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The Labour Party victory in the May 1997, general election seems to have heralded a new era in the perception of the UK, both from the outside world and by the British themselves. Partly because of continued positive economic performance (including significant real GDP growth and unemployment figures lower than its European neighbours) and a relatively ambitious series of social and economic reforms from the new government, confidence in Britain is high. Additionally, success in popular culture from movies to music (giving rise to a twist on an old UK cliché, Cool Britannia) has contributed to a virtual rebirth of the British self-image as a world leader in economics, politics and culture.
Prime Minister Tony Blair is a charismatic and popular figure, both domestically and internationally. His chairmanship of the G8 Conference will add to his influence deriving from his own personality and novelty as well as the prosperity of his country. One key issue will be employment, which is a policy priority for the UK government. Another important issue will be education, both in traditional schooling for youth and on-going training and skills upgrading for adults.
Chancellor of the Exchequer Gordon Brown is pushing for more progress on Debt reduction for Highly Indebted Poor Countries (HIPC) which was supported by the February G7 Finance Ministers Meeting in London. Mr. Brown is taking the international lead on this issue because he believes that debt burden is hindering economic improvement in the Developing World. While he originally set a target of the year 2000 for three-quarters of the identified HIPC's to secure terms and conditions for debt reduction, it seems that only 4 of the approx. 40 HIPC's are advanced in their plans. Besides unilateral measures (such as US$ 10 m forgiveness to Mozambique this year), the UK would like to see a concerted effort by governments and the private sector to forgive debt. In return, Mr. Brown would like to see the HIPC's pursue stable macroeconomic policies (for example low inflation and solid public finances) as well as directing any money to "productive" investments, such as education and health care. Moreover, emphasis is placed on creating a "transparent" system of public discussions in order to gain general public approval for the initiatives as well as more "transparent" flows of information on private sector dealings.
The UK government's Welfare to Work program provides incentives to work by withholding social assistance when high quality employment options exist. The New Deal initiative was designed to provide 18-24 year olds with private sector work experience (through employer subsidies) or further education and training. It has recently been expanded on a test basis to unemployed individuals over 24 years old. The recently announced Working Families Tax Credit, which is provided through the "pay packet", will reward work rather than acceptance of social assistance (as was the case with the former Family Credit) by reducing tax on earned income. Recognising that non-wage costs inhibit employment growth, particularly for low wage positions, National Insurance Contributions (NIC's) have been reformed to exempt NIC charges from employees earning less than Pounds 64/wk (to be raised to Pounds 81/wk in the future) with a standard 2% for all income above Pounds 64/wk. Moreover, the Employers' NIC contribution has similarly been eliminated for employees earning less than Pounds 81/wk with a flat 12.2% rate on the balance of the wage. These changes will create a positive incentive to utilize low wage employees. Finally, a new Minimum Wage is designed (in part) to "make work pay" and create more incentives to work rather than receive social assistance.
It is rare for Britain to have a currency appreciation problem, the last time being during the 1979-81 period when the high interest rates that were used to quell burgeoning inflation also increased demand for the Pound Sterling. For the year up to April 1998, the UK's trade-weighted real exchange rate (adjusting for different domestic inflation rates) had appreciated 10.4%. Quite differently from the 1979-81 appreciation, the most recent rise in the Sterling is attributable to a tight Monetary Policy designed to forestall inflation before it increases beyond control. Indeed, Britain's economic fundamentals are sound (see above, "Political Data"). However, with Bank Prime rates at over 8% and similar German rates at around 5%, demand for the Sterling has increased. Moreover, with Britain opting out of the EMU, cautious investors may also be "parking" their money in the UK. Finally, since the latest UK budget (March 1998) is not following restrictive fiscal policies, Monetary Policy and a high British interest rate should continue indefinitely.
The Blair government continues to place the environment at the heart of its foreign policy. Early on in his mandate, Blair committed the UK to the international effort to protect the global environment, including climate, forests and freshwater. The Prime Minister set ambitious and quantified targets, for example, the government's commitment to a 20% reduction from 1990 levels in greenhouse gas emissions by 2010, beating his EU counterparts by 5%.
The British government encourages its domestic government agencies to think globally and act locally, and has seen positive results in decreasing emissions by introducing energy efficiencies in homes, factories and electrical generation. While there is always room for improvement, for example legislating for car companies to introduce mechanisms that would decrease pollution from motor vehicles, the UK's ambitious environmental goals and undertakings balance other nations lower achievements and commitments. Look for the UK to encourage other governments and set an example to follow good environment practice.
Tony Blair has scored a preliminary success in Northern Ireland with the peace accord signed by leaders of the Protestant majority and the Roman Catholic minority on April 10 in Belfast. The April 22 approval by the Irish parliament has cleared the way for a referendum in the Irish Republic on May 22. If approved, the agreement will drastically revise the political structure of the British province and will also see the Irish Republic withdraw its constitutional claim to sovereignty in the North.
The cause was strengthened on April 24 when two outlawed pro-British Protestant guerrilla groups, the Ulster Defence Association and Ulster Freedom Fighters, urged voters to back the accord. All indications point to an overwhelming vote of approval on May 22. While the accord marks a first step to achieve real and sustained peace, it is, nonetheless, an accomplishment that hopes to end 30 years of fighting in Northern Ireland by changing the means by which the two sides pursue their goals and acknowledging that the fate of Northern Ireland must be decided by the majority of the people.
On the domestic front, the UK is strengthening its efforts in the realm of financial intelligence and information gathering on financial institutions with the hope of reducing both electronic and financial crime. The December 10, 1997 Justice Ministerial was attended by all eight countries who agreed to six major initiatives and resolutions on electronic crime, with one of the points also being connected to financial crime. This Ministerial also further endorsed the 40 point recommendations of the Lyon Senior Experts Working Group on transnational crime.
Prepared by Aron Halpern, Stephen Hudovernik, and Allison Smith, University of Toronto G8 Research Group, May 1998.
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