No10 and No11 need a strategy for growth
Aweek after surviving a confidence vote on his leadership, Boris Johnson has gone into overdrive with a succession of policy statements and initiatives. Legislation to disregard parts of the Northern Ireland Protocol was published yesterday, along with the Government’s “food strategy”. Last week, the Prime Minister outlined a range of housing promises, including a right-to-buy scheme and a review of mortgage markets.
This somewhat frenetic activity is said to be an attempt to get back on the front foot after 148 Conservative MPS voted to remove him. Two-andhalf years after winning a general election with an 80-seat majority, Mr Johnson is struggling to define the purpose and direction of his administration.
This is particularly true of the economy. The latest figures for GDP growth in April were shocking, not least because few policymakers, including the Bank of England, saw them coming. The ONS data showed a 0.3 per cent contraction in output and followed a 0.1 per cent fall in March, and point to an imminent recession.
We are not there yet and not everything is gloomy. Measures to ease the cost-of-living crisis have yet to take full effect and the employment market remains advantageous for those seeking work. But one oddity is that more than five million people are on out-of-work benefits when there are shortages in many sectors. In addition are the millions still in the workforce who since the pandemic rarely go to the office, with unknown effects on productivity.
We are in a uniquely difficult economic situation, with official employment figures suggesting a buoyancy that is essentially a mirage. The ONS figures are especially alarming because they point to a decline in every sector before the spike in energy prices so cannot be attributed to that.
No growth, high inflation and large-scale joblessness are indications of stagflation of the sort the country endured in the 1970s before the Thatcher governments took tough and painful decisions to reset the economy. The costs were considerable but because the policy was based on proper analysis of what was wrong it eventually bore fruit.
The worry today is that there is no strategy for growing the economy and the country is heading into a downturn from which it will struggle to escape for years. It is conceivable that we will be in a recession by the time of the next Budget, with a winter of high prices and strikes around the corner.
This drift is not helped by the apparent friction between the Prime Minister and Rishi Sunak, the Chancellor, with the former keen to “throw an arm around the nation” while the latter resists pressure for more spending from No10. Mr Johnson has told MPS that he is keen to cut taxes to stimulate growth but it is claimed he is being thwarted by the Chancellor.
A Treasury source told the Telegraph: “Rishi will not deliver reckless, unfunded tax cuts just to save a Prime Minister who is weakened within his party.” However, tax cuts could be funded if there was less spending.
Mr Johnson was reportedly planning a major speech on the economy this week but that has been postponed, suggesting Cabinet disagreements about the way forward. He said on LBC radio yesterday that raising the National Insurance threshold next month represented a tax cut for millions but indicated that there would be no further reductions until inflation falls. However, he needs to concede that it was a mistake to put them up in the first place. If the Government is going to throw money at people to mitigate the impact of high energy prices and other costs, why not just let them keep more of their own?
Moreover, much of the cost of energy is attributable to green levies which could be removed or suspended. Consumer confidence has fallen to record lows and interest rates are rising and may do so again on Thursday. The Chancellor should champion economic growth yet Mr Sunak’s decision to raise taxes was a mistake with profound political and economic consequences.
Mr Johnson’s allies insist he wants to reverse this policy but is being blocked by the Treasury. If that is the case then the remedy is in the Prime Minister’s hands.