With a Torrent of Money, Britain Takes Aim at Coronavirus and Austerity

LONDON — In one action-packed day, the people who oversee money in Britain sought Wednesday to ease a pair of economic crises — the immediate emergency of the coronavirus outbreak, and the long, entrenched decline assailing national life through budget austerity.

It appears that Britain has entered a new era. Four decades after Margaret Thatcher and her Conservative Party assaulted the traditional social welfare state, and following the slow bleed of government services in more recent years, a Conservative prime minister, Boris Johnson, was embracing public money as the pathway to improved fortunes.

In place of stern homilies about the need for Britain to live within its means, Mr. Johnson and his party had effectively placed their faith in the teachings of Britain’s most celebrated economist, John Maynard Keynes, who looked to government to spur the economy in times of trouble.

“It’s certainly an ideological change compared to what they previously believed,” said Andrew Goodwin, chief United Kingdom economist for Oxford Economics in London. “The Conservatives have traditionally been a small-state, low-borrowing party. This is very much a departure from what they have preached before.”

But just after lunchtime in London on Wednesday came the second stage of the offensive. The man in charge of the Treasury, Rishi Sunak, stepped to the lectern inside Parliament and, over the course of an hour, detailed plans to set loose vast amounts of money toward repairing the accumulated damage of a dozen years of extraordinary budget-cutting.

Highways would be built, rail lines upgraded and expanded, university research centers bolstered. Police departments, which have been decimated by austerity, would gain funds. The National Health Service, Britain’s cradle-to-grave socialized medical care system — and a locus of complaints about the ravages of budget-cutting — would gain a substantial infusion of money.

“Genuinely striking is the substantial increase in planned capital spending,” said Paul Johnson, director of the Institute for Fiscal Studies, an independent research institution in London. “The key risk is that once again growth disappoints, and that this leaves the chancellor with the choice of whether to rein back again on spending, or to announce further tax rises, or to abandon his fiscal targets and to allow debt to rise further.”

While the government’s spending plans presented a revolution in rhetoric and emphasis, they fell short of truly ending the era of austerity. The budget leans heavily on infrastructure spending, health care and education, but does not restore cuts to a range of welfare programs, such as cash grants for poor households. It does not replenish funds for local governments, many of which have had their own budgets cut by more than 60 percent over the last 12 years.

“There isn’t a total reversal of austerity,” said John Hawksworth, chief economist at PwC in London. “There is a big-picture element that looks more Keynesian, but there are lots of areas of government that are at best standing still.”

Perversely, the coronavirus outbreak appears to have supplied Mr. Johnson a useful political opportunity — a justification for aggressive spending in the face of a potentially uncomfortable budget conundrum.

The prime minister owes his office to the decisive parliamentary majority secured by his party in elections last December. The Conservatives benefited from anger among voters in struggling communities in the north of England, who have suffered the impacts of diminished government services. Many such voters have traditionally supported the Labour party, but switched to cast their ballots for the Conservatives.

Mr. Johnson’s continued dominance in British politics requires that he make their support stick. In that spirit, he and his party have talked about “leveling up,” evening out gaping regional inequalities that have made London a glittering playground for the wealthy and the rest of the country an often grim landscape of abandoned factories, shuttered pubs and crumbling public housing.

But leveling up was always going to cost money, challenging the Conservative Party’s fiscal rules aimed at limiting budget deficits. And another of Mr. Johnson’s central political promises posed a conflict with his ambitious spending plans: He took office vowing to finally deliver on Brexit, removing Britain from the ranks of the European Union.

“The coronavirus puts a veneer of reputability on it that perhaps wasn’t there before,” said Ben Clift, a professor of political economy at the University of Warwick in England.

The outbreak also provides Mr. Johnson cover, he added, as Britain’s abandonment of Europe limits economic growth and erodes living standards in much of the country.

“The coronavirus can be presented as a reasonable explanation for why the U.K. economy is not growing well,” Mr. Clift said. “You can wrap it up and say, ‘We were just hit by this unexpected shock.’”

Source Article