UK fiscal periodization of 1997–2024
| Period | Public expenditure | Taxation | Major crises | Comments |
|---|---|---|---|---|
| 1997–1999 (Labour) | Acceptance by Chancellor Gordon Brown of predecessor’s (Kenneth Clarke) tight plans for first two years. 1998 brought two fiscal rules: golden rule to operate over the economic cycle and the sustainable investment rule (debt to be less than 40% of GDP). The 1998 control aggregates of Departmental Expenditure Limits and Annually Managed Expenditure, and the principle of multi-year Spending Reviews, have survived | Innovation of windfall tax on privatized utilities | Crisis-free. Chancellor Gordon Brown resisted Prime Minister Tony Blair’s desire to join the euro, leading to Gordon Brown’s “five tests” which were never fulfilled | Labour received a strong fiscal inheritance from Chancellor Kenneth Clarke |
| 2000–2007 (Labour) | Years of public spending plenty made possible by more than 50 successive quarters of GDP growth. Doubts about extent to which spending increases resulted in better services rather than higher costs, despite heavy emphasis on performance metrics | Pre-election promises not to increase income tax rates limited scope for tax reform. Failure to address local government tax reform during period of fiscal plenty, leaving council tax still based on 1991 property values | Crisis-free | Missed opportunity for taxation reform during a period of strong public finances |
| 2008–10 (Labour) | With Gordon Brown as Prime Minister, Chancellor Alistair Darling tried to pull back on expansionary Spending Review 2007 and nationalized a number of insolvent banks | Structural problems not resolved. Temporary measures such as a new Top Rate of 50% and phased withdrawal of Personal Allowance for incomes over £100,000 later became embedded. Temporary reduction in standard rate of VAT from 20% to 15% was reversed on schedule | Dominated by the effects of the Global Financial Crisis, which caused a global recession and resulted in a UK deficit of 14% of GDP | Labour was blamed by opposition parties for fiscal incompetence and weak financial regulation causing the fiscal crisis. This damaged Labour’s future electoral credibility |
| 2010–15 (Conservative-Liberal Democrat Coalition) | The Coalition brought in a period of severe public expenditure cuts which became known outside government as “austerity”. Chancellor George Osborne opted for 80% from expenditure cuts (especially on welfare and local government support) and 20% from taxation increases. Treasury interest in performance metrics declined and delivering the planned fiscal aggregates took precedence. Establishment of the Office for Budget Responsibility in 2010 | Key measures were reduction in corporation tax and large increases in the income tax Personal Allowance. Fundamental problems in the UK tax system were not addressed, notwithstanding these being documented by the Mirrlees Review (2011) | Continuing effects of the Global Financial Crisis led to low economic growth and weak productivity growth, to some extent masked by high immigration. Controversy about the UK’s membership of the EU grew in response to economic frustration, exploited by long-term eurosceptics | Substantial public support for austerity measures during this period and suspicion of Labour, which led to the return of a majority Conservative Government in 2015, with a manifesto commitment to hold a referendum on continuing membership of the EU |
| 2015–2024 (Conservative) | A period of majority Conservative Government with five Prime Ministers, seven Chancellors of the Exchequer and ten Chief Secretaries to the Treasury. Under Chancellor Rishi Sunak (2019–22) there was massive public spending in response to the COVID-19 pandemic, with concerns later raised about fraud and cronyism in public procurement. Prime Minister Boris Johnson (2019–2022) promised no return to austerity, but Chancellor Jeremy Hunt (2022–24) made it clear that it was back, though avoiding the word | The most significant event was the “fiscal event” on 23 September 2022, described as such to avoid the “budget” label which would have required a fiscal forecast from the Office for Budget Responsibility. The summer 2022 contest for the leadership of the Conservative Party (and hence to be Prime Minister) saw denunciations of Treasury orthodoxy and threats to Bank of England independence. After the immediate sacking of the Permanent Secretary to HM Treasury by the incoming Chancellor (Kwasi Kwarteng), £45 billion of tax cuts and £150 billion of energy subsidies were announced, leading to falls in sterling and rising interest rates on government debt. Many of these tax measures were rapidly reversed and the energy subsidies curtailed from two years to six months. The 23 September fiscal event brought down the Truss Government, despite being enthusiastically welcomed by Conservative MPs on the day | Initially unconnected developments constituted the polycrisis
| These crises have raised doubts about the governance and capacity of the UK state. The legacy of the divisive Brexit debate continues to dominate politics in England and Northern Ireland. The first-past-the-post electoral system for the House of Commons contributes to divisiveness. After the 2015 election, the Labour Party was taken over by the hard left under Jeremy Corbyn, leading to two more election defeats in 2017 and 2019. Career progression, even survival in the Conservative Party, became dependent on Brexit enthusiasm. Both Jeremy Corbyn (Labour leader, 2015–19) and Liz Truss (Conservative leader and Prime Minister, 2022) were chosen through a ballot of party members, without strong support from their party’s MPs. The fiscal damage done by the polycrisis would have been severe in any case, but the legacy of the governance crisis means that markets will be more attentive to UK fiscal developments. Whichever party is in power after the expected 2024 general election will receive a toxic legacy on spending and tax |
| Period | Public expenditure | Taxation | Major crises | Comments |
|---|---|---|---|---|
| 1997–1999 (Labour) | Acceptance by Chancellor Gordon Brown of predecessor’s (Kenneth Clarke) tight plans for first two years. 1998 brought two fiscal rules: golden rule to operate over the economic cycle and the sustainable investment rule (debt to be less than 40% of GDP). The 1998 control aggregates of Departmental Expenditure Limits and Annually Managed Expenditure, and the principle of multi-year Spending Reviews, have survived | Innovation of windfall tax on privatized utilities | Crisis-free. Chancellor Gordon Brown resisted Prime Minister Tony Blair’s desire to join the euro, leading to Gordon Brown’s “five tests” which were never fulfilled | Labour received a strong fiscal inheritance from Chancellor Kenneth Clarke |
