Rachel Reeves would be wise to listen to her former mentor, Mervyn King, when it comes to the Budget

It is rare for a former governor of the Bank of England to make a public intervention on matters of government policy. It is even more unique for this to be done through an open letter to a previous employee of the Bank. Unusual as it is, though, Mervyn King’s avuncular advice to Rachel Reeves – one-time graduate trainee, shadow chancellor and now the real thing – is worth heeding.

Lord King was always one of the more outspoken of governors, not content with simply raising an eyebrow when he observed what was happening around him. His Wulfrunian good sense (Lord King attended Wolverhampton Grammar School) and directness came in very handy during the global financial crisis of 2008, when his concept of taking large equity stakes in stricken banks proved highly effective and protected taxpayers all over the world (his contribution, with colleagues, has still not received the recognition it deserves).

Lord King also possesses a rare gift among central bankers and economists alike: that of being able to explain the most arcane matters of finance in words that a five-year-old child (or a member of the cabinet) could understand. He also has the intellect of a titan and seldom has there been a time when great credibility and authority have been needed more – which he brings with his arguments.

No surprise, then, that he urges the chancellor to adopt a similar posture of unflinching, explicit candour. He is right to tell her to be “ruthlessly honest”, and for the message of the Budget, whatever the detail, to be “kept simple”.

That message should indeed be that raising investment requires consumption to be restrained, because the British have lived behind their means for too long. That means that traditionally weak incentives to save, especially for pensions, need to be strengthened – and, ideally, a revival of the way pensions used to be linked to salaries.

Therefore, Ms Reeves should avoid tinkering with the rules about tax reliefs, national insurance contributions on employers’ payments to pension schemes, and the withdrawal of lump sums. In a world of sometimes terrifying personal financial insecurity, it is surely in the interests of all to keep the pensions sector – to borrow a sadly damaged slogan – strong and stable.

The cost to the economy of penalising pension savings will be felt in a further drop in the domestic funds available for investment. Ms Reeves and her predecessor, Jeremy Hunt, talk about trying to persuade UK pension funds to invest in British business. It makes little sense for the Treasury to simultaneously reduce the funds flowing into these collective pension pots.

Ms Reeves is now known to favour a new way of defining the national debt, introducing a “balance sheet” approach, measuring the assets as well as the liabilities (the national debt). Lord King urges caution, because public assets don’t always yield the financial return that lays the interest due on the money borrowed to pay for them – in stark contrast to the private sector.

His urging of caution in caving into investors’ interests – from trade unions and public sector pay, while balancing the need for growth – is a difficult circle to square. His plea for candour and paying attention to fiscal facts is credible and must be heeded.

He is right to point out that investors in UK government securities won’t be fooled by incantations such as “borrow to invest”; but he should also recognise that many much-needed improvements in national infrastructure will yield a real improvement in national productivity – and thus boost growth and tax revenues. Leaving environmental factors aside for these purposes: expanding our congested main airports, removing road bottlenecks and rail delays should improve the efficiency of all sorts of businesses – and make the UK a more attractive destination for investors.

That said, it would be unforgivable if Ms Reeves were to divert funds that should properly be devoted to productive investment into overly generous pay settlements. Above all, as Lord King puts it, the government needs “a narrative that links the justification of higher investment to reform of public services”. In the case of Sir Keir Starmer, Ms Reeves, Wes Streeting and Liz Kendall, that message has already been received and understood – but not yet fully acted upon. That will take time.

The case Lord King is making is not that the chancellor should be rude or unduly gloomy, or politically suicidal. A purposelessly dismal stance is as bad as the mindless boosterism about “believing in Britain” the Johnson administration indulged in.

Rather, the idea is that Ms Reeves, like her colleagues, has to make the effort to win the arguments and persuade the public – and the markets – that her economic strategy is well founded and has a good chance of success.

Surprisingly, she has not yet fully achieved that. The Budget is the best possible moment for Ms Reeves to chart the course ahead, establish a credible fiscal framework, and explain in the clearest possible terms its intellectual foundations. Her old boss would be very impressed if she did – and so would the electorate that placed its trust in her. As we know, cash is always king – but this time, cash could benefit from listening to this King.