In the News Teaching Activity – a new government but how much will this affect economic policy? (July 2024)

Students will, no doubt, have noted that the UK has a new government. How will the Labour government tackle the economic problems facing the UK economy?

The UK economy has faced many headwinds in recent years, including the pandemic and the cost-of-living crisis. Growth has been sluggish, investment weak and productivity growth disappointing. For monetary policy, the Bank of England has kept interest rates high to tackle the inflation problem, which has thankfully eased in recent months. Fiscally, the UK’s national debt-to-GDP ratio is also higher than ideal, leaving relatively little room for the incoming government to boost spending on public services and/or cut taxes. At the moment, a continued squeeze on government spending and a higher tax burden are still likely, as the government promises to stick to the fiscal rules, while focussing on boosting growth. Starmer’s Chancellor, Rachel Reeves, is aiming to stabilise the economy, but that policies will always be ‘fully costed.’ Of course, it is impossible to know if the change of government will help address the structural weaknesses in the UK economy. Time will tell...

What will Labour and Keir Starmer's first priorities be in government? | Politics News | Sky News

1 How does the Labour Government plan to raise more tax revenue according to their manifesto as outlined in the Sky News article?

2 What strict fiscal rules are the incoming government planning to stick to? Why is ‘borrowing to invest’ considered more economically acceptable than borrowing for current government spending?

3 Discuss how the Labour government’s policy plans for three areas from the article (immigration, crime, health, energy, education) may benefit the economy in future. Are there any problems with these policy ideas?