Is Boris’s New Deal the real deal?
How quickly can the government pile-drive the economy into recovery?
Boris Johnson’s speech today in the West Midlands town of Dudley could not be faulted for its breadth. From the case for preserving the Act of Union to an (unexplained) solution to the problem of the affordability of long-term social care and the thorny question of why a country that has so many world-leading science and innovation entities nevertheless has yet to “end the chasm between invention and application” or bridge social and regional inequalities, the prime minister ranged widely if not deeply.
This was not about the detail of economic recovery – we are promised more about that from the Chancellor, Rishi Sunak, next week. It was not even about the new and improved hospitals which last December’s Tory manifesto promised as part of the £34 billion of extra funding – Matt Hancock is to share that draft list in the coming days.
Instead, the prime minister sought to emphasise, in the variation of the phrase he has been using in recent months, that “the times demand a government that is powerful and determined and that puts its arms around people at a time of crisis.” In describing his ambitions as “Rooseveltian” in reference to FDR’s “New Deal” measures to tackle the Great Depression in the United States, the prime minister avoided comparison to the more usual “Keynesian” reference point in British economics debate. He has duly been assailed from those on the Left who regard the £5 billion of commitments as proportionately trivial compared to Roosevelt’s stimulus, and by the Right who point out that the New Deal didn’t work: the American economy under Roosevelt in the 1930s recovered far more slowly than did, for instance, the British economy during the same years with the more cautious Stanley Baldwin and Neville Chamberlain as its guide.
For all his interest in the past, Boris Johnson is a politician before he is a historian and he knows that no amount of evidence that the New Deal was less successful than its reputation suggests has shifted public perceptions of its wisdom. Which is why he is happy to foster the comparison. These perceptions have been reinforced more recently by the 2008 financial crisis. “We will not be responding to this crisis with what people called austerity,” Johnson promised, “we are not going to try to cheese-pare our way out of trouble because the world has moved on since 2008.” Cheese-paring is a better description of George Osborne’s strategy than its major critics conjured-up at the time in their efforts to make “Tory austerity” a permanent stain on the party’s image. In 2007-08, public spending as a share of GDP was 39 percent. After nine years of austerity, it stood at 39 percent.
The £5 billion of building projects underpinning Johnson’s Dudley speech are certainly far from a repudiation of Osbornomics, let alone a crude defacement of what used to be called Gladstonian fiscal rectitude (later mistaken for Thatcherism). The sum corresponds to less than £100 per person in the UK.
But interpreting this figure as the totality of the post-Covid-19 stimulus is reductive to the point of mischief. The real extent of the stimulus was foreseen in the early stages of the Coronavirus crisis in Rishi Sunak’s budget when he unveiled over £600 billion of infrastructure and innovation spending on roads, railways, housing, broadband and research – the largest boost to public investment since readily comparable data commenced in 1955. The question posed by the prime minister is how quickly this five-year investment cycle can be front-loaded to address immediate post-lockdown requirements.
Why does UK public procurement take 50 per cent longer than in Germany?
In his Dudley speech, Johnson identified the bottlenecks of Britain’s planning processes as the problem. “Why does UK public procurement take 50 per cent longer than in Germany? Why are UK capital costs typically between 10 and 30 percent higher than other European projects? Why is HS2 – transformational though it will be – going to cost us the equivalent of the GDP of Sri Lanka?” he asked in order to answer, “because time is money, and the newt-counting delays in our system are a massive drag on the productivity and the prosperity of this country.” Thus, much will ride on the ability of the Infrastructure Delivery Taskforce (aka Project Speed) under Sunak’s direction to cut delivery times by fast-tracking major projects. This is easier to announce than to achieve.
Unfortunately, the crisis will break long before the blockages are removed (if, indeed, they can be). The last month for which comparable figures are yet available is April – before the full force of the Lockdown was manifest – when 3.9 percent of the British workforce were unemployed. This compared favourably with a Eurozone average of 7.3 percent and enviably to the 13.3 percent in the United States. The reality of how the Covid-19 Lockdown has devastated the labour market will not be known until the autumn when the furlough scheme is wound down. But GDP has shrunk by a fifth. Half the workforce are currently estimated to be either unemployed or under-employed with retail, food and beverage/hospitality sectors the hardest hit. These are mostly lower-skilled roles and unless there is a rapid return after 4 July to something approaching normality (for many, highly unlikely) the jobless numbers will greatly exceed the 3 million of the early 1980s.
If the return on investment for large infrastructure projects was high and rapid then the private sector would be doing it. Much of what the government’s massive investment splurge will construct has economic benefits that become clear cut only in the longer term – sometimes the very long term. There will be jobs created by this investment, meanwhile. But there is not a switch that instantly turns waitresses into construction site workers. Whatever the long term social and economic benefits will accrue from the government’s intention to pile-drive the economy out of recession, it is not going to rescue most of those about to find themselves in the greatest need in the coming months.
there is not a switch that instantly turns waitresses into construction site workers
Meanwhile, for young people there is to be guaranteed apprenticeships or in-work placements. This is action, but not necessarily transformative. As Len Shackleton, a research fellow at the Institute of Economic Affairs (IEA) sees it, “history suggests that governments are rarely successful in promoting high-quality apprenticeships; for example, the apprenticeship levy under Mrs May actually led to a fall in the number of apprenticeships available, very few of which were degree-equivalent. If the UK labour market is to recover quickly, the government needs to concentrate on relieving employers of burdensome taxes and employment regulation, rather than trying to manipulate their training policies in a direction that policy-makers think best.”
Yet, as Edward VIII, once put it, “something should be done.” The Johnson government does not intend to be dismissed as a do-nothing administration when faced with what – in absolute if not relative terms – is likely to be the longest dole queue in British history. Tony Blair impressed many with his promise that his priority was “education, education, education.” With echoing emphasis, the motto on Boris Johnson’s lectern was “build, build, build.”
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