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HAMISH MCRAE: Now listen to business, Rishi

HAMISH MCRAE: Sunak must listen to the business community about the things that are holding it back

There are just ten days to go before the Budget – and ten days to get policy right for the recovery. First, some good news. 

The public finance numbers are looking much better than expected, or at least expected by the Office for Budget Responsibility. This means that tax rises can be put on hold.

The deficit is still huge, let’s be clear about that. But with the January numbers now in it looks as though the deficit will be way below the £400billion expected by the OBR. At the end of January it was £271billion, so with only two more months to go in this financial year, it should end up around £325billion.

Looming Budget for Sunak: ‘A prime example of the need to listen will be the City’, says McRae

Quite why the OBR should be so wrong will take a while to emerge, but I think it misses the intuitive judgment of Sir Robert Chote, its former chairman.

The most encouraging number in the latest Government accounts is not the borrowing but the tax revenue. This is down 6 per cent on the previous year, which suggests that the economy is not down by the 9.9 per cent officially recorded, but by quite a bit less. 

We can be pretty sure that it will race out when the brakes come off and when that happens tax revenues will bounce back.

It may be, fingers crossed, that revenues will recover fast enough to enable us to dig our way out without any serious increases in tax rates.

The task for Rishi Sunak when he presents the Budget on Wednesday week will be to keep that momentum going. How can he meet that challenge?

The answer will lie in the detail. This is not a big tax or big spending thing, though more money will have to be spent on easing companies over those last few weeks before the recovery takes hold. 

He deserves a following wind – and, my word, we all do 

Rather it will be about listening to the business community about the things that are holding it back, and then making a measured judgment between what would be nice to do and what absolutely must be done.

A prime example of the need to listen will be the City. It has become clear that a fair bit of European business will go back to the EU, or go to New York since it is offered better terms than in London. The loss may be much less than the pessimists forecast, but it is a loss nonetheless.

There is no point in fulminating about the irrationality of Brussels, or the damage done to European companies that have to pay higher financing costs. What is needed is to figure out how to promote our financial services to the 85 per cent of the world economy that is not in the EU. That will be a mixture of legislation, regulation and taxation.

We used to be good at this. London created the modern global money markets in the 1960s, when bankers realised that they could deal in dollar deposits in London as well as New York. 

They created the Eurobond market when the US introduced a tax on US bond issues in 1961. And then with the Big Bang reforms of 1987, London quite suddenly pulled level with New York and then spurted ahead in international financial business. We need to create that mindset – looking out, not in – again now.

Rishi Sunak understands all this. So too does Andrew Bailey, Governor of the Bank of England, who started his career at the Bank just before Big Bang, when it was the de facto sponsor of the reforms. But, of course, this is not simply a financial services thing.

The entire economy needs to look outwards. You don’t do this by telling people to do so. You do it by removing regulatory blockages, making modest tax reforms, and allowing the magic of enterprise to show through. The Chancellor deserves a following wind – and my word, we all need one too.

Rising: The pound pushed back above $1.40 on Friday

Rising: The pound pushed back above $1.40 on Friday

The pound pushed back above $1.40 on Friday. About time too, you might think, for the natural range for most of the past 30 years has been in the $1.50 to $1.70 region, with only quite brief forays below $1.40 or above $1.80. We are not back to that band yet, though I could see that happening before the end of the year.

What I think this means is that the excessive absurd negativity about the UK economy is starting to fade. People who have bet against sterling, and there were many, have lost money. Nothing like losing money to make you rethink your view of the world.

There are big problems with the UK economy, as there are with all economies. But I suggest that the rehabilitation of the pound in the eyes of the global investment community means that it will get a fair hearing, not a prejudiced one.

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