Boris Johnson's spending spree vs the New Deal

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Boris Johnson's spending spree vs the New Deal

Prime minister Boris Johnson has announced a package of government spending to help boost the economy in the wake of the coronavirus pandemic.

Comparing his £5billion in infrastructure spending to the New Deal introduced by US president Franklin Delano Roosevelt in the 1930s to tackle the Great Depression, Johnson hopes the funding will help shore up jobs and get the economy moving forward again.

The prime minister said he wanted a government which “puts its arms around people at a time of crisis” that will “build, build, build” its way out of the pandemic induced slump.

Critics of the prime minister have argued that he is trying to dress up a relatively small and thinly spread spending package as a national renewal when it is nowhere close.

They also warn there isn’t much new money included in Johnson’s “new deal”, making it a repackaging of old spending promises.

Is Boris Johnson offering Britain a new deal to pave the way for economic recovery after the coronavirus, or is the prime minister writing cheques his treasury can’t cash?

The Claim

The government’s £5bn worth of spending will go towards hospitals, roads, railways, courts, schools, high streets and prisons, reports The Times .

Many of the projects due to receive funding are expected to be “shovel ready” where work can begin as soon as possible. The government wants the impact of its spending to be felt as soon as possible.

There will also be retraining offered to people who have lost their jobs during the pandemic, with Johnson describing his policies as “positively Rooseveltian”.

Thousands lost their jobs around the time the lockdown was introduced in March, others have been laid off over the course of the pandemic and there are fears that many people’s jobs are only preserved due to the furlough scheme, meaning they will become unemployed when it gets rolled up at the end of October.

The Resolution Foundation has warned that the UK needs the biggest jobs creation programme in peacetime to ensure people losing their jobs due to coronavirus have a chance of returning to employment.

The prime minister hopes his spending will not only help the UK bounce back from the economic impact of the coronavirus but also help the country “bounce forward”. He said the coronavirus had been a “nightmare” for Britain but insisted there was the “opportunity” for change with more investments on infrastructure.

Britain faces a long and painful path of economic recovery, if more government spending can help create jobs, protect others and get projects across the country going again then it will surely help.

The Counter Claim

However, Johnson’s claims that he is emulating Roosevelt and his New Deal have been criticised as “absolutely fanciful” .

The £5bn in funding is not new money being promised, it is merely an acceleration of a portion of the £600 billion worth of spending promises made by chancellor of the exchequer Rishi Sunak due to be spent between now and 2025.

If much of the spending announced by the prime minister is not new then the government is taking spending promises it has already made and is moving them forward, not exactly a new deal.

Paul Johnson, head of the Institute for Fiscal Studies, said the prime minister’s speech announcing his not-so-new spending package showed “the usual clash between hyperbole and reality” .

He said £5bn worth of spending was “a relatively small number in any terms” but welcomed the government bringing forward parts of their plans, saying he had a “lot of sympathy with the policy” while lamenting “the rhetoric that’s overblown”.

Business leaders have been sceptical about the benefits Johnson’s investment package might bring. They welcomed the idea that funding would target smaller local projects but questioned how many “shovel ready” schemes actually existed .

Bringing forward £5bn in spending is no bad thing for an economy which has been severely damaged by coronavirus but if it’s not new money and in relative terms it’s not that much money then perhaps the prime minister shouldn’t be trying to sell it as a new deal or a national economic revival.

The Facts

The £5bn investment includes £1.5 billion for hospital maintenance and over £1 billion for building schools .

There will be £900m for “shovel ready” projects in England due to start in 2020 and 2021 and £100m for 29 road projects. £83 million will be spent on the maintenance of prisons and youth offender facilities, with a further £60m for temporary prison places.

Each area in the Stronger Towns fund will receive between £500,000 and £1m to be spent on improving parks, high streets and transport networks.

The prime minister’s spending announcements total up to about 0.2 per cent of the UK’s pre-coronavirus GDP, Roosevelt’s New Deal between 1933 and 1939 amounted to about 40 per cent of the US pre-Great Depression GDP.

In terms of scale Johnson’s new deal is about 200 times smaller than Roosevelt’s and even if it does boost infrastructure spending it will struggle to make up for years of British underinvestment.

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The average advanced economy spends 3.4 per cent of GDP on government investments, the UK lags around 0.5 per cent behind that.

The UK economy has been ravaged by the pandemic as GDP fell by 6.9 per cent in March and 20.4 per cent in April . The economy is down by about a quarter overall due to the coronavirus and hopes of a quick bounce back have been played down.

Another part of the government’s new deal concerns an overhaul to planning regulations in an attempt to boost housebuilding.

There will be a specific focus on redeveloping properties which are on brownfield sites, meaning vacant shops and “redundant” houses can be demolished and rebuilt as new homes without a need for planning permission.

The changes to planning are expected to come into effect in September and could significantly alter the face of the high street. We might soon see more homes on the high street, particularly in areas where shops have struggled to stay open.

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