It’s not a big surprise that Boris won the UK election. He told staunch Brexiteers that we’d be out by the end of January, whilst promising those left behind by years of austerity that he’d fix it all up with increased spending in health, education and policing. In short, loads more public sector jobs.
Meanwhile, those predicting a downturn in the economy from Brexit have been sidelined. Reaminers were wrong, Brexiteers were right, get over it. After all, the pound enjoyed a bounce when Boris won the popular vote and Brexit was back on track. Admittedly, it lost all of those gains and some when the fear of a no-deal Brexit re-emerged, but let’s ignore that for now.
In all likelihood, it will be some time before the pound sees the levels it enjoyed before the referendum. Today the pound is worth around US$1.30. The best it’s been since the Brexit vote was US$1.40. Before the referendum it was up over US$1.50.
But a devalued Sterling will be good post-Brexit, if the aim is to reindustrialise the UK. We need to sell stuff, and if we do end up being tariffed on goods entering Europe, a lower pound will offset those costs.
And we do need to reindustrialise. The UK has a £30 billion annual balance of trade deficit. It would be worse if it wasn’t for our service sector, including the lucrative finance industry. If we look at goods only we have a £140 billion deficit – and its widening. Every adult in the country is spending £10,000 a year on goods bought overseas, much of it from the EU.
It stands to reason then, that if we are going it alone, we need to up our domestic production and consume goods made here. Yet strangely, Boris has spoken very little about that. His promises relate to public sector jobs, not investments in infrastructure or rebuilding our industrial heartland.
Yet there’s never been a better time, or a more important time, to pump-prime the economy. Business investment has been in decline the last few years and retail spending is growing at just one percent a year. The economy is stagnant. We’re not alone in this. In many parts of the world central banks have been lowering interest rates in the hope of boosting spending. Yet the jury’s out on whether going even lower will have much impact. The Bank of England could cut rates again, to 0.5 percent, but businesses won’t invest if they don’t see growth. Banks won’t want to lend if the risk is too high, particularly when rates are so low.
The only answer, it seems, is government stimulus. Right now they can borrow for 50 years and make interest repayments of just 1.2 percent per year. That’s a very small price to pay to give the economy the shot in the arm it needs, to act as a cushion against the short term impact of Brexit and to rebuild a sustainable industrial base in the UK.
Sadly, that’s not going to happen. Like many, I was pleased to see Sajid Javid say in early September that the Conservative government was “turning the page on austerity and beginning a new decade of renewal”. Now we’re talking.
Except, that’s not what’s going to happen. In his Spending Round in September Javid announced plans to increase government spending by 2.4 percent over the next two years. We’ll go from government spending amounting to 38.1 percent of GDP, to 38.6% in a couple of years[i]. In much of Scandinavia public spending is about 50 percent of GDP.
Still, a 2.4 percent increase in government spending is clearly all it takes to shift out of austerity into the prosperous sunny uplands of a Boris Britain.It’s all that’s needed to increase school funding, give a £4 billion cash injection to the NHS, cut national insurance contributions and lay out new post-Brexit schemes for trade, farming, fishing and the environment.
A 2.4 percent increase in government spending will provide opportunity for workers in those new Tory seats across the north of England. 2.4 percent will bring an end to our stagnant economy, lift wages and provide a brighter future for all of us. Unless, of course, Boris’ bravado has over-delivered on the promise. But surely not. When has Boris been shown to lie about anything.