HAMISH MCRAE: Britain has turned a corner and four areas of strength make our issues more manageable

Economic commentators don’t agree on much, but in one area last week they found common ground: that the next government will inherit a disaster.

They agreed that the Budget had caused problems in the future. Paul Johnson, director of the Institute for Fiscal Studies (IFS), went further. There was a “conspiracy of silence” between Chancellor Jeremy Hunt and his shadow Rachel Reeves over tough spending and tax decisions in the years ahead. It was the worst fiscal outlook in 80 years.

Actually? There are problems, with tax collection heading towards the highest level of GDP since the late 1940s and pressure on public services. But while the IFS sets the gold standard for independent tax analysis, this time there is a good chance that it and the rest of the economic community will be proven wrong.

It’s a case of Four Weddings and a Funeral. There is a big issue to address, but there are four strong areas that make our fiscal problems more manageable.

Let’s leave aside the funeral. It’s productivity. The Chancellor said that public sector productivity was lower than before the pandemic. It is actually lower than in 1997. It fell steadily until 2010, then rose until the pandemic, by which time it had regained lost ground and moved up. He then collapsed and has yet to fully recover.

This is not about attacking government employees, and remember that in some services higher productivity is not desired. Larger class sizes in schools are not good. But there is a productivity problem in the economy as a whole and a particular one in public services. The next government must remove the blockages that have hampered the private sector and make the areas over which it has direct control much more efficient. Taxpayers rightly demand better value for their money.

Now for the weddings. Outside the United Kingdom it is gradually becoming apparent that a turn has taken place. Both the pound and government debt had their best week this year.

Inward investment has boomed, as Hunt and Kemi Badenoch, the Business Secretary, have pointed out. You no longer hear foreign companies with plants here talking about the cost of Brexit.

A few days ago an article appeared in Bloomberg (which is no enthusiast of UK economic policies) titled “Britain is no longer a basket case, at least for investors.”

Its chief UK economist, Dan Hanson, believes growth this year could reach 1.9 per cent if optimism leads households to spend excess savings. I think there’s a good chance it will happen.

There is a catch: UK assets are being bought cheaply, and private equity firms are sniffing out opportunities that investors in the public markets have failed to appreciate. It’s right to worry about this, but British pension funds are finally starting to think more about investing money in UK shares.

That leads to wedding number two. We need more investment of all kinds if we want the economy to grow faster, and pension fund disclosure requirements are one way to ensure UK savings stay here.

This is something we have asked for and it is a relief to see movement. If pension savers were asked where they want their cash invested, they would surely be horrified to learn that the funds hold just 2.7 per cent of UK shares. This all adds to the impact of a British Isa, benefiting both savers and the economy.

Wedding three is our strong point in the service sector, as we reported on the previous page. There is a great pushback against globalization to the extent that it manifests itself in physical trade, but less so in services. The UK is second only to the US as an exporter of services and that position is likely to grow over the course of this decade.

The final wedding is artificial intelligence. This is the start of something big and can drive efficiency in service industries. In fact, I believe it is the Holy Grail that the world economy has been waiting for. Again, it is particularly useful for the UK.

So, yes, it is a huge fiscal problem, but also a way to solve it. You can see the bottle half full and half empty.