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What Does (And Doesn't) Labour Do First? · Trumponomics

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to voter Nomics,
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Speaker 1: where politics and markets collide. This year, voters around the
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Speaker 1: world have the ability to affect markets, countries and economies
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Speaker 1: like never before, so we've created this series to help
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Speaker 1: you make sense of it all.
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Speaker 2: I'm alegra Stratton, I'm Adriam Woodbridge.
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Speaker 3: And I'm Stephanie Flanders.
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Speaker 4: Right here it is.
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Speaker 1: We've finally got here, actually all three in the same place. A,
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Speaker 1: we're all together and B what a momentous week to
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Speaker 1: be all together.
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Speaker 4: It's the week of the UK election.
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Speaker 1: In this episode, we're looking beyond polling day, if you
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Speaker 1: can believe that, to the administration's first one hundred days,
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Speaker 1: and we'll be asking what can the next government really
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Speaker 1: do given the economy it's inheriting, and can it create
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Speaker 1: the necessary conditions for investors and firms to thrive in
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Speaker 1: the So to help us explore those questions, Stephanie, you
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Speaker 1: spoke to Douglas Flint, chairman and asset manager Aberdeen.
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Speaker 3: I thought Douglas would be an interesting voice to have
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Speaker 3: from the business community, and particularly from financial services, one
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Speaker 3: of Britain's most important service sector industries, and he's had
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Speaker 3: very senior positions at HSBC and KPMG, as well as
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Speaker 3: being on the advisory panel for Labour's Financial Services Review.
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Speaker 3: He's sort of a thoughtful observer as well as a
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Speaker 3: serious player in that world. And I was particularly interested
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Speaker 3: with the support he offered, not just to Labour's focus
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Speaker 3: on growth, which of course most people in the business
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Speaker 3: community want them to focus on growth, but the potential
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Speaker 3: need to raise taxes or borrow more to support that agenda.
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Speaker 3: He was remarkably open to that.
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Speaker 1: Okay, well, we're going to look at that in a
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Speaker 1: bit more detail. And second, we do also have in
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Speaker 1: the studio with us Phil Aldrich, who is going to
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Speaker 1: help us unpick what we can expect out of the
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Speaker 1: first hundred days. But first of all, Adrian column today
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Speaker 1: is fairly punchy on the possible new labor government.
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Speaker 2: My worry is that we are about to elect a
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Speaker 2: labor government with all the power that that entails, because
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Speaker 2: we have a very centralized system with no real checks
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Speaker 2: and balances, and a prime minister with a big majority
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Speaker 2: has enormous power, much more so than the American president
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Speaker 2: in the sense of being no constraints, obvious constraint on
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Speaker 2: that power. And I think we're electing the Labor Party
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Speaker 2: and Starmer to this position without any real scrutiny. This
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Speaker 2: has been an election entirely dominated by the awfulness of
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Speaker 2: the Tories. It's a rejection of the old order, and
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Speaker 2: we haven't really asked difficult questions of the new government.
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Speaker 2: And I think that the more one looks at it,
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Speaker 2: the more I at least and worried. It seems to me,
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Speaker 2: in particular that the education policy, which consists of removing
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Speaker 2: the twenty percent viaight exemption on schools, in other words,
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Speaker 2: increasing the price to parents of private education by twenty percent,
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Speaker 2: is symptomatic first of all of a bias towards the
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Speaker 2: state sector public sector producer lobbies the teacher unions in particular,
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Speaker 2: and secondly, a hostility towards excellence, independent traditions. And I
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Speaker 2: think this bad labor runs through all sorts of that's
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Speaker 2: a preser.
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Speaker 3: I mean, okay, so I think the pushback would be
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Speaker 3: and it came partly from your old employer. We saw
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Speaker 3: the Economist endorse Labor this week, and of course a
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Speaker 3: big chunk of that was as a sort of vote
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Speaker 3: against the Conservative Party, which we've seen obviously in a
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Speaker 3: lot of the endorsements that the Labor has had. But
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Speaker 3: I think that the Economists leader did also take the
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Speaker 3: time to make a positive case for Keir Starmer in
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Speaker 3: particular and what he'd done to the Labor Party. So
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Speaker 3: I think the response to you would be you draw
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Speaker 3: a negative comparison with Tony Blair as being more about
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Speaker 3: change and about bringing in multiplicity of providers for education
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Speaker 3: and health. I mean the argument against that would be,
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Speaker 3: actually he has changed, He inherited a very unreconstructed Jeremy
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Speaker 3: Corbyn led Labor Party, has brought it back to the
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Speaker 3: Blairite center and will have now a mandate to make
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Speaker 3: some quite difficult changes in public services, which would actually
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Speaker 3: be much harder and more divisive for a conservative party
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Speaker 3: to do. We tend to make the classic sort of
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Speaker 3: Nixon to China argument that it's easier for Labor to
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Speaker 3: do that than the Conservatives. I just wonder why you
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Speaker 3: don't think, looking at his record, that he wouldn't be
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Speaker 3: quite ruthless.
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Speaker 2: I'd love to be able to agree with you about that.
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Speaker 2: But if you look at the Labor Labour's education and policy,
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Speaker 2: that policy was created under Jeremy Corbyn by Angela Rayner.
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Speaker 2: I remember going to labor body conferences in which the
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Speaker 2: teacher unions were cheering that to the rafters.
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Speaker 3: It's making problems though, isn't it. I mean, this is
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Speaker 3: really the argument, right, that that's actually a bit of
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Speaker 3: red meat to where they.
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Speaker 2: Don't need to be giving meat to these dogs because
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Speaker 2: they've been aimed.
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Speaker 5: This.
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Speaker 4: This is the funder point.
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Speaker 2: I think he does believe, because in the.
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Speaker 1: Past week they've all come out with quite full throatated support.
