Business Essay On Fiscal Policy Of UK | Management Assignment Example

The following business essay is on fiscal policy. It is an International Business and Management Studies assignment that was created by us for one of our clients who contacted us for assignment help. Studying the essay will help you understand fiscal policy, its applications, and the structure and orientation of business essays. It will also help you understand the high-quality assignment work we provide to our students at a nominal cost.

This essay seeks to assess the major fiscal measures introduced as part of the UK’s economic policy as a response to the COVID-19 pandemic and the need for these measures. Later, the essay describes the effects of these fiscal measures on the national finances and economic growth post-COVID-19 recession.

NOTE: If you need any type of Assignment Help from us, contact us now!

Question: Fiscal Policy has taken center stage in economic policy response to the COVID-19 pandemic. Outline the main fiscal measures used and assess the legacy they will leave for national finances and economic growth.

Business Essay on Fiscal Policy of the United Kingdom (UK)

This essay seeks to assess the major fiscal measures introduced as part of the economic policy of the UK as a response to the COVID-19 pandemic and the need for these measures. Later, the essay describes the effects that these fiscal measures might have on the national finances and economic growth post-COVID-19 recession.

The sudden emergence of Coronavirus disease(COVID-19) forced the global economy into a recession, meaning the economies have stopped growing and started shrinking and are said to get back to normal by 2022 for most countries, given a vaccine comes into the picture. Due to the social distancing and precautionary norms, the supply and demand of consumer goods have been severely affected. Unemployment has been skyrocketing and the stock market has been all over the place since the start of the lockdown. These are but a few examples of the effects of this global pandemic on economies all around the world. In Europe, the UK and Spain had the worst GDP loss, followed by Sweden. To set things right and on an upward trajectory, economically speaking, The UK government brought about certain fiscal measures. According to the International Monetary Fund(IMF), the UK put aside more than 8.5% of its GDP for budgetary fiscal support to its citizens and firms during the pandemic.

The economic impact of the Coronavirus disease(COVID-19) combined with Brexit, has hit the UK economy way worse than other comparable ones. The UK GDP(Gross Domestic Product) is estimated to have been contracted by 19.8% in the second quarter(April to June) of 2020. The Unemployment rates were around 4.8% in July to September on paper. Various industries suffered due to the shockwaves that the COVID-19 pandemic proved to be.

Like most other economies, the UK Government in collaboration with the Bank of England and the Financial Conduct Authority brought about certain fiscal measures to help their economy in getting back on its feet.

The government implemented certain fiscal measures immediately after the announcement of a lockdown. The most important one is the Coronavirus Job Retention Scheme(CJRS) which was announced to have a budget of £53 billion. From March to June, employees were to be fully furloughed- the minimum furlough period being 21 days. Later, in an extension till April 2021 of the scheme announced in November, it was stated that an employer can claim 80% of the furloughed employee’s current salary for the hours that they have not worked up to a maximum amount of £2500. As per a figure from June 2020, 9.3 million jobs have been placed on furlough under CJRS. This quick and decently implemented step by the government has helped several small businesses from going under, prevented millions of job cuts, and in turn, has been instrumental in not letting the economic crisis worsen if only a little.

Another one of the most important fiscal measures was providing £31.9 billion of additional funding to the National Health Service(NHS)- a much-needed step during the Coronavirus disease(COVID-19) pandemic. With the United Kingdom being one of the five worst-hit countries during the outbreak, the UK quickly went from the status of ‘low risk’ in January when the virus was first found to having to issue a nationwide lockdown. As the number of cases increased, the medical facilities started to overflow with coronavirus-positive patients. The shortage of medical equipment and protective gear was gradually fulfilled with the help of the extra funding provided by the government as a part of their immediate fiscal impulse. The government also invested in the manufacturing of a vaccine for the Coronavirus disease. An investment in the health sector in times of a pandemic means lowering the mortality rate. Fernandes, N., 2020, has argued that the mortality rates in the current COVID-19 pandemic have minimal correlation with the economic impact. It is the lockdowns and other safety measures that have caused a simultaneous demand and supply shock.

