Steering the economy
A HM Treasury case study

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Page 2: Government strategy

Hm Treasury 5 Image 6The Government’s central economic objective is to achieve high and stable levels of growth and employment that will build a stronger economic future for Britain. We live in an environment in which a range of forces constantly impacts upon   organisations and their activities. On coming into office, the Government introduced a new framework for monetary and fiscal policy designed to promote economic stability and so create the conditions to meet its central objective.

In the UK, in working with both public and private sector, the key elements of the Government’s strategy are:

  • locking in economic stability as a platform for long-term sustainable economic growth
  • raising productivity through promoting enterprise and investment
  • increasing employment opportunity, building a fairer society.

Means of influence

In order to meet its central economic objective, high and stable levels of growth and employment, the Government has a number of means of influence, both macro and microeconomic:

  • Monetary policy, which is concerned with the money supply, rates of interest, exchange rates and credit. It is at the heart of this Government’s policy for stability. One of the Government’s first steps after the election was to make the Bank of England independent, ensuring that interest rate decisions are taken in the best long term interests of the economy and not for short term political considerations
  • Fiscal policy, which is concerned with ensuring that Government borrowing – the difference between what the government spends and what it raises in tax revenue – is sustainable. This Government has introduced a Code for Fiscal Stability with strict rules to govern the public finances
  • Through its tax raising and expenditure roles it has instruments to meet economic objectives. For example, the New Deal will help increase employability by giving those out of work new opportunities
  • It can act directly through regulation and deregulation – the Government can and does propose new laws and amendments to old ones but it is important to remember that it is Parliament that actually makes laws. Regulation creates a framework in which organisations can operate and activities take place. Deregulation occurs when the Government removes some of the controls and restrictions in order to allow economic agents greater freedom of action
  • Control of monopoly – United Kingdom competition law is made up of a number of Acts of Parliament, dealing with separate aspects of competition policy and consumer protection
  • Public ownership and privatisation - the Government influences the market through its policies of public ownership and privatisation. For example, during the Second World War large sections of industry were taken over in order to co-ordinate production to meet the war effort. More recently, governments have relinquished control of some major industries including transport, gas, electricity and water, by selling shares in the companies.

HM Treasury | Steering the economy
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