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Speaker 2: Absolutely, this is a party rooted in the public sector,
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Speaker 2: with very very public sector producerist passions. His instincts a
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Speaker 2: pro public sector at a time when we really need
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Speaker 2: to improve the productivity of the public sector. And he
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Speaker 2: has this idea of industrial policy, if you want to
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Speaker 2: call it industrial policy whatever, whatever it is, state activism,
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Speaker 2: state intervention in the economy, and Britain has a dismal
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Speaker 2: record at that. And the Labor Party seems to be saying, look,
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Speaker 2: Britain is broken. The state is broken, let's spend more
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Speaker 2: money on it and give it more responsibilities.
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Speaker 3: Stephanie, anything else you No, I think it's going to
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Speaker 3: be exhilarating this new government. People say it's going to
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Speaker 3: be terribly boring and they're not doing anything but if
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Speaker 3: for nothing else, but we can continue to have this
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Speaker 3: very lively debate.
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Speaker 1: Patiently listening to all of this has been one of
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Speaker 1: Bloomberg's most brilliant reporters, Award winning award winning Phil Oldrick,
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Speaker 1: Phil just to go quickly to it first one hundred days,
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Speaker 1: What do you think will be most interesting?
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Speaker 4: If it's a labor government.
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Speaker 6: Well, they're going to have to get through these key bills,
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Speaker 6: so the workers rights that's going to be a big development,
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Speaker 6: and then the planning reforms, which you know, that's the
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Speaker 6: most exciting thing if they could actually come up with
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Speaker 6: something which does make you transform the UK's performance. We'll
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Speaker 6: probably have the budget in early September or mid September.
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Speaker 6: If they don't hold it before the party conferences, it's
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Speaker 6: not going to come till sort of late October. And
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Speaker 6: then there's this big question of whether we have a
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Speaker 6: single year spending review just to sort of roll over
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Speaker 6: year so that they can really build some proper plans.
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Speaker 6: They say they're going to drive or pay for everything
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Speaker 6: by getting growth, So will there be an increasing growth
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Speaker 6: prospect in that intervening year, and then you don't have
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Speaker 6: to raise taxes quite as much. What are going to
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Speaker 6: have to be big spending increases.
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Speaker 1: But Phil, you are an expert on all these matters.
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Speaker 1: Is it possible for them to be demonstrating kist Armer
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Speaker 1: said the other day needs two point five percent growth,
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Speaker 1: which is more than America's enjoying right now. Is it
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Speaker 1: possible for him to be demonstrating signs or indications that
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Speaker 1: they're getting two point five percent growth in the next
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Speaker 1: twelve months.
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Speaker 6: Yeah, I mean that is stretched. This is the thing.
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Speaker 6: If Liz trust as she did, say that I'm going
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Speaker 6: to deliver you two point five percent growth and it's
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Speaker 6: going to pay for everything, then everyone's going to say,
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Speaker 6: what a load of nonsense, and you know, throw the
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Speaker 6: sterling out with the bathwater. And that is not going
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Speaker 6: to happen under Kistamer because they know that lesson and
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Speaker 6: they're not going to basically predicate their entire policy on
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Speaker 6: a two point five percent growth schedule. They are going
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Speaker 6: to be raising taxes or increasing borrowing and you know,
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Speaker 6: so there are you know, you can change the fiscal rules.
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Speaker 6: I think it's very unlikely for them to do that
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Speaker 6: immediately after winning the election because they've come in on
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Speaker 6: a manifesto with a set of very type fiscal rules,
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Speaker 6: you know, so they won't be able to release.
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Speaker 4: He's borrowing to invest. You don't think they'll do that.
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Speaker 6: They limited to the exact same degree because it's the
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Speaker 6: debt rule that's binding.
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Speaker 3: Rather we should we should just summarize quickly. There's the
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Speaker 3: borrowing to invest, which is just how much were making
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Speaker 3: sure that what you borrow every year is no more
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Speaker 3: than what you're using for investments, so you can't be
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Speaker 3: using it to for example, very fast rising bit of
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Speaker 3: the bill, debt interest, paying interest on the debt, how
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Speaker 3: much you're borrowing year to year. And then there's the
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Speaker 3: stock rule. It's like how much is your total debt
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Speaker 3: going up and is it stabilizing? And this rather odd
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Speaker 3: rule that says in five years time you have to
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Speaker 3: be able to show that the debt stock is going
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Speaker 3: to fall relative to your economy. It doesn't matter what
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Speaker 3: it's doing in the four years before that, as long
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Speaker 3: as out and at the moment they are very very
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Speaker 3: close to that. Because Jereby Hunter is not given much
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Speaker 3: room for men.
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Speaker 6: Exactly there was eight point nine billion pounds headroom in
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Speaker 6: the last budget, and so they don't have any money
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Speaker 6: to spend, and there they're bound by that same figure.
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Speaker 6: So there is they are going to have to They're
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Speaker 6: either going to have to get better growth and so
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Speaker 6: it won't go to two point five percent, but it
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Speaker 6: may be the growth projection for the country will be
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Speaker 6: a bit better and that will generate a little bit
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Speaker 6: of extra income. But inevitably there are I think everybody
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Speaker 6: assumes there's going to be some tax rises.
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Speaker 3: And tax rise is to prevent a tough squeeze on
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Speaker 3: public spending advice.
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Speaker 6: So I mean they've got so you've got to settle
9:27
Speaker 6: these junior doctors strikes. You know, there's other pay deals.
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Speaker 6: So the pay review bodies have delivered there what they
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Speaker 6: want this year to the departments, but no one has
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Speaker 6: seen these yet because obviously we're having the election instead.
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Speaker 4: And the junior dots is are wanting thirty four to
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Speaker 4: thirty five.
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Speaker 6: Percent exactly, so they're never going to get that. But
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Speaker 6: there could be a big extra bill to pay for
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Speaker 6: the public sect to workers, and there is the prisons
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Speaker 6: are in absolute chaos, so you can see that there's
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Speaker 6: going to be immediate demands. So it seems likely that
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Speaker 6: there will be some additional tax policy in the if
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Speaker 6: it is a September budget, just to get over that bump,
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Speaker 6: or they could.
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Speaker 5: Sort of fiddle the figures.
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Speaker 6: And do some kind of just just try and take
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Speaker 6: on a little bit of extra boring. But I think
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Speaker 6: you know it's subsequently we're going to see some some
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Speaker 6: broader tax rises for next year.
