Shaking the money tree

THE biggest victims of the Brexit political stalemate are the economy and prosperity. Instead of being the opportunity to reinvigorate Britain, the uncertainty created in the bear pit of the Commons means policymakers will be striving to rekindle confidence and avoid recession at one and the same time.

The latest forward-looking economic data points to a slowdown, with services joining construction and manufacturing in the doldrums.

Yet it doesn’t do to be wholly downhearted. The public finances have proved less robust than forecast earlier in the year. The Office for Budget Responsibility has warned that a combination of accounting changes and a bigger central government deficit might mean the UK is as much as £30bn less welloff than looked the case in March.

Nevertheless, the Chancellor Sajid Javid unveiled a 4.1pc increase in day-to- day spending on public services in his 2019-20 spending round, placing the existing fiscal targets in jeopardy. But the jobs market is healthy and with unemployment at 3.8pc of the workforce, income tax receipts are rising. Surging real wages also mean higher spending and VAT payments. This offers some budgetary protection.

It was always going to be the case that the impact of Brexit would have to be offset. Javid put down some intriguing markers for the future in his Manchester conference speech. This dry Tory son of a bus driver recognises that simply leaving future growth to monetary policy and free markets is not an option. A helping hand is required.

Some of that will still come from Mark Carney and the Bank of England, which has wisely kept the interest tool in its back pocket in spite of increased uncertainty.

The lesson of the run-up to the Great Recession is that it is better for the Bank to get ahead of the hard times rather than be in the slipstream, which has been the fate of the European Central Bank. The Chancellor’s speech in Manchester was largely judged on the politics, amid worries that the Tories have abandoned sound public finances.

But with UK and global interest rates still low, borrowing for infrastructure and improving the skills base of the economy is not tipping resources into a black hole. Some of our more forward-thinking and better endowed companies already are doing this. Banks are criticised for closing branches which is unhelpful in remote communities. BUT at Lloyds, former tellers are being trained in digital skills and some £3bn is being invested in fintech beyond the routine IT maintenance budgets.

The most ambitious proposal in Javid’s speech was the commitment to lift the National Living Wage to £10.50 per hour over the next five years and to extend it to all workers above the age of 21.

In the past, a rising living wage was seen as an obstacle to job creation. But that has not proved the case. Moreover, it is so much more attractive than Labour’s proposed Universal Basic Income, which the IMF has concluded could be a disincentive to work.

Javid’s pledge of £220m for buses and a National Bus Strategy is not just rhetoric. It is one the ‘Big Six’ areas for investment identified by the Bank of England’s Andy Haldane as a means of ending regional and intra-regional economic under-performance and inequality.

In a speech in Newcastle last week, in his role as chairman of the Industrial Strategy Council, Haldane identified transport and inequality, schools and education, housing and shelter, the High Street and social spaces, good work and fair pay and financial inclusion as issues which need addressing.

Many of these are partly covered in Javid’s spending review and conference speech, suggesting that the Right has an agenda for dealing with the post crisis and austerity injustices rooted in better governance and the free markets.

With a national debt at 86.6pc of output, the UK cannot afford to be profligate. But loosening the fiscal stays to address economic shortcomings and to build a better skilled and paid workforce must be correct.

Javid is swimming against the tide of Treasury orthodoxy. Former mandarin Nick Macpherson tweeted after the spending review that after ten years at the coalface putting things right under Messrs. Darling, Osborne and Hammond, ‘you see a new government gambling it all’,

In times of political turbulence and economic uncertainty, the money tree needs to be shaken.