The United Kingdom: Economic Growth, a Draft Master Plan

De Koning, Kees (2013): The United Kingdom: Economic Growth, a Draft Master Plan.

Abstract

The U.K.’s recent economic developments can be broken down in two distinct periods. The period 2002-2008 was the period in which economic growth was satisfactory and individual households’ wages and salaries were increasing at a level higher than inflation rates. It was also the period that individual households withdrew equity out of their homes, by increasing their borrowing levels. This added to their disposable incomes. 2008 was the turning point when individual households not only lost £841 billion in net worth, but also did no longer make the £450 billion annual gain which happened over the years 2002-2007: a turn around equal to over 90% of 2008 GDP. Since 2008 individual households saw their wages and salaries grow below inflation levels. They also started to put more equity into their homes to the extent of some £78 billion over the period 2009-2011.

Entrepreneurs can create an output gap by increasing production capacity above demand levels. Individual households can experience an income gap when their spending capacity cannot keep up with rising prices. My assessment is that the latter is the main cause of the current economic impasse. The draft master plan is based on two concepts: to lower the risks in the U.K economy for all households and to use accumulated savings more efficiently. Four proposals were formulated: Establish a National Mortgage Bank and a National Mortgage Insurance Company; to implement economic easing to counteract the imbalance between accumulated savings and spending power; to change the accounting rules for the banking sector in order to recognise risks from the moment of incurring such risks and to turn quantitative easing into quantitative strengthening (QS) by turning 80% instead of 20% of U.K. gilts into index linked gilts.

If these proposals are acceptable, they will need the cooperation of the government, the opposition, the Bank of England, the banking sector, the company sector, the pension funds and the individual households in order to get Britain back to “Great” Britain.

• Item Type: MPRA Paper
• Language: English
• Keywords: U.K; economic growth; individual households'net worth; wages and salaries developments; output gap; income gap; national mortgage bank;economic easing;QE and QS; bank accounting rules
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

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