Promises, promises. That is what politicians seeking election make, and the Tory leadership contest is true to type. Boris Johnson promises a massive cut in income tax for higher earners.
Dominic Raab says there is £26 billion of headroom from the Brexit war chest built up by Chancellor Philip Hammond.
Michael Gove wants to scrap VAT and replace it with a lower-rate sales tax. Sajid Javid calls for a £100 billion fund for spending on infrastructure and cutting the deficit more slowly.
Hamish McRae notes that Dominic Raab says there is £26 billion of headroom from the Brexit war chest built up by Chancellor Philip Hammond
But the mathematics won’t change. Our next Prime Minister will have to confront the world as it is, not as he (we now know it will be a he) might wish it to be. War chest? There isn’t one. True, Government finances have been largely repaired and the fiscal deficit is down to a little over 1 per cent of GDP.
That is thanks in part to the squeeze on spending but equally to strong tax revenues, which in turn must be the result of reasonable growth. But we must be close to the top of the global economic cycle. Let’s hope there is some slack in public finances because, my word, we are going to need it.
We don’t know what will happen over Brexit. But we do know a lot about the UK economy, and running that well will be the key to the prosperity of all of us in the years ahead. The next Prime Minister will be dealt an interesting hand of cards, which he has to play as adeptly as he can. He has, I suggest, two long suits and two short.
The long ones are, first, the flexibility of the economy: the ability (and, of course, the ability of its workforce) to adapt to the seismic shifts that are taking place in the world economy. We are number three after the US and China in ‘unicorn’ start-ups, companies floated with an initial valuation of more than $1 billion.
Hamish says: ‘Let’s hope there is some slack in public finances because, my word, we are going to need it’
We have the third highest stock of inward investment in the world, and highest in Europe, as new United Nations Conference on Trade and Development figures published last week showed.
And second, there is strength in services, as the second largest exporter in the world after the US. If the present trade tensions mean the movement of goods will be more restricted, then trade in services becomes relatively more important. This is not just financial services, though they remain massive earners. The top universities, the legal profession, the creative industries are all outstanding. Most countries would love to have them.
As for the short suits, one is our unevenness: the best enterprises are wonderful, but there is a long tail that is mediocre. That is the message from Andy Haldane, the Bank of England chief economist. He argues this country is full of world-leading innovative firms, but their ideas seem slow to spread across the whole economy. This is partly a North-South imbalance, but it is also a big firm/small firm one.
The other short suit is our skill levels. Right now employers are crying out for more skilled workers, and we have perhaps relied too much on foreigners to fill the gaps. It is scary, but whereas in most other countries young workers are more skilled than older ones, here that is not the case.
Eventually Brexit will be out of the way and the Government will have bandwidth to deal with something else. So new PM, please no bombast. Just play your long suits thoughtfully, and figure out how to do something about your short ones.
Oil matters. With gas, it supplies two thirds of the world’s primary energy. While that may shrink over the next 30 years it will do so only slowly. Right now, the world very much needs secure supplies. That is why the attacks in the Strait of Hormuz are so troubling. About one third of all the oil that is carried across the oceans comes through a 21-mile wide gap.
But one of the advantages of the resurgence of oil production in the US is that the world is a little less dependent on the Middle East. Thanks to fracking, the US last year became the world’s largest oil producer, and looks set to remain so for the next five years. In political terms, it is encouraging that the US should be pulling ahead of Russia and Saudi Arabia. In practical terms, it means we can be a little more relaxed about what is happening now – but only a little.