Gordon Brown's Keynesian Experiment
That is true, sort of, in the sense that it is becoming increasingly apparent that more of the interest rate manipulations that got us into this crisis won't get us out of it. But the fact that monetary Keynesianism is increasingly discredited does not mean that fiscal Keynesianism is somehow vindicated.
It is one thing to announce tax cuts when you start of with a significant budget surplus, like in Sweden. It is very different to do it when you started of with a budget deficit of 3-4% of GDP at the peak of the cyclical boom, like in the U.K.
As a result, the U.K. budget deficit is likely to reach £80 billion, or nearly 6% of GDP this year. With the crisis deepening, and with Brown's and Alistair Darling's Keynesian package, it will rise far above £100 billion, and approach 10% of GDP. Hadn't it been for the similar situation facing and similar plans by the incoming Obama administration in America, that would have put the U.K. in the not so flattering number one spot in terms of budget deficit.
The most important measure of the package will be a reduction in the Value Added Tax from 17.5% to 15%. In addition, to that there will be some minor targeted tax cuts and increased public works and education spending. At the same time, they say they will plan to raise the top income tax rate from 40% to 45%, something which will bring little if any revenues while eroding the UK's competitiveness, although that will not be implemented until after the next election