Latest / Merryn Talks Money / Andy Haldane on Britain’s Fiscal Squeeze and Growth Problem

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Andy Haldane on Britain’s Fiscal Squeeze and Growth Problem · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
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  Speaker 2: Welcome to Merrin Doalgs Money. The podcast is which people
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  Speaker 2: who know the markets explain the markets. I am Maren
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  Speaker 2: Thumbset Web and this week I'm speaking with Andy Haldane,
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  Speaker 2: former chief economist at the Bank of England. Andy, Welcome
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  Speaker 2: to Merrin Talks Money, Marin.
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  Speaker 3: It's wonderful as ever to be joining you.
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  Speaker 2: Well, the UK knocks around us that are number six
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  Speaker 2: in the world in terms of GDP as a whole,
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  Speaker 2: go down to GDP per capita GDP per head and
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  Speaker 2: we're actually knocking around twenty six twenty seven, which I
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  Speaker 2: think is something of.
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  Speaker 4: A shock for most prints. We're poor, We're not getting
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  Speaker 4: any richer. Our economy is a mess even our housing
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  Speaker 4: market is a mess up. I find it quite hard
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  Speaker 4: to find those optimistic phones in my body right now.
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  Speaker 2: And you know, even as we are speaking. We're speaking
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  Speaker 2: by the way, on Tuesday the twenty first, just as
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  Speaker 2: I was waiting Andy for you to come on, I
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  Speaker 2: was having it look at what was going on in
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  Speaker 2: the stock market, and I see that chrish Nicholson is
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  Speaker 2: down thirty nine percent in a matter of minutes on
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  Speaker 2: a profit warning I mean, quite a bad profit warning,
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  Speaker 2: but nonetheless just another example to me of the extraordinary
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  Speaker 2: fragility of everything in the UK at the moment. So listen,
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  Speaker 2: I'll tell you what. Andy, Let's start with some of
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  Speaker 2: those miserys. Got to take this seriously. No, let's start
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  Speaker 2: with the UK's fiscal situation. We redo have a very
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  Speaker 2: major problem there and it makes it really hard for
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  Speaker 2: us to start doing the things that we need to do.
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  Speaker 2: And the classic problem that, of course, is defense. We know
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  Speaker 2: we have to spend more money on first, but we
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  Speaker 2: simply don't have the money. A fiscal situation is just
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  Speaker 2: too tis So let's start.
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  Speaker 3: There.
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  Speaker 2: Is there any hope that you can find in the
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  Speaker 2: UK's fiscal situation?
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  Speaker 3: There's up you hope, and I fear you punctured my
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  Speaker 3: balloon before I even inflirted it. There, right, the let's start. Listen,
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  Speaker 3: The starting is not as anyone would wish. Growth is
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  Speaker 3: too low, inflation is too high, and the physical position
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  Speaker 3: is far too precarious. That is why when the world sneezes,
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  Speaker 3: the UK catches the cold. And this year has been
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  Speaker 3: another example of that being the case. We are a
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  Speaker 3: high beta leveraged bet on the global economy this year
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  Speaker 3: has demonstrated that as if we needed proof. Nonetheless, and
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  Speaker 3: all matters fiscal I agree with you. We are in
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  Speaker 3: straightened physcal times. You know, our debt stock relative to
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  Speaker 3: national income has traveled over the course of this century.
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  Speaker 3: We have yet to run a fyscal surplus this century.
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  Speaker 3: We're shelling out now North vendera billion pounds each year
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  Speaker 3: just in interest payments. So I would say there is
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  Speaker 3: very little, if any physical space left unless some hard
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  Speaker 3: choices are made about cutting spending. I think we are
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  Speaker 3: taxed out as a nation. We are maxed out when
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  Speaker 3: it comes to borrowing. So the knife must fall on
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  Speaker 3: public spending. If we are to chusele out some more
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  Speaker 3: room for defense spending, which surely we must, which surely
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  Speaker 3: we must in these insecure times.
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  Speaker 2: There is time levin kunter intruct you before on for
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  Speaker 2: the butt, which I'm really looking forward to, really looking
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  Speaker 2: forward to the butt. But you know, historically, when you
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  Speaker 2: look at UK tax to GDP numbers, you know, all
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  Speaker 2: countries and one of the odd things about countries and
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  Speaker 2: tax right, all countries seem to have their own limit
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  Speaker 2: when it comes to the percentage of GDP. They're prepared
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  Speaker 2: to stump up in tax and historically for the for
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  Speaker 2: the UK it's knocked around thirty six thirty seven percent,
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  Speaker 2: and we're now heading for over forty percent, which seems
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  Speaker 2: unsustainable anyway.
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  Speaker 3: Yes, yes, I think we are. I mean even the
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  Speaker 3: Office for Budget Responsibility in its report around the spring
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  Speaker 3: statement a few weeks ago pretty much set as much,
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  Speaker 3: albeit in slightly closeted terms, that we are reaching the
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  Speaker 3: point where any further rises in the tax rate risks
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  Speaker 3: shrinking revenues I buy, disincentivizing, whether it's working or or
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  Speaker 3: selling a business or wherever it might be.
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  Speaker 2: So we may even be there already. We don't know.
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  Speaker 2: We'll only be able to see over the next couple
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  Speaker 2: of years whether we've already raised rates to the point
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  Speaker 2: in the left at cut for everyone goes, well, do
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  Speaker 2: you know what I.
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  Speaker 3: Want to exactly? So you know wherever precisely we are
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  Speaker 3: certainly near to that point. So the name of the game,
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  Speaker 3: if we are to cut ourselves, some fiscal slack will
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  Speaker 3: be about spending.
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  Speaker 2: Cuts and so where do those cuts spend? Again? Where
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  Speaker 2: do those cuts come again? Before we get to the
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  Speaker 2: butt which, as I say, I'm looking forward to where
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  Speaker 2: would those in your mind? Where would they come? I'm
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  Speaker 2: one of the numbers that I give looking at and
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  Speaker 2: some incredulity is the fact that welfare spending is now
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  Speaker 2: the same slightly higher as the total income tax take.
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  Speaker 2: Now we can we talk about well welfare is mending
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  Speaker 2: or including pensions. But nonetheless, if you say to a
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  Speaker 2: young person to know, by the way, every penny, every
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  Speaker 2: penny that you pay an income tax is going in welfare,
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  Speaker 2: is going on some kind of benefits spend that hurts.
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  Speaker 3: That hurts well, I mean, the only two places where
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  Speaker 3: you find yourself some real money is either the NHS
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  Speaker 3: budget or the welfare and pensions budget. And to be clear,
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  Speaker 3: so the welfare and pensions in total is north about
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  Speaker 3: a third of a trillion pounds per year, which.
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  Speaker 2: Three hundred and thirty something brilliant.
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  Speaker 3: Yeah, of which actually the larger part goes on pensions
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  Speaker 3: rather than welfare. Indeed, it's the pensions bit that's been
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  Speaker 3: rising more rapidly that rather than the welfare bit. So
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  Speaker 3: I would say, on the assumption, which is not an
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  Speaker 3: unreasonable assumption, that the NHS has some special status, and indeed,
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  Speaker 3: giving our health challenges, it'd be hard to take the
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  Speaker 3: knife to that anytime soon. I think then the acts
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  Speaker 3: would need to fall. If you're finding yourself a decent
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  Speaker 3: chunk of change, I'm talking you know, real money, tens
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  Speaker 3: of billions. You know, if we are on defense, if
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  Speaker 3: we're shy of two and a half percent of GDP,
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  Speaker 3: you need to get said of three and al percent
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  Speaker 3: of GDP. That's an extra one percent of GDP around
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  Speaker 3: thirty billion per year. You're not getting that out of
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  Speaker 3: any budget other than NHS or wealth pension. So I think,
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  Speaker 3: looking seriously at the triple lock, looking seriously at the
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  Speaker 3: allocation of welfare spending, is I think a cineque non
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  Speaker 3: as getting to a more defensible position.
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  Speaker 2: On defense, There's been talk about war bonds, defense bonds,
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  Speaker 2: launching a specific class of guilt for defense. That make
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  Speaker 2: any sense to you? I mean, I look at that
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  Speaker 2: and I think when I tell you how that it
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  Speaker 2: could really work, and it's been suggested by a few
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  Speaker 2: people it would really work if you said, you know what,
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  Speaker 2: we're going to lot to use new bonds specifically with defense.
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  Speaker 2: And we don't normally hypothecate in the UK, but you know,
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  Speaker 2: why not at this point if you made those defense
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  Speaker 2: guilts free of inheritance tax.
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  Speaker 3: So on this two things. One. I think that is
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  Speaker 3: an avenue, but I wouldn't pursue it as an alternative
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  Speaker 3: to doing something on spending. I think the market's tolerance
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  Speaker 3: for this the credibility of the UK's physical position. First
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  Speaker 3: thing is buttressing, and buttressing means this government demonstrating it
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  Speaker 3: has the ability to make difficult, politically difficult choices around spending.
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  Speaker 3: I think without that any further borrowing risks of raspberry
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  Speaker 3: from the markets subject to that, do I think there's
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  Speaker 3: something that could be separately labeled and separately marketed. I
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  Speaker 3: think probably yes. Would that require a tax suiteener either
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  Speaker 3: inheritance or maybe even a spart of the temporary extension
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  Speaker 3: of the iSER allowance? Yes, I think as you know,
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  Speaker 3: and have you spoken about extensively, I think you're right
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  Speaker 3: to speak about it. We have north of two trillion
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  Speaker 3: pounds parked up in cash earning negative real returns. Bringing
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  Speaker 3: some of that into the equation in a sort of
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  Speaker 3: patriot bond, a war bond. I think that could be
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  Speaker 3: quite good marketing, quite good fiscal arithmetic. So yes, I
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  Speaker 3: think that ought to be an option on the table,
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  Speaker 3: but as a compliment to rather than substitute four doing
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  Speaker 3: something on spend.
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  Speaker 2: Okay, and I suppose none of this would matter, None
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  Speaker 2: of this would matter at all if the economy was
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  Speaker 2: grown properly. I mean one of the this is the
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  Speaker 2: core problem. This is the core problem. If the economy
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  Speaker 2: was growing properly, you know, in real terms, by two
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  Speaker 2: four percent a year, if GDP PAD capital was growing
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  Speaker 2: at any particular speed, then we wouldn't particularly have to
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  Speaker 2: worry about cutting spending because these problems take care of themselves.
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  Speaker 2: But it's just not it's just not. So this is
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  Speaker 2: where we come to your butt, which is going to
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  Speaker 2: be just not yet.
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  Speaker 3: And you're right, I mean, growth is the great redeemer
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  Speaker 3: for debt problems, probably debt forms in particular. You grow
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  Speaker 3: your way rather than digging your way out of a
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  Speaker 3: debt problem. So that that AP's the anti honors making
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  Speaker 3: good on the afterd claim from politicians over many decades now, Marin,
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  Speaker 3: who have had growth as their number one objects. Here's
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  Speaker 3: the but here's the good news. Right, if you were
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  Speaker 3: a Martian or any other planet actually alien, looking at
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  Speaker 3: not the public balance sheet but the private balance sheet
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  Speaker 3: of the UK, you would say in aggregate, it is
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  Speaker 3: in rude health. Okay, I mentioned those fiscal deficits that
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  Speaker 3: have been running for the whole century. Actually, both households
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  Speaker 3: and companies in the UK are running financial surpluses and
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  Speaker 3: if you look at their balance sheet fundamentals, levels of
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  Speaker 3: debt both corporate and household are at modest levels by
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  Speaker 3: historical standards. So in terms of the balance sheet fundamentals
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  Speaker 3: of UK POC, we are poised for liftoff. There is
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  Speaker 3: plenty of fuel in the tank, plenty of ammunition there
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  Speaker 3: to be fired. Balance sheets are poised to be put
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  Speaker 3: to work investment spending and the like. So the you know,
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  Speaker 3: this is one source of optimism. If the private balance
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  Speaker 3: sheet was broken as well as the public balance sheet,
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  Speaker 3: that would be a counsel despair. As it is, private
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  Speaker 3: balance sheets are in pretty good shape. Not everywhere and
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  Speaker 3: for every company or household, but in general they are.
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  Speaker 2: Well, that's nice, but you have to but you have
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  Speaker 2: to then look at that and say find that it
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  Speaker 2: might be a reason why people aren't spending and investing
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  Speaker 2: and something has to change to incentivize them to do so.
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  Speaker 2: And a very high tax, very high regulation, very politically
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  Speaker 2: uncertain environment makes that difficult.
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  Speaker 3: It does, it does. So what's getting in the way,
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  Speaker 3: you know, why are they saving rather than spending their
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  Speaker 3: balance sheet? Why are they not putting it to work?
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  Speaker 3: I mean, part of it's the way of the world.
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  Speaker 3: Let's be honest. The world is a noisy and certain place,
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  Speaker 3: and I totally get the desire to squirrel away some
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  Speaker 3: money for a rainy day. And let's be honest, this year,
• 12:09
  Speaker 3: once again has brought a whole sequence of eight weeks
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  Speaker 3: of rainy days since the Ronian crisis struck. So some
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  Speaker 3: of that is just the way of the world. But
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  Speaker 3: you're right, a chunk of it is domestically induced self harm,
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  Speaker 3: if you like, which is uncertainty around policy, which has
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  Speaker 3: been very acute over the past few years. Mean, both
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  Speaker 3: Budget twenty four and Budget twenty five took the legs
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  Speaker 3: from beneath the animal spirits of companies and households, either
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  Speaker 3: because a fearfulness of tax rises or in some cases
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  Speaker 3: because of a short tax rises. So we need government
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  Speaker 3: and policy to sign the hippocratic of and to genuinely
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  Speaker 3: do no harm. I think the Spring Statement did a
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  Speaker 3: reasonable job on that actually, in that it was a
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  Speaker 3: It was a much smaller no news event, and that
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  Speaker 3: was better than some of its predecessors. But more than
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  Speaker 3: that the government. This government and previous ones need to
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  Speaker 3: get serious about providing the enabling environment for spending to
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  Speaker 3: take place, for animal spirits to be revivified, for balance
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  Speaker 3: sheets to be put back to work. We have a
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  Speaker 3: UI to discuss this previously. We have a crazy tax
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  Speaker 3: system in this country, not just the level of rights,
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  Speaker 3: which we've discussed, but it's complexity twenty one thousand pages,
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  Speaker 3: among if not the longest in the world. Taking a
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  Speaker 3: chainsaw or a pickax to that rather than the pruning
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  Speaker 3: shears is absolutely what was needed. And what's true of
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  Speaker 3: tax is also true of regulation. Again, it used to
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  Speaker 3: be a regulative having's sake, you know, But nonetheless, the
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  Speaker 3: individually well intended actions of now more than one hundred
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  Speaker 3: regulators in the UK, noneth less, can collectively add up
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  Speaker 3: to a quagmire. And that is where we find ourselves.
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  Speaker 3: And on both regulation, to a lesser extent, on tax,
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  Speaker 3: this government, like its predecessors, has talked big and acted small,
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  Speaker 3: and that is that will need to change if we
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  Speaker 3: are to have companies and households put their balance sheets
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  Speaker 3: back to work.
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  Speaker 2: Yeah, I mean, I think you're absolutely right that in
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  Speaker 2: many cases it's often less the rate of tax, particularly
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  Speaker 2: when it comes to corporate activity. And you know, starting
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  Speaker 2: a small business for example, or anything like that, you know,
• 14:50
  Speaker 2: you don't tend to think about the actual rate of
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  Speaker 2: tax when you do that. What you do think about
• 14:53
  Speaker 2: is the admin hurdles, the admin and regulatory hurdles, and
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  Speaker 2: these are so difficult. And we know, you know, in
• 15:00
  Speaker 2: the great Taxi billionaires saga that we hear all the time,
• 15:03
  Speaker 2: we know that actually the majority of the tax gap
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  Speaker 2: comes from corporates, from small businesses, and a lot of
• 15:09
  Speaker 2: that will maybe some of it's celeberate, but a lot
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  Speaker 2: of it is just I can't do this admin. It's
• 15:12
  Speaker 2: is just too hard.
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  Speaker 3: As someone who's their own small business for years ago,
• 15:17
  Speaker 3: I've felt the full force of that, and I've been
• 15:20
  Speaker 3: absolutely you know, I heard the howls of derision. But
• 15:25
  Speaker 3: now having sampled this myself, I'm completely with small business
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  Speaker 3: owners and thinking this is an endless and rising tide
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  Speaker 3: of compliance, which, again you know, individually well intentioned, but
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  Speaker 3: the collective consequence I think is an overburdened engine of
• 15:46
  Speaker 3: the economy because of course corporates are the engine of
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  Speaker 3: the economy.
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  Speaker 2: Yes, And it's an interesting, utter failure of the public
• 15:53
  Speaker 2: sector to understand the extent of the friction that is involved.
• 15:57
  Speaker 2: I mean, we always say when it comes to you
• 15:59
  Speaker 2: right about investing well by investing in personal finance a lot.
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  Speaker 2: And one of the things that prevents people investing prevents
• 16:04
  Speaker 2: them sorting out their personal finance. It's friction. It's admin. Literally,
• 16:08
  Speaker 2: there is nothing in the world that people hate more more,
• 16:12
  Speaker 2: I guess, But in general admins admin is everybody's personal.
• 16:17
  Speaker 3: Health, yes, and an overly complex admin of that the
• 16:21
  Speaker 3: users for every report. So there's lots that could be done.
• 16:23
  Speaker 3: I mean the good news is because there's a risk
• 16:26
  Speaker 3: there of is disappearing down a plocol Again, I blame
• 16:28
  Speaker 3: you fixable with the political will and a degree of
• 16:34
  Speaker 3: political skill. These are fixable problems. They are not intractable.
• 16:38
  Speaker 3: They're difficult, but they're not intractable problems to solve. And
• 16:45
  Speaker 3: in the spirit of adding in a further dose of optimism,
• 16:51
  Speaker 3: whisper it quietly, but UKPLC might be the most innovative
• 16:56
  Speaker 3: nation on the planet. Absolutely. Look at the pipeline of
• 17:05
  Speaker 3: venture capital backed businesses that are growing like topsy and
• 17:12
  Speaker 3: we rank you know, this will be businesses you know,
• 17:15
  Speaker 3: north of twenty five million a year revenue. So not
• 17:18
  Speaker 3: not yet unicorns, not yet with wings, but nonetheless the
• 17:24
  Speaker 3: cults and thoroughbreds that are rising at real pace, the
• 17:30
  Speaker 3: businesses we know are the wellspring of job creation, of
• 17:36
  Speaker 3: value creation on our productivity generation. If you rank the
• 17:42
  Speaker 3: UK on the absolute number of those cults and thoroughbreds,
• 17:47
  Speaker 3: short of unicorns, but nonetheless with the potential to grow wings,
• 17:51
  Speaker 3: we rank third behind the US and China in numbers,
• 17:55
  Speaker 3: not a per capita basis. Just guess what a lot
• 17:58
  Speaker 3: more people in China and the US and there are
• 18:00
  Speaker 3: the UK. We are towards the top of the pops.
• 18:04
  Speaker 3: So when it comes to potential scale ups the unicorns
• 18:09
  Speaker 3: prospectively of tomorrow, we are an innovation nation. We are
• 18:16
  Speaker 3: smashing the lights out relative to the rest of Europe
• 18:18
  Speaker 3: and arguably even relative to the US. The key metron is,
• 18:26
  Speaker 3: of course, to nurture those cults and thoroughbreds, to enable
• 18:31
  Speaker 3: them to grow the weeks.
• 18:32
  Speaker 2: Because now this is slightly the problem, isn't it that
• 18:35
  Speaker 2: we can we can be first in terms of exciting
• 18:37
  Speaker 2: companies and we're still twenty seventh in terms of GDPKO capita.
• 18:41
  Speaker 2: How do we keep those companies here? I mean, you know,
• 18:44
  Speaker 2: twenty years ago, companies of that size that you're talking
• 18:46
  Speaker 2: about WUD already have listed and the wealth would already
• 18:49
  Speaker 2: have been shared around. That's not the case now. So
• 18:52
  Speaker 2: how do we keep those companies here? How do we
• 18:53
  Speaker 2: encourage more of them? And crucially also from from our
• 18:56
  Speaker 2: point of view, how do we get those companies to
• 18:59
  Speaker 2: list and make the UK stock market part of the equation.
• 19:03
  Speaker 3: Yeah, yeah, so lots in there. Let me pick off
• 19:07
  Speaker 3: some bits of them. So obviously, the better the enabling environment,
• 19:12
  Speaker 3: all the stuff you mentioned earlier on, the more likely
• 19:15
  Speaker 3: it is that they will grow, the more likely is
• 19:17
  Speaker 3: that they will stay. So that's a kind of prerequisite
• 19:20
  Speaker 3: I think for growing our own given that the sea
• 19:24
  Speaker 3: corn is plentiful and strong. When we look at you know,
• 19:32
  Speaker 3: the UK scale up problem is not a new problem.
• 19:34
  Speaker 3: It just happens that we've got a particularly good crop
• 19:39
  Speaker 3: just at the moment. The obstacles are partly financial and
• 19:45
  Speaker 3: looking for ways of you're widening that pool of BC
• 19:52
  Speaker 3: or PE or indeed public listing of companies. Smoothing the
• 19:57
  Speaker 3: passage of that I think is really Importantn't the engine
• 20:02
  Speaker 3: of that Again, there's not surprised to anyone needs to
• 20:07
  Speaker 3: be our own patient capital investors, pension funds, insurance companies
• 20:11
  Speaker 3: investing more in UKPLC. We are the only pension fund
• 20:16
  Speaker 3: on the planet that does not have a home bias
• 20:20
  Speaker 3: towards our own companies and that is ridiculous and that
• 20:26
  Speaker 3: needs to change, and that.
• 20:28
  Speaker 2: Then provides mandate that change. Sorry, would you mandate that change?
• 20:33
  Speaker 3: No, I wouldn't mandate it, but I would, you know,
• 20:37
  Speaker 3: I would expedite our facilitation of that by you know,
• 20:44
  Speaker 3: that means looking at regulation. You know, is what used
• 20:48
  Speaker 3: to be called SOMCT what's now called somcy UK. Is
• 20:51
  Speaker 3: that getting in the way of us putting those moneys
• 20:55
  Speaker 3: to work? Is it the risk of version of pension
• 20:59
  Speaker 3: fund trustees that's getting the work in the way of
• 21:02
  Speaker 3: putting those moneies to work? Can we provide more tax
• 21:07
  Speaker 3: effient wrappers to enable people to put their money towards
• 21:12
  Speaker 3: UK companies rather overseas ones.
• 21:14
  Speaker 2: I would, oh, yes, we can do that, We should
• 21:15
  Speaker 2: do that.
• 21:16
  Speaker 3: I would work all of these channels, to be honest,
• 21:19
  Speaker 3: because as you know, this is many trillions of pounds
• 21:24
  Speaker 3: parked up in either overseas equities or in cash, none
• 21:29
  Speaker 3: of which which is starving UKPLC at the financial fuel
• 21:32
  Speaker 3: it needs and all those celts and Thoroughbreds to grow
• 21:35
  Speaker 3: into unicorns. So parlus is financial and fixable because here's
• 21:39
  Speaker 3: the aerony. The money is there. The money is there, right,
• 21:46
  Speaker 3: But the plumbing to get that money into our businesses,
• 21:49
  Speaker 3: which is the same thing as saying growth tomorrow, isn't there.
• 21:55
  Speaker 3: So that's a replumbing problem. We can solve plumbing problems.
• 21:59
  Speaker 3: We can solve let it go well with the political
• 22:02
  Speaker 3: will be going to solve plumbing problems.
• 22:03
  Speaker 2: It's the most.
• 22:04
  Speaker 3: Important there political will, I'd be far less optimistic. But
• 22:07
  Speaker 3: the money is that it's even here at home. It's
• 22:10
  Speaker 3: here actually here at home as well. So we have
• 22:13
  Speaker 3: the businesses, we have the money to finance the businesses,
• 22:17
  Speaker 3: We replumb the system, and hey, presto, you get business
• 22:22
  Speaker 3: led growth, which of course is the only source growth
• 22:26
  Speaker 3: of growth. You can have that sustainable over the longer term.
• 22:31
  Speaker 3: So these are the reasons if you peer in the
• 22:34
  Speaker 3: balance sheet fundamentals, we have the businesses to enable the growth.
• 22:38
  Speaker 3: We have the money to enable the businesses to grow.
• 22:42
  Speaker 3: This is a plumbing problem that's eminently tractable, merrior In
• 22:46
  Speaker 3: and if we did that, we could be smashing the
• 22:48
  Speaker 3: lights out, not just at a startup at Scaler, but
• 22:50
  Speaker 3: at gdpeop Ahead and all the rest. So this is
• 22:54
  Speaker 3: my frustration but also my excitement about what's possible.
• 23:13
  Speaker 2: And you let me ask you about your one of
• 23:15
  Speaker 2: your other areas of expertise. Interest rates. Now, there was
• 23:18
  Speaker 2: an expectation before the war in Iran that rates would
• 23:22
  Speaker 2: gradually be falling and that that would be good for
• 23:24
  Speaker 2: all sorts of reasons, but that no longer looks like
• 23:27
  Speaker 2: it's very likely. Where do you see where it's going
• 23:29
  Speaker 2: from here? And lastly, i'm asking asking a lot of
• 23:32
  Speaker 2: the property market here.
• 23:34
  Speaker 3: Yeah, oh very good. The well look my like everyone else,
• 23:39
  Speaker 3: My story reputation at the start of this year was
• 23:43
  Speaker 3: that inflationing pressures were abating, and they really were about it.
• 23:48
  Speaker 3: They've been abating for the better part of six to
• 23:53
  Speaker 3: nine months by the start of this year. And if anything,
• 23:58
  Speaker 3: I'd been a bit critical of my former employers, the
• 24:00
  Speaker 3: Bank of England, for not lurering rates faster than they had,
• 24:03
  Speaker 3: which I thought was justifiable, given that inflationary pressures had
• 24:09
  Speaker 3: peaked out and were falling. Now the world has changed,
• 24:16
  Speaker 3: and we saw financial markets run very quickly to the
• 24:20
  Speaker 3: side of the boat with an expectation of now rate rises,
• 24:24
  Speaker 3: not in the UK, but in the US and the
• 24:26
  Speaker 3: EU area as well. That looks to me like a
• 24:31
  Speaker 3: very significant overcorrection. Why do I say that. I suspect
• 24:38
  Speaker 3: lots of people were repeating the Ukraine Russia playbook and
• 24:44
  Speaker 3: this is not that this differs from that into very
• 24:48
  Speaker 3: fundamental and significant respects. First, the scale of shock, at
• 24:53
  Speaker 3: least so far tempting for in saying this. The scalsure
• 24:56
  Speaker 3: so far is nothing like on the same scale. You know,
• 24:58
  Speaker 3: that was a shock that the cost of living of
• 25:01
  Speaker 3: north of ten percent in the UK at current energy prices.
