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Brexit: will Boris Johnson reverse Thatcherism?

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Via Financial Times

Boris Johnson wants to banish the “B word” from British politics at 11pm on Friday. From that point onwards Mr Johnson, the architect of the UK’s departure from the EU, hopes the Brexit trauma of the past four years can be replaced by a new unifying national mission: “levelling up” a country whose jagged contours of inequality were exposed in the 2016 EU referendum.

While Brexit supporters prepare for a festival of Union Jack-waving in London’s Trafalgar Square on Friday, Mr Johnson will convene a cabinet meeting at an undisclosed venue in the North of England a region previously regarded as terra incognita to many Conservatives, but which now looks to the new prime minister to build a fairer, more prosperous post-Brexit Britain.

The symbolism is clear. Mr Johnson recognises that the Brexit vote was for many people in what has been dubbed “left behind Britain” not so much a shout of defiance against the EU as a cry for help. The day after he won an 80-seat House of Commons majority, Mr Johnson said: “What is this new government going to do? We are going to unite and level up, bringing together this incredible United Kingdom.”

Prime Minister Margaret Thatcher seen here at what remains of the Head Wrightson works in Thornaby, Middlesbrough The Prime Minister launched her inner-city offensive on Teesside with the promise of 1,000 new jobs. The Teesside Urban Development Corporation announced new jobs created by companies such as British Telecom, Northern Ocean Services, Nissan and others, as well as schemes that would lead eventually to the creation of the Tees Barrage, Teesside Park retail centre, and the regeneration of Hartlepool marina. Margaret Thatcher came to the region with a message of hope ? but she said she had no magic wand to rid the region of its problems. But as well as announcements of new ventures, there were also protests, and Mrs Thatcher left Teesside in no doubt that many of her policies remain unpopular in the North East 12th September 1987 . (Photo by Peter Reimann/Mirrorpix/Getty Images)

When the prime minister sets out his plans in a speech early in February, the focus will be on the need to secure new trade deals — including one with the EU — and the push to spread growth across the country. “Brexit will not be mentioned, unless you count saying that we don’t want to talk about Brexit any more,” says one Johnson aide.

Mr Johnson is attempting to redefine his Conservative party and the country it governs. The party of Margaret Thatcher — whose 1980s reforms put rocket boosters under London and the financial services sector and spawned a global wave of privatisations that stretched from Latin America to Russia — is seen by many in the north, the midlands and Wales as ruthlessly in love with the free market but callous about its consequences.

Mr Johnson is trying to use Brexit to change that image by questioning the core ideas about state intervention in the economy and regional development which have been the party’s orthodoxy since the Thatcher years. He is promising to shift civil servants out of London, change Treasury rules to favour investment in the north, a £100bn boost to infrastructure and a nimbler state aid policy to help failing strategic industries. On Wednesday his government nationalised the Northern rail franchise after public anger over its poor performance.

But will it be enough? And will a party which still has its centre of gravity in the prosperous south be willing to accept the tough choices — and pick up the bill — so that the prime minister can make good on his promises?

Britain's Prime Minister and Conservative party leader Boris Johnson (C) speaks with staff members in a fulfilment centre for The Hut Group (THG) in Warrington, in north-west England on December 10, 2019, as campaigning in the general election enters it's final days. - Britain will go to the polls on December 12, 2019 to vote in a pre-Christmas general election. (Photo by Ben STANSALL / POOL / AFP) (Photo by BEN STANSALL/POOL/AFP via Getty Images)

Mr Johnson was propelled back to Downing Street on December 12 by voters in seats long held by the opposition Labour party such as Burnley, Stoke-on-Trent and Dudley, towns cut adrift from globalisation, crushed by market forces and ravaged by a decade of austerity. They voted for Brexit and, as Mr Johnson acknowledged, they “lent” their votes to the Conservatives. Now they expect payback.

