Boris Johnson has announced – or rather, re-announced – a slew of infrastructure plans and a number of regulatory tweaks aimed at helping the United Kingdom recover from the coronavirus recession.
The loudest criticism of this announcement is that the new money is in fact old money – these aren’t new spending commitments, they are simply spending announcements planned for the next 15 years being brought forward a bit – and that the actual amount of money, old or new, is relatively small in the grand scheme of things.
I think that’s misplaced, to be frank: for fiscal stimulus to work, it doesn’t have to be spending you weren’t going to do at some point – it just has be extra spending at the point in time the economy needs a boost. And because the problem with our economy is not one that necessarily requires a major fiscal stimulus, a comparatively meagre one may be more than sufficient.
The actual problem is twofold: it’s not clear that this is a recession requiring traditional fiscal stimulus; and infrastructure commitments, particularly big and flashy ones that require planning permission, construction of temporary classrooms and so on, take a while to come onstream in any case.
To take that first point: the coronavirus recession hasn’t been caused by an underlying weakness in our economy or the global economy. I’m not saying there aren’t underlying weaknesses in the British or global economies, but that in this case, the recession hasn’t been triggered by them.
This is a recession triggered by the shock to demand as households have reduced their social contacts and discretionary spending, whether voluntarily in countries such as Japan and Sweden, which eschewed formal lockdowns, by government restrictions in countries such as New Zealand and Australia, which locked down early, or through a combination of personal action and government fiat in countries such as the UK and the US, where citizens began to reduce their social contacts in late February and early March, before being joined by their governments.
The biggest economic stimulus will be for people to be able to return to work as normal. While that remains impossible, the economic picture will be dominated by job losses, illustrated this morning by the looming redundancies at SSP Group, the owner of the transport café chains Upper Crust and Caffè Ritazza.
That such a date is a way off may mean that this is a recession in which slow-to-start infrastructure projects are more helpful than they otherwise would be. In reality, the infrastructure projects being announced are not going to start to have economic effects until 2021 – which may be the more appropriate time for stimulus in any case. But if the government is looking for immediate stimulus, the sensible policy can be found in its 2019 manifesto: £9.2bn to insulate British homes and make them more energy efficient. This is an off-the-shelf stimulus to the UK’s building industries that can start almost as soon as the money is made available.
The biggest economic decision the government made yesterday wasn’t in Johnson’s speech, however, or in any government document. It was the decision not to seek an extension to the transition period. The legal date to extend has now passed, and that means, with a deal or without one, the United Kingdom will be out of the regulatory and customs orbit of the European Union by 1 January. This may have a far bigger consequence for the UK’s economic recovery than any of the infrastructure decisions made yesterday.