◼ ECONOMICS Bloomberg Businessweek March 2, 202024
U.K. Prime Minister Boris Johnson led his
Conservative Partytoits biggest victoryina
national election since the days of Margaret
Thatcherbypersuadingvotersinformerindustrial
heartlandstovoteToryforthefirsttime.Johnson
promisedto“getBrexitdone”afteryearsofpolit-
icalgridlockanddulydeliveredonJan.31,when
BritainformallylefttheEuropeanUnion.Butif he
is toretainsupportinsomeofthepoorestpartsof
thecountry,hemustnowaddressthegrievancesof
thosewhofeeleconomicallymarginalized.
Asthefaceof the 2016 campaignto leave
theEU,Johnsonskillfullyharnessedangerover
almosta decadeofcutstopublicservicesandthe
erosionoflivingstandardstobuildsupportfor
Brexit.Nowhe’spromisedto“levelup”strug-
glingregions,leavingnodoubtthatBritainis
abouttoopenthespendingtaps.Theonlyques-
tionis howmuch.Theanswerwillbecontained
intheboxyredbriefcasethatthefinancemin-
ister,RishiSunak,willcarryintoParliamenton
March11,whenhepresentstheadministration’s
firstbudget.(Theso-calledredboxritualdatesto
the1860s.)
A powerstruggleoverwhoshouldcontrolthe
economy—JohnsonortheTreasury—sawSunak’s
predecessor,SajidJavid,resignonFeb.13.The
appointmentofSunak,a youngpoliticianwho
oweshismeteoricrisetothenewprimeminister,
hasfueledspeculationthattheboostinspend-
ingforthefiscalyearthatbeginsinAprilcould
beevengreaterthanthemorethan£30billion
($39billion)Javidhadpledged.
Eitherway,Britainisheadedforthebiggest
fiscalstimulussincetheearly2000s,whenthe
LabourPartywasinpower.Theexpectationis
thattheU.K.’sbudgetdeficitis settoincreasesig-
nificantlyfromthe£44billionorsoestimatedfor
thecurrentfiscalyear.Investorsappearsanguine
abouttheprospect,withyieldsongovernment
bondsclosetorecordlows.
Fornow,Johnsonisbaskinginwhat’sbeing
called the “Boris bounce.” His electionwin
removedthecripplinguncertaintyoverBrexit,
buoying confidence among businesses and
consumers. London home prices are growing at
their fastest pace in more than two years. Both
S&P Global Ratings and Fitch Ratings upgradedtheir U.K. assessment after the election.
If Johnson gets it right, the budget could buttress
the economy at a challenging time, as the spreading
coronavirus roils global markets and Britain begins
the enormous task of negotiating a trade deal with
the EU. If talks fail, the country will once again face
a disruptive rupture with its largest trading partner.
Politically, the budget could also help bolster
Johnson’s power. It’s early days, but he has a huge
80-seat majority in the House of Commons, and
Labour is still reeling from its worst election result
since 1935.
The Conservatives inherited a budget defi-
cit equal to 10% of gross domestic product, the
highest in British peacetime, when they took
office in 2010 in the aftermath of the financial cri-
sis. The shortfall is now just under 2%. But the
squeeze—amounting to more than £100 billion of
spending cuts and tax increases over the course
of a decade—has been brutal. The National Health
Service and education were protected, but few
other areas of society escaped the ax. Deep cuts
were made to welfare and social care. A debate
over the links between rising knife crime and cut-
backs to funding for policing and community cen-
ters rages on.
The impact of austerity was back in the spot-
light in late February when a nonpartisan study
found that life expectancy in England stalled
over the past decade for the first time in more
than a century and is in outright decline among
women in the poorest regions, such as North East
England. Its author, Michael Marmot, who heads
the Institute of Health Equity at University College
London, blames spending cuts that have left many
resorting to food handouts and insecure, low-paid
work. “If health has stopped improving, it is a sign
that society has stopped improving,” he says.
Johnson’s budget is expected to target areas
such as the North East and the Midlands with
billions of pounds for infrastructure, on top of
money already pledged for public services such
as schools, hospitals, and policing. Javid commit-
ted himself to balancing day-to-day spending and
revenue but gave himself room to spend an extra
£20 billion on capital projects including railways,
roads, and broadband networks. As those fiscal
rules were election commitments rather than3%2 %1 %0 %▼U.K.realGDPgrowth,
year-over-year
◼Projected2013 20221 0%5 %0 %▼ U.K. budget deficit as
share of GDP2008 2018● TheU.K.primeministeris poisedtobringa decadeofpainfulausteritytoa closePutting a Price on the Boris Bounce