The government has also set aside a budget of £3.5 billion to ensure rail services continue to operate which is a major necessity for various industries. The UK Chancellor, Rishi Sunak, also announced a temporarily reduced rate of Value Added Tax(VAT) to 5% and custom duties for certain supplies effective from 15 July 2020 to 31 March 2021. The VAT cuts were primarily designed to help the hospitality and tourism sector since due to the lockdowns, they have been worst hit. This step is said to support more than 150,000 businesses. In September, 100 million bookings were claimed which resulted in the surge of restaurant bookings. However, in an interview, Will Hawkley, UK head of leisure at KPMG claimed that this scheme would not be of much help in the future seeing how the Job retention scheme is in its final stages and the cases are on the rise again due to the discovery of a mutation of the SARS-COv2 virus.

The UK government in association with the British Business Bank put aside a budget of £330 billion for loan guarantee programmes. The Coronavirus Business Interruption Loan Scheme(CBILS) supports Small and medium-sized enterprises (SMEs) by letting them acquire a loan of up to £5 million for up to 6 years. The government will also be providing the lenders with a guarantee of 80% on every loan and cover the first 12 months of the interest payments. Another one of these fiscal measures is the Coronavirus Large Business Interruption Scheme(CLBILS) which would allow businesses to acquire a loan of about 25% of the company’s annual turnover. Both of these schemes are aimed at helping businesses get started again by providing them with all the financial aid that they require. ArmstrongWatson’s Corporate Finance Manager and Commercial Funding specialist, Stephen Dinsmore explains in an interview how CBILS has significantly changed the funding landscapes for businesses. Since the introduction of CBILS, businesses have been more influenced towards government loans than loans from private Banks causing a detriment of Asset Based Lending (ABL) products such as Invoice Finance. While the loan schemes to support firm liquidity will not have an immediate impact on the national finances, it is a contingent liability and may force the government to borrow in the future in case the businesses fail to repay the loan.

A bold and timely Fiscal Policy with the main objective of mitigating severe fiscal effects of the Coronavirus disease(COVID-19) pandemic has without a doubt been a lifeboat in times of crisis but not one of the best quality. The materials used in its construction have been taken out from the original ship leaving it vulnerable in its wake. Besides the inevitable recession, the government has also been pushed further into debt shaking the country’s internal finance structure further. The priority of these fiscal measures has been to support incomes and prevent the bankruptcy of firms. In addition to this, preserving the link between employers and employees will give a sense of job security and help increase the speed of economic recovery in the long run. Since the rates of interest are historically low, several economists have agreed that borrowing this year will not be an immediate concern about the sustainability of the national finances of the country. In conclusion, in the long run, these measures would play a significant role in the economic growth of the country, given the current scenario where the situation has started to get under control and GDP, albeit slow, is back on an upward trajectory.

Primary References

Bamforth, H.,(2020, September 16). CBILS and the Impact on the Funding Landscape.

https://www.armstrongwatson.co.uk/news/2020/09/cbils-and-impact-funding-landscape

BBC News., (2020, September 24). Rishi Sunak: VAT cut to be extended for hospitality sector.

https://www.bbc.com/news/business-54277285

Begg, D. Vernasca, G., Fischer, S. and Dornbusch, R. (2014). Economics, 11th ed, McGraw-Hill.

Economics Observatory., (2020, July). What are the fiscal consequences of the UK response to coronavirus?

https://www.economicsobservatory.com/what-are-fiscal-consequences-uk-policy-response-coronavirus

Engen, E.M., Skinner, J., (1992, December). Fiscal Policy and Economic Growth. NBER Working Paper Series, Working Paper No. 4223.

https://www.nber.org/system/files/working_papers/w4223/w4223.pdf

Fernandes, N.,(2020, April). Economic effects of the coronavirus outbreak (COVID-19) on the

world economy. IESE Business School Working Paper No. WP-1240-E.