Boris’s rhetoric about a new deal is admirable – but the reality will be much riskier, warns ALEX BRUMMER
The rhetoric and ambition are typical Boris. To avoid the ‘thunderclap of economic consequences’ caused by the coronavirus, he says, we are going to ‘build our way back to health’.
Austerity will go out of the window as billions are poured into projects all over Britain to ready the country for a post-Covid future, averting economic insecurity, mass unemployment and a collapse in living standards.
In a speech today, he will set out his plan ‘to use this crisis finally to tackle this country’s great unresolved challenges of the last three decades’.
He’ll promise ‘to build the homes, to fix the NHS, to tackle the skills crisis, to mend the indefensible gap in opportunity and productivity and connectivity between the regions of the UK . . . we will build, build, build’.
And, hey presto! Britain will be back on its feet again, thanks to a mighty dose of good old Boris boosterism.
Boris Johnson will today set out his plan ‘to use this crisis finally to tackle this country’s great unresolved challenges of the last three decades’.
That, at least, is the theory.
But can it work in practice? How can a Britain on its knees financially afford to spend billions on new projects?
Since the onset of Covid-19, emergency measures such as the expensive jobs furlough scheme have cost £133 bn. Government borrowing this year will soar to £300 bn at the least, and the national debt will climb to 100 per cent of national output. Isn’t it madness to throw good money after bad?
For an answer, Boris reaches back to the U.S. Great Depression of the 1930s, when Democrat President Franklin D. Roosevelt turned traditional political and economic wisdom on its head with an enormous public spending and investment programme known as the ‘New Deal’.
The purpose was to end joblessness and the horrors of starvation. A quarter of the labour force — 15 million people — was out of work, hourly wages for those still employed had dropped by half and hundreds of banks had collapsed. More than 90,000 businesses had also failed.
So Roosevelt spent his way out of trouble, leaning on the wisdom of Britain’s most famous economist, John Maynard Keynes, who advocated that when an economy is misfiring and there is a shortage of demand for goods and services the public sector needs to fill the gap.
The astounding legacy of the New Deal in America is still there to be witnessed almost a century later. The Golden Gate Bridge traversing San Francisco Bay was built, using domestic steel, in less than three years as a result of it.
In the Deep South, the creation of Tennessee Valley Authority, harnessing the natural power of rivers, brought the magic of electricity and light to poor, rural communities. And the Federal Art Project recruited 10,000 artists to beautify the nation.
It is true that before the coronavirus swamped our Government, Boris Johnson had already embraced the idea of visionary public investment to help ‘level up’ Britain and underpin Tory support in the ‘Red Wall’ seats won from Labour in the 2019 election.
In spite of fierce ‘not in my backyard’ opposition in the Tory shires, and his own doubts, he threw his support behind the £100 bn plus HS2 high-speed rail link connecting London to Birmingham and the North.
The New Deal was instigated by US president Franklin D Roosevelt, pictured, in the wake of the Great Depression
Johnson even at one stage appeared to drop his long-standing opposition to a third runway at Heathrow, although the project has now been put on hold by the courts on climate change grounds.
The Prime Minisiter backed Britain’s new nuclear plant at Hinkley in Somerset. He has vital decisions to make on proposed nuclear investment at Sizewell in Suffolk and Bradwell in Essex. All these plants are highly controversial because of Chinese involvement in finance and design.
There is no doubt in my mind that these kinds of bold government-funded infrastructure projects are vital to our recovery, post-Covid.
But the country’s conversion to them after years of austerity was made possible only because of a decade of careful husbandry of the public finances. And our precarious financial circumstances are very different today.
That eye-watering figure of £300 bn government borrowing this year may well even be an underestimate. Figures just released show that the budget deficit in the first five months of the year has reached £275 bn, with the Government on schedule to raise a further £50 bn on the markets in August alone. That is what it had originally planned to borrow over a full year!
Yet there is one hugely significant factor in the Government’s favour — that we are in an era of ultra-low interest rates. The official bank rate currently stands at just 0.1pc, which means the Government can invest without the fear of having to shell out tens of billions on interest rate bills.
So I believe that, despite the hugely disquieting backdrop, the Prime Minister is right to embark on a ‘Rooseveltian’ plan to revive output and avoid a lengthy slump.
Among his priorities is a school building programme worth up to £1.8 bn — but just as critical will be finding a New Deal for young people to have opportunities once they have left school or university.
This will require a large programme of technical training and government-backed apprenticeships helping to equip Britain better for the digital, artificial intelligence and robotics age ahead.
In the now almost forgotten March budget, Chancellor Rishi Sunak promised £27 bn of new investment in strategic road projects over the next five years, plus £4.2 bn for urban transport for eight city regions. He also pledged £5.2 bn to shore up the nation’s defences against flooding. The National Infrastructure Commission believes this work could be speeded up.
In the now almost forgotten March budget, Chancellor Rishi Sunak, pictured, promised £27 bn of new investment in strategic road projects over the next five years, plus £4.2 bn for urban transport for eight city regions
The Government also needs to get full-square behind ultra-fast broadband rollout in the hardest to reach parts of the English regions and the devolved nations.
The value of super-fast communications has been made clear during lockdown.
The green agenda could also be ramped up using tax incentives to encourage private contractors.
The biggest immediate challenge is to stop huge numbers of the nine million people on furlough joining the dole queue. In the near term, one solution would be radical reductions in employers’ contribution to National Insurance, encouraging private sector firms to retain rather than shed staff.
Payroll tax reductions worked well for the U.S. after the 2008 financial crisis.
But if Boris intends to be the next Roosevelt, it won’t come cheap. And it will cause horror on the Right of his party, which views government interference in free markets as the real enemy of growth.
The greatest challenge for the Prime Minister, however, could come from the financial markets. If previously supportive overseas investors in the UK, such as Norway and the Gulf states, decide borrowing and debt are too high and withdraw their investments, our country will be staring into the abyss.
The phrase New Deal is an admirable concept. We can only hope the reality matches the rhetoric.
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