberal Democrat Chief Secretary
Danny Alexander
Chancellor and his team
• Chancellor of the Exchequer after the PM most
senior member of the cabinet
• Chancellor of the Exchequer – Rt Hon George
Osborne MP
Chief Secretary to the Treasury – Rt Hon Danny
Alexander MP
Financial Secretary – Rt Hon Greg Clark MP
Exchequer Secretary – David Gauke MP†
Economic Secretary – Sajid Javid MP†
Commercial Secretary – Lord Sassoon *
Chancellor of the Exchequer
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No 11 Downing Street
Dorney Wood
Treasury – Whitehall
Responsibilities : overseeing government’s public
spending commitments by managing fiscal policy;
managing the national debt; promoting economic
growth; controlling domestic inflation and
unemployment
• Treasury select committee shadows the
department
Treasury Select Committee
• Questions new governor of the Bank of
England – Mark Carney
• http://www.parliamentlive.tv/main/Player.asp
x?meetingId=12544
Controlling the economy
• Fiscal policy and Taxation
• John Maynard Keynes
• 2 types of taxation – direct up front from individuals and
businesses and indirect i.e. VAT
• Income tax – progressive ability to pay
• Regressive tax i.e. Indirect taxes
• Corporation tax paid by companies on profits
• Capital Gains Tax (CGT) paid by the owners of financial
assets such as property
• Inheritance Tax – death duties
• http://www.open.edu/openlearn/tags/masters-money
Stephanie Flanders series
Managing the economy
• Highlight of the Chancellor and the
government’s year the Budget and the
accompany Finance Act
• 20March budget (last one that cld affect
economy before 2015 election)
• Comprehensive Spending Review (CSR) the
one last November fixed spending budgets for
each Government department up to 2014-15.
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Budget Process
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Finance Bill speaker designates it a ‘money Bill’
Budget is fast tracked through Parliament
Speech regarded as first reading
2nd reading must be heard within 30 days
Scrutiny at committee stage
3rd reading steamed through on same day as report stage then Royal Assent
Lords can’t interfere
Budget speech designed to forecast short to medium term movements in the
economy 1-3 years
Announces new taxes, tax breaks, and or benefits to finance investment
Other measures of help to low paid, the elderly etc likely to be in short supply in
the age of austerity
Leader of the Opposition responds (difficult Parliamentary occasion as there are
likely to be surprises)
Debate on the floor of the Commons
Economic terms
• Fiscal Policy – taxation and economic policy of a
government
• Post war – mixed economy
• Thatcher years – privatisation – monetary policy
(economist Milton Friedman)
• New Labour adopted neo-liberal economics
• Fiscal rectitude – cutting public expenditure and
reducing the amount of government borrowing
Economic terms - globalisation
• Neo-liberalism theoretically makes trade
between nations easier.
• Freer movement of goods, resources and
enterprises
• Light touch or no touch regulation, tariffs,
restrictions on capital flow and investment
Economic terms cont
• Gross domestic product (GDP) – total output of goods
and services
• Gross National Product (GNP) GDP + with net property
incomes from abroad
• Group of Seven finance ministers and central bank
governors of the leading Western economies
• Group of Eight
• Group of Twenty following banking crisis
Economic terms cont
• The national deficit – the annual difference
between government spending and its
receipts (mainly taxation) – government has to
borrow to make up the difference
• The national debt the accumulation of these
annual deficits and the borrowing incurred to
make up the difference
Economic terms cont
• Inflation – rise in price levels which reduces purchasing
power
• Inflation used to be past scourge
• “No more ‘boom and bust’” - hubristic boast of Gordon
Brown then Chancellor of the Exchequer
• Low interest rates to help stimulate economy
• inflation going up
• Governor of the Bank of England has to write letter to the
PM saying why target of 2% has been overshot
• Fear of stagflation – combination of high price inflation,
high unemployment and low economic growth
Useful website
• Useful website
http://www.bbc.co.uk/journalism/briefing/pol
itics/reporting-the-economy/
• http://www.bbc.co.uk/academy/collegeofjour
nalism/subject-guides/business-andeconomy/reporting-economy
Crisis of capitalism
• Lehman Brothers (September 2008) collapse
triggered meltdown in the financial system
ATMs would have run out of money
• Banks too big to fail
• Gordon Brown then Prime Minister and
Chancellor Alistair Darling part nationalised
the banks RBS, Lloyds
Global crisis
• http://www.dailymotion.com/video/x8uf7i_g
ordon-brown-and-barack-obama-g20-r_news
One view of the financial crash
• http://www.guardian.co.uk/business/video/2
008/sep/17/larry.elliott.hbos
Independent Central Bank
• New Labour gave independence to the Bank of England
in the first few weeks following their landslide first
victory (1997)
• Established Monetary Policy Committee chaired by
Governor of the Bank (Mark Carney takes over from
outgoing gov. of B of E Mervyn King).
• Responsibility to set interest rates. Takes the decision
out of the political arena
• New Labour set up regulation system Financial
Services Association (FSA)( (widely accused now to
have failed when it came to the global banking crisis –
new coalition govt abolished it)
Monetary Policy Committee
• interest rates set by Bank’s governor and the
monetary policy committee – tensions within
Business Innovation and Skills (BIS)
• Vince Cable Secretary of State for Business, Innovation
and Skills and President of the Board of Trade
• Responsible for business and banking and regulation
(lost out on Rupert Murdoch and News Corporation bid
for BSkyB) tension with Chancellor on wealth tax (NB
mansion house tax – Ed. M announced (not a
manifesto promise yet) 10p tax rate to be paid for by a
mansion tax over 2million)
• David Willetts Minister of State for Universities and
Science (attends Cabinet)
• BIS select committee shadows department
Labour (official opposition)
• mansion house tax – Ed. M announced not a
manifesto promise yet) 10p tax rate to be paid
for by a mansion tax over 2million
Office of Budget Responsibility
• The Office for Budget Responsibility (OBR) was
formed in May 2010 to make an independent
assessment of the public finances and the
economy for each Budget and Pre-Budget Report.
• Shaky start chaired on interim basis, by Sir Alan
Budd.
• Chairman Robert Chote (formerly director of
Institute of Fiscal Studies IFS respected
independent think tank)
• Growth Rates had to be revised down
Other Bodies & terms
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Office of Fair Trading (OFT
Confederation of Business Interests (CBI)
Institute of Directors (IoD)
Trade Union Congress (TUC)
Privatisation – selling government assets
Part Privatisation – hybrid
Nationalisation – government owned
Utilities – essential services i.e. Water, gas,
electricity privatised
• Regulatory bodies i.e. Ofgas, Ofcom, Ofwat
Stock Exchange
• Shares in public limited companies (plc)
traded on global stock market – one of the
biggest London Stock Exchange
• Limited Liability companies
• Private Limited companies
• Public Limited Companies (plcs) – floated and
listed on the LSE
• Hostile takeovers (see Morrison for examples)
Chancellor booed
• http://www.guardian.co.uk/sport/video/2012
/sep/04/george-osborne-booed-paralympicsvideo
• Can he recovered from a budget (2012) that
was dubbed an omnishambles?
• Next Budget March 20 2013 – last one to have
a chance of having an impact on the economy
before the election in 2015
Krugman takes on opponents
• http://www.youtube.com/watch?v=_rAKruzmkk
• Economic Nobel Prize Laureate economist,
author and journalist
Reading and question
• Seminar reading essential public affairs for
journalists, Morrison Ch 7
• Outline role of the Treasury and the
mechanics of the Budget. Budget process