Since becoming UK Prime Minister less than three weeks ago, Boris Johnson has announced spending pledges at a rate of about £2 billion ($2.4 billion) per week, fuelling speculation he is planning for an early election.
Johnson, on Sunday, said he would spend as much as £2.5 billion on prisons as part of his promise to crackdown on crime. That follows a £ 1.8 billion cash boost for the National Health Service and a £2.1 billion allocation for ‘no-deal’ Brexit preparations.
More funding is expected after the Treasury on Thursday began a one-year spending review for government departments that will focus on commitments Johnson made since taking office, including funding for schools, police and the NHS. Its set to conclude next month, as Britain nears the October 31 deadline to leave the European Union and could be going to the polls for an early general election.
With a wafer thin majority in Parliament of just one, Johnson risks being forced into an early general election if he can not get backing for his Brexit plans. He has promised to deliver Brexit by Halloween, with or without a deal — do or die — and his opponents see a vote of no confidence as one of the only ways to stop him.
“The government privately accepts an election is inevitable,” according to one official.
Confidence vote
Opposition Labour Party leader Jeremy Corbyn signalled that he will call a vote of no confidence soon after Parliament returns from summer recess, in a bid to prevent an economically damaging ‘no-deal’ Brexit. He could succeed, triggering a general election if he gains support from enough rebel Conservative Party lawmakers.
A government official said that they would not comment on hypothetical questions and that it is not policy to hold a general election. A spokesman for the Treasury said the spending round will deliver investment in public services for after Brexit.
“Johnson’s spending plans appear to be based on fixing political rather than economic problems,” economists say. “That’s risky given uncertainty around Brexit and after data on Friday showed the economy contracting for the first time in seven years,” said Ben Zaranko, research economist at the Institute for Fiscal Studies.
Wider deficit
The Office for Budget Responsibility estimates a ‘no-deal’ Brexit could add 30 billion pounds a year to the deficit and plunge the economy into a yearlong recession. Zaranko said a safer strategy would be to wait for Brexit and to hold a spending review at the same time as a full budget.
“It seems a little reckless to commit to big funding increases for these services over multiple years while at the same time talking about cutting taxes and at the same time risking a departure from the EU that makes us permanently poorer,” Zaranko said. “The combination of those things adds up to a big increase in borrowing which can’t be sustained forever.”
“While its still early, Johnson’s spending strategy does not appear to be tackling underlying economic problems, such as Britain’s persistently weak productivity and an ageing population,” said Gemma Tetlow, chief economist at the Institute for Government think tank.
“Nothing we’ve heard so far acknowledges the longer term fiscal pressures that this government faces,” she said. “The prisons announcement appears to be about extra money for additional prison places — rather than to deal with problems of rising levels of violence already apparent in existing prisons,” she said.
Changing course
After a decade of austerity, the new Prime Minister is changing course, promising tens of billions of pounds of tax cuts and spending increases.
During his leadership campaign, Johnson pledged to use the £15 billion of headroom built up ahead of leaving the EU that he inherited from ex-Chancellor Philip Hammond to ease pressure on public services. That headroom lets the government increase borrowing without breaking the governments fiscal rules in 2020-21. But it might not be available in the event of a ‘no-deal’ Brexit, and the new Chancellor Sajid Javid has said that he will stick to those plans.
Hammond had also held out the prospect of an end to years of austerity that cost the Conservatives their parliamentary majority in the 2017 general election, but then delayed a spending review until the outcome of the Brexit negotiations was clearer.
Forcing through Brexit without alternative trading arrangements in place, which the government says is a real prospect, could bludgeon growth and drive up inflation.
“A looser fiscal policy would merely mitigate some of the damage caused by a no-deal departure,” said Martin Beck, an economist at Oxford Economics. An already unpredictable outlook for the economy has become even more so.