• 25:05
  Speaker 3: We're being short to possibly thing of two or three percent,
• 25:09
  Speaker 3: So much smaller shock. What's more, that smaller shock to
• 25:15
  Speaker 3: costs is breaking on an economy that's very different, a
• 25:21
  Speaker 3: labor market that's very different than back in twenty one
• 25:24
  Speaker 3: twenty two. Back then we had resurgent demand coming up
• 25:30
  Speaker 3: against constricted supply post COVID, the results of which was
• 25:35
  Speaker 3: an obvious bottleneck and we had cost push pressures, much
• 25:39
  Speaker 3: larger ones alongside demand pull pressures, and the result was inflation.
• 25:44
  Speaker 3: This time we do not have those frictions. Demand this soggy.
• 25:50
  Speaker 3: The labor market is soggy. Firms do not have pricing power,
• 25:55
  Speaker 3: workers do not have pricing power. The output's impetus to inflation,
• 26:00
  Speaker 3: therefore will be significantly less unless the war is a
• 26:04
  Speaker 3: forever war. And as a result, I'd be surprised if
• 26:09
  Speaker 3: the if the Bank and the Fed were to raise
• 26:12
  Speaker 3: rates this year, if energy prices remain at of close
• 26:16
  Speaker 3: to where they are right now, this is the time
• 26:19
  Speaker 3: for sitting gleefully on your hands and seeing.
• 26:24
  Speaker 2: How the war, what happens, pans out.
• 26:26
  Speaker 3: And that would be you know, that would be the
• 26:28
  Speaker 3: mainstream economists view, and very far as you know from
• 26:32
  Speaker 3: being a mainstream economists occasion, my tribe might even have.
• 26:36
  Speaker 2: Got it right, very very unusual. What about house prices, obviously,
• 26:45
  Speaker 2: there's you know, we've been looking at house prices quite
• 26:47
  Speaker 2: a lot on this podcast, and we're fascinated by the
• 26:50
  Speaker 2: real terms decline that we've seen so far across the
• 26:53
  Speaker 2: UK and particularly in London, and that has positives and
• 26:58
  Speaker 2: that it makes houses more affordable. But of course with
• 27:01
  Speaker 2: mortgage rates slightly higher than they were, however affordable, they
• 27:04
  Speaker 2: may look in up so lout terms, this will become
• 27:06
  Speaker 2: less affordable as mortgage rates rise.
• 27:09
  Speaker 3: Yeah, yeah, well, I mean I suspect a bit like
• 27:15
  Speaker 3: for interest rates, we might find for a period the
• 27:19
  Speaker 3: housing market and tracking sideways in the I mean, it's
• 27:24
  Speaker 3: not just about rates. So of course we've seen many
• 27:29
  Speaker 3: mortgage products just appearing off the markets and fixed rates
• 27:35
  Speaker 3: picking up. But this is coming alongside and on top
• 27:40
  Speaker 3: of course of concerns about jobs. We've had the jobs
• 27:45
  Speaker 3: market now weakening, well actually for a couple of years
• 27:50
  Speaker 3: it's been weakening, but what initially showed up has reduced vacancy,
• 27:55
  Speaker 3: it's has lately been showing up has increased and employment
• 28:00
  Speaker 3: better report just yesterday suggesting an employment might pick up
• 28:04
  Speaker 3: to closer to six percent than to five percent later
• 28:08
  Speaker 3: this year. That might be overdone, but nonetheless, fearfulness of
• 28:13
  Speaker 3: unemployment there's a good reason to hold off major purchases.
• 28:17
  Speaker 3: Houses across the consummate major purchase. So I'd be surprised
• 28:22
  Speaker 3: if anytime soon whether we see a turn in that market. Nonetheless,
• 28:30
  Speaker 3: if this wall were behind us, if there were a
• 28:33
  Speaker 3: stronger expectation of rates being flat or perhaps even falling
• 28:39
  Speaker 3: if people's inflation adjusted pay keeps on rising. And let's
• 28:44
  Speaker 3: bear in mind it has risen for the last two years,
• 28:47
  Speaker 3: and maybe at the second half of the year we
• 28:48
  Speaker 3: could see a degree of perkiness. But nonetheless I'd be
• 28:52
  Speaker 3: surprised that this is a year of which the housing
• 28:56
  Speaker 3: market turns decisively.
• 28:58
  Speaker 2: Yeah, as was when I look at the afordability measures.
• 29:01
  Speaker 2: One of the things that I think is that the
• 29:03
  Speaker 2: people who would normally be buying houses now maybe the
• 29:06
  Speaker 2: first time buyers, are also the ones who have the
• 29:09
  Speaker 2: nine percentage points extra effective income text to paying their
• 29:12
  Speaker 2: student learns. And that's the sort of new dynamic in
• 29:15
  Speaker 2: the housing market that might make it drag rather more
• 29:18
  Speaker 2: than you might have expected previously looking at the affordability
• 29:21
  Speaker 2: numbers completely.
• 29:22
  Speaker 3: I mean, at a time when the market I mentioned
• 29:26
  Speaker 3: the jobs market with soggy for young people is dripping wet,
• 29:30
  Speaker 3: it isn't it. And that is true both of those
• 29:35
  Speaker 3: if you like, without a degree, and usually for those
• 29:38
  Speaker 3: with a degree as well. The rates of graduate unemployment
• 29:43
  Speaker 3: are sky high, and that's uncomfortable against a backdrop of
• 29:47
  Speaker 3: them carrying around.
