Put in to take out! Basic Economics Rachel - use the 'Multiplier'

26.10.2025

I think that I disagree with former PM Rishi Sunak's latest proclamation that the UK should cut its Spend.

Decades ago, my economics teacher taught me that 'You have to put in to take out!'

So I ask now - is a big change required in which Rachel Reeves looks at the UK Balance Sheet?

A Government should use the funds that are raised to spend out in the economy - new and repaired roads, new housing, a well-equipped defence sector, schooling facilities, health services - all need continual spending, which in turn creates increased employment, which in turn creates increased spending, which increases the tax take.

The Multiplier Effect

The multiplier in economics amplifies the impact of initial spending, leading to greater increases in national income, employment, and overall economic growth.

Here’s a detailed breakdown of its benefits:

It refers to how an initial injection of spending (by government, businesses, or consumers) leads to a proportionally larger increase in overall economic activity.

Key Benefits of the Multiplier

• Boosts National Income

A small increase in spending can lead to a larger rise in GDP.

This is especially powerful during economic downturns when governments use fiscal stimulus to revive growth.

• Enhances Employment

Initial spending—like infrastructure investment—creates jobs directly.

As income rises, consumer spending increases, generating more jobs in retail, services, and manufacturing.

• Stimulates Private Sector Growth

Public investment often triggers private sector responses.

For instance, building roads may encourage businesses to invest in nearby areas, multiplying the initial impact.

• Supports Regional Development

Targeted spending in underdeveloped regions can have outsized effects, helping reduce inequality and improve local economies.

• Encourages Consumer Spending

When people receive higher incomes (e.g., through public sector wage increases), they tend to spend more, further stimulating demand across sectors.

• Improves Fiscal Efficiency

Governments can achieve greater economic impact per pound spent.

A multiplier greater than 1 means the return on investment exceeds the initial outlay.

However - Important Considerations

• Size of the Multiplier Varies

It depends on the marginal propensity to consume (MPC)—the proportion of additional income that people spend.

A higher MPC leads to a larger multiplier.

• Leakages Reduce Effectiveness

If income is saved, taxed, or spent on imports, the multiplier effect diminishes.

• Can Work in Reverse

Spending cuts or tax increases can trigger a negative multiplier, shrinking GDP more than the initial reduction.

My Comment

Is it now time for Rachel Reeves to boldly take a 'reverse turn' and massively increase the UK Spend, with a view to generating greater incomes and thus greater national spend?

Vote Now For The Multiplier