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Speaker 3: I mean, you spend a lot of time talking to
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Speaker 3: the Treasury and the Bank of England. Do you get
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Speaker 3: the sense that they're expecting quite a big first budget
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Speaker 3: from Rachel Reeves despite the very limited promises in the manifesto,
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Speaker 3: or is it a question of a we're going to
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Speaker 3: build credibility. Do they think they've got time to build credibility,
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Speaker 3: or do they really need to do something quite dramatic
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Speaker 3: on growth.
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Speaker 6: I thought originally that they were going to do a
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Speaker 6: big first budget, because you know, you can hit the
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Speaker 6: ground running. But all the noise I'm hearing is that
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Speaker 6: it's going to be it's not going to be a
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Speaker 6: huge first budget, and that you know they're going to
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Speaker 6: basically it's going to be next year that you're going
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Speaker 6: to see, if necessary, these big tax risers. And because
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Speaker 6: obviously the big issue is what you do with spending
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Speaker 6: and how you fix spending. And they haven't really got
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Speaker 6: time to do a proper spending review because the depth
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Speaker 6: of investigation that's needed to do at these at the
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Speaker 6: departmental level to really come up with proper plans.
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Speaker 3: So how do you get around that because they've got
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Speaker 3: they need new plans for April.
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Speaker 6: Yes, so they'll do it one years, they rolled, so
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Speaker 6: they'll beat. They'll have the spending plans for a single
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Speaker 6: year and then then they build out the bigger, broader
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Speaker 6: plans for three to five years beyond that next year. So,
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Speaker 6: I mean, that's one thing that's that's one thing that
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Speaker 6: I'm increasingly hearing from, you know, around in the policy circles.
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Speaker 4: Good quick question when you say next year, do you
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Speaker 4: mean a spring budget or.
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Speaker 6: So an autumn budget next year for well autumn budget
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Speaker 6: and spending review.
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Speaker 3: So like every chancellor, she said she's only going to
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Speaker 3: have one big fiscal event, but they never do.
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Speaker 6: We'll see.
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Speaker 1: I do think, you know, it's not an open ended
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Speaker 1: book for them. They've got to crack on pretty quickly
11:53
Speaker 1: in order to we all say, you know, landslide is
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Speaker 1: going to be huge, you know, two three term prime minister.
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Speaker 1: But we did say that about Boris point. It did
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Speaker 1: look and you know, not long after twenty nineteen that
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Speaker 1: that administration could go on and on and on, and
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Speaker 1: part of their problem was how do you deliver on
12:09
Speaker 1: leveling up within four to five years? It was always
12:12
Speaker 1: going to be tough, and you know, potentially the answer
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Speaker 1: is they didn't. But the same challenge is going to
12:18
Speaker 1: be the case for Starmer. How does he deliver for
12:20
Speaker 1: these people he has persuaded he is different.
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Speaker 6: Yeah, well, that's that's going to be the big question,
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Speaker 6: isn't it. The I think again, do you think it's
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Speaker 6: going to come down to planning and the sort of
12:29
Speaker 6: you know, do you bring HS two back, that second
12:31
Speaker 6: leg of HS two as well Northern And it's those
12:36
Speaker 6: kind of big infrastructure projects where you can demonstrate that
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Speaker 6: you're doing something for these regions even if it doesn't
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Speaker 6: get completed in time. But the actually, you know, things
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Speaker 6: are under way and this general building.
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Speaker 2: I mean, doesphologists say that he's likely to get this
12:50
Speaker 2: big victor on a pretty small proportion of the vote.
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Speaker 2: We also have a very unstable electric for example, and
12:57
Speaker 2: there's there's red wall voters again who will go back
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Speaker 2: are not going to be permanent demonstrated pus promiscuous is
13:06
Speaker 2: a very good word, the right word. But I do
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Speaker 2: think there's a big difference between Kirs Starmer and Boris Johnson.
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Speaker 2: That Boris Johnson was a liberty jib and Kirs is
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Speaker 2: you know, he's clearly somebody who is is interested in
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Speaker 2: achieving results and has studied the dynamic, the mechanism power.
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Speaker 2: So he will do more. Whether enough, if he does enough,
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Speaker 2: that's a different question. But it's a serious person, which
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Speaker 2: boris never one.
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Speaker 3: I mean the point that you've come back to, I mean,
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Speaker 3: just come back to where we started. I mean, if
13:35
Speaker 3: he does something that genuinely looks like it's going to
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Speaker 3: move the dial on planning and other things that have
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Speaker 3: proven obstacles to raising living standards through higher productivity, it
13:46
Speaker 3: is possible that the Officer Budget Responsibility, which is marking
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Speaker 3: his homework on this and actually give in a sense
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Speaker 3: setting how much lee where he has by making their
13:53
Speaker 3: growth forecast, they could give him some credit in advance.
13:57
Speaker 3: So yes, actually we do think that, and they did that.
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Speaker 3: The record of them doing that with Jeremy Hunt when
14:02
Speaker 3: he cut Nash Insurance in a way that they thought
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Speaker 3: would increase the workforce. So that will be one of
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Speaker 3: the things he can play with, which actually he doesn't
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Speaker 3: have to deliver. He just has to convince the OBR
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Speaker 3: that growth will get up, and that's through those kinds
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Speaker 3: of public investments, but also something it came up with
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Speaker 3: Douglas Flint, sort of softer investments potentially in skills and
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Speaker 3: other things.
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Speaker 6: Yeah, and also just a foreign direct investment talking about
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Speaker 6: France earlier, the UK is looking more attractive in a
14:31
Speaker 6: relative term, so we've been doing pretty well on FDI,
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Speaker 6: so perhaps we do get some of this investment boom
14:37
Speaker 6: that we've been waiting feels like generations for.
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Speaker 3: And at Bluemberg, you will be very well placed to
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Speaker 3: be the first to spot that money coming in.
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Speaker 6: Yes exactly, the data will be there.