Tory Eurosceptics have long argued that Brexit would be a great opportunity to “reboot” the British economy, but they have not always agreed how. Some argued that leaving the EU would help drive forward the Thatcher revolution, sweeping away Brussels’ regulations on everything from laws limiting working hours and some environmental rules.

In 2017 Mr Johnson and Michael Gove, a fellow Brexiter, used their positions in Theresa May’s cabinet to urge the then prime minister to pursue a robust Brexit, in which Britain could adopt “pro-competitive regulation” and tax “simplification”. Some Conservatives cited Singapore as the kind of free market idyll they envisaged after Brexit.

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But Mr Johnson has always been ideologically nimble or, as the former Tory deputy prime minister Michael Heseltine calls him, “the most flexible politician in modern times”. Realising that his new voters have little enthusiasm for a small state and aggressive deregulation, the One Nation vision Mr Johnson now offers is one in which the state actively intervenes to promote economic recovery. He is offering higher spending, particularly on infrastructure, and has dropped a previous commitment to cut taxes for higher earners.

Although Mr Johnson insists on the “right to diverge” from EU regulations, his ministers say they will “not diverge for the sake of it”. Indeed, the prime minister argues that he wants the right to set tougher regulations on workers’ rights and the environment than those agreed at a European level.

Brexit itself is only a relatively small part of Mr Johnson’s “levelling up” agenda. He wants to attract investment into about 10 free ports — zones outside normal tax and customs rules — in depressed parts of Britain, but most of his policy ideas have little or nothing to do with the act of leaving the EU. Indeed, free ports already exist in the EU.

Nick Timothy, chief of staff under Mrs May and author of the book Remaking One Nation, says the real significance of the 2016 Brexit vote was that it forced politicians to confront the fact that something had gone badly wrong.

IRESHOPEBURN, UNITED KINGDOM - DECEMBER 12: A man enters a polling station as snow falls in the North Pennines on December 12, 2019 in Ireshopeburn, United Kingdom. The current Conservative Prime Minister Boris Johnson called the first UK winter election for nearly a century in an attempt to gain a working majority to break the parliamentary deadlock over Brexit. The election results from across the country are being counted overnight and an overall result is expected in the early hours of Friday morning. (Photo by Ian Forsyth/Getty Images)

“It made politicians realise they had to do something differently,” he says, acknowledging that the May government did not do enough. But, he says, Mr Johnson will have to be bold: “People say this is a one-off chance, but this public policy challenge has existed for quite a long time.”

He notes that Labour governments between 1997 and 2010 tried to revive the regions outside the booming south-east, rebuilding the country’s social infrastructure and devolving power to Scotland, Wales and Northern Ireland, but failed to stop the riptide of globalisation draining life out of former industrial towns. “It’s hard,” Mr Timothy says, “it will require innovation and experimentation.”

Many economists say Brexit will make Mr Johnson’s task harder. Sajid Javid, chancellor, is keeping a tight grip on current public spending and aims to run a balanced budget on day-to-day spending by 2023. Yet the government’s own leaked analysis in 2018 suggested the Canada-style trade deal with the EU sought by Mr Johnson would cut Britain’s economic growth by up to 5 per cent over 15 years.

Leaving the EU single market will create friction and costs at the border for manufacturers with intricate supply chains — notably aerospace, automotive, chemicals and pharmaceuticals — which are largely based in the industrial areas Mr Johnson has wooed.

The prime minister has promised a £100bn increase in infrastructure spending over five years, funded by cheap borrowing, while the National Health Service, police and science are being prioritised for additional day-to-day cash. Other parts of the public realm, which have lost out during austerity, will continue to feel the squeeze.

