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.