• 29:51
  Speaker 2: Yeah, that neterly, neatly onto AI. And when I look
• 29:59
  Speaker 2: at the numbers for the young today and how difficulties
• 30:02
  Speaker 2: for them to get jobs, and everyone says, oh, well,
• 30:03
  Speaker 2: as AI taking all the extry jobs, AI taking the
• 30:06
  Speaker 2: graduate jobs, etc. I suspect that's not really true, and
• 30:09
  Speaker 2: in fact there aren't any graduate jobs because that parts
• 30:11
  Speaker 2: of the ukare effectively in recession and people simply aren't
• 30:14
  Speaker 2: hiring because the environment isn't good enough for it. And
• 30:17
  Speaker 2: we look at it and we're casting around for a reason.
• 30:20
  Speaker 2: But this may just be an entirely normal employment recession
• 30:24
  Speaker 2: of the type that we've seen many times before, and
• 30:26
  Speaker 2: certainly when I graduated there were literally no jobs available.
• 30:30
  Speaker 3: Yeah. I mean the evidence we have so far on that,
• 30:33
  Speaker 3: which is trying to tease a part if you like,
• 30:36
  Speaker 3: cyclical unemployment or in some cases not so much unemployment
• 30:42
  Speaker 3: but unwillingness to post vacancies from the structural AI component.
• 30:47
  Speaker 3: Can't find much of the second so far. Now, I
• 30:50
  Speaker 3: think if you are a god fearing CEO, it's much
• 30:54
  Speaker 3: easier to tell a story about AI as to why
• 30:57
  Speaker 3: you're chopping vacancies or indeed heads than it is because
• 31:02
  Speaker 3: your business is struggling, So I suspect it's been used
• 31:06
  Speaker 3: as a defensive shield for a great many businesses when
• 31:10
  Speaker 3: the truth is rather more mundane, which is about sluggish
• 31:14
  Speaker 3: sales and elevated costs of course for pretty much everything,
• 31:20
  Speaker 3: including people with National minimum wage and Moment Rights Bill
• 31:27
  Speaker 3: and all the all the rest of it. So actually,
• 31:31
  Speaker 3: you know, in the spirit of a further optimism, I
• 31:36
  Speaker 3: am optimistic, abet and a steady that the day I
• 31:43
  Speaker 3: need not be the great job slayer that people worry about.
• 31:48
  Speaker 3: If we play our cards.
• 31:50
  Speaker 5: Right, if we play our cards right, how do we
• 31:54
  Speaker 5: play our cards right with a technology that we know
• 31:57
  Speaker 5: so well we're know a lot about it, but no
• 32:00
  Speaker 5: understand very little about how it will permit the economy
• 32:04
  Speaker 5: going forward?
• 32:04
  Speaker 2: Really, don't you listen to the range of views on it,
• 32:07
  Speaker 2: and we did. I don't know if you listened to
• 32:09
  Speaker 2: a great podcast the other day about Lemms and how
• 32:12
  Speaker 2: they've pretty much hit their ceiling already there's nothing more
• 32:15
  Speaker 2: to come there. And then, of course you have the
• 32:17
  Speaker 2: other approaches into attempting to find an AGI, which may
• 32:20
  Speaker 2: take a little longer but are fascinating. So it's very
• 32:23
  Speaker 2: hard to even understand how this will develop, let alone
• 32:26
  Speaker 2: how it might embed itself in our economy.
• 32:29
  Speaker 3: No, that's all true. And you know, anyone who can
• 32:34
  Speaker 3: say with confidence they know what the jobs of the
• 32:37
  Speaker 3: death tomorrow might be is that's a fanciful notion. I
• 32:40
  Speaker 3: think in this environment, nonetheless, are we equipping our young people,
• 32:45
  Speaker 3: and indeed not the young ones with the sets of agile,
• 32:51
  Speaker 3: malleable fungible capabilities as distinct from specific skills, to enable
• 32:58
  Speaker 3: them to ride the wraps of whatever the new techology waves.
• 33:03
  Speaker 3: So no, we are not. And that's what I'm talking about.
• 33:05
  Speaker 3: You know, playing our cards right means equipping our young
• 33:09
  Speaker 3: people with those agile fungible capabilities.
• 33:14
  Speaker 2: What do you think they are? You're sending a kids
• 33:16
  Speaker 2: to university today, and this is the question we get
• 33:18
  Speaker 2: asked all the time, so geared to answer it. You're
• 33:21
  Speaker 2: sending a kids to university today, what are you telling
• 33:23
  Speaker 2: them to study?
• 33:24
  Speaker 3: Well, I'm not sure what's the university? I think I
• 33:29
  Speaker 3: think that the neat rate for graduates is now higher
• 33:32
  Speaker 3: than for A level students. So the big question about
• 33:37
  Speaker 3: whether that is the right thing, certainly the word it's
• 33:39
  Speaker 3: been done historically. Do I want a block of three
• 33:42
  Speaker 3: years studying something that is I've half thought about on
• 33:46
  Speaker 3: my acast form that that's less clear to me. What
• 33:51
  Speaker 3: are the sets of capabilities that will best enable me
• 33:56
  Speaker 3: to surf the waves of technology. Well, we have job experience,
• 34:02
  Speaker 3: I would say, uh, you know that, Penny, I think
• 34:07
  Speaker 3: is now dropping. But the skills you accrete in the
• 34:13
  Speaker 3: world of work, including you know how to work as
• 34:17
  Speaker 3: a team, how to how to negotiate. Yeah, those what
• 34:25
  Speaker 3: are sometimes called softer skills personal skills. Social skills are
• 34:30
  Speaker 3: the ones that are least likely quickly to replaced by
• 34:36
  Speaker 3: machine and the self. Same would be true of certain
• 34:41
  Speaker 3: classes of creative skills. You know, so creativity. The welcoming
• 34:45
  Speaker 3: of creativity is moving across disciplines, and our current degree
• 34:53
  Speaker 3: courses tend to be confined within disciplines. Yeah, yeah, so
• 34:57
  Speaker 3: I think we could even though we know the job,
• 35:00
  Speaker 3: we can guess what the capabilities that we needed, and
• 35:04
  Speaker 3: then ask ourselves is our schooling and further on higher
• 35:09
  Speaker 3: education system equipping kids with those capabilities. The answer is
• 35:14
  Speaker 3: a resolute no to that question currently, merin. And that
• 35:19
  Speaker 3: would give me cause for pause, couldn't Should it be fixed?