| 2000–2007 (Labour) | Years of public spending plenty made possible by more than 50 successive quarters of GDP growth. Doubts about extent to which spending increases resulted in better services rather than higher costs, despite heavy emphasis on performance metrics | Pre-election promises not to increase income tax rates limited scope for tax reform. Failure to address local government tax reform during period of fiscal plenty, leaving council tax still based on 1991 property values | Crisis-free | Missed opportunity for taxation reform during a period of strong public finances |
| 2008–10 (Labour) | With Gordon Brown as Prime Minister, Chancellor Alistair Darling tried to pull back on expansionary Spending Review 2007 and nationalized a number of insolvent banks | Structural problems not resolved. Temporary measures such as a new Top Rate of 50% and phased withdrawal of Personal Allowance for incomes over £100,000 later became embedded. Temporary reduction in standard rate of VAT from 20% to 15% was reversed on schedule | Dominated by the effects of the Global Financial Crisis, which caused a global recession and resulted in a UK deficit of 14% of GDP | Labour was blamed by opposition parties for fiscal incompetence and weak financial regulation causing the fiscal crisis. This damaged Labour’s future electoral credibility |
| 2010–15 (Conservative-Liberal Democrat Coalition) | The Coalition brought in a period of severe public expenditure cuts which became known outside government as “austerity”. Chancellor George Osborne opted for 80% from expenditure cuts (especially on welfare and local government support) and 20% from taxation increases. Treasury interest in performance metrics declined and delivering the planned fiscal aggregates took precedence. Establishment of the Office for Budget Responsibility in 2010 | Key measures were reduction in corporation tax and large increases in the income tax Personal Allowance. Fundamental problems in the UK tax system were not addressed, notwithstanding these being documented by the Mirrlees Review (2011) | Continuing effects of the Global Financial Crisis led to low economic growth and weak productivity growth, to some extent masked by high immigration. Controversy about the UK’s membership of the EU grew in response to economic frustration, exploited by long-term eurosceptics | Substantial public support for austerity measures during this period and suspicion of Labour, which led to the return of a majority Conservative Government in 2015, with a manifesto commitment to hold a referendum on continuing membership of the EU |
| 2015–2024 (Conservative) | A period of majority Conservative Government with five Prime Ministers, seven Chancellors of the Exchequer and ten Chief Secretaries to the Treasury. Under Chancellor Rishi Sunak (2019–22) there was massive public spending in response to the COVID-19 pandemic, with concerns later raised about fraud and cronyism in public procurement. Prime Minister Boris Johnson (2019–2022) promised no return to austerity, but Chancellor Jeremy Hunt (2022–24) made it clear that it was back, though avoiding the word | The most significant event was the “fiscal event” on 23 September 2022, described as such to avoid the “budget” label which would have required a fiscal forecast from the Office for Budget Responsibility. The summer 2022 contest for the leadership of the Conservative Party (and hence to be Prime Minister) saw denunciations of Treasury orthodoxy and threats to Bank of England independence. After the immediate sacking of the Permanent Secretary to HM Treasury by the incoming Chancellor (Kwasi Kwarteng), £45 billion of tax cuts and £150 billion of energy subsidies were announced, leading to falls in sterling and rising interest rates on government debt. Many of these tax measures were rapidly reversed and the energy subsidies curtailed from two years to six months. The 23 September fiscal event brought down the Truss Government, despite being enthusiastically welcomed by Conservative MPs on the day | Initially unconnected developments constituted the polycrisis The Leave result in the Brexit referendum led to the resignation of Prime Minister David Cameron, immediate sterling depreciation, a bitterly divided House of Commons, and Brexit on 31 January 2020 The COVID pandemic started in the UK in March 2020 The cost-of-living crisis started in 2022 with the synchronized global recovery from the pandemic, the loss of supply capacity due to the pandemic, then magnified by the war in Ukraine Obligations to respond to the climate crisis affect public spending in various ways, including demands for replacement infrastructure The crisis in UK government which began in June 2016 with the Brexit referendum peaked in summer 2022 with the dismissal of Prime Minister Boris Johnson by Conservative MPs, the catastrophic “fiscal event” on 23 September, the dismissal of Prime Minister Liz Truss also by Conservative MPs, followed by her replacement by Rishi Sunak | These crises have raised doubts about the governance and capacity of the UK state. The legacy of the divisive Brexit debate continues to dominate politics in England and Northern Ireland. The first-past-the-post electoral system for the House of Commons contributes to divisiveness. After the 2015 election, the Labour Party was taken over by the hard left under Jeremy Corbyn, leading to two more election defeats in 2017 and 2019. Career progression, even survival in the Conservative Party, became dependent on Brexit enthusiasm. Both Jeremy Corbyn (Labour leader, 2015–19) and Liz Truss (Conservative leader and Prime Minister, 2022) were chosen through a ballot of party members, without strong support from their party’s MPs. The fiscal damage done by the polycrisis would have been severe in any case, but the legacy of the governance crisis means that markets will be more attentive to UK fiscal developments. Whichever party is in power after the expected 2024 general election will receive a toxic legacy on spending and tax |
Source(s): Prepared by authors
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