Boris Johnson’s Gamble: Change the Tories to Save U.K. Economy

(Bloomberg) -- Boris Johnson had his work cut out. In the course of one much-hyped speech on Tuesday, he needed to relaunch his mission and regain the initiative after months of criticism over his handling of the coronavirus; he had to spell out his plan to revive the stuttering British economy; and he had to reassure his own party that he is still a true Conservative.

Over the course of his 3,800-word address, at a college in Dudley, central England, he didn't announce a radical new spending pledge, or promise new policies that are likely to make the country forget its battle with Covid-19 for long.

Yet there was one clear message running through the speech: Johnson will not be a typical Tory prime minister. But, his argument went, the country doesn't want him to be -- and these are not typical times.

Just three months after the Conservatives won a large majority in last December's election, the pandemic derailed their plans for overhauling the U.K. economy to “level up” forgotten regions of the country.

It forced Johnson instead to commit hundreds of billions of pounds to rescue private companies and pay workers' wages. These big state, big spending interventions alarmed free marketeers in the party and threw Johnson's tribe into a full-scale identity crisis.

On Tuesday, Johnson gave his response: the Conservative Party isn't in crisis, it is changing for good.

The traditional Tory instinct to balance the nation's books is now not the priority and state spending will continue to flow. “We will not be responding to this crisis with what people called austerity,” Johnson said. “We are not going to try to cheese-pare our way out of trouble.”

Johnson re-committed to “leveling up” deprived regions outside the affluent capital city of London and the south of England. He confirmed promises for 12 billion pounds ($15 billion) to build new homes, and vowed to speed up investment of 5 billion pounds on construction programs, including for schools and roads.

There will be cash to plant tens of thousands of trees, an opportunity guarantee of training or work placements for all young people, and a review of the transport networks linking all parts of the U.K. Taxes may also have to rise.

‘New Deal”

“I am conscious as I say all this that it sounds like a prodigious amount of government intervention,” Johnson said. “It sounds like a New Deal and all I can say is that, if so, then that is how it is meant to sound and to be -- because that is what the times demand: A government that is powerful and determined and that puts its arms around people at a time of crisis.”

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Johnson made the case for taking on more debt in order to “invest now, when the cost of borrowing allows it and when the returns are greatest.” This is the way to fuel the economy, he said.

Right-wing, free-market libertarians in his party would disagree. Some Tories fear the government is adopting dangerous “socialism” and would rather see the totemic defense budget slashed than future generations loaded with debt. But Johnson had a message for these doubters on his own side, too.

‘I Am Not a Communist'

“My friends, I am not a communist,” he said. “I believe it is also the job of government to create the conditions for free market enterprise.” The country has clapped for carers working in the National Health Service, but the government also applauds “our innovators, our wealth creators, our capitalists and financiers -- because, in the end, it is their willingness to take risks with their own money that will be crucial for our future success.”

Yet the U.K.'s business leaders are calling for more than applause from the government. They want concrete policies to help drive commerce. Johnson said his instinct was to keep taxes low and create a competitive environment for companies, but he couldn't rule out raising taxation in future to help pay down the debts. Chancellor of the Exchequer Rishi Sunak will be outlining further economic measures in a statement on July 8.

What Our Economists Say:

“...for the economy there were two key takeaways. First, his pledge to accelerate 5 billion pounds worth of capital projects is money already allocated in the March Budget. He left plans for any further stimulus to Chancellor of the Exchequer Rishi Sunak's update on the economy next week. Second, Johnson distanced himself from a quick return to austerity. That's good news for the outlook...”

--Dan Hanson. For the full insight, click here

The government on Wednesday announced a new “Office for Talent,” to encourage leading scientists to come to the U.K., and said it wanted Britain to be the best place in the world for researchers and entrepreneurs.

Meanwhile Johnson wants to rip up the rules on construction to allow businesses to flourish. He confirmed plans for a sweeping overhaul of planning rules, due to come into force in September, which would benefit developers and is designed to speed up building programs.

The risk, though, is that despite being a business-friendly policy, planning reforms could cause tensions with Tory MPs. Allowing more builders and home owners to go ahead with their developments without needing planning permission risks opposition from some Conservative-voting districts.

‘Build Faster'

Johnson said that speeding through these projects was vital. “We will build better and build greener but we will also build faster,” he said.

A decade ago, Johnson's predecessor and one-time rival David Cameron tried to rewrite planning rules but had to back down in the face of a fierce campaign from Conservatives who worried the reforms would destroy England's picturesque countryside.

Leading the campaign was the Tory-supporting Daily Telegraph newspaper. Its star columnist at the time was Johnson. At least he knows the risks.

©2020 Bloomberg L.P.