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Johnson vows 'new deal' to rebuild Britain after virus

Jun 30. 2020
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By Syndication The Washington Post, Bloomberg · Alex Morales, Tim Ross 

Prime Minister Boris Johnson is setting out his vision for dragging the U.K. economy out of what may be its deepest recession in 300 years, with a program to spend billions of pounds on infrastructure to build back to prosperity.

In a major speech on Tuesday, the U.K. prime minister confirmed his commitment to long-term investment in some of the country's most deprived regions, arguing that balancing the books must wait until recovery is secure.

Reprising spending pledges he made before December's general election, Johnson's office announced the acceleration of $6.2 billion (5 billion pounds) of investment in roads, schools and hospitals and promised to publish a strategy for further capital spending in the fall.

"We cannot continue simply to be prisoners of this crisis," Johnson said in a speech in Dudley, central England on Tuesday. "We must work fast because we have already seen the vertiginous drop in GDP and we know that people are worried about their jobs and their businesses."

The prime minister said he will not repeat the austerity policies his party imposed after the 2008 financial crisis. "We are not going to cheese pare our way out of trouble," he said.

He is comparing his program to President Franklin Delano Roosevelt's "New Deal," which used government spending to help the U.S. out of the Great Depression in the 1930s.

Johnson is trying to borrow some of Roosevelt's optimism but his program is falling short of the original in economic terms. Total spending over the course of the New Deal was about 40% of U.S. output in 1929, according to the St Louis Fed. The 5 billion pounds outlined by Johnson so far is a little more than 0.2% of the U.K. GDP in 2019 -- albeit over a shorter time-frame.

Johnson won a commanding 80-seat Parliamentary majority by promising to "level-up" left behind parts of the U.K. with spending on infrastructure and skills. But his plans were blown off course as ministers battled the pandemic, which has killed 43,575 people and plunged the economy into recession.

There was a reminder Monday that the U.K.'s path out of the crisis won't necessarily be smooth when Leicester, a city in the English midlands, reimposed recently eased lockdown restrictions and closed schools and nonessential shops after a spike in cases.

As lockdown restrictions are lifted elsewhere, Johnson is seeking to regain the initiative and deliver on his election pledges as the centerpiece of his plans for the economic recovery.

He is prepared to increase borrowing to make it happen. In a briefing note about the speech, Johnson's office said decisions over increasing taxes or cutting services to pay for the debt will have to wait.

"While in the long-term the government must set a path to balance the books, the prime minister is clear that we will not do so at the expense of investing now in the productive potential of the economy, or at the expense of the resilience of the U.K.'s public services," it said.

With debt higher than GDP for the first time since 1963, Chancellor of the Exchequer Rishi Sunak will "provide an update" on the economy next week. The announcement dismayed the opposition Labour Party, which wants a full redrawing of the budget to focus on employment.

"Unemployment has climbed to its highest level in a generation, and our country is suffering the worst economic hit of all industrialized nations." Anneliese Dodds, Labour's economy spokeswoman said in a statement. "Instead of the Back-to-Work Budget our country needs focusing on one thing -- jobs, jobs, jobs -- the Chancellor will only be providing an 'update' on the economy."

The 5 billion pounds Johnson will allocate to hospital maintenance, school repairs and road improvements on Tuesday is not new money and is a fraction of the infrastructure spending announced in March.

Then, Sunak committed to increase total infrastructure spending across the next five years by 100 billion pounds to a total of 600 billion pounds. While much of that investment was designed to help reduce the U.K.'s long-standing regional inequalities in growth and productivity, there are questions over whether such spending is the best way to stimulate the economy's recovery from coronavirus.

"Infrastructure spending can get the biggest bang for the buck over the longer term, if projects are chosen carefully and boost productivity, but it is hard to find a large number of worthwhile shovel-ready projects that can boost demand quickly in the short term," Julian Jessop, economics fellow at the IEA, said in an email Monday. "There is also a risk that the government simply takes jobs away from other priority areas, such as house building."

A delayed National Infrastructure Strategy, which was originally scheduled for March, will be published in the fall, Johnson's office said. The document will outline plans for "core" services including roads, energy networks, rail, flood defenses and waste.

The economic impact of restrictions to control the virus has been unprecedented, shrinking the economy by 20% in April alone and leaving officials fretting over the long-term scarring effects of what could be the deepest recession in more than 300 years.

While the government's furloughing plan has ensured the U.K. has so far avoided a wave of unemployment, data suggest the labor market is also weakening, and opposition parties have warned joblessness could soar to levels not seen since the 1980s unless support is extended beyond its scheduled end in October.

The British Chambers of Commerce welcomed Johnson's infrastructure spending plans, though said he will need to move fast to achieve his goals.

"The infrastructure delivery plans announced by the prime minister are welcome, but they must take shape on the ground swiftly to give a real confidence boost," BCC Director General Adam Marshall said in a statement. "In his first inaugural speech, Franklin Delano Roosevelt said, 'We must act, and act quickly.' The same holds true in Britain today."

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