The final impact on welfare states and social policies of the financial crisis that rocked round the world in the Autumn of 2008 will not be clear for many years, but in the UK its potentially dramatic effects are already apparent, not least through the large and rapid cuts announced for public spending by the new Coalition Government in October 2010. But to understand what might result in terms of the long run reshaping of Britain's welfare state, it should be recognized that the first Act of the drama had started a year before. The former Labour Government had adopted a system of setting public spending plans in cash terms for three years at a time. In the Autumn of 2007, it set its plans for the following three years on the assumption that there would continue to be both modest real economic growth, and low but positive inflation. Spending was then set to grow in line with the growth of nominal national income - for instance, by about 10 per cent in cash terms over the first two years.
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