Ignore the hype. This week’s “Rooseveltian” New Deal is no such thing. The Prime Minister’s “build, build, build” reboot of the economy amounts to no more than £5bn of existing money, and even reduces the budget for social housing, spreading the existing programme over eight years instead of five (although this has been denied by Downing Street).
By contrast, Franklin Roosevelt’s New Deal was gargantuan. By 1933, gross domestic product in the US had fallen by nearly a third and unemployment rose from 3% to 25% percent. Between 1933 and 1939, the New Deal injected around £625bn in today’s money into the US economy. It created dozens of new agencies, such as the Tennessee Valley Authority, which built dams and new towns, the Public Works Administration, which built schools and roads, the Rural Electrification Administration, which brought electricity to rural areas, and the Federal Housing Administration, which set new standards for construction and stabilised the housing market to allow millions of Americans to buy their own homes.
The New Deal also funded artists like Diego Rivera to create hundreds of murals in public buildings. One of the prime causes of the US depression was the crash of 5,000 banks. Many had been speculating in shares using customers’ money, so the Glass Steagall Act of 1933 split commercial from investment banks to prevent them from speculating with customer accounts. The banking system was stabilised. The New Deal amounted to around 40% of US GDP by 1939. By contrast, this week’s announcement from Boris Johnson amounts to about 0.2% of the UK’s 2019 GDP. So, Boris Johnson’s £5bn stimulus package is the dampest of damp squibs.
I was in Germany last week where the pubs, restaurants and shops are booming (masks are obligatory). The German stimulus package amounts to over £100bn, amounting to 4% of GDP. You can expect the German economy to bounce back pretty quickly.
It is worth noting that Rishi Sunak is set to spend up to £300bn (OBR figures) on propping up the UK economy during the pandemic, as a result of furlough and other support schemes for closed businesses during what has been (in my view) an unnecessary lockdown.
The planning changes announced this week are also deeply worrying. Yet again, the planning system is being blamed for our failure to invest in housebuilding, a topic I wrote about two weeks ago. In the name of “cutting red tape” Permitted Development Rights (i.e. removing the need for formal planning permission) will be extended to brownfield sites, and will allow extensions, demolitions and conversion of commercial units to residential. This will result in thousands of awful sub-standard properties being churned out and will lead to all kinds of neighbour disputes, something I also wrote about in this report for the Intergenerational Foundation on micro-homes.
Fortunately, there is an oven-ready solution that would do more to bring the economy out of lockdown lethargy than probably any other stimulus: investing in social housing. When we launched the SHOUT campaign in 2014, we commissioned two reports from Capital Economics which concluded that the case for investing in social rented housing was “unanswerable”. Our analysis showed that public money had too often been wasted on the demand side of the market rather than direct investment in supply. Over a period of decades investment has switched from bricks and mortar to personal support and over two million social homes have been lost to right to buy. By investing in 100,000 social rented homes a year, we showed that the Treasury would be quids in over the course of a generation as the Housing Benefit bill would be slashed. Net debt would be reduced and tax revenues would increase.
Not only would this policy improve the life chances of millions of people by providing genuinely affordable, secure homes, but in purely economic terms, the multiplier impacts of investing public money are very positive. Apart from the thousands of jobs in construction, every pound spent on housebuilding creates nearly three pounds in the wider economy and creates a comparable number of jobs. New homes equals new carpets, new appliances and new furnishings. I cannot think of any comparable investment that would create so much beneficial growth.
Between 1945 and 1951 housebuilding in England soared from nothing to 162,000 homes a year, of which 142,000 were social. This investment paved the way for two decades of relative prosperity. If we did it then, we can do it again now. That would be a genuine New Deal for the people of the United Kingdom. The problem is, will the government ever listen?
(This blog was first published by HQNon the 2nd July 2020)