The people will decide the pace of this recovery – the government has to accept that

But there are things, like a value-for-money test to all its spending proposals, that Boris Johnson can implement, writes Hamish McRae

Boris Johnson has been optimistic about the UK’s economic potential (Getty)

Governments can spend money and that can give a short-term boost to the economy. But the recovery will only be sustained if we decide to spend.

There is a sharp contrast between the bubbly optimism of Boris Johnson and the news about the UK and global economies. The prime minister hopes that the country will “bounce back”, and it is certainly true that some sort of revival is under way as the lockdown is progressively lifted. It is also true that it makes sense for governments to use their borrowing power both to push immediate spending power into the economy, and to use the very low long-term interest rates as an opportunity to fund needed investment projects.

But there are limits to what governments can do. It is possible that the economy will indeed recover the ground it has lost in the past four months by, if not the end of this year, some time early next. The International Monetary Fund (IMF) has produced some dire forecasts for the world economy. Ironically the only major country to end up with any growth at all this year was China. The rest of us were all down, the UK by 10.2 per cent, and it is not much comfort that it thought France, Italy and Spain would all be down by more.

The IMF has been overly pessimistic before, particularly about the UK, so we should not dismiss the possibility that it is being too pessimistic now. I think it may well turn out to have been too glum – but we cannot assume that, just as we cannot assume that the optimism of the prime minister will actually have any sustained impact. Besides, spending public money wisely takes time. A government can have a plan to spend money on roads, but that takes months to transform the plan into work on the ground.

What does have a speedy impact is a tax cut, as in Germany where VAT has been temporarily reduced, or as in the United States, where money has been paid straight into people’s bank accounts. But there are objections to both policies. A temporary cut in VAT merely brings forward spending that would have taken place anyway, and cheques into bank accounts go to those who don’t need the money as well as those who do.

Japan’s experience at trying to boost a stagnant economy by more public spending has been discouraging. Despite running huge deficits year after year, and pushing the country’s debt-to-GPD ratio up to 240 per cent, economic growth has been sluggish. Japan’s GDP per head is still below the level it was in 1995. On that admittedly crude measure the country is poorer now than it was a generation ago.

So what should the message to the government be?

I suggest first that it should try not to make mistakes itself. A lot of things are beyond its control, and a lot of the criticism from the armchair generals has been unfair – just because someone did an important job 20 years ago does not mean their criticisms are helpful now. But even its admirers would have to acknowledge that it has made a number of unforced errors. By global standards its performance has been mediocre at best.

So, for a start, what it now has to do is to manage any further outbreaks of Covid-19 in such a way as to contain the damage. The issue here is not only the human and direct economic costs of any outbreaks. It is the knock-on impact on confidence more generally. The government has to try to convey where the risks really lie so that people, who are not stupid, can make their own decisions about their activities.

The next point follows on. It has to make sure that bits of the economy that can safely reopen should be allowed to do so in an orderly way. There is a lot that the government can learn from economies that are successfully reopening, and from those where there have been setbacks. Germany, despite some recent worrying numbers, is in better shape than much of the US – New York seems to be through it, but states such as Arizona, Texas and Florida are not.

In addition, the government needs to apply a value-for-money test to all its spending proposals. In the early stages of the pandemic money mattered less: it was right to throw everything at it. Now the government needs to be cleverer. You can waste a lot of money on unnecessary infrastructure. Japan has. You can also block sensible investment by bureaucratic controls. Japan does that too.

Finally, the government should recognise that it will be the people, particularly the young, who determine the pace of the recovery. One of the positive features of the past few days is the evident willingness of UK consumers to get out and spend. Fingers crossed, they will keep doing so.