Boris Johnson’s 'New Deal for Britain' speech: four key questions

Boris Johnson’s speech this morning, Tuesday 30 June, made several bold and grandiose statements. He promised a “New Deal” programme that would “build back greener… doubling down on levelling up [to] unleash the potential of the whole UK”.

The speech emphasised the importance of this moment – in the middle of the Covid crisis – for economic policy to step up, and quickly. But while the rhetoric was grand, the substance of the speech left several questions unanswered about what policies will actually be pursued, and what difference they will make.

1. Can the government spend money on infrastructure investment quickly enough?

The prime minister was keen to emphasise the importance of speed to the investment policies he was announcing – even naming the new infrastructure taskforce ‘Project Speed’.

This is not the first time a government has sought to use capital spending to boost demand after a slump, and try at the same time to improve the way the economy works. But experience of the funds set up in the wake of the 2007/08 financial crisis and ensuing recession suggest they might struggle to do both well. For example, the Regional Growth Fund, first announced in 2010, had £2.6bn of funds allocated to projects; by 2014 less than £500m had actually been spent.

Even though the set of policies announced today was relatively small, amounting to around £5bn out of a capital budget of over £70bn, some of the projects advertised as “shovel ready” will not actually get underway for some time: the new schools-building programme, for example, will not start until September 2021. This is not a new problem. Previous IfG research has shown that Whitehall has historically struggled to get capital spending out of the door as quickly as hoped. Tellingly, many of the projects announced as being “fast-tracked” today – such as those on hospitals and digital court infrastructure – are in fact re-announcements of previous, incomplete projects.

None of this means that infrastructure investment is a bad idea, or that the projects announced today won’t pay dividends in the long run. But it does suggest that Project Speed is, despite its name, unlikely to be an effective rapid response mechanism for the current economic crisis.

2. What is the government’s plan for stimulating the recovery?

Johnson’s infrastructure announcements, in particular, are targeted at boosting the UK’s long-term productivity. But the more immediate ‘recovery’ phase of the Covid crisis is likely to need a different set of economic policies to stimulate it. Other countries, such as Germany and France, have already announced stimulus policies: the speech today did not do that. 

Instead, the prime minister pointed to the chancellor’s speech next week, promising that the immediate plan to support the economy through the recovery phase would be set out then. Despite this being billed as the prime minister’s big speech on the economy, then, we are left waiting for another week, and for another minister, for answers to arguably the most pressing economic concerns. 

3. How much difference will these plans really make to jobs?

With the government having subsidised the wages of some nine million employees, and replaced the income of two million self-employed people, through the coronavirus shutdown, it is no surprise that jobs are a major concern for the government as the economy reopens. But little was offered about how the government plans to support jobs.

The only new policy specifically targeted at creating employment was the announcement of a scheme to guarantee work to those entering the labour force. And while extra public spending on infrastructure will create some jobs, the construction sector makes up only 6% of the UK economy[i] and 7% of UK employment[ii] – even an expansion of construction activity larger than that announced today could not support that many additional jobs. Furthermore, workers currently in sectors that seem most precarious – hospitality, leisure, tourism and retail – are unlikely to have the skills to easily take up new jobs in construction.

4. Is the government really interested in “Rooseveltian” monetary experimentation?

Ahead of billing, Johnson’s speech was trailed as being “Rooseveltian”, and Johnson described his package as a “New Deal” – the name of the extensive programme of public works that President Franklin Delanor Roosevelt instigated from his inauguration in 1933 to help the US out of the Great Depression. This is ambitious: FDR’s New Deal is estimated to have amounted to a gigantic 40% of pre-slump GDP[iii] – much more than the less than 1% of GDP that Johnson’s announcements today amount to.

The prime minister should also remember that FDR began his term with a significant spell of monetary experimentation, most notably by leaving the gold standard and in so doing devaluing the dollar, allowing an immediate end to the deflation that had plagued the US economy for the previous four years. 

But while calls for monetary experimentation are growing – led by former chancellor Sajid Javid, who has written in favour of a shift towards a nominal GDP target designed to make up for the ground lost since February 2020 – it is not clear if Johnson has any such dramatic experimentation in mind.

Such bold moves are not unheard of in the modern era. Gordon Brown’s 1997 decision to grant the Bank of England independence in pursuit of an inflation target is regarded as a great achievement of New Labour, and is now a pillar of UK economy orthodoxy. This is a government unafraid of challenging orthodoxy – will it attempt something similarly bold?