UK Government Policies in Response to the Emerging Financial Crisis in 2008 - Essay Example

The equity agreement for small banks was 100 percent, with larger banks such as The Royal Bank of Scotland and Lloyd’s at approximately 70 percent; costing the government approximately £37 billion thus far (Simpson).

The aforementioned illustrates that government leadership is ill-equipped with knowledge of the fundamentals of fiscal policy in which original capital injections to save banks from substantial losses did not correct the problems with the economy associated with the recession. The UK government attempted to modify the concept and ideology of a free market economy, giving it more authority and influence in governing the banking system. This is the mobilization of power resources (available government capital) to force a modification of the behavior of the private sector (Hales 1993). UK government representatives, without the necessary academic foundations of economic policy development, attempted to manipulate frenzied economic policy without taking into consideration the broader needs of UK stakeholders through this form of unethical self-protectionism. As a result, unemployment rates increased in the UK. In 2008, 17.4 percent of households were jobless, but in 2010, this figure spiked to 19.4 percent (Statista 2013).

            The United Kingdom is a monarchic democracy. However, in a democratic nation, representatives are elected by the people and society maintains the majority of influence over government actions and accountability. Barrett (2011) identifies that in order for a legitimate democracy to exist, it must maintain equality, transparency, and accountability. The UK government, therefore, stripped itself of credibility and implemented a variety of highly unorthodox economic policies without adequate representation from UK society. Government representatives likely understood that providing “appeals to the balance of power logic” is completely unable to rally public support for “expensive and risky ventures” (Markey 1999, p.145). It is quite common for government representatives in a democratic nation to illustrate that the government will work diligently to provide an equal allocation of resources to satisfy all consumers. However, in the mad rush to develop new economic policies to avoid banking institution collapses, the government did not provide the appropriate transparency in their actions and recognized that balance of power arguments would not foster social support. Therefore, as another effort toward government self-protectionism, they shrouded capital injections and other new fiscal objectives until these actions had been completed. The International Monetary Fund warned that “broad public consensus” would be needed to make a substantial adjustment to fiscal policy (Schifferes 2009, p.2). However, the government apparently did not agree but developed its own policies that challenged international sentiment, further reducing the trustworthiness of the competency and integrity of UK government officials.

            On September 30, 2008, the Irish government guarantees to the UK government that it will provide regular deposits within UK banks for a period of two years (The Telegraph 2009). This altered many years of economic sovereignty in the United Kingdom by working collaboratively with other struggling European economies. This represents a fundamental shift of internationalizing economic policies and placing more fiscal reliance on the capital from other nations to stabilize the national economy. Upon entry into the European Union, the UK was allowed to sustain its own currency even though the EU treaties expected member countries to remain politically and legally committed to the single Euro currency (Foreign & Commonwealth Office 2013). The new inter-dependence between neighboring European nations involving globalization of capital investments is challenging decades of economic sovereignty and further causing the UK government to consider a new currency union with Scotland, so long as Scotland agrees to limit the boundaries of its own economic autonomy. Again, this reduces the credibility of the UK government as a competent and compliant organization as new and fundamental shifts in economic policy erode the integrity of a government dedicated to conforming to treaties, democratic ideology, and social concepts of equality.

            As illustrated, the government’s response to the 2008 recession has substantially changed economic policy in the United Kingdom. The method of capital injection into the national banking system coupled with the establishment of new reliance on foreign depositors has made it difficult to continue to internalize economic policy in the country. Lack of transparency and lack of credibility are outcomes of these actions.