Media advisors just love to bring a brand to an announcement, a pithy way of taking something quite dry and embedding in the public consciousness a sense that the government is doing something radical and necessary.
Whoever in Downing Street decided to draw a parallel between yesterday’s announcement to fast-track capital spending and the ‘new deal’ pioneered by FDR in depression hit America of the 1930s needs not only a history lesson but some tutoring in how to avoid a PR mishap.
The headlines proclaiming Boris Johnson’s new deal were rightly placed in inverted commas. Rarely has grammar been used to denote scepticism. And no wonder. The announcement yesterday in spending terms amounts to less than one quarter of one per cent of GDP. Roosevelt managed a spending programme around 40% of pre-depression US GDP in the 1930s.
In short, there is no comparison, this is not a US-style new deal. No wonder the Prime Minister in the West Midlands yesterday proclaimed, ‘when in a deep hole, keep digging’.
Why does this matter? Well if this was genuinely of new deal proportions then it would signal interventionism on a whole new scale but it does not.
That being said, we shouldn’t lose sight of the fact that furloughing is an intervention of eye-watering financials and one which is against the ideological grain for laissez faire Conservatives.
The final cost to the UK exchequer could be around £60bn by the time it ends in October, according to the Office for Budget Responsibility.
If 2020 is a year of unprecedented contraction then 2021 will be an economic annus horribilis. The unemployment rate in the UK could hit 10%, adding two million to the dole queues.
Companies are re-profiling financial models. Cash-flow projections are being revisited. Scenarios will be based on contraction, ranging from modest with medium-term recovery to a sharp decline.
Furlough is the buffer that allows many to postpone the announcement of job losses but a postponement it will be unless lockdown melts like snow in the sun.
Today, the owners of Upper Crust announced up to 5000 jobs could go. Yesterday Airbus signalled 1700 UK employees have an uncertain future. T M Lewin is closing all UK shops to go online. Easyjet could bin more than 700 pilots and 1300 other crew. And on and on it goes, a conveyor belt of bad news without end.
The airline sector is already experiencing carnage. The tourism sector is at the mercy of lifting lockdown. The hospitality sector will contract as a result of social distancing and a double whammy of ending furloughing and higher unemployment meaning eating out and going to the pub are luxuries for too many households.
In economic downturn terms, there is a guaranteed second spike. By the time the public health battle is won, the economic war will have just started. It will still be fought long after Covid-19 is but a memory.
Young people about to go to university or college are debating if they should change course. What will a qualification in hotel management or hospitality lead to? For those currently employed in vulnerable sectors the challenge could be to gain new skills as a passport to a more secure future. It is doubtful that the capacity exists in current courses to accommodate all of those mulling over a career change.
These themes came to a head at Prime Minister’s Questions. Sir Keir Starmer, the Labour leader, said Boris Johnson had announced nothing that was new yesterday and that the spending in a time of acute crisis amounted to less than £100 for everyone in the UK.
Sir Keir called on the furloughing scheme to be extended beyond October to help the 3.2m workers in hospitality and the 2.9m working in retail.
The PM accused Labour of flip-flopping on every aspect of the Covid crisis before instigating a cheer on the government benches with the claim the government are the builders of recovery and Labour the blockers.
Ian Blackford, the SNP Westminster leader, said not a single penny of new money would flow to the Scottish Government as a result of yesterday. He previously asked the Prime Minister to state how much more would come north in the form of ‘Barnett consequentials’. That’s the additional money that goes to Holyrood as a result of increased spending in devolved areas in England.
Boris Johnson side-stepped that direct question but said his administration was spending £3.8bn in Scotland in help to business and through the furlough scheme.
Next week the Chancellor of the Exchequer Rishi Sunak will update MPs on the government’s spending plans. If he sticks to the policy of ending furlough in October he will come under enormous pressure to help key sectors of the economy beyond then.
That month could well represent a cliff edge to mass unemployment unless Sunak digs deeper. But that will come at the cost of a larger deficit and the prospect of large hikes in taxation later in the lifetime of this parliament.
