These measures were taken as a part of government’s austerity measures in the wake of rising government debt and the widening budget deficit. Some of the measures taken by the government included increase in Value Added Tax, systematic reduction in the general benefits provided to the people as well as reduction in the government expenditure besides taking other measures to ensure that the different macroeconomic objectives are fulfilled.
George Osborne, man behind the recent measures taken by the UK government basically attempted to provide a radical program which can ensure that UK’s overall credit rating is improved amid the talks of country’s bankruptcy owing to mountains of debts which country accumulated over the period of time.
In this part of the question, a discussion will be provided regarding the overall success of the measures taken by Bank of England and British Government since 2008 till date. Special emphasis will be on measuring and discussing the impact on growth, price stability, unemployment as well as the balance of payments.
At the start of the financial crisis in later part of 2007, British Government, attempted to inject money into the system in order to ensure that the institutions do not fail and that the economy remains on the path of recovery after the decline. Bank of England (BoE) drastically reduced the base interest rate in order to stimulate the consumer spending and generate the required level of demand in the economy.
During November 2008, Alistair Darling took radical measures to reduce the VAT however; the overall borrowing by the government was increased. Reduction in VAT was aimed at reducing the general price level and ensuring that the people spend so that employment can be generated and aggregate demand can be increased. However, the steps taken by Labor Government, from November 2008, also involved increasing the national insurance contribution as well as the increase in taxes for higher earning individuals.