Boris Johnson on backfoot over Brexit and coronavirus

UK Finance Minister Rishi Sunak will deliver on Wednesday a Summer mini-budget outlining the government’s latest fiscal response to the coronavirus crisis. Sunak’s announcement is only the latest attempt by Boris Johnson’s team to go on the political offensive, post-pandemic, yet it remains on the backfoot not just over coronavirus, but also Brexit too.

Facing a polling slump and bleak national economic picture, Johnson’s latest attempt to reset the political landscape came last week when he outlined what he called a “New Deal” for the UK’s post-pandemic recovery. Yet, while his goal was channelling legendary former US President Franklin Roosevelt, Johnson’s vision was little more than a recycling of old announcements in what is a pale imitation of Roosevelt’s historic programme of spending after the 1930s Great Depression.

Johnson announced an acceleration of a number of previously pledged projects in a £5 billion investment plan. Welcome as these measures are, the speech was a hastily cobbled together address far flung from the soaring prose of many of Roosevelt’s addresses. The prime minister likes big, historical comparisons, and is a keen student of Winston Churchill, but the comparisons between what he announced and the New Deal are fanciful.

The prime minister may now...be boxed into a situation whereby delivering on Brexit...undermines his aspirations to boost prosperity in the least prosperous areas of the nation.

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For starters, the scale of spending Johnson announced is puny compared to the scale of the US New Deal, risking high public expectations Johnson can’t hope to meet. In part, this is because the New Deal ran over several years, with spending each year between about 5 per cent and 7 per cent of the total output of the economy with US federal government debt growing from 16 per centof GDP in 1929 to 44 per cent of GDP in 1939. Johnson’s £5 billion is less than a quarter of 1 per cent of GDP in comparison.

The measures are therefore far from what is probably required, economic stimulus-wise, to bolster the UK economy in the second half of the year and into 2021. Last week, the Bank of England’s Chief Economist Andy Haldane gave a separate speech at much the same time as Johnson’s highlighting that perhaps as much as half of the UK workforce is currently unemployed or underemployed, a situation he said is without historical precedent.

The prime minister is aware of the mismatch between his rhetoric and reality, but gave his speech anyway given further bad economic news on the horizon, his slumping poll ratings, and what he sees as the political imperative to try to move the country beyond the coronavirus outbreak. This despite the fact that, as he acknowledged in his speech, the pandemic “continues to circle like a shark” and last week the government announced the first localised lockdown in Leicester, an English Midlands town with a 300,000 population.

Boris already looking towards next election

This political reasoning behind Johnson’s speech is intensified by his desire to double down on his general election victory from December in which the Conservatives redrew, at least temporarily, the political map of the United Kingdom. This saw Johnson winning a number of previously long standing Labour strongholds, especially in the English Midlands and North, and it was no coincidence therefore that he gave last week’s speech from one of these seats in Dudley.

Johnson, who is already looking ahead to the next general election, probably in 2024, believes that the key to retaining many of these former Labour (so-called ‘red-wall’) seats is two-fold. Firstly, the government must deliver on what it calls the “levelling-up” agenda, including through new infrastructure spending, to reduce socio-economic inequalities across the nation. Expect this theme therefore also to be echoed on Wednesday by Sunak, and also in the Government’s Comprehensive Spending Review which will set levels of public spending for at least three years, and its Autumn annual budget in November.

The second piece in this political jigsaw for Johnson is that the United Kingdom must leave the transition period from its EU membership in December so that he can also be perceived to deliver too on his 2019 pledge to “get Brexit done”. So totemic is this issue for the prime minister that he is, now, unquestionably willing to leave the transition at the end of the year, even if no trade deal is agreed with Brussels and the EU-27 with the further economic damage this could bring.

So while at least an interim UK-EU deal (or potentially a set of sector-relevant deals) may still remain possible this year, there is a very significant chance of talks collapsing. While Johnson seems relaxed about this prospect, it could nonetheless have a devastating economic impact on the disadvantaged UK communities where the levelling up agenda is most important.

The prime minister may now therefore be boxed into a situation whereby delivering on Brexit, come what may, undermines his aspirations to boost prosperity in the least prosperous areas of the nation. Far from doubling down on the levelling up agenda, this could lead to the biggest spike in inequality since the 1980s undermining not just the nation’s social fabric, but also Johnson’s chances of a second term of office.

— Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics