There are two inconvenient if fundamental truths about Britain’s economic and budgetary stasis. The first: Labour’s ceaseless repetition about its terrible legacy has led its army of critics from left and right almost to dismiss the profundity of our economic plight as political staging. Yet a succession of feckless, intellectually bankrupt Conservative governments really did leave a disastrous mess.

The second: while there must be a determined response, it must be more than regressing to the Gradgrind orthodoxies of the penny-wise, pound-foolish “Treasury brain”. A Labour government must have a credible political vision and some imaginative, progressive ways of finessing the desperate need for more resources for defence, together with repairing our overstretched public services; of boosting growth and raising extra revenue that does not provoke electoral wrath. It’s not just the Labour party and its voters that expect this – so do financial markets, which understand that economic and political credibility are intertwined.

Turn to the first truth – that Britain lives on a tightrope. Our international accounts have been in the red continually since 1984, paid for by selling off land, companies and property to foreigners, so we now dangerously owe the rest of the world increasingly more than it owes us. At home, the last primary overall government budgetary surplus was in 2000. The national debt is about 100% of GDP; annual interest payments exceed £100bn and represent close to 4% of GDP. Productivity is poor and its growth paltry. Our stock market ails, with very few hi-tech growth companies. Britain is not the US or Germany, which can and now do take fiscal risks: we are an outlier economy, certainly with some underlying strengths in our innovation and our science base, but essentially vulnerable.

To stem the possibility of a financial market attack, whoever runs the British government would be compelled to forecast that day-to-day public spending is more than matched by day-to-day tax receipts within a five-year foreseeable future. This is not some performative fiscal rule that the chancellor, Rachel Reeves, has willingly imposed on herself to prove her iron credentials; it is an indispensable, minimal guarantor of our creditworthiness and sovereign autonomy.

Thus the expected broad outlines of Wednesday’s spring statement. The Office for Budget Responsibility, given Donald Trump’s assault on the global trading system, will emphasise the precarity of the tightrope by dramatically cutting its economic growth forecasts. By shaving the growth of departmental budgets so they show positive real growth in name only, reinforced by last week’s welfare green paper bluntly curbing the growth of health-related welfare payments, the chancellor will more or less hit the necessary target of day-to-day receipts exceeding spending. With luck and a fair wind, she should avert a repeat of the Liz Truss debacle, which would shatter the government.

But it’s not enough. And so to the second truth. One of the worst mistakes in politics is to imagine that the more emphatically you deny what everyone can see is inevitable enhances your credibility. Wrong. Everyone can see that British defence spending must rise to 3% of GDP or more in the immediate future. And everyone can also see there is no possibility that departmental spending in our already resource-starved public services and welfare system, driven by extensive poverty, can be further shaved to finance that necessary rise.

On defence, there are three options: carve out defence from current spending totals as a separate line item; explain that geopolitics has changed the world, and argue for increased taxes not only on property wealth but higher levels of income; or apply for membership of the proposed EU defence loan scheme. Carve-outs will not fool the markets. The best option is to combine making common cause with the EU – even if there will be horse-trading over its reciprocal requests over student visas and/or fishing access – while also simultaneously levying higher taxes. If fair and reasoned, the electorate will accept them.

Most of the revenue can be allocated to defence, but some must be found to head off another round of generalised austerity. Equally, on welfare there must be a further, and much better thought through, effort to contain its exponential growth. The best way is to have the faith to invest in people. Work opportunities for the one in five adults not working, and especially for the one million 16- to 24-year-olds not in education, employment or training, have to be created and funded (and people rewarded for changing their behaviour). New Labour’s successful Future Jobs Fund showed the way: as a flexible principle, up to a third of the saving through getting a person off welfare and into work should be offered to the employer as a job subsidy; a third could reward those formerly out of work as a wage bonus every year they work; while only the last third should go to the Treasury. Experiment with giving young people an annual £20,000 grant to find work and training; pilots in Wales have been an astonishing success. Create a US-style Civilian Conservation Corps. Use all the leeway possible to boost public capital spending. The aim would be genuinely moral – a mobilisation to give those out of work or with disability and depression a chance to live life.

Equally, there is no growth with no growth companies, a stock market flat on its back and chronically poor investment levels. A devastating recent Goldman Sachs briefing, “A very British problem – low equity ownership and potential solutions”, argues that British pension funds invest less in their own stock market than any other pension fund system in the world. The result is depressed share prices, defensive companies and too little risk capital across the board.

This self-reinforcing doom loop has to be broken. Britain needs much bigger, risk-taking pension funds that can support our too buried innovation capacities. The government has embarked on this process but, amazingly, has abjured from the fastest and most effective option – boosting the publicly owned Pension Protection Fund so it can bring more, smaller pension funds under its wing. But real transformative change, short of mandating investment, is to require that tax concessions on all forms of investment saving should be conditional on investing in Britain.

The sure-footedness and growing confidence that Starmer has shown in handling Trump, Ukraine and the EU now needs to be shown at home. Allow the Treasury mindset to dominate policymaking, and not only will the economy languish, it will break his government.

Some elements are in place. They need to be brought together, built on and fired up – and urgently.