YOU couldn’t make it up. The Tory Cabinet – remember “strong and stable government”? – is in total meltdown, with ministers furiously leaking and briefing against the Chancellor of the Exchequer. In retaliation, Philip Hammond went on Andrew Marr to attack his internal party critics and attempt to explain away his sexist comments about driving a train being “so easy a woman could do it”. Mr Hammond, you see, wants to replace a woman as PM.

The Chancellor’s game plan is to rally the anti-Brexit wing of the Conservative Party while showing he is “tough” by holding the line against public-sector wage increases. Vainly he used last week’s full Cabinet meeting to reject scrapping the one per cent public-sector pay cap, claiming that state workers were overpaid – even though the real incomes of more than five million of them have fallen since the Tories came to power. This from a man who earns £143,000 per annum plus a free house and chauffeured limo. Note: in the year Hammond has been Chancellor, the UK slumped to the bottom of the league of G7 industrial countries in economic growth.

North of the Border, recent economic news is a bit brighter. Official figures issued last week showed Scottish GDP grew by 0.8 per cent in the first quarter, compared with just 0.2 per cent for the UK as a whole – confounding many Unionist critics who were predicting a Scottish recession. Part of the uptick was due to the resumption of steel production locally after the Scottish Government intervened to save the Dalzell plant.

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There are also welcome signs of a revival in production sectors linked to North Sea energy. UK Oil & Gas UK, the industry trade body, is forecasting that companies operating in the North Sea sector will generate £5 billion of free cash flow in 2017; ie make that amount in excess of what they spend on capital investment and maintaining the physical assets. Sadly, under our over-generous tax and decommissioning rules, that income goes straight to the energy companies.

That said, the Scottish Government has to focus on boosting productivity and output, especially given the looming disaster of a hard Brexit. Our recent economic track record is positive and would have been worse without even the modest powers devolved to Holyrood. But we have not managed anything truly transformative. According to the respected EY Item Club, Scotland’s growth between 2010 and 2015 was the same as the rest of the UK, when you take out the London bubble economy. That’s nowhere near where we need to be.

Worse, with the London bubble showing signs of bursting post Brexit, our English trading partner is not the market for Scottish goods it once was. Remember that fall in Scottish output in the last quarter of 2016? Some of that was down to a sudden fall in exports to English consumers. We can expect more of that if inflation continues to eat away at English household income. On top of that, we are coming to the end of a raft of big public-sector construction projects in Scotland. All of which points to the fact that we need a new domestic boost to the local economy. But from where?

There are some obvious things to do. The scale of housing construction is still not good enough, for instance. The Scottish Government has done its bit but you might be surprised to learn that there were only 88 more homes completed last year than in 2015. We might get that up a tiny bit in 2017 but we are still way below building the annual number of new houses that we did back in 2007 – by a factor of a third. Getting back to building 25,000 new homes a year would boost GDP growth substantially.

The bottleneck is neither housing demand nor – surprisingly – the granting of planning permission by local authorities. The issue is down to the volume housebuilders developing their land-banks in penny packets, the better to keep selling prices high. One solution is for the Scottish Government to step in and alter the rules so it becomes easier to get mortgages for so-called “non-standard” kit houses that are popular in Scandinavia and Germany. This would allow a wave of new, locally owned Scottish builders to manufacture these eco-friendly modular houses on a mass scale, undercutting the traditional builders and creating competition in the sector.

YET the Scottish Government needs to go further and make a radical intervention in the economy by creating its long-promised Scottish Investment Bank (SIB). There is a prototype SIB being run by Scottish Enterprise. But this only takes a modest equity stake in firms; it does not actually lend on a large scale to fund strategic capital investments. A true SIB would act as a major development bank, boosting industry. Just before the General Election myself, Ian Blackford and a number of SNP MPs had dinner with a very senior Scottish banker to discuss how to boost the local economy. There was little meeting of minds. This banker argued that the problem was a lack of firms and ideas to invest in, not a lack of cash. We disagreed. Firstly, anyone who says there is a lack of entrepreneurial drive in Scotland hasn’t looked out of the window recently.

Second, entrepreneurs want risk capital, not bank loans with strings. And they need it not for six months or a year, but for the time it takes to create and dominate a market. Note: after 13 years, Elon Musk has pissed billions up a wall trying to create a global electric (and robot) car industry – but his company is now worth more than Ford, because he is investing in the future.

We don’t have an Elon Musk in Scotland – certainly no-one with his kind of private cash – so the state will have to do the job. But the state can’t pick winners, shout the neo-liberals and Labour Blairites in chorus. They forget that neither can private individuals. Just think of what Fred Goodwin did to RBS. It is the market in retrospect that justifies an investment, private or public.

There are ways of ensuring the new SIB makes the best use of its cash. First, it should invest widely rather than gamble on one lottery ticket. I’d pump capital long-term into 20 or 30 Scottish-owned, high-tech firms. Even if only one becomes a global giant, it will offset what is spent on the rest. Second, invest in companies and individuals, not ill-defined “sectors” (as is typical with Scottish Enterprise).

Finally, the SIB (backed by Scottish Government) should focus on “mission-oriented” investment. In other words, deliberately not try to identify specific “winning” new technologies – you only know that in retrospect. Instead, use the public will to identify things we want done and then fund competing entrepreneurs to seek solutions we don’t yet know about. For instance, what about stimulating better, eco-friendly house construction? What about meeting specific new medical needs? What about robots to do targeted jobs? The Scottish Investment Bank is (theoretically) SNP policy. But it would be grand if party branches bombarded the October conference with motions to actually do something about it.