Ian McConnell: Matters of simple arithmetic Boris Johnson would do well to note

The £5 billion of infrastructure investment being fast-tracked seems unlikely to make a huge difference, and certainly does not live up to pre-speech hype attempting to draw parallels with Franklin D Roosevelt and his measures to drive economic recovery in the US in the 1930s. That said, the idea of accelerating infrastructure expenditure at a time like this is not a bad one.

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It was interesting to hear Mr Johnson on Tuesday seemingly reference the words of economist John Maynard Keynes – who spearheaded a revolution in thinking in the 1930s by highlighting the role government spending can play in stimulating the economy and reducing unemployment – when he talked about “animal spirits”.

Infrastructure spending was ramped up by the Scottish Government in response to the 2008/09 global financial crisis and associated recession and it worked well. The construction sector north of the Border performed strongly for a while, although it struggled after big projects were completed.

Spending on infrastructure projects can certainly provide a boost to demand and growth at times like these but it is important to be realistic about the actual scale of the effect and the importance of doing other things as well. Or, with reference to the Tory austerity under former prime minister David Cameron and erstwhile chancellor George Osborne that Mr Johnson mentioned at the weekend, the importance of not doing certain things.

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It is very important to recognise that one absolutely crucial way to boost demand is to put money in the pockets of people who have to spend all or most of what they have to live. This simple truth would point to improving state benefits for the unemployed and working poor, which have been cut so savagely in the near-decade of austerity we have had under the Tories, rather than reducing them further. Cutting benefits can be counter-productive to the public finances in the long run, by weighing on growth, as we have seen over the last decade.

Hopefully, also, the Tories will not hit those on the lowest incomes disproportionately by raising value-added tax as they did last time round.

Some of Mr Johnson’s comments over the weekend seemed to be a fairly flimsy-looking extension of the sloganeering favoured by the Prime Minister and his adviser, Dominic Cummings. Get Brexit Done etcetera, etcetera.

It is worth noting that any beneficial impact of Mr Johnson’s high-profile announcement on accelerating infrastructure spending, and his plans for new schools and hospitals, will pale into insignificance relative to the detrimental effects arising from the Conservative Government’s determination to drag the UK out of the European single market at the end of this year. This relative insignificance of the infrastructure plan will apply whether there is a trade deal or not. The big, long-term negative effects of leaving the single market, even with a deal, were flagged up by the Theresa May government’s forecasts. A no-deal departure, which looks eminently possible amid a broader surge in British nationalist sentiment and tub-thumping, would obviously cause even more damage than an exit with the free-trade agreement the Conservative Brexiters claim to want.

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Adapting one of his Government’s favourite slogans, Mr Johnson has talked this week about how the Tories will “double down on levelling up”. Not inspirational. Not evocative of FDR.

We also had from Mr Johnson the analogy of the Covid-19 coronavirus as a “lightning flash”. Probably not the best description but let us hope it is apposite in the narrow context of there being no second wave. This remains to be seen. It has already, of course, been a painful and protracted human tragedy.

He went on to talk about how we are “about to have the thunderclap of the economic consequences”.

Hundreds of thousands of people and businesses have of course already been hit by these economic consequences.

UK claimant-count unemployment surged in April to exceed two million for the first time since 1996 and hit 2.8 million in May, up by 1.6 million since March. Scottish claimant-count, which measures the number of people claiming benefit principally because of unemployment, has risen from 111,400 in March to 217,600 in May. These are grim figures.

There are fears, sadly for good reason, that UK unemployment will surge above the three-million-plus peak seen in the 1980s under Margaret Thatcher.

Shadow business secretary Ed Miliband at the weekend warned of “Thatcher levels of unemployment”.

Mr Miliband accused the UK Government of “pulling the rug from under” many parts of the economy by telling employers they must start paying towards the cost of the furlough support scheme from August, before it closes entirely in October.

A raft of redundancy consultations and job-loss announcements from businesses across a wide range of sectors, including hospitality and airlines, would suggest this “pulling the rug” observation is a perfectly fair characterisation of what is going on right now.

The UK Government deserves credit for using taxpayer money to implement the coronavirus job retention scheme just ahead of the March 23 lockdown. However, the real talent was always going to be displayed, or not, in an awareness of how long this key scheme would have to stay in place, so all the good work was not undone, and having the nerve to keep it going. Such an extension, and exempting at least some employers from contributing, might cost several billion pounds more. However, the support scheme, through which the UK taxpayer funds 80 per cent of the wages and salaries of furloughed workers up to £2,500 a month, is already costing tens of billions of pounds. And what is the cost of not taking such sensible action?

Keeping the furlough scheme going for as long as needed – perhaps ultimately with targeted dispensations for employers which should not be expected to contribute because they are unable to reopen or do so fully yet in a viable way – is far more important than the “New Deal”.

It is, after all, far more straightforward to avoid needless mass job losses in the first place than to slog uphill with public policy to try to create jobs in the depths of a sharp economic downturn. The UK Government should also think about how it is going to assist households and businesses affected by any local lockdowns aimed at slowing the spread of Covid-19 where clusters of cases emerge.

Of course, a sensible pace of reopening of the economy should help obviate the need for such lockdowns. Slow and steady in this regard is likely to be better for the economy over the medium and long term, if future dislocation can be minimised.

It is difficult to tell at this stage whether Mr Johnson’s comments about not returning to the austerity of 10 years ago will prove to be meaningful or a mere soundbite. The infrastructure pledge has given no significant clue in this regard.

Maybe the Tories, while they claim they have done well with their stewardship of the economy since 2010, actually recognise that their austerity programme, and its toxic mix, amounted to a mistake?

Of course, it should not have taken them 10 years to find out that it has been a mistake (that is if they have actually recognised privately that it has been). Plenty of people were telling them at the time that it was the wrong path. And so it has proved. It was a matter of simple arithmetic. As it is now.