Fiscal policy during the cost of living crisis

The pandemic, the energy crisis and the Russian invasion of Ukraine have come together to drive huge increases in the price of energy worldwide. This affects homes and businesses directly (e.g. heating bills), but because energy costs are a factor in almost all goods and services, it has driven many other prices up as well – i.e. inflation. The problem is that citizens’ incomes – whether in the shape of wages, pension payments or benefits – have not come anywhere near matching that rise in prices, so almost all households are feeling poorer in one way or another, and many are struggling to get by.

Beyond this immediate challenge, there are longer term issues in the UK economy. Economic growth is low, and productivity growth – which refers to increases in the amount of goods and services produced by an economy relative to the time, effort and investment put in – has been weak for some time. Also we have an ever-increasing dependency ratio between the economically active (i.e. workers), and the economically inactive, which is driven by an ageing population in the long term, and by early retirement and increased part-time work since the pandemic. These factors mean that the UK economy is producing less resources in order to pay for the increased cost of living, raising difficult questions about how income and wealth are distributed amongst citizens in of the nation.

With low growth and increased costs, the UK government is left with difficult fiscal policy choices. Support for households has increasingly become necessary in response to cost of living crisis and demands for state spending on projects that might alleviate the cost of living such as mass home insulation and energy efficiency investment. On top of this, there are crises in healthcare provision, social services, education and criminal justice. But under the current system, spending has to be financed either by taxation or by issuing national debt, both of which are contentious. On one hand, if taxes are to be raised to avoid cuts to public services, benefits and pensions, there is little agreement on whether this should happen via taxes on income, corporations, inheritance or through new types of tax on wealth or pollution. On the other hand, many fear that, with national debt at record levels, any further increases are unsustainable and could damage the UK economy in the long term.

Securing legitimacy for policy

In a situation like this, where there are no win-win, risk-free options, and where government is asking members of the public to bear the costs of decisions made, the legitimacy of policy becomes very important. Unfortunately, the level of trust placed in national government by the British public has for many years been low, both compared to OECD averages and compared to a relatively high degree of trust placed in other UK citizens.

Deliberative exercises like this one have the potential to help overcome this sense of political disenfranchisement. They are supported by the public, and particularly by those who are most politically dissatisfied and who hold negative views about political elites. Alongside standard representative democratic process, they help to justify choices taken by taking party political interest out of the picture and instead incentivising participants to think in terms of the public good.

Whilst there is, of course, a central role for technocratic governance-by-experts in the complex fields of fiscal and monetary policy, economic policy as a whole is more politicised than at any time in recent memory, and this new politics of the economy needs additional sources of legitimacy. Deliberation plays a key role in ensuring that complex economic concepts are opened up for wider exploration and engagement by the public, as well as ensuring that people can consider and balance some of the difficult choices presented within the current context through time and thoughtful consideration in collaboration with a wide range of policy stakeholders and economic experts. The point of this project was not to go over complex detail on precisely how policy should be enacted, but rather to create time and space for a demographically diverse and representative group of UK citizens to become informed about economic policy and to successfully deliberate on the basic choices to be made and the principles that should underpin those choices.