A general view shows a wind turbine over the town of Blyth in northeast England on December 13, 2019 the day after the former mining town voted in a Conservative MP for the first time in its history contributing to the Tory party's landslide victory. - UK Prime Minister and Conservative leader Boris Johnson proclaimed a political "earthquake" Friday after his thumping election victory cleared Britain's way to finally leave the European Union after years of damaging deadlock over Brexit. To secure the landslide victory the Conservative Party took a swath of seats from the Labour Party's traditional heartlands in the north and the midlands bringing about Labour's worst election defeat since 1935. One of the first results emphasised Labour's woes, with the former safe seat of Blyth Valley in a one-time mining area in northeastern England voting Tory for the first time in its history. (Photo by Lindsey Parnaby / AFP) (Photo by LINDSEY PARNABY/AFP via Getty Images)

Mary Creagh, a former Labour MP who lost her seat in Wakefield, West Yorkshire, to the Tories in December, says Mr Johnson is “throwing out chaff” — for example his aides have hinted at moving the House of Lords to the northern city of York— to disguise the fact that the government will not have the cash to transform the regions. “Brexit will make the country poorer forever and that means less money for infrastructure and other areas of public spending,” she says.

How far Mr Johnson will move away from the rigorous free market policies pursued by successive British governments, more or less continuously, since Thatcher came to power in 1979 remains unclear. She ended subsidies for struggling industries, such as steel and coal mining, and millions lost their jobs. Many towns, which grew up around a single industry, lost their main source of income and identity.

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Successive Labour governments tried to stem the tide with public spending on new schools, hospitals and community centres but had little success in attracting private sector investment to smaller towns. Economic activity in a globalised world favoured big, well connected hubs with access to skilled workers in the south of the country such as London, Reading and Cambridge.

Britain's Prime Minister Boris Johnson speaks to supporters on a visit to meet newly elected Conservative party MP for Sedgefield, Paul Howell at Sedgefield Cricket Club in County Durham, north east England on December 14, 2019, following his Conservative party's general election victory. - Prime Minister Boris Johnson called on Britons to put years of bitter divisions over the country's EU membership behind them as he vowed to use his resounding election victory to finally deliver Brexit next month. (Photo by Lindsey Parnaby / POOL / AFP) (Photo by LINDSEY PARNABY/POOL/AFP via Getty Images)

Mr Johnson is a full-throated champion of free enterprise, unlike Mrs May, who kept business at arm’s length during her three years in Downing Street. Some, like Tim Bale, a professor of politics at London’s Queen Mary University, question whether the prime minister can persuade his largely southern party to accept an agenda of higher public spending — and probably higher taxes.

“I’m pretty sceptical,” he says. “We have heard this from three Conservative governments under David Cameron, Theresa May and now Boris Johnson. This is basically a small state, low tax, low regulation party which will find it quite difficult to do serious stuff about the structural problems in this country.”

Patrick Minford, however, one of Thatcher’s favourite economists and a prominent Brexit supporter, says it is time for a change. The government should borrow not just to build infrastructure but for day-to-day spending. Pushing growth up to Mr Javid’s ambitious target of 2.8 per cent would also allow room for tax cuts. “Monetary policy has run out of road,” he says. “We need fiscal policy.”

Prof Minford, of Cardiff Business School, says it is “common sense” for Mr Johnson’s government to rescue Flybe— a regional airline and early beneficiary of the new administration’s commitment to the country’s regions — because air travel between provincial cities is important but demand not strong enough to deliver commercially. “Regional airlines have gone bust. But it is vital infrastructure.”

Jim O’Neill, the former Goldman Sachs economist and Treasury minister who helped devise the Northern Powerhouse strategy under the Cameron government, also backed a new approach. “Economic liberalism is supposed to be the best way to deliver productivity gains and in the last decade it has not done that. Across the G7 countries since the financial crisis it has not worked.”

He believes the Treasury should loosen the straitjacket. Mr Javid is rewriting rules, the so-called Green Book, that currently discourage state investment in poorer places. Existing rules mean that areas such as London receive more money because they are more productive. Mr Javid told the FT in January that the rules “ entrench” inequality.