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Speaker 1: All right, that's a good place to leave it for now, Phil,
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Speaker 1: But come back when we have this possible neighbor government.
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Speaker 3: As we discussed at the beginning, I had this nice
15:06
Speaker 3: chat with Douglas Flint. We talked a bit about his past.
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Speaker 3: He's now chairman of the asset manager Aberdeen, and I
15:13
Speaker 3: started by asking him, I mean, after all the upheaval
15:16
Speaker 3: we've had under successive Conservative governments and prime ministers. You
15:20
Speaker 3: know whether this might be one time where changing the
15:23
Speaker 3: party in power might be seen by the business world
15:27
Speaker 3: as a vote for stability.
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Speaker 5: I certainly think it's the way the business world is
15:31
Speaker 5: hoping that it plays out, because I think we've had
15:33
Speaker 5: a period of instability, uncertainty and business plans in much
15:39
Speaker 5: longer cycles than political cycles to have the ability to
15:43
Speaker 5: plan because there's a government with a sufficient majority that
15:46
Speaker 5: it can actually command support of the House of Commons,
15:50
Speaker 5: to get legislation through, to give clarity on what it
15:53
Speaker 5: plans are in important areas of the economy, like infrastructure,
15:57
Speaker 5: like pension provision, retirement provision, and the hope is that
16:01
Speaker 5: we enter a period of stability where there is clarity
16:03
Speaker 5: as to what the policy framework will be. Some people
16:07
Speaker 5: may not like that framework, but it's much better to
16:09
Speaker 5: operate within a framework of certainty rather than the framework
16:12
Speaker 5: of instability and lack of certainty secure.
16:16
Speaker 3: Starmer has made much of the changes he's made to
16:19
Speaker 3: the Labor Party since Jeremy Corbyn's leadership. Rachel Reeves, the
16:24
Speaker 3: Shadow Chancellor, and others have made quite a lot of
16:28
Speaker 3: effort to reach out to business, to hold breakfasts and
16:32
Speaker 3: lunches with people in the city and elsewhere. Is there
16:36
Speaker 3: a basic level of trust for labor among the business community.
16:40
Speaker 5: I think there's been a real sense of gratitude that
16:43
Speaker 5: there has been that reach out, and particularly because that
16:46
Speaker 5: reach out has been you need to help us to
16:49
Speaker 5: understand what we need to do, or what the reaction
16:51
Speaker 5: will be if we do something different from what you're expecting,
16:54
Speaker 5: and so on and so forth. So I think there's
16:56
Speaker 5: been a level of reach out which has been help
16:58
Speaker 5: us to understand, whether it's an energy or transportation or
17:03
Speaker 5: financial services. And that's encouraging because I think the relationship
17:07
Speaker 5: between business and government has gone up and down over
17:09
Speaker 5: the last you know, fifteen twenty years or whatever, and
17:13
Speaker 5: I think business would like to feel that it has
17:15
Speaker 5: a role to play, and it's good that there is
17:18
Speaker 5: engagement with business today and a willingness to listen. Now,
17:22
Speaker 5: how that gets translated is where the rubber hits the road.
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Speaker 3: You know, as an economist, it's been an ongoing topic,
17:29
Speaker 3: this sort of lack of productivity growth in the UK,
17:33
Speaker 3: which of course the only way you really raise living standards,
17:36
Speaker 3: making more stuff with the same number of people. And
17:39
Speaker 3: there's been a sort of dynamic around this where economists
17:44
Speaker 3: and others have pointed to the sort of micro underlying
17:47
Speaker 3: reasons holding back growth, planning, lack of skills, these kind
17:53
Speaker 3: of broader aspects of the environment, macroeconomic stability. And then
17:57
Speaker 3: what successive governments have done when, in the name of
18:00
Speaker 3: helping business has been cutting corporation tax and focusing on
18:04
Speaker 3: taxes and not on those micro things that are quite difficult.
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Speaker 3: Do you think there's an appetite for the reverse of
18:10
Speaker 3: that under a new government in return for addressing some
18:15
Speaker 3: of those difficult things, you know, making people build more houses,
18:19
Speaker 3: pushing through more big infrastructure programs. The business community might
18:23
Speaker 3: be open to some increased taxes because it looks like
18:26
Speaker 3: there's not going to be many increases in personal taxation
18:29
Speaker 3: given how many things Rachel Rees has ruled out.
18:31
Speaker 5: If you ask any business or any individual would you
18:34
Speaker 5: like higher taxes? The answer istrigued. But on the other hand,
18:38
Speaker 5: if you say, if we can build an economy where
18:41
Speaker 5: there is growth and your business will prosper and your
18:44
Speaker 5: family income will do well, are you prepared to invest
18:48
Speaker 5: into that growth in the economy? Growth and the family income.
18:51
Speaker 5: Are you you know, are you happy to invest in
18:53
Speaker 5: it in a society where you're you can visibly see
18:57
Speaker 5: that the infrastructure you operate within and the services you
19:01
Speaker 5: enjoy are better. I think you know people will will
19:04
Speaker 5: respond to that. But but of course that is the
19:06
Speaker 5: trade off.
19:07
Speaker 3: I know you've been part of the advisory panel for
19:10
Speaker 3: Labour's Financial Services Review. What advice are you giving them?
19:15
Speaker 3: Would you give them now? What should they be looking
19:17
Speaker 3: out for and their traps to avoid when it comes
19:20
Speaker 3: to financial sector in particular.
19:22
Speaker 5: Well, I was one of ten that were asked to
19:25
Speaker 5: basically review the document they produced on policy for the
19:29
Speaker 5: the financial services industry and a policy framework that starts
19:33
Speaker 5: off with we will un a shamedly champion the financial
19:35
Speaker 5: services industry of the UK is one of our core
19:38
Speaker 5: strategic assets. It's a pretty good opening and and the
19:44
Speaker 5: kind of the exam question was is there anything in
19:47
Speaker 5: this that you think is silly, won't work? Is there
19:49
Speaker 5: anything you think is missing? Is there anything you think
19:51
Speaker 5: will attry in particular comment from media or other commentators,
19:56
Speaker 5: and the vast majority of forres and it was straightforward, I mean,
20:00
Speaker 5: the political stuff wasn't in it because that's a political
20:03
Speaker 5: choice and wasn't in the policy framework. But to start
20:07
Speaker 5: off with a framework that you believe that you need.
