U.K.’s Johnson Accused of Spending for Votes, Not Fixing Economy
U.K.’s Johnson Accused of Spending for Votes, Not Fixing Economy
(Bloomberg) -- Since becoming U.K. prime minister less than three weeks ago, Boris Johnson has announced spending pledges at a rate of about 2 billion pounds ($2.4 billion) per week, fueling speculation he’s planning for an early election.
Johnson on Sunday said he would spend as much as 2.5 billion pounds on prisons as part of his promise to crackdown on crime. That follows a 1.8 billion pound cash boost for the National Health Service and a 2.1 billion pound allocation for no-deal Brexit preparations.
More funding is expected after the Treasury on Thursday began a one-year spending review for government departments that will focus on commitments Johnson made since taking office, including funding for schools, police and the NHS. It’s set to conclude next month, as Britain nears the Oct. 31 deadline to leave the European Union and could be going to the polls for an early general election.
With a wafer thin majority in Parliament of just one, Johnson risks being forced into an early general election if he can’t get backing for his Brexit plans. He’s promised to deliver Brexit by Halloween, with or without a deal -- “do or die” -- and his opponents see a vote of no confidence as one of the only ways to stop him. The government privately accepts an election is inevitable, according to one official.
Confidence Vote
Opposition Labour Party leader Jeremy Corbyn signaled he’ll call a vote of no confidence soon after Parliament returns from summer recess, in a bid to prevent an economically damaging no-deal Brexit. He could succeed, triggering a general election if he gains support from enough rebel Conservative Party lawmakers.
A government official says they don’t comment on hypothetical questions and it isn’t policy to hold a general election. A spokesman for the Treasury said the spending round will deliver investment in public services for after Brexit.
Johnson’s spending plans appear to be based on fixing political rather than economic problems, economists say. That’s risky given uncertainty around Brexit and after data on Friday showed the economy contracting for the first time in seven years, said Ben Zaranko, research economist at the Institute for Fiscal Studies.
Wider Deficit
The Office for Budget Responsibility estimates a no-deal Brexit could add 30 billion pounds a year to the deficit and plunge the economy into a yearlong recession. Zaranko said a safer strategy would be to wait for Brexit and to hold a spending review at the same time as a full budget.
“It seems a little reckless to commit to big funding increases for these services over multiple years while at the same time talking about cutting taxes and at the same time risking a departure from the EU that makes us permanently poorer,” Zaranko said. “The combination of those things adds up to a big increase in borrowing which can’t be sustained forever.”
While it’s still early, Johnson’s spending strategy doesn’t appear to be tackling underlying economic problems, such as Britain’s persistently weak productivity and an aging population, said Gemma Tetlow, chief economist at the Institute for Government think tank.
“Nothing we’ve heard so far acknowledges the longer term fiscal pressures that this government faces,” she said. The prisons announcement “appears to be about extra money for additional prison places - rather than to deal with problems of rising levels of violence already apparent in existing prisons,” she said.
After a decade of austerity, the new prime minister is changing course, promising tens of billions of pounds of tax cuts and spending increases.
During his leadership campaign, Johnson pledged to use the 15 billion pounds of “headroom” built up ahead of leaving the EU that he inherited from ex-Chancellor Philip Hammond to ease pressure on public services. That headroom lets the government increase borrowing without breaking the government’s fiscal rules in 2020-21. But it might not be available in the event of a no-deal Brexit, and the new Chancellor Sajid Javid has said he’ll stick to those plans.
Hammond had also held out the prospect of an end to years of austerity that cost the Conservatives their parliamentary majority in the 2017 general election, but then delayed a spending review until the outcome of the Brexit negotiations was clearer.
Forcing through Brexit without alternative trading arrangements in place, which the government says is a real prospect, could bludgeon growth and drive up inflation.
“A looser fiscal policy would merely mitigate some of the damage caused by a no-deal departure,” said Martin Beck, an economist at Oxford Economics. “An already unpredictable outlook for the economy has become even more so.”
To contact the reporters on this story: Jessica Shankleman in London at jshankleman@bloomberg.net;Jill Ward in London at jward98@bloomberg.net
To contact the editors responsible for this story: Tim Ross at tross54@bloomberg.net, Steve Geimann, John Deane
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