Money

Johnson plans ‘boosterism’ to ease Brexit pain


Boris Johnson arrived in Downing Street declaring that “there is cash available” and that he is ready to spend it. In the coming weeks and months, the new prime minister will embark on a new economic strategy known in Number 10 as “boosterism”.

Mr Johnson has already announced a plan to recruit 20,000 new police officers and within days he will promise to build new hospitals across the country. A multibillion-pound plan to fix Britain’s rotten social care system is expected in the autumn.

The prime minister has promised a new railway line between Manchester and Leeds, while chancellor Sajid Javid will this week set out plans to spend hundreds of millions of pounds more on preparing Britain for a no-deal Brexit.

“Boosterism is a cool word, I think it will stick,” said one ally of Mr Johnson, saying that the prime minister wanted to put “rocket boosters” under the economy by finally ending a decade of austerity and preparing for Brexit.

In its usual American usage, “boosterism” means talking up a city or region. Mr Johnson hopes that by pumping money into an economy teetering on the edge of recession and gripped by Brexit trauma, he can transform its prospects.

Mr Javid, who shares Mr Johnson’s enthusiasm for long-term investment to boost the country’s productive potential, is expected to pull the new strategy together in an autumn Budget and what is expected to be a one-year review of public spending.

Dominic Cummings, Mr Johnson’s adviser, is reported to have told special advisers to expect a Budget in the week starting October 7 — a date likely to be at the height of Brexit uncertainty — but Treasury insiders insist no date is set.

The new economic plan is only now taking shape, but Mr Johnson is clear it involves spending the £26.6bn “fiscal headroom” built up by former chancellor Philip Hammond to cushion the impact of a no-deal exit — an outcome that is still a real possibility.

However, this headroom is simply another way of saying higher borrowing: it is the Office for Budget Responsibility’s estimate of the extra amount the government could borrow while meeting its fiscal mandate to keep the deficit within 2 per cent of GDP.

The fiscal watchdog has underlined that any new spending or tax cuts would still leave borrowing and debt higher than in its last forecasts, and that “there is no war chest or pot of money set aside that would make them a free lunch”. Headroom against the 2020/21 borrowing target “does not provide an anchor for medium-term tax and spending decisions”, it warned earlier this month.

Costings by fiscal experts suggest that the tax cuts and extra spending Mr Johnson promised on the campaign trail would already wipe out this nominal headroom. In order to fund the new measures he has announced since taking office he would need to raise taxes, or rewrite the fiscal rules to accommodate an increase in borrowing.

Moreover, the OBR’s forecasts are premised on a smooth Brexit: it estimates that the economic shock that would follow a no-deal outcome — even with only short-term disruption — would add about £30bn a year to borrowing from 2020-21 onwards.

Asked whether the new administration was bound by the fiscal promises made at the 2017 election, Mr Johnson’s official spokesperson told reporters: “It’s a new government and those rules will be looked at. It will be under review.”

Nick Macpherson, permanent secretary of the Treasury from 2005-2016, said he feared that if Mr Johnson started to make big unfunded spending promises it risked adding an “incoherent macroeconomic strategy” to a chaotic Brexit strategy.

“The risk is the depreciation of the pound turns into a rout,” he said, arguing that Britain — unlike the US — was a very open economy which did not have a reserve currency. “People don’t have to hold sterling,” he said.

Lord Macpherson said a falling pound would have a “damaging effect” on living standards and that previous experience suggested it would not have much impact on helping to boost exports.

With an election likely within the next year, the former Treasury official said the prospects for irresponsible spending commitments were rising. “Just being clear you have a plan to fund spending commitments would help,” he said.



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