• 35:22
  Speaker 2: Yes, everything will be fixed. This is great again brings
• 35:25
  Speaker 2: us back to political will and finding the political space
• 35:28
  Speaker 2: to do all these things. If you were going back
• 35:30
  Speaker 2: to university now as a not a retiree, obviously an
• 35:34
  Speaker 2: order person, what would you study?
• 35:37
  Speaker 3: Well, you know what I am at the moment, as
• 35:45
  Speaker 3: you know, I am intrigued about how we make lifelong
• 35:55
  Speaker 3: learning and reality. So something in that sort of education
• 36:00
  Speaker 3: and meets entrepreneurship space. I'm not sure the degree course
• 36:03
  Speaker 3: would be. Maybe it doesn't exist.
• 36:05
  Speaker 2: Make your own, make your own.
• 36:07
  Speaker 3: There are degrees in uh entrepreneurship, there are degrees in business,
• 36:12
  Speaker 3: there are degrees in education. But how we get learning
• 36:18
  Speaker 3: and earning to coexist on a lifelong basis I think
• 36:22
  Speaker 3: is among the challenges of our time. If there exists
• 36:26
  Speaker 3: a degree for doing that right now, maybe we should
• 36:29
  Speaker 3: create one. A few years ago a friend of mine
• 36:32
  Speaker 3: up in Manchester created a course in creativity because, of course,
• 36:38
  Speaker 3: contrard iss of popular belief, you can teach creativity. We
• 36:41
  Speaker 3: know quite a lot about the creative process and what
• 36:43
  Speaker 3: is needed, and that's the level of abstract thinking I
• 36:46
  Speaker 3: think we need. And so something maybe around the fusion
• 36:50
  Speaker 3: of work, business and learning, because I think that's where
• 36:55
  Speaker 3: the action's.
• 36:56
  Speaker 2: At thank you, And is there anything that we haven't covered,
• 37:01
  Speaker 2: anything that is super important that neither of us have
• 37:03
  Speaker 2: mentioned and we should before we care.
• 37:06
  Speaker 3: Well the anything I had to say, we haven't touched
• 37:07
  Speaker 3: upon politics, which is an usual viewing at me, and
• 37:10
  Speaker 3: I've got no desire to deep dive into politics beyond
• 37:15
  Speaker 3: saying this, Among the fiscal free solutions to the UK's
• 37:22
  Speaker 3: malaise is by empowering local leaders. We are the most
• 37:27
  Speaker 3: centralized country on the planet and that is not serving
• 37:35
  Speaker 3: as well. Ultimately, if the name of the game is growth,
• 37:40
  Speaker 3: growth comes from the bottom up and comes from empowering
• 37:44
  Speaker 3: local leaders. But I don't just mean government, I mean businesses, universities,
• 37:50
  Speaker 3: civil society in local places too. So among the fiscal
• 37:55
  Speaker 3: free measures I would take were I in power, thank Lord,
• 38:02
  Speaker 3: I'm not, I would do DIVA properly, because currently it's
• 38:07
  Speaker 3: been doing in a half baked and half hearted fashion,
• 38:11
  Speaker 3: and we will not get growth until we properly empower
• 38:16
  Speaker 3: local leaders, plural and local citizens, and which some some
• 38:21
  Speaker 3: way short of that.
• 38:22
  Speaker 2: Arin. Thank you, Andy, and thank you for your optimism
• 38:25
  Speaker 2: you've given us today. I think we and our listeners
• 38:28
  Speaker 2: we appreciate that. Don't get it often.
• 38:31
  Speaker 3: Great is ever to chat to you Mary in conversation
• 38:35
  Speaker 3: to be continued. But definitely, like I say, I like
• 38:40
  Speaker 3: flipping the aphorism right, which is not where there's a will,
• 38:45
  Speaker 3: there's a way, but where there's a way, there's a will.
• 38:47
  Speaker 3: And if we can define the way, we can summon
• 38:50
  Speaker 3: the collective will, those animal spirits to get our economy
• 38:53
  Speaker 3: going and growing. I'm quite doimistic about that.
• 39:02
  Speaker 6: Thanks for listening to this week's Marrin Talks Money. This
• 39:04
  Speaker 6: episode was hosted by Me Marren zumsep Web. It was
• 39:07
  Speaker 6: produced by Someersadi and Moses, and sound designed by Blake
• 39:10
  Speaker 6: Maples and Aaron Casper. If you like our show, rate
• 39:12
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• 39:15
  Speaker 6: keep sending your questions or comments The Merrin Money at
• 39:17
  Speaker 6: Bloomberg dot net.
• 39:18
  Speaker 2: You can also follow me and John on Twitter or x.
• 39:21
  Speaker 2: I'm at mariners w and John is Underscore Stepic