Britain needs a new economic plan to show it is ready for Brexit

Position papers are not enough, the Chancellor must act now to boost the economy’s competitiveness

Slowly but surely, the government is getting its act together on Brexit. It needs to start making actual hard choices in its “position papers”, not merely lists of options, but it is clear from the stream of documents being published that ministers and civil servants are finally gripping the issues in all of their bureaucratic complexity.

Remainian ultras can scream as hysterically as they like, but their most potent accusation – that the government is useless, clueless and unable to understand that Brexit will be won or lost in the legal detail – is no longer credible. Yes, the cabinet remains bitterly divided and, yes, the clock is ticking, but we are in a much better place than we were even a month ago. The UK has finally acquired the intellectual firepower to negotiate competently and to assess all of the trade-offs; that certainly wasn’t true just after the referendum.

There is one critically important area where no progress has been made, however, and that is preparing our economy not just for life outside the EU but for the inevitable bumpy ride as we extract ourselves. There has been a lot of good work on the outwards-facing economic aspects of Brexit – the elements that require treaties and international agreement – but none on the other half of the equation: how to reform our economy to make it more competitive.

In fact, the reverse appears to be true: the Treasury seems as keen as ever to extract as much cash from the economy as possible. Left to his own devices, the Chancellor would doubtless love to dust off his ridiculous tax raid on the self-employed, and he continues to show zero interest in the sort of supply-side revolution the economy so desperately needs.

The immediate threat to Brexit’s success thus lies not with trade and treaty negotiators, or even the terrifying Parliamentary arithmetic surrounding the Repeal Bill: the biggest problem is the dead hand of No11 Downing Street. Instead of working day and night to devise a new economic plan for Britain, the sum total of the Treasury’s contribution has been to fight to “soften” or at least to “smooth” Brexit. When it comes to his core mission of tax and spend, it’s been business as usual for Philip Hammond at a time when exceptional, revolutionary measures are urgently required.

In a rational world, the Treasury’s mission would be threefold: to show business that the UK will be a great place to hire and invest after Brexit; to mitigate the impact on industries that will feel the brunt from any EU protectionism, including banks, airlines, car makers and pharmaceutical companies; and to dramatically enhance the economy’s competitiveness. The constraints are that Tory and DUP MPS need to be kept on side; the UK must keep to WTO rules; and tax cuts need to go far enough to help the economy while stopping just short of triggering a confrontation with EU negotiators.

In part, the issue is ideological: No11 is a hotbed of unreconciled Remainians, the most extreme of whom believe that Brexit will be so bad that the country is to all intents and purposes finished and thus it’s pointless trying to tweak policy. If oblivion is guaranteed, why bother?

That, fortunately, is a minority view: a greater problem is a lack of imagination and a general belief that the status quo when it comes to tax, spending, regulation and the relationship between state and market is pretty appealing. There are almost no voices among the upper echelons of government economists who believe that Britain should embrace a genuinely low-tax, low regulation, high-skills model, a la Singapore, for example. Hammond seems to view the idea as a last-ditch threat, a place of refuge if all else fails rather than an inspiring alternative model for the UK.

One should add into the mix the fact that many Tories have fallen out of love with free markets and wrongly believe that their only hope of preventing a Labour victory is to embrace a soft form of Corbynite economics. This has reduced the Tory pressure on the Chancellor to be more radical. Yet it’s not too late for a dramatic U-turn. The Chancellor must start planning for a bold, exceptional Budget this Autumn, targeted specifically at addressing all of the concerns from business, encouraging investment and sending a very clear signal to the world that Britain will continue to thrive once we leave the EU. The time to act is now.

The good news is that the public finances have stabilised. Last year’s deficit has been revised down to £45.1billion, a substantial improvement on the previous year and manageable at 2.3pc of GDP. The Government even paid back £200million in July, though that was a blip.

Any deficit at this stage of the economic cycle remains too high: the Office for Budget Responsibility even thinks that the shortfall may tick up again this year. We shall see, but had the previous government’s actions matched its rhetoric, the UK would have been in surplus by now. Yet it’s too late to worry about any of this: the need to bolster the economy’s competitiveness matters far more than reducing what’s left of the deficit. Britain needs to borrow a little more to ensure the success of Brexit: it’s a genuine investment that our country must make in its future.

The Budget should include at least £20billion worth of tax cuts and hopefully even more. There should be massive incentives for capital investment. Stamp duty should be slashed across the board to kick-start housing transactions. The banking levy should be cut, and taxes aimed at those industries most affected by EU protectionism slashed. It would make sense to reduce or even eliminate air passenger duty, for example, and to find ways of drastically lowering the tax burden on car makers.

Big businesses need to be jolted out of their sense of despondency and encouraged to invest again. They need a set of dramatic, historic gestures that make it clear that the Government will do everything in its power to help them through Brexit and into a far more prosperous future. The economy doesn’t just need more position papers on agriculture or trade: it needs a comprehensive new vision for growth. Mr Hammond must find it in himself to produce some fireworks, or else he will stand accused of not doing everything in his power to ensure that Brexit is a success.