Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

Britain: The Coalitions first two years


Have David Cameron and Nick Clegg been good leaders?

So the Coalition has been in power for two years now, that’s long enough to paint a good picture of where they are leading the country and how well they have done in charge.

One of the biggest factors in the coalition’s reign has been their reforms in education, health and the military. With education the government has set about creating “academies” which are schools that have been freed from local authority and allowed to make their own decisions on budgets, working hours and teaching styles. This has really kicked off across the country, with nearly half of all state schools being turned into these “academies”. Along with this the government is changing the exam structure in secondary schools, with the old O-level system being brought back in to replace GCSE’s. This is aimed to make exams harder after renowned criticism of exams becoming easier each year, while it also hoped to raise Britain’s poor standing in international tables for key subjects like Maths and Science. All in all, this makes sense as the current structure is flawed and corrupt (with schools manipulating the system to rise up the league tables), but those students unlucky enough to be the guinea pigs will likely achieve lower results. Finally there has been changes to higher education, with the cap on university fee’s raised to £9,000 from £3,000, to much protest from current and potential students. This is a debateable subject, with fees now very expensive considering you would have to study three years plus the costs of living, but the fact that student loans are accessible to everyone means it shouldn’t punish the currently poorer families too much (though the maintenance loans have been accused of being too low).

Protests against University tuition fee increases.

Next up are the reforms in the health sector, with a shake-up wanted for the NHS. The idea was to diversify the NHS, make doctors more accountable for budgets and open up the private market more. This has been an unmitigated disaster however; with substantial criticisms leaving the health bill a complicated mixture of compromises. This leads back to the Governments clear weakness throughout their reign, poor public relations. The government failed to make clear what exactly they wanted to change about the NHS (an already popular institution) and made it worse by not publicising such plans in the election campaign. Then there is the military, which the government has proceeded to cut down. With budgets tight, the army has been a big victim to the government’s cuts, with it being told to lowers its numbers by 60,000 people by 2015. This is to help close the £38 billion hole found in the defence budget, but critics now suggest the UK military is markedly weaker and would struggle to win conflicts such as a possible Argentinean invasion of the Falkland Islands.

Protests against the NHS reforms (you can see a pattern starting to emerge).

Even away from these big sectors there have been big reforms to the country. The government tried and failed to implement elected mayors in some major cities, with nine of the ten referendums being rejected. Then there are the big reforms to the police, which are set to integrate democracy into the Police hierarchy and allow the outsourcing of tasks like office work. Welfare is also being tackled, with benefits capped at £26,000 per household and David Cameron even pondering whether to drop the housing benefit for under 25’s. Finally there are possible changes to the Civil service being planned, to try and make individuals more responsible for their actions after criticism over the difficulty in passing through bills. So rightly or wrongly, the government cannot be accused of doing nothing, with a possible criticism instead being that they perhaps tried to do too much in such a short space of time.

Next we can look at the country’s economic performance. On the positive side of things, Britain surprisingly kept unemployment relatively low since the financial crisis, with the current figure of 8.1% (only 1% higher than the pre-crisis level) lower than its European counterparts; with Greece at 21.9%, Spain at 24.1% and even France at 10.1%. In fact, public sector jobs cuts of 424,000 over the last two years have more than been accounted for by a rise in private sector jobs by 843,000. In debt terms Britain isn’t too bad either, its public debt sounds incredibly high at just over £1 trillion, but this only accounts for 67% of their GDP. In comparison to other countries this isn’t too bad, with Germany and France having similar debt to GDP ratios, while Greece, Portugal and Italy boast debt levels over 100% of their GDP’s. In fact, all the worry over the Eurozone crisis has driven investors to Britain, with bond yields incredibly low at around 1.6% meaning Britain can borrow money very cheaply right now.

Current unemployment in Europe shows Britain in the bottom half and fairing better than its neighbors.

However, Britain is struggling deeply in other terms. Despite debt levels not being too high, the current budget deficit is 8.4% of GDP, which along with Ireland is the highest in the eurozone. This means that although Britain’s debt isn’t too high, they are adding to it much faster than any other countries in Europe. Even more disappointing is the Primary budget deficit which discounts the interest being paid on current debt. This stands at around 3% of GDP and is the highest in Europe, deafening criticism when the likes of Greece are boasting a surplus. It basically shows Britain is reliant on foreign money to survive right now, and is the main reason why the government is making such drastic cuts to the public sector. On top of this is Britain’s poor growth, with the country currently in recession, after a GDP decline of 0.4% in the final quarter of last year followed by a decline of 0.3% for the first quarter of this year. Though this isn’t a severe recession, it follows a long term trend of poor growth for the UK, with just 0.5% annual growth forecasted this year preceded by 0.7% annual growth last year. Such poor growth is not all Britain’s fault with oil prices and the Euro crisis obviously having an effect, but more must be done to implement growth within the country. At times the government is too set on cutting costs, with little ideas for boosting growth, a policy that is born to fail as low growth will only lead to less taxes and higher benefits being dished out. So in economic terms the government has done well to cut budgets without dropping the country into another deep recession, but without some sort of plan for Growth, they will be fighting a losing battle to lower the budget deficit.

The GDP forecasts of Britain show weak growth compared to Germany and France. 

Finally there are the international issues the government has had to face. International conflicts have seen Britain take a bigger role, with the intervention in Libya lead by Britain and France and the chaos in Syria seeing David Cameron condemn President Assad and argue the case for harsher sanctions and possible intervention. While the current disagreement with Argentina over the Falklands islands has been handled well, with a referendum set to end the debate and keep the islands under British control if the people reach such a conclusion (as is expected). However the debate over Scotland remains a touchy subject. Scotland is set to hold a referendum themselves over whether to stay as part of Britain and there is general worry that a decision could go against what the Coalition are hoping for. A messy split would not help the economy and debateable issues such as the North Sea oil revenues and transfer of Scottish bank debts could take a while to be sorted out. But by and large the biggest international issue remains the Euro crisis. Britain are one the few countries in the EU not to hold the euro currency and this has helped them devalue their currency, meaning the internal devaluing (public sector cuts etc) didn’t have to be as drastic. But the downside is that they are highly vulnerable to a break up without the safety net of having the EU bail them out. Britain actually doesn’t have much money tied up in Greece itself (roughly 0.4% of GDP) compared to Germany and France. But the combined money exposed to the weaker economies (Greece, Portugal, Spain, Italy and Ireland) accounts to £190 billion, which is higher than France or Germany’s exposure and is roughly 12.7% of British GDP. That’s not to take into account the money exposed to Germany and France at around £116 billion, which would be in big danger due to the domino effect expected to happen if just one economy in the eurozone fully crashes. So far Britain has gone against the trend in European discussions, opting out of the fiscal compact (such budget targets were beyond Britain right now) and largely looking out for itself (with the transfer of sovereign powers back to Britain high on the coalition’s plans). This has seen them marginalised somewhat and there is sense that if the EU is to solve this crisis they would have to become more unified. This leaves Britain with a big question to face in the near future, whether they join the new EU or leave the eurozone permanently.

Graph shows the extent to which Britain is exposed to the euro crisis. 

Overall, the Coalition government has had an eventful two years do far. Big changes to the county have had mixed effects, while the same could be said for their economic performance. Internationally they have fared well but will need to decide what direction they want to take in regards to the European Union. I would give them a 6/10, as they have fared okay in most departments, while it possibly could have been higher had they publicised their actions better. This has been the big problem with this government so far, they have dealt poorly with public opinion and are unpopular not down to their decisions as such, but rather the ways they have gone about making such decisions.

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