Let the economic revolution begin

THAT’S that done. What next? As far as Europe is concerned there is a trade-off between access to EU markets and freedom to set our own regulations, and the Government seems set to prioritise freedom over access. So how will it use its freedom (and its majority in Parliament) to push through a new set of domestic economic priorities?

We can already catch a glimpse of what these might be. The country is too uneven, and there will be the obvious emphasis on investing in infrastructure as a way of narrowing the North/South divide. But, actually, the differences are hugely complex and the need is for thoughtful, cost-effective improvements that can be delivered swiftly rather than grandiose projects that can’t.

Whatever you think of HS2, and I am mindful of the economic concept of opportunity cost – what else can you not do because you are putting so many resources into one project? – two things are sure. If it is ever built, it will open years late and will cost even more than the most pessimistic estimates. At least the additional runway at Heathrow and the runway revision at Gatwick can be delivered, and they are both needed.

There are a host of other smaller projects that should be speeded up. Oxford and Cambridge need their muchdelayed rail link because that opens up a belt of high-tech development across Buckinghamshire and Bedfordshire. Plymouth is the largest industrial town on the South Coast, but has poor connections with the rest of the country. We have to do something about the so-called smart motorways. Lots of things to do.

But the new direction for the Government is not only about infrastructure. It is also about innovation. One early example is that last week the Government announced that it had more than doubled its funding for mathematical science. Immigration rules for mathematicians are also being relaxed, fast-tracking their path to settling in the UK.

Another way of fostering innovation is regulatory freedom. As Mark Carney, the outgoing Governor of the Bank of England, suggested, the City would be better off setting its own financial regulations even if that means less access to European business. Last year, the UK was second only to the US in new investment in financial technology, or ‘fintech’, with just under $5billion (£3.8billion). Next came India and China – Europe barely featured.

Industrial strategy has a bad name in Britain. But that was because it used to be propping up failing businesses. The new industrial strategy will be focused on helping businesses in growth sectors. The Government will, for example, no longer need to follow European rules on data protection, which hamper innovation and don’t offer true privacy as they are not enforceable.

An interventionist government is not necessarily a successful one, and governments can certainly waste a lot of taxpayers’ money on grand projects. But we can be sure of this: government economic policy will, for better or worse, be radically different. We

THE coronavirus pandemic is deeply troubling for many reasons, but will it turn into an economic catastrophe as well as a human one? Well, it is certainly going to be very damaging for China, and worse than the SARS experience of 2003, when it lost about 1 per cent of its GDP. But will it have a more serious impact on the world economy as a whole? The answer is probably yes, for three reasons. First, China is much more important today.

Then it was about 4 per cent of the world economy, now it is about 17 per cent.

Second, it is much more integrated with the rest of the world. Then it was mostly a supplier of cheap goods, such as toys and clothing. Now it is a huge market for western goods and raw materials as well as a supplier of sophisticated products and services – and tourists.

Third, the reputational damage to China will linger, for the world now expects China to be able to cope with public health issues, which it is struggling to do. So a big dent to the world economy – and a reminder of how important China has become to us all.

The new industrial strategy will be to help firms in growth sectors have had a political revolution. Now for an economic one.