HAMISH MCRAE: UK must play financial cards judiciously

The new adventure begins. If you wanted to choose a moment when the UK starts to direct its economy away from Europe and towards the rest of the world, this is as good as any.

On Wednesday we get Rishi Sunak’s Spending Review, setting out the Government’s plans to direct the 40 per cent plus of GDP it controls.

And we may, at last, catch sight of the terms under which we will trade with Europe, though knowing how these things drag out that may take a few days more.

Drawing a line: Will we, at last, catch sight of the terms under which we will trade with Europe?

But the background to it is a touch more positive than it seemed even a few days ago.

Borrowing in October was the highest ever and the National Debt now stands at £2.077trillion.

But the deficit this year is actually well below the estimates of the Office for Budget Responsibility. Part of that is thanks to higher tax revenues, in turn the result of higher spending.

Retail sales are up six months on the trot and nearly 6 per cent up on a year ago – and Black Friday is still to come.

The borrowing numbers are bad, but they could have been a sight worse.

So what we have to look for on Wednesday will be priorities. What will the Government plan to spend in the next financial year and where?

It is all very well talking about levelling up, or spending money on ‘green’ investment, or building more warships, or whatever. We need to see the numbers.

Come next April when the financial year begins, some sort of normality will have been restored. So this will be our first glimpse of a Government trying to plan rather than having to fire-fight.

My hope is that it will be orderly and rational – a Government that follows the Hippocratic oath, in shortened form: ‘First, do no harm.’

The deal with Europe, be it on Canada terms or Australia terms, will do some harm in the short term, because disruption is always damaging.

Rishi Sunak’s Spending Review is coming on Wednesday, setting out the Government’s plans to direct the 40% plus of GDP it controls

So the trick will be to make sure that it brings benefits in the long run, which rationally it can certainly do.

We can already see some of the impact because disruption from the virus has forced companies to shorten supply lines.

So they buy from UK producers rather than European ones. That choice is available to us too.

Have you noticed the sprouting of union flags on UK produce in the supermarkets? If you believe in supporting domestic suppliers, you know what to do.

There are many areas where this change of direction will need government support.

Take foreign students, hugely important to our universities. There has been a rush of EU students this autumn because new students next year will have to pay international fees, much higher than the UK ones.

So there will have to be a push to get global ones, and the new two-year work visa for them is a really bright idea. Being a magnet for talent is a good slogan for any country.

The City has to grow by looking outwards, and it is encouraging that the authorities are already trying to figure out ways in which it can benefit.

Rishi Sunak has set out plans on how to boost the UK’s position in financial services.

These include allowing European financial institutions to operate in the UK whatever Europe decides about UK ones operating there, boosting cross-border fund management, a business that has been slipping away.

The Chancellor also wants to encourage high-tech companies to list on the London stock market.

Another thing that needs to be done is to find ways of changing pension fund controls so they can put more money into productive investments.

Bank of England governor Andrew Bailey spoke about that last week.

Having a savvy Chancellor is fine, but the Treasury does not intuitively understand the City in the way the Bank does.

This new direction for the economy is a reset that is forced upon us by a string of different things: Brexit and the virus, of course; but also environmental concerns, the shift of the global economy to Asia and a world of zero interest rates.

The good news is the UK has an interesting hand of cards to play – we just have to play it judiciously.