Macroeconomics: UK economy, IB Economics

Aditya Chakrabortty writes about the current state of play - arguing that the current government are a busted flush. If a further round of austerity is the best they can do, then they are morally bankrupt. 

It seems as though the scrapping of the mini-Budget has pleased almost everyone - with the U-turns satisfying markets and the IMF who are pleased with the "commitment to fiscal discipline" and a concerted attempt to tackle inflation. 

A little primer - this Guardian piece looks at the ill-fated mini-Budget and outlines which aspects of it remain, and where there have been U-turns. 

In short, the 45% higher tax rate has been reinstated and corporation tax is going to rise to 25% in April 2023, having originally been slated to be cut to 19%.

And today the new Chancellor, Jeremy Hunt, has suggested that there might be a need for further tax rises and spending cuts to re-assure financial markets, so perhaps there might be further U-turns. There are lots of dizzy economists around at the moment.  

An interesting piece in today's Guardian that looks at how the current debates about economic policy in the mini-Budget might be used to frame future policymaking decisions. 

The Conservatives are going to have to launch another round of austerity measures, but are going to use this to suggest that - ha, ha - they are the party of fiscal discipline. However, the author, Josh Ryan-Collins, argues that the Labour Party need to look beyond this.

In essence, he's asking them to draw a clear distinction between current expenditures and capital expenditures, and then focus on the latter to argue that a true pro-growth agenda would be spending money on supply-side reform and also focus on tackling inequality and ensuring better policy co-ordination. These don't look unreasonable to me. 

The Guardian with an easy to follow guide to which parts of the mini-budget were scrapped and the implications of this for the wider macroeconomy.

for me the interesting thing is not so much the scrapping of tax cuts but the fact that these measures could reduce the cost of government borrowing by as much as 0.5% and that alone could reduce borrowing costs by around £8bn - itself around a quarter of what's be saved by today's U-turns on tax cuts.