20:09
Speaker 5: You have a financial services sector that is extraordinarily full
20:13
Speaker 5: of skills that you need to grow the economy, and
20:16
Speaker 5: you want to harness those skills and control them in
20:18
Speaker 5: a an appropriate way without overreach. It's a very good
20:22
Speaker 5: start for engagement with the sector. I mean, I think
20:25
Speaker 5: the financial sector is always kind of believed. You tell
20:27
Speaker 5: us what you want us to do, and we will
20:28
Speaker 5: help you achieve it. And I hope that that is
20:32
Speaker 5: the dialogue with whichever government we end up in a
20:34
Speaker 5: week's time.
20:35
Speaker 3: Are they a labor underestimating the costs of clamping down
20:40
Speaker 3: even more comprehensively on the non dom status, which the
20:45
Speaker 3: kind of thing one hears a lot in the city
20:47
Speaker 3: of people planning to leave because Labor is proposing something
20:52
Speaker 3: that's actually a bit tougher than what the Chancellor introduced
20:56
Speaker 3: earlier this year.
20:57
Speaker 5: Look at a political choice. I'm not going to comment
20:59
Speaker 5: on the relatives.
21:00
Speaker 3: Do you know people who are talking about I think
21:02
Speaker 3: it's a.
21:02
Speaker 5: Result talking about it. But I think that in the
21:05
Speaker 5: context of the scale of the economy, I think it's
21:11
Speaker 5: a factor, but not a huge factor. I also think
21:13
Speaker 5: that there are many other factors that attract people to
21:19
Speaker 5: the UK than just the rate of tax that they pay.
21:23
Speaker 5: I mean security, the lifestyle, the arts, the culture, the
21:29
Speaker 5: connectivity to other parts of the world, the rule of law.
21:32
Speaker 5: All of these things are factors. There may well be
21:35
Speaker 5: people for whom that tax change, as it's implemented, will
21:39
Speaker 5: impact the way that they live their life, But you know,
21:41
Speaker 5: in terms of the shape of the economy as a whole,
21:43
Speaker 5: I don't think that's one of the biggest issues.
21:46
Speaker 3: Some of the people who've been talking about moving to
21:48
Speaker 3: France are now rethinking as a result of the turbulence
21:52
Speaker 3: there and the possibly we've had one round but a
21:56
Speaker 3: quite dramatic response result of the second round of the
21:59
Speaker 3: French elections. Are you hearing that that actually suddenly some
22:02
Speaker 3: parts of Europe actually also are looking a bit unstable uncertain.
22:07
Speaker 5: Well. I think that what's handing in France at the
22:09
Speaker 5: moment reminds people that things can happen that are unpredictable.
22:12
Speaker 5: Nobody saw that coming. People talked about UK election, the
22:15
Speaker 5: US election, and all of a sudden we've got election.
22:17
Speaker 5: We didn't expect in France with potentially quite dramatic consequences
22:22
Speaker 5: depending on how you play it through, and that could
22:25
Speaker 5: have an impact on Europe. And again, I think in
22:28
Speaker 5: terms of the narrow conversation around the City of London,
22:32
Speaker 5: instability elsewhere is actually quite good for the City of
22:36
Speaker 5: London in terms of it attracts business, it attracts talent,
22:39
Speaker 5: it attracts people. It kind of highlights the resilience stability
22:44
Speaker 5: of the City of London and our legal system for.
22:47
Speaker 3: An international business in any sector, what's the framework to
22:52
Speaker 3: plan against in a world where Donald Trump is elected
22:56
Speaker 3: in November.
22:59
Speaker 5: I think, you know, one of his one of its
23:03
Speaker 5: characteristics is he's unpredictable, and yet when he was in power,
23:09
Speaker 5: some of the fears that people had didn't materialize, some
23:13
Speaker 5: some did, so I guess it would be a foolish
23:16
Speaker 5: person who said they know exactly what he's going to do.
23:19
Speaker 5: He's obviously still got to get elected, and there's no
23:23
Speaker 5: certainty over that. There's a long there's a long way
23:26
Speaker 5: to go. But I think people will reflect thoughtfully on
23:31
Speaker 5: either of the two candidates as to how America, what
23:36
Speaker 5: role will America play in the world, whether it's a
23:38
Speaker 5: security role, whether it's an economic role, whether it's a
23:41
Speaker 5: role that attracts seeks to attract more and more economic
23:44
Speaker 5: value into the United States, or whether it wants to
23:47
Speaker 5: share its economic power with others to create you know, friends,
23:51
Speaker 5: and I personally don't think that the major issues that
23:55
Speaker 5: face the world in terms of bidiversity, climate, demographics, migration,
24:01
Speaker 5: and aging population within demographics can be sold without nations
24:04
Speaker 5: working together. So you can't have one winner and everyone
24:07
Speaker 5: else living a terrible existence. And you know that Europe, America, Asia,
24:13
Speaker 5: led by China, the Middle East are all fundamental actors
24:17
Speaker 5: and this so I would hope that whoever is the
24:20
Speaker 5: president of the United States reflects on the contribution they
24:23
Speaker 5: can make through leadership to the rest of the world.
24:26
Speaker 3: I've had a number of senior investors privately at least,
24:31
Speaker 3: and certainly some business leaders across Europe, including the UK, say,
24:36
Speaker 3: if Donald Trump is elected, especially given the kind of
24:41
Speaker 3: spending he wants to do and the tax cuts, but
24:43
Speaker 3: also the way he does tend to see the world
24:47
Speaker 3: in a sort of zero, some American first way, if
24:50
Speaker 3: he gets elected, I'm going to do everything I can
24:53
Speaker 3: to be attached to the US because that's where all
24:55
Speaker 3: the money's going to be, and money's going to be
24:57
Speaker 3: sucked out of everywhere else.
