Reference no: EM133284258

Question - On September 23, Britain's finance minister unleashed historic tax cuts and huge increases in borrowing in a new economic agenda. The so-called mini budget was designed to snap the economy out of a period of double-digit inflation driven by surging energy prices and a 15-year run of stagnant real wage growth.

The mini-budget included £45-billion worth of tax cuts but no plan outlining how the measures would be financed beyond increased borrowing. Some critics derided the mini-budget as a return to Thatcherite and Reaganomics doctrines of the 1980s and "trickle down" economics. The Office for Budget Responsibility, created in 2010 to provide independent and authoritative analysis of the UK's public finances, weighed in and noted the overall risks to overall fiscal sustainability of the government's finances within the current economic context.

That uncertainty roiled international financial markets and sent government bond prices falling, which in turn drove up mortgage rates for millions of homebuyers. The turbulence got so bad that the Bank of England had to intervene to help pension funds facing hefty margin calls to cover falling bond prices. The International Monetary Fund criticized the British government's mini-budget as contributing to disorderly markets.

Last week prime minister Truss bowed to public pressure. She dropped the plan to reduce the top tax rate. That decision came only after she'd been accused of helping wealthy Britons while the rest of the country struggled with rising inflation. She also replaced the minister of finance and promised a course of fiscal responsibility. MPs in the House of Commons including those from her own party have called the move unfair, as the minister of finance simply carried out the promises Truss had made during her leadership campaign, and have now called for a parliamentary inquiry.

Should the British government truly offer 'fiscal responsibility' and a plan to return to balanced budgets, as the Canadian federal government managed to do in the mid-1990s, which budgetary practices does it need to implement?