Why a Single Country and Why the UK?
This book identifies every fiscal squeeze showing up in reported financial outcomes in the UK from 1900 to 2015. The first episode began in 1915, which saw the start of a tax squeeze to finance World War I that took the tax take-up to levels not seen since the Napoleonic Wars at the start of the nineteenth century (Daunton 2002: xiii). The last was not clearly concluded at the time of writing (though official deficit reduction targets had been abandoned), but is here explored up to 2015, which marked the end of a coalition government that set out to eliminate deficit and reduce debt arising from the 2008 international financial crash and the subsequent recession.
Of course massive changes occurred over that century, including two world wars, big demographic changes including greatly increased longevity and mass immigration, the secession of most of Ireland in 1922 to form what is now the Irish Republic, the entry of both states into the European Union fifty years after that, and marked changes in social attitudes and behaviour. Other obvious changes over that period included the dominant technology moving from the steam age to the digital age, the move from an economy based on primary and secondary industry (such as mining and manufacturing) to one based on tertiary industry in the form of services, concomitant changes in the educational levels of the population, and the country becoming a significant oil producer between the 1980s and the 2010s. The cumulative effect of economic growth meant that average earnings grew more than fourfold (in constant prices) over the period.
Nevertheless, throughout the period some important political factors remained sufficiently constant for over-time comparisons to be meaningful. The UK remained a leading, large, and developed parliamentary democracy, with parties competing for office at central government level in a singlemember-constituency first-past-the-post electoral system that tended to penalize small parties unless their votes were regionally concentrated (as with the Irish and later Scottish nationalist parties), with a weak, non-elected second chamber and a powerful Treasury operating as a central coordinating agency in government. Over the period, as we show in the next chapter, the various fiscal squeezes were handled by governments of different types (mostly singleparty, including two minority governments, but also with four coalitions, including one emergency 'National Government') and political stripes, comprising both left-of-centre and right-of-centre parties.
Those continuities allow us to explore how broadly the same political system operated and reacted to fiscal squeezes of various types over a century. This book therefore complements the various studies that have compared fiscal squeeze efforts across countries with different political systems and economic structures. In addition, this method of looking at a single country over time differs sharply from much of the econometric work that examines average effects of past financial crises using cross-country regressions—an approach that misses the variations across episodes, as pointed out by Christina Romer (2015), who argues that the aftermath of financial crises is far more varied than an average-effects analysis brings out. What we do here is to compare across various cases within that country and focus not so much on average effects as on meaningful similarities and differences across the various episodes, taking into account the political settings.