What is Boris Johnson’s plan for the economy?
Think tank says it would take prime minister two full terms to fulfil election pledge to ‘level-up’ the UK
The government looks set to miss its target to boost growth and “level up” economic opportunity across the UK during this parliament, an influential think-tank has warned.
The Chancellor, Sajid Javid, last month vowed to double the UK’s annual growth rate to 2.75%, despite risking tariffs and other trade barriers by insisting there would be “no alignment” with EU regulations after Brexit.
He is expected to use first Budget in March to unveil a £20bn-a-year boost for roads, rail, broadband and other infrastructure, with the dual aims of kick-starting growth and “levelling up” the country’s poorer regions, as the Prime Minister Boris Johnson has it.
But in what The Independent describes as “a set of gloomy predictions,” the National Institute for Economic and Social Research, Britain’s oldest think tank, warns the investment boost will take more than a decade to produce an annual GDP gain of only around 0.4%, compared with an estimated 3-4% drop in GDP in the event of a hard Brexit.
So what exactly is Johnson’s economic vision for the UK?
On 11 March, Javid is expected to announce an increase in investment in the UK’s neglected regions with a post-election Budget, which The Independent says will include “new looser spending rules – to exploit rock-bottom interest rates – are expected to allow a £100bn boost for roads, rail, broadband and other infrastructure over the next five years”.
The paper adds that Javid is “expected to go further to direct that investment to areas of the north and midlands that voted Conservative at the election for the first time, by ripping up a longstanding barrier”.
Officials are drawing up new guidance to reflect that – with the Treasury able to borrow at 0.8% and inflation at 1.5% – it is effectively being paid to borrow, at a negative real-terms rate.
Javid said: “In the past, the Treasury or government models have understandably looked for the highest return.
“And a lot of that pushed you towards London and the southeast – the number of people living there, the amount of economic activity and so forth.”
The Telegraph reports that improving Britain’s digital connectivity would be a boon for productivity, and that HS2 and Heathrow airport expansion are also areas in which businesses are seeking certainty.
Javid has also confirmed that the government will raise the threshold for National Insurance contributions (Nics) from April, adding that state pension credits would not be affected.
The government says the threshold at which people start paying Nics will be raised by more than 10% to £9,500, and that the rates of income tax, national insurance and VAT will not rise, and the government aims to eventually raise the national insurance thresholds to £12,500, putting “almost £500 a year into people’s pockets” the Financial Times says.
“All the other thresholds for 2020/21 will rise with inflation, except for the upper Nics thresholds which will remain frozen at £50,000,” the paper adds.
Next month’s Budget is also designed to set out how the government will ‘level up’ the UK after leaving the EU, but the report warns: “Brexit risks ‘unlevelling’ us still further.
“While the UK suffers some of the largest interregional inequalities in the developed world, these might be exacerbated if, as some economists expect, the more prosperous parts of the country prove to be less affected by and/or more resilient to, any economic impacts of Brexit,” it says.
“Now, the government confronts the challenge not only of successfully concluding a set of complex negotiations in under a year, but also putting in place structures and policies to replace those of the EU. These are sizeable and complex challenges, to say the least.”
But NIESR says that the economic damage from Brexit could be up to 10 times the probable boost from the chancellor’s Budget plans to hike public spending, economists warn today.
In a report this week, it predicted the UK economy will continue to suffer a “slow puncture” after years of low growth, and that the positive impact on the economy from higher spending on infrastructure would be less than 0.5% of GDP over the long run, compared with an estimated 3-4% cost of Brexit.
Johnson has placed significant emphasis on the environment, launching the government’s “Road to Zero” emissions reduction strategy, aimed at achieving net zero UK climate emissions by 2050.
The Spectator says that the Climate Change Committee, which drew up the net zero plan, has promised a number of policies to ensure this target is met. “New homes should stop being connected to the gas grid within five years, tree planting must treble, farmers should give one field in five back to nature” are among the pledges, but the magazine also notes that the Committee is “admirably candid” about the cost of such a major programme.
The government says that 1-2% of the UK’s economic output will be spent on the programme, which works out as £20 billion to £40 billion a year. As The Spectator notes, “this is the equivalent of an HS2 every three to five years”.
The Road to Zero plan also includes a ban on petrol and diesel vehicles by 2035 to ensure the phase-out of combustion-powered cars would be as “technology neutral” as possible.
Under the new plans, “only pure-electric and hydrogen cars and vans will be available to buy new in the UK from 2035”, The Sunday Times Driving supplement says.
Mike Hawes, chief executive of the Society of Motor manufacturers and Traders, which represents the UK car industry, said the move could “destroy” the current emissions-lowering efforts by car makers without a credible plan to safeguard jobs and build infrastructure.
Hawes also pointed out that the government has not clarified whether the plug-in car grant, which offers a £3,500 discount on pure-electric cars, will be extended beyond its current lifespan.
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