24:59
Speaker 5: I've heard say that. I don't think that's a good answer,
25:02
Speaker 5: because I think that we need to build societies in
25:07
Speaker 5: the rest of the world that have resilience for our children, grandchildren,
25:11
Speaker 5: and we don't do that if we concentrate all economic
25:14
Speaker 5: power in any one part of the world. And I
25:17
Speaker 5: actually don't think that will happen because, in a kind
25:19
Speaker 5: of a way, I think governments would react to business
25:23
Speaker 5: if business said we're only going to bet on one team,
25:27
Speaker 5: one flavor of success, because at the end of the day,
25:31
Speaker 5: governments are elected by people who've got jobs, and if
25:34
Speaker 5: you've organize your economy so that the jobs are all
25:37
Speaker 5: somewhere else, there are many more people who are not
25:39
Speaker 5: going to be supportive of the policies that have led
25:42
Speaker 5: that to happen. I also think talking to American business,
25:45
Speaker 5: they recognize that if they want to have the export
25:48
Speaker 5: markets they want, they can't capture everything for themselves, but
25:52
Speaker 5: still expect people to buy their goods and services. You know,
25:54
Speaker 5: I don't believe the worst extrapolation of what could be
25:58
Speaker 5: done by any political per personality will come to pass,
26:01
Speaker 5: because I don't think they would work.
26:03
Speaker 3: Going back to the UK, assuming we do have a
26:06
Speaker 3: new government, a labor government we have, if we have
26:09
Speaker 3: our first woman chancellor. Lots of ifs, but the polls
26:13
Speaker 3: are put certainly putting that way. In nineteen ninety seven
26:17
Speaker 3: there was that big first surprise move that Gordon Brown
26:21
Speaker 3: did of making the Bank of England independent, which was
26:23
Speaker 3: not only a sort of shock and all moment, but
26:26
Speaker 3: actually also sent a very powerful signal about microeconomic stability
26:30
Speaker 3: and tying one's hands and I think reassured maybe the
26:34
Speaker 3: business community after many years of Conservative rule. Would you
26:38
Speaker 3: have any advice for Rachel Reeves about in her first
26:41
Speaker 3: budget what would be a powerful signal about their seriousness
26:47
Speaker 3: to achieve growth and to do what they've said they're
26:51
Speaker 3: going to do on the campaign which has put growth
26:53
Speaker 3: really before anything else.
26:54
Speaker 5: I think one of the important things for whichever government
26:57
Speaker 5: we have is to think very carefully about how we
27:01
Speaker 5: unlock the savings of the nation. I mean one of
27:03
Speaker 5: the things that I think we'll look back and reflect
27:07
Speaker 5: on whether it went the way that we wanted it to.
27:09
Speaker 5: But when we sort of closed defined benefit pension schemes
27:11
Speaker 5: thirty years ago and replaced them with defined contribution arrangements
27:16
Speaker 5: because the final salary final corporate schemes, and replaced them
27:23
Speaker 5: with contribution schemes which are not really which are not
27:26
Speaker 5: pension schemes because they're no newsy. At the end of it,
27:30
Speaker 5: the contribution rates are probably a half to a third
27:32
Speaker 5: of what they would be if we were still running
27:34
Speaker 5: defined benefit schemes. So the pool of money going into
27:37
Speaker 5: savings for all the things that people save for its
27:40
Speaker 5: significantly less, and effectively the city runs on the flow
27:43
Speaker 5: of money and the flow of money coming in from
27:46
Speaker 5: retirement systems. It's considerably less than it used to be.
27:50
Speaker 5: The evolution of people investing against their own risk preferences
27:55
Speaker 5: tends to be that people have a much more modest
27:57
Speaker 5: risk appetite then they will have vicariously if someone was
28:02
Speaker 5: doing it for them, because they can take in pilled
28:04
Speaker 5: savings much more, you know, a broader view of where
28:07
Speaker 5: they might put their money. And we're in a world
28:10
Speaker 5: now where, for all very good reasons, the vast amount
28:13
Speaker 5: of money that goes into equities goes into global equities,
28:16
Speaker 5: of which, depending on who does the construction, sixty to
28:18
Speaker 5: eighty percent goes into US equities because it's market cap waste.
28:23
Speaker 3: I think quite a big portion of that's been going
28:25
Speaker 3: into Nvidia.
28:28
Speaker 5: Yeah, and because one of the things you would also
28:31
Speaker 5: want to do is an incoming government say we've got
28:33
Speaker 5: to spend more money on infrastructure. If we're going to
28:35
Speaker 5: get productivity, we have to do things with infrastructure. That
28:38
Speaker 5: means the planning system in large part, but we've got
28:42
Speaker 5: to do something to get infrastructure, all the grid, electricity, supply, transportation,
28:48
Speaker 5: all that stuff. How are you going to fund it?
28:50
Speaker 5: If you can't tax more and you can't borrow more,
28:53
Speaker 5: then you've got to channel the population savings into pools
28:57
Speaker 5: of assets that offer an attractive return and also offer
29:02
Speaker 5: a sort of a benefit to those who are investing.
29:05
Speaker 5: And it's saying I'm doing something for the future of
29:07
Speaker 5: my kids and my grandkids because we're going to build
29:09
Speaker 5: a better society. So I would think very much about infrastructure.
29:14
Speaker 5: I think very much about pensions. And I'm not an economist.
29:18
Speaker 5: I know you're an absolutely fabulous one, but I also
29:21
Speaker 5: think that if you take the analogy of business, we
29:26
Speaker 5: absolutely distinguish between borrowing for investment and borrowing for consumption,
29:32
Speaker 5: and we have these rules about the total borrowing has
29:36
Speaker 5: to come down over the life of a parliament. It
29:39
Speaker 5: depends what the borrowings for. If we are borrowing to
29:42
Speaker 5: invest and genuinely invest in infrastructure and clinding soft infrastructure,
29:47
Speaker 5: and we have the capability as in government to ensure
29:51
Speaker 5: that the return on that investment because we can show
29:54
Speaker 5: that the pricing of it is adequate, then we should
29:58
Speaker 5: be investing in in physical and selft assets infrastructure for
30:04
Speaker 5: the future without getting caught up with the fact that
30:06
Speaker 5: because our consumption expenditure is rising because of so economy
30:10
Speaker 5: or whatever, we can't invest in the long term growth
30:13
Speaker 5: of the economy. I think that I know it's been
30:16
Speaker 5: a huge debate for a very long period of time,
30:18
Speaker 5: but I would at least think about that whether we
30:20
Speaker 5: can find a way of saying this is genuinely capital
30:22
Speaker 5: expenditure and that's okay.
