Beyond COvid: The Digest

Expectations for the summer economic statement - a "New Deal"?

July 6, 2020
SUMMARY
  • The Chancellor's "summer economic statement" on Wednesday will dominate the news this week. While government rhetoric has invoked the idea of an FDR-style New Deal, critics have noted the small scale of plans thus far and the Treasury has been keen to manage expectations. This week's "Focus" section looks at the latest analysis and intel around the Government's plans, including their environmental credentials and the prospect of giving all adult citizens a £500 spending voucher.
  • This week's "In Brief" section features pieces on how care work and community wealth building can play central roles in the economic recovery, public support for a four-day week, and how the Bank of England's support scheme for corporations is undermining its pledges to "Build Back Better".
  • Our "Reflections" this week include Joseph Stiglitz on how a green recovery would bolster employment, and a long-read on how dismantling the UK's planning system would constitute "an attack on democracy".

Focus: recovery package, summer economic statement

  • The Chancellor’s “summer economic statement”, expected on July 8, will contain details on the government’s plans for dealing with the economic impact of the next phase of the pandemic.
  • ~~Despite earlier promises from Downing Street of the “manifesto on steroids”, more recently the Treasury has been keen to manage expectations downwards.
  • Boris Johnson’s speech on Tuesday, setting out the government’s investment plans and billed as an FDR-style “New Deal”, in fact brought forward £5bn of projects from the £100bn already announced in the Conservative’s 2019 election manifesto. These include £1.5bn for hospital maintenance, £100m for 29 road projects, £1bn for school rebuilding and £900m for “local growth projects”.
  • ~~Johnson also pledged an “opportunity guarantee” to give “every young person the chance of an apprenticeship or an in-work placement”, with Rishi Sunak expected to provide more details this week on how it will operate.
  • ~~Critics have noted the relatively small scale of the plans brought forward, amounting to 0.2% of GDP, compared to the 40% of GDP the original “New Deal” represented. The TUC has suggested that £450bn of new spending would be needed over the next five years, were the government to genuinely match the original New Deal.
  • ~~Christine Berry has argued that without also tackling the “rentier economy”, as FDR did in the 1930s, Johnson’s plan cannot claim to be any sort of “New Deal”. The IPPR has recently shown that up to 45% of emergency payments made during the covid-19 crisis, including the Job Retention Scheme, go back to landlords, banks, and other lenders.
  • Environmental pledges were also notably absent from Johnson’s speech, with the Green Alliance warning of a £14bn funding gap between planned investment and the investment needed to reach net zero.
  • ~~Johnson highlighted reforms to the planning system to deliver more development, focused on housebuilding, although both the CPRE and Shelter have criticised the reforms as threatening the quality of building, and failing to deliver public investment. £12bn over 8 years was initially promised for housebuilding, later revised to £12bn over 5 years.
  • ~~The lack of attention paid to the environmental crisis in Johnson’s speech clashes with Business Secretary Alok Sharma’s opening speech at COP26 Business Leaders Event last week. This presented a series of “asks” to business, including establishing company-wide net zero targets and greening corporate vehicle fleets.
  • ~~The announced planning system reforms fall short of the “development corporations” originally proposed to push through greater volumes of building. These have reportedly been dropped temporarily in the wake of Housing and Communities Secretary Robert Jenrick’s ongoing controversies over planning decisions.
  • ~~A manifesto pledge, reiterated in February, to spend £9bn on home insulation has seemingly been dropped, with senior Downing Street advisor Dominic Cummings reportedly pushing to spend the allocated money on housebuilding instead. The House of Commons Environmental Audit Committee is about to open an inquiry into home insulation, and its Conservative chair, Philip Dunne, has criticised the seeming removal of the manifesto commitment.
  • If the Chancellor looks set to fall short of the big spending originally hinted at in recent months, he is also likely to disappoint those on the Conservative backbenches and amongst the free-market thinktanks hoping for significant tax cuts as a means to boost the economy.
  • ~~The Treasury is reportedly waiting on early data from the July 4 opening of pubs and return to more normal shopping conditions to determine the scale of any stimulus needed, but significant tax cuts have been ruled out. A six-month Stamp Duty “holiday” for cheaper houses is apparently being considered, along with a temporary reduction in VAT, last used in the 2008 crisis, along with reductions in employers’ National Insurance Contributions to reduce the costs of hiring workers. The impact of both has been questioned, however.
  • ~~There have been hints of tax rises to come later in the year, including higher National Insurance Contributions from the self-employed and an NHS and social care “surcharge”, but they are politically high risk and unlikely to appear in a smaller-scale fiscal event.
  • ~~Shadow Chancellor Anneliese Dodds has called for a wealth tax to be considered as part of a recovery package.

From recovery to reform: rebuilding local economies after covid-19

Our most recent Beyond Covid webinar saw Greater Manchester Metro Mayor Andy Burnham, Sarah Longland from IPPR North, and Neil McInroy from the Centre for Local Economic Strategies discussing the critical role of local and regional governments in implementing strategies to build back better after the crisis.

In brief

  • The government has this morning (6 July) announced a £1.57bn support package for the arts, with funding intended to help theatres, galleries, museums and other cultural venues. This follows weeks of lobbying by the sector and the announcement of a string of theatre closures and redundancies.
  • The Scottish Government has called for an £80bn UK-wide recovery package, including a furlough extension, job guarantees for young people and one-off cash grant to middle- and lower-income households. The full report is available here.
  • New research from the Women’s Budget Group suggests that a “care-led recovery”, with increased spending on social care, would create 2.3 times as many jobs as the same spending on construction, and employment would particularly favour women.
  • Polling for Autonomy shows that 63% want the government to explore options to introduce a four day working week. The Daily Mail covered the polling extensively.
  • The Centre for Local Economic Strategies (CLES) have a new report on how local authorities can lead on developing and delivering local green recoveries, making use of the “community wealth building toolkit” of interventions.
  • Carbon Brief have updated their green recovery tracker, showing the different plans around the world for green recoveries from the first phase of the pandemic. China, India and Denmark are the latest additions.
  • Positive Money have a new report detailing the extent to which the Covid Corporate Finance Facility is failing on the Bank of England’s pledges to Build Back Better, by giving support to high-carbon corporates whilst they continue to lay off workers. Only 5% of the public support unconditional corporate bailouts.

Reflections

View more
Economics on the international stage
October 19, 2020
Read
"Build Back Greener"
October 12, 2020
Read
A gender-equal economy
October 5, 2020
Read
Winter Economy Plan
September 28, 2020
Read