A closer look at Johnson’s economic plan for post-Brexit Britain

When Rishi Sunak delivered a short personal homily towards the end of his Budget speech – itself an unusual act for any chancellor of the exchequer – he asked a pointed question: “But now, we have a choice. Do we want to live in a country where the response to every question is: ‘what is the government going to do about it?’ Or do we choose to recognise that government has limits, that government should have limits?”

Formally, the question was directed to the MPs sitting around him, but it might as well have been aimed directly at the man sitting immediately behind him, Boris Johnson. For it is Mr Johnson’s instinct for intervention and a thoroughly pragmatic approach to the public finances that framed most of the measures in the Budget and its accompanying spending review. It marks another step in the transformation of the Conservative Party and its quiet repudiation of free market economics. This was confirmed, in a rare moment of candour, by the chief secretary to the Treasury, Simon Clarke. Clarke, a rising star who has something of the quality of a previous chief secretary, John Major, about him (in a good way) admits it all: “The chancellor was very open about the fact that this is something of a philosophical shift. What we want to see is to get the economy turbocharged, unlock productivity, and deliver growth more evenly across the UK. That does require some upfront spending.”

A dash for growth, in other words, of a kind long since abandoned by Tory governments led by Margaret Thatcher, Major, David Cameron and Theresa May who, to a greater or lesser degree, put fiscal prudence and tax cuts ahead of the current trendy causes of “world-class public services”, investment and productivity. In the Thatcher era and after, these were regarded as largely a matter for the private sector and public-private partnerships.

So the fact that the tax burden is at its highest since Clement Attlee’s time, the national debt as inflated as it was under Harold Macmillan, and public spending at levels last seen when James Callaghan was in No 10 is of purely curiosity value to the present tenant of No 10. Johnson has great, grand ambitions for post-Brexit Britain, because he has a point to prove and he has an obvious vested interest in making Brexit work. He thus approaches the public finances with the same insouciance he shows to his private finances. Johnson’s version of monetarism, such as it is, is that he doesn’t mind blowing “OPM” – other people’s money – if it protects the legacy of Brexit and his own reputation. While the Covid pandemic dictated a near war-economy stance such niceties could be easily ignored. Now, though, the kind of questions posed by Sunak are re-emerging.

Tory MPs, many of whom reached political maturity in the shadow of the Thatcher governments and remain dedicated Thatcherites, are finally waking up to the reality that the man they elected to lead them two years ago is a throwback to an older tradition of Toryism. Were the Iron Lady still going, it’s unlikely she’d have given Johnson a job in her cabinet, and certainly not one that let him anywhere near taxpayers’ money. It is no accident that Johnson has referred disparagingly to Britain’s “broken economic model”, an implied rebuke to the neoliberal Thatcher years, and has described himself as a “Brexity Hezza”, after the dirigiste industrial policies championed by Michael Heseltine, the man who toppled Mrs Thatcher from power in 1990.

As the thoughtful Labour Treasury spokesman Pat McFadden put it, the Sunak Budget was if anything a “Heathite” Budget – one constrained by chronically low growth, high inflation and high debt, just as when Britain was struggling to keep up with its competitors in the 1970s. Post-Brexit, with private sector investment depressed, the only way out of the present version of the trap is through massive public investment in infrastructure and skills, especially in the underemployed regions (“levelling up”), plus a series of high-tech bets through the new Advanced Research and Invention Agency. In due course, it is hoped, it will boost the trend growth rate of the UK economy, and give the country the extra competitive edge it needs outside the EU – rather than slashing taxes and public services to build a new “Singapore-on-Sea”. It is something of a gamble.

As during the Heath government in the early 1970s and the Macmillan government in the 1960s, Britain is faced with an economic problem of historic investment leading to low productivity, in turn delivering disappointing improvements in living standards. Fiscal timidity, in those days enforced by the discipline of the exchange rate and fear of inflation, was supposed to be the enemy of a new, dynamic Britain, but under successive governments the “dash for growth” – a huge stimulus funded by borrowing to achieve the breakthrough – failed. The irony is that Conservative and Labour governments of that era turned instead to the then European Community as another part of the answer to Britain’s economic problem, while the Thatcher government turbocharged the EU’s integration by pushing for the single market, a thoroughly free-market initiative. Perhaps Johnson and Sunak may one decide that the EU wasn’t the problem after all.