30:25
Speaker 3: Well, you've said two interesting things there and as well
30:28
Speaker 3: as being to have being nice about me, but so obviously
30:31
Speaker 3: I like that bit. But I do think you've said,
30:34
Speaker 3: or you've given the impression. I know you're not speaking,
30:36
Speaker 3: be so easy if you spoke for the whole of
30:38
Speaker 3: the global the UK financial community and business sector, and
30:43
Speaker 3: you don't. But for the purposes of this podcast, it
30:46
Speaker 3: is interesting that you've said, actually, if it was genuinely
30:50
Speaker 3: for investment, there could be an appetite and an acceptance
30:54
Speaker 3: of more borrowing. But also you talked about soft infrastructure,
30:59
Speaker 3: suggests that one could also have a broader definition of
31:02
Speaker 3: the kind of infrastructure we're talking about. It doesn't have
31:04
Speaker 3: to be big hospitals or roads and the things that
31:09
Speaker 3: we tend to think of. I have the sense if
31:11
Speaker 3: a government, if the next government announced they were actually
31:14
Speaker 3: going to change their rules. They've said they won't, but
31:17
Speaker 3: they changed the book debt rule in order to be
31:19
Speaker 3: able to borrow more over the next five or six years,
31:22
Speaker 3: and they were going to broaden the definition of investment.
31:25
Speaker 3: They would be jumped on for trying to get away
31:29
Speaker 3: with fudging the figures and we're going back to silly
31:33
Speaker 3: money and borrowing too much. But you think possibly they
31:36
Speaker 3: could make the case.
31:37
Speaker 5: Well, I think you would need to demonstrate that you
31:38
Speaker 5: were you were genuinely putting it into skills, training and education,
31:43
Speaker 5: you were genuinely putting it into the hard infrastructure.
31:47
Speaker 3: But that means teacher salaries. I mean if you're putting
31:49
Speaker 3: it into skills that's going to then say, well, no,
31:51
Speaker 3: you're just paying teacher salaries.
31:52
Speaker 5: But if you believed, and if you could demonstrate that
31:55
Speaker 5: by having more and better teachers, you would have a
31:58
Speaker 5: better workforce, more capable of earning their living and therefore
32:01
Speaker 5: not being dependent on welfare. If you had more people
32:05
Speaker 5: in employment, then you wouldn't have the need for immigration
32:10
Speaker 5: so much. If you had more people employment, then your
32:13
Speaker 5: health statistics and your crime statistics should be better. So
32:17
Speaker 5: you can make the case. Now, yes, the cynics would
32:21
Speaker 5: jump on it, but it ought to be possible to
32:23
Speaker 5: make the case, And then the question would be, can
32:26
Speaker 5: you actually back up what you've said with what you're
32:28
Speaker 5: doing and show the evidence. You know, genuinely, skills training
32:33
Speaker 5: is a fundamental underpinning of the economy and we should
32:36
Speaker 5: be investing in it. And you know, as individuals, we've
32:39
Speaker 5: invested in our own education. So what more important is
32:43
Speaker 5: there for future generations than to invest in them.
32:46
Speaker 3: Douglas fint I wonder how many others are thinking that
32:49
Speaker 3: way across the business community, little in within the new
32:54
Speaker 3: labor government. If we get one, thank you very much.
32:57
Speaker 5: It's been a pleasure, thank you.
33:06
Speaker 3: So I don't know what you guys thought of that.
33:10
Speaker 3: You know, he was being very careful not to be partisan,
33:13
Speaker 3: but I was interested in not just the air of
33:15
Speaker 3: general positivity, but also this sense, at least from him
33:20
Speaker 3: that financial services and perhaps the business community generally would
33:24
Speaker 3: be relatively relaxed about the idea of higher taxes even
33:28
Speaker 3: on businesses at the margin, or higher borrowing if there
33:33
Speaker 3: was a real sense that the new government could show
33:35
Speaker 3: where the money was going to be invested.
33:37
Speaker 5: Yeah.
33:37
Speaker 4: Absolutely.
33:38
Speaker 1: It's also the idea that France is making us more
33:41
Speaker 1: and more attractive that we I.
33:42
Speaker 3: Quite like that was just so kind of boldly. You're
33:44
Speaker 3: supposed to not want, you know, insecurity on your border,
33:47
Speaker 3: and he was like, no, no, actually quite good for
33:49
Speaker 3: the city.
33:51
Speaker 1: And then as you've also alluded to the idea that
33:55
Speaker 1: potentially investing in skills, and I think you guys talked
33:58
Speaker 1: a lot about teachers' salaries and whether that would be
34:01
Speaker 1: a benign thing for the state to get involved in
34:03
Speaker 1: because ultimately would improve education and then people's earning.
34:08
Speaker 2: We'll let me first say that I think the most
34:10
Speaker 2: important word in all of this is stability, and if
34:13
Speaker 2: you can offer stability or offering business a good chunk
34:16
Speaker 2: of what it wants. What the Tories did was to
34:18
Speaker 2: offer instability and imbecility, and the combination of the two
34:22
Speaker 2: wasn't all less attractive. So that.
34:25
Speaker 5: Is much.
34:27
Speaker 2: You know, taxes matter, but they don't matter anything like
34:30
Speaker 2: as much as that.
34:31
Speaker 4: That.
34:31
Speaker 2: What worries me about a general increase in teachers pay,
34:35
Speaker 2: I'm not sure is a very good thing. You need incentives,
34:37
Speaker 2: you need differentials, you need a competitive environment for the
34:43
Speaker 2: teaching profession, you know.
