Debating Union tackles financial issues

**On the evening of February 21, students gathered to watch Warwick Debating Union host _This House Would Spend and Stimulate_.**

Debating Union chair, Akash Sharma, framed the debate around government austerity policies, the 7.6 percent unemployment rate and the projected £129 million budget deficit by the end of 2013, challenging the panellists to outline their preferred solution to Britain’s current economic difficulties.

Proposing the motion were Professor Abhinay Muthoo, head of Economics at Warwick, and Professor
Marcus Miller, professor of Economics at Warwick and former consultant for the IMF, World Bank,
European Central Bank and Bank of England.

Opposing the motion were Matthew Sinclair, CEO of the Taxpayers’ Alliance and author of _How to Cut Public Spending (And Still Win An Election)_, and Ryan Bourne, head of Economic Research at the Centre for Policy Studies.

Professor Miller argued that effectively targeted stimulus would promote innovation, infrastructure and develop the skill base of Britain, fulfilling supply demands within the economy and enabling Britain to honour its debts and reach an escape from successive economic downturns.

He argued trying to solve the financial problems through cuts had been a ‘failed experiment’ and government stimulus would leave people with extra assets, and debts would be comparatively smaller.

Mr Bourne argued the £675 billion spent on quantitative easing and deficit spending was focused on private sector rather than public sector cuts while government spending and welfare costs were allowed to rise.

He said that, given the high public debt burden and budget deficits, abandoning the deficit
program was risky and did not actually tackle the causes of low growth, such as the Eurozone crisis.

By contrast, Professor Muthoo argued lack of confidence was at the heart of sluggish growth because this creates uncertainty which undermines the stability of the economic system, meaning firms have no confidence in demand for their products or services.

He emphasised the need to protect the ‘socially responsible welfare state’ as the core fabric of British society through government investment and stimulus.

However, Mr Sinclair argued confidence would decrease as increased borrowing would lead to doubts about Britain’s ability to repay.

He criticised targeting of government spending on ‘grandiose projects’ whereas private sector capital would be crowded out.

The issue of consumer confidence and trust was raised again during the question-and-answer session when panellists were asked how Britain would continue to attract the confidence of credit rating agencies.

Mr Sinclair observed that falling credit ratings indicate a lack of trust in the
government, citing Italy as suffering more than the UK despite having a smaller budget deficit because of a lack of trust from international finance and bond markets.

When asked whether government should stop supporting the financial system responsible for the crisis, Professor Miller argued making the financial sector more responsible for its actions was crucial to restoring confidence.

Mr Bourne added only a fifth of government expenditure was spent on bailouts and that the financial sector provided significant tax revenues.

Blame for the financial crisis was placed emphasised differently by the two sides: Professor Miller argued excessive risk through deregulation was to blame, whereas Mr Sinclair argued government regulations pushed too many banks towards taking the same risks at the same time.

Professor Muthoo believed a tighter framework was needed to show state leadership and create confidence.

The opposition also outlined alternative policies. Mr Sinclair argued for a fairer tax system, competitive regulatory structure and lower energy costs to make exporting businesses more competitive which would help people on low incomes.

Mr Bourne argued for an end to ‘crony capitalism’ in industries like banking and energy. The motion passed with 44 in favour, 16 against and 14 abstentions.