27 August 2019 by Kirsty-Anne Jasper
With Brexit dominating headlines, we look at what else the UK’s incumbent Prime Minister has to offer
The period following a change of Prime Minister is always an interesting one, where one pauses to see if pre-election promises are kept and waits for the first flurries of optimism and hope to give way to practicalities and inevitable disappointment.
In the case of Alexander Boris de Pfeffel Johnson, the latest Prime Minister of the United Kingdom, there was no general election preceding his appointment and debate about his suitability as this country’s leader seems to have been primarily focused on only two issues: Brexit and Johnson’s rather colourful personal life. But surely there must be more to the man who has risen to the top after holding (and being sacked from) some of Britain’s highest positions?
With the future of the UK’s economy in doubt, we look at how Boris Johnson plans to ensure fiscal stability in turbulent times.
Johnson kicked off his campaign to win the Conservative leadership contest by pledging to be “the most pro-business prime minister in history” at a private gathering of industry leaders, stating that he recognises that commerce and trade are vital to a thriving economy and promising that “we will make decisions and get stuff done”.
Johnson has pre-empted a possible post-Brexit downturn and seems keen to ensure that the UK’s economy is in good shape prior to the expected Halloween exit from the European Union. He’s stated that he intends to put “rocket boosters” under the economy by pumping money in and propelling growth in preparation for the 31st October leave date.
Johnson’s list of promises is bold and impressive with tax cuts for both high and low earners, extra funds to recruit police officers, a hospital-building programme, a new railway line to link northern cities, a £3.6bn fund for deprived towns, a plan to fix the crisis in social care and a reversal of cuts to schools’ funding. Additionally the new chancellor, Sajid Javid, has ring-fenced an extra £2.1bn to accelerate planning for a no-deal Brexit.
Although Johnson’s ambition is clear to see, he appears to be less transparent about how he intends to actually fund these policies.
Philip Hammond, the outgoing Chancellor, has left his successor some room for manoeuvre with the Office for Budget Responsibility’s (OBR) March forecasts suggesting that he could borrow a further £27bn and still meet the fiscal mandate to keep the deficit within 2% of GDP in 2020/21.
In July the OBR said that over the medium term, extra borrowing of £25bn a year was compatible with a second fiscal target: to keep debt falling as a share of gross domestic product. However, the third objective, to return the public finances to balance, already looks unrealistic, even under Mr Hammond’s plans.
What seems painfully clear from looking at the above list of promises is that Johnson and Javid’s ambitions far exceed £27bn. The Institute for Fiscal Studies estimates that the tax cuts promised for high earners and a higher threshold for National Insurance contributions could alone cost some £20bn a year.
Even if funding for these plans can be found through this borrowing to ease austerity or alternatively by boosting productivity through infrastructure investment, it remains to be seen if these strategies would be of benefit to the UK.
Economists have argued that a Trump- style demand-side stimulus focused on tax cuts may in fact actually provide little in the way of growth. Instead, they warn that inflation may simply be fuelled, whilst problems for public finances mount up. As Kallum Pickering, economist at the investment bank Berenberg states: “while markets may respond well to the initial sugar high of fiscal easing, the risks are not worth it”.
The need to secure the economy prior to Brexit, particularly in a no-deal scenario, is obvious for all to see (the OBR estimates that leaving the bloc without a deal would deliver a £30bn hit to the public finances, wiping out the government’s headroom against its fiscal targets), but less than two months is a worryingly short space of time in which to achieve significant changes, particularly when the parliamentary summer recess is factored in.
As Paul Dales from Capital Economics told the Financial Times “what you can realistically achieve by October is almost nothing”.
These fears were echoed by Bank of England governor, Mark Carney, who stated: “It is very difficult to restructure an economy in six weeks, in terms of changing supply chains, retraining workers, shutting down plants that are no longer economic.
The government’s no-deal planning was focused on short-term problems with logistics, but the economics of no deal are that the rules of the game…fundamentally change”.
Of course, what may happen come October is still open to wide speculation, with opposition MPs and a handful of Conservatives said to be considering a plan to vote against Johnson in a no-confidence vote this autumn, in a move designed to collapse his government and prevent a no-deal Brexit.
This plan has even gone as far as Dominic Grieve, the Conservative MP and former attorney general, stating that he would expect the Humble Address to be implemented, an archaic parliamentary mechanism which would involve Parliament asking the Queen to write to Johnson and remove him from office, if he lost a vote.
One thing that is clear, regardless of what the future may bring, is that Johnson’s ability to adequately protect the UK’s economy is a pressing concern, particularly with the current lack of a detailed plan and his often flippant approach to criticism. Our economy is after all in the hands of the man who once said “to the people who say f**k business, I say f**k f**k business”.