34:45
Speaker 3: So I think it is more about you might be
34:47
Speaker 3: investing if you're investing in skills. Ultimately, that would come
34:50
Speaker 3: down to teacher's salaries, not necessarily raising their salaries, but
34:54
Speaker 3: you'd be spending more money on teachers and calling it investment.
34:57
Speaker 4: But it does bring us.
34:58
Speaker 1: Back to where we started this podcast switches on that
35:01
Speaker 1: being removed from private school fees in the following way,
35:04
Speaker 1: which is again whether the Starma government is setting itself
35:08
Speaker 1: up for tricky times because they're saying they're doing this
35:12
Speaker 1: so they can fund more teachers, but the number of
35:14
Speaker 1: teachers they will fund will be one teacher per three.
35:17
Speaker 4: Schools, So again you're kind of state school.
35:20
Speaker 1: Sorry, So I mean, you get the kind of principle
35:21
Speaker 1: behind it, and the philosophy of wanting to bring more
35:24
Speaker 1: math teachers, for instance, is the example he uses all
35:26
Speaker 1: the time into state schools. Clearly that is a noble aim,
35:28
Speaker 1: but whether or not it's actually going to be able
35:30
Speaker 1: to do it in any kind, I mean when the fact.
35:32
Speaker 3: That the government, anybody who was either in government or
35:34
Speaker 3: about to be in government, would like would make numbers
35:37
Speaker 3: sound bigger than they really are, and trying to impress
35:39
Speaker 3: people with a number of I mean, I'm not to hear.
35:42
Speaker 4: But if you look at if you look to put
35:44
Speaker 4: it on the side of a bus, if you look.
35:46
Speaker 2: At Sweden or Denmark, for example, they allow, they actually
35:49
Speaker 2: give state subsidies to people for people to go to
35:51
Speaker 2: private schools. But because by going to private schools there,
35:54
Speaker 2: they're taking this hang up out of the country. We
35:58
Speaker 2: have a hang up, a class based hang up, and
36:02
Speaker 2: it presumes that everybody's going to eat nor harrow.
36:05
Speaker 3: You know, this hang up doesn't seem to have held
36:07
Speaker 3: back the private education sector in the UK an increase.
36:11
Speaker 3: Of course, it's gone up way more past inflation over
36:15
Speaker 3: the last ten years. No, I just think I don't
36:18
Speaker 3: row back a little bit and having a tough time.
36:20
Speaker 2: The public schools have behaved disgracefully. They bought it upon themselves.
36:25
Speaker 2: They've been irresponsible short term is greedy that you know,
36:28
Speaker 2: they deserve to some extent to be punished. But I
36:30
Speaker 2: do sympathize with the parents who are going to be
36:33
Speaker 2: globbed by.
36:33
Speaker 3: I mean, one thing I do think is interesting is
36:35
Speaker 3: we would do you think, Adrian and I totally accept
36:38
Speaker 3: that it all if other things equal, if you had
36:42
Speaker 3: the choice, you probably wouldn't particularly want to have a
36:45
Speaker 3: higher rate of tax on education. And it's not that
36:48
Speaker 3: it's not what happens across the continent. But today, if
36:52
Speaker 3: it wasn't exempt from VAT would be exempt. It would
36:56
Speaker 3: any government, including a conservative government, choose to have it
36:59
Speaker 3: not be subject to a tax that you pay when
37:01
Speaker 3: you buy a kettle, when you buy a fridge, when
37:03
Speaker 3: you buy an oven, all these very basic things.
37:06
Speaker 2: You pay when you buy when you buy an opera
37:09
Speaker 2: ticket VT on it. I mean, there are certain cultural
37:11
Speaker 2: goods that I think don't carry.
37:13
Speaker 5: Vi AT there.
37:14
Speaker 2: But what worries me more than the private public divide
37:17
Speaker 2: is the attitude that it embodies. Because when Blair came
37:20
Speaker 2: into power, he had this idea that in order to
37:23
Speaker 2: improve productivity in the educational sector, you had to have
37:25
Speaker 2: league tables, you had to have academy schools or schools
37:29
Speaker 2: that could have more independence, You had to have more differentiation.
37:33
Speaker 2: Starmer seems to have the opposite attitude, which is you
37:35
Speaker 2: just need to spend public sector producers, give them more money,
37:39
Speaker 2: and also close down or make competition more difficulty. That's
37:42
Speaker 2: the wrong attitude.
37:43
Speaker 3: You're going to be able to see in the data
37:45
Speaker 3: a massive change in the quality of UK education as
37:47
Speaker 3: a result of this one change in vat.
37:50
Speaker 2: No I was saying, it's a symbolic it's symbolic of
37:53
Speaker 2: an attitude. When Blair came in, he wanted to shake
37:57
Speaker 2: up the public sector, make it more meritocratic. When Starmer
38:02
Speaker 2: comes in next week, his first line of duty will
38:06
Speaker 2: be to remove a pressure, competitive pressure from the system.
38:09
Speaker 2: That's not right, that's not good. You know, he needs
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Speaker 2: an adonus figure to come in and say, you know,
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Speaker 2: let's let's try and turn this country into meritocracy.
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Speaker 3: I think it's going to be fascinating to see how
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Speaker 3: he governs. And you are right that we don't have
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Speaker 3: a good enough idea, but.
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Speaker 1: In a week's time we will know exactly what form
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Speaker 1: the next government's taking. Thanks for listening to this week's
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Speaker 1: Votonomics from Bloomberg. This episode was hosted by me Alegri Stratton,
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Speaker 1: Stephanie Flanders, and Adrian Wildridge. It was produced by Samasadi
38:37
Speaker 1: with booking support from Chris Martlou, production support and sound
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Speaker 1: designed by Moses and Brendan Francis Newnham is our executive
38:46
Speaker 1: producer and Sage Bauman is Head of Podcasts. Special thanks
38:50
Speaker 1: to Phil Aldrich and Douglas Flint. Please subscribe, rate, and
38:54
Speaker 1: review wherever you listen to podcasting
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Speaker 6: Aber