Lord O’Neill argues that the government’s new cost/benefit analysis should take into account one-off transformational gains that fundamentally improve the potential of an economy. But he fears that the new politics favour investing in towns — some now represented for the first time by Tory MPs — as opposed to big cities in the north. Older, less racially diverse and pro-Brexit, these towns backed the Tories heavily even in areas devastated by industrial decline in the 1980s and austerity in the 2010s.

He argues that the economics suggest that building up cities such as Manchester and Leeds as alternative business locations to London will have the biggest impact, with improved public transport allowing peripheral towns to feed off the success of local centres.

Diane Coyle, Bennett Professor of Public Policy at the University of Cambridge, also warns against spreading “the worst kind of jam too thinly”. She questions whether the government has the necessary commitment to close a north-south divide that on some measures was as wide as the one between the old East and West Germany.

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Michael Heseltine Secretary of State for the Environment seen here touring Toxteth following the riots. 25th July 1981. (Photo by Staff/Mirrorpix/Getty Images)

She says Mr Javid’s £100bn infrastructure fund is too small. “It will take hundreds of billions,” she says. “We have not done this since the Victorian age.” Some could be borrowed but “we will have to pay more tax”, she adds.

Like the riots that ripped apart England’s inner cities in the early 1980s, the 2016 Brexit vote forced politicians to reappraise what is happening in their own country. The big test for Mr Johnson remains making good on his “levelling up” slogan.

He models his economic style on Lord Heseltine, who combined support for the free market with a belief that the state can help reverse decline. His role in reviving Liverpool’s redundant inner city docks after the 1981 riots in nearby Toxteth is still seen as a model for regeneration. But the peer says the prime minister has some way to go.

“He calls himself a Brexity Hezza,” Lord Heseltine says. “We shall see.”

The passionate pro-European, now 86, has urged the prime minister to accelerate efforts to push more power and money out to regional mayors to allow local communities to help themselves. “It’s a mistake to say they just have to regenerate the north,” Lord Heseltine says. “They have to regenerate the whole economy.”

The north:
from ‘managed decline’ to election victory

In 1981 — after a summer of inner city riots — the Conservative government of Margaret Thatcher considered abandoning parts of the north to what the then chancellor Geoffrey Howe described as “ managed decline”.

In a letter dated September 4, and only released by the state archives in 2011, Mr Howe, a Cambridge-educated classicist, asked: “Should our aim be to stabilise the inner cities . . . or is this to pump water uphill? Should we rather go for ‘managed decline’?” He realised how controversial the approach would be. “This is not a term for use, even privately,” he counselled cabinet colleagues. “It is much too negative.”

The causes of the Toxteth riots in Liverpool and those in Manchester, Leeds, Birmingham, Bristol and London were manifold. Racial harassment of young black people by the police was the spark, but unemployment rates of as much as 50 per cent in some places had robbed many people of hope as well as money.

Thatcher blamed the poor. “We have a whole generation brought up on five hours a day of TV,” she told the cabinet on July 9. “We have poured money into big employments in Merseyside; a failure.”

As her government cut subsidies and sterling soared, allowing a flood of cheap imports, industry across the north of England and the Midlands collapsed. More than 1m manufacturing jobs were lost between 1979 and 1981. Almost one in five people in the north-east were jobless, compared with one in 10 in the south-east. Hundreds of thousands of people moved south for work.

Michael Heseltine, the then environment secretary, accused his own government of “tactical retreat, a combination of economic erosion and encouraged evacuation”.

Three years later the fight moved from the cities to the coalfields. A plan to shut up to 75 pits over three years sparked a year-long strike across Yorkshire, Durham, Lancashire, South Wales and Scotland. More than 160,000 coalfield jobs were lost in the decade after 1981. By 1996 Grimethorpe, once a thriving pit village in South Yorkshire, was the most deprived area in the UK. And some coalfield communities are still struggling to find a new purpose.

But with memories fading, these are some of the places that overturned 40 years of enmity to vote Conservative at December’s general election, while big cities in the north such as Liverpool, Manchester, Sheffield and central Leeds remain Tory-free zones. Andy Bounds

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