UK Economic Policy and the Global Financial Crisis: Paradigm Lost?*

Abstract

The global financial crisis of 2007-08 produced a sudden change in the economic policy of the United Kingdom (UK). Prior to the crisis, the government preached the gospel of price stability, fiscal prudence and light-touch financial regulation. In the wake of the crisis, the government countenanced unconventional monetary policies, a surge in public-sector borrowing and the need for a rethink of financial supervision. This article seeks to understand the significance of these changes using Peter Hall's theory of policy paradigms. Its central argument is that, contrary to appearances, the UK has not yet experienced a fundamental reordering of the instruments, institutions and aims of economic policy. Third-order change cannot be ruled out as the crisis unfolds but the economic ideas underpinning UK economic policy have, for better or worse, demonstrated remarkable resilience thus far. IntroductionThe UK has been among the European economies hardest hit by the global financial crisis. The worldwide financial turmoil that began in 2007 triggered the first run on a British bank since 1866 and a near meltdown in the banking system 12 months later. The credit crunch, the effects of which have been amplified by the bursting of the UK's decade-old house price bubble, has taken a severe toll on the economy. According to the latest data, which are * Thanks to three anonymous referees for helpful comments. The usual disclaimer applies.

The Comparative Political Economy Basel III in Europe

“…In Europe, the UK was the main promoter of 'light touch' regulation (Hodson and Mabbett, 2009;Macartney, 2010), which was discredited by the financial crisis. By contrast, France, Germany and Italy had a 'marketshaping' approach to financial regulation, which was in good currency in the aftermath of the crisis (Fioretos, 2010;Quaglia, 2010a, b;Zimmerman, 2010), especially in government discourse (Buckley and Howarth, 2010).…”

Varieties of Economic Crisis, Varieties of Ideational Change: How and Why Financial Regulation and Macroeconomic Policy Differ

“…In monetary policy, the turn to quantitative easing continues to reflect the limitations of conventional monetary policies under current circumstances, but it has not as yet entailed a jettisoning of the existing monetary policy framework (Hodson andMabbett, 2009, p.1057). …”

Path dependency and convergence of three worlds of welfare policy during the Great Recession: UK, Germany and Sweden

“…Even the all-important financial interventions, had to 'work through monetary channels…to revive the supply of credit' (Hodson andMabbet (2009, p. 1053, emphasis added), arguably offering limited substantive change to the dominant policy paradigm (Berry 2016). Therefore, what can be seen is an embedded neoliberal deepening in the period following the crisis, especially with the long-term austerity approach of the Conservative-led coalition.…”