How Dishy Rishi had his big opportunity — and squandered it
Rishi Sunak (Shutterstock)
In his spending review, Rishi Sunak correctly identified a once-in-a-generation opportunity to reboot the economic vision for the UK. He then went on to squander that opportunity. The Chancellor needed to announce a massive investment programme, the like of which we have never seen.
This country simply cannot cut its way out of the oncoming recession the way it did a decade ago. The UK is still reeling from the impact of that austerity programme: the fact we have food banks operating at scale, all over the country, is a national disgrace. To impose more misery on the British people is morally incomprehensible.
The economic firestorm which followed the banking crisis of 2008 hit the UK economy harder than nearly every other country in the developed world. If we were to take a Keynesian attitude to digging our way out of that recession, we would have pushed our debt-to-GDP ratio completely out of kilter with other developed nations. This would have made the UK’s ability to borrow both harder and more expensive. All nations are now borrowing at unprecedented levels, so this is no longer a concern. We should, however, be borrowing early and on a large scale to ensure the best terms.
The ambition to keep public spending under control in the aftermath of the banking crisis was successful in purely economic terms. This meant that the pre-pandemic UK had a national debt-to-GDP ratio which was distinctly midtable, at around 87 per cent. For comparison, Japan has an eyewatering 236 per cent ratio, by far the highest in the world. Greece has the worst figures in the EU at 182 per cent. France has a ratio of 96 per cent with those fiscally prudent Germans coming in at an impressive 60 per cent. What these figures show is that the UK can borrow because of that harsh medicine handed out from 2010 onwards; not to take advantage of this would be a mistake.
The Obama administration’s Keynesian economic policy in the aftermath of the banking crisis gives us a clue as to what we should be doing now. In 2009 Obama constructed a $787 billion fiscal package (which ended up costing $831 billion) called the American Recovery and Reinvestment Act (ARRA). A major survey of economists by the IGM forum in 2014 found 56 per cent of those interviewed agreed that benefits of the stimulus ended up exceeding its costs. Only 5 per cent disagreed, with the rest unsure. In the world of economics this is pretty clear evidence that the fiscal stimulus was a resounding success. As the UK tries to rebuild its post-pandemic, post-Brexit economy we should ape this Keynesian strategy; not to fly against the choices and sacrifices made in 2010, but to take advantage of them.
The UK treasury needs to be thinking about borrowing similar amounts, on a per capita basis comparable to Roosevelt’s New Deal. With the amount the Chancellor has already put into the economy so far this year, the figure should be around £182 billion which should be injected into the economy through a combination of tax cuts and capital investment projects.
This headline figure should have been accompanied with broad plans on how to spend the sum. This would consist of around 30 per cent in personal tax cuts for lower and middle earners, 5 per cent in corporation tax cuts for small and medium sized businesses, with the rest injected into public spending programmes. The Chancellor would then have the opportunity to announce the headline figure of £118 billion in capital investment and £63 billion in tax cuts.
Such a plan should have included the decision to create three special departments. One to oversee this programme of investment: both to create the plan of spending and tax cuts but also to guard against the cronyism, corruption or waste which inevitably come with spending. The Chancellor should have also set up a commission to modernise the economy. For example, there should be a plan for the UK to become the first major cashless economy and push forward with the free ports project in double quick time. Lastly, there should be a group to coordinate and identify long-term strategies on how to pay back the borrowing over a specified time period.
In all, this was a massive opportunity lost. We did get some of the shiny new baubles and trinkets which Boris is fixated on: similar to a kitten with a ball of wool. We got some eloquent flourishes from a Chancellor, who is developing into a confident performer at the dispatch box. We even got some ghosts in the form of cuts; muscle memory built up during the Cameron-Osborne era. What we needed was the working and the thinking behind what’s going to power the UK’s post-pandemic, post-Brexit future. We needed some brave new thinking from within the bowels of No 11 and the Treasury. We got none of this. What a squandered opportunity for the Government to set the UK on a new trajectory — and for Rishi to dish his critics on both sides of the House.
A Message from TheArticle
We are the only publication that’s committed to covering every angle. We have an important contribution to make, one that’s needed now more than ever, and we need your help to continue publishing throughout the pandemic. So please, make a donation.
