Latest / Merryn Talks Money / Spring Statement Reaction: Reeves’s Margin of Safety Looks Too Narrow

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Spring Statement Reaction: Reeves’s Margin of Safety Looks Too Narrow · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin
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Speaker 1: Talks Money Weekly round up, our debrief on the biggest
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Speaker 1: stories and markets and economics. When I say the biggest stories,
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Speaker 1: I mean the big story today. I'm Maren Sum's that
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Speaker 1: web editor at large for Bloomberg UK Wealth.
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Speaker 2: And I'm Joined State, big author of the Money to
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Speaker 2: stilled Newslater and senior reporter for Bloomberg.
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Speaker 1: Wonderful. Nice to talk to you, John, because this is such
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Speaker 1: a I was going to say exciting that I was
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Speaker 1: going to say, great day. It's none of those things.
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Speaker 1: It's none of those things. We had to listen to
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Speaker 1: Rachel Reeves yesterday. Poor Rachel, as she's going to be
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Speaker 1: known from now. You know, we're going to upgrade that.
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Speaker 1: Poor poor Rachel, Poor Rachel, Poor Rachel. So spring statement
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Speaker 1: yesterday that went badly, didn't it.
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Speaker 2: Probably the spring statement is that Rachel Reeves was going
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Speaker 2: into it. What had happened was that growth was weekending
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Speaker 2: she expected, and then tricuyl then she expected. So the tiny, tiny,
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Speaker 2: tiny round and era of headroom and her made up
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Speaker 2: fiscal rules had completely going. So she was going to
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Speaker 2: need to figd more money somewhere down in the back
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Speaker 2: at the sofa.
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Speaker 1: If we go any further, just explain to our irritable listeners.
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Speaker 1: I'm assuming everyone's irritable at this point. Why this headroom
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Speaker 1: nonsense exists? Whired? Is that what is a rounding error
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Speaker 1: in the great scheme of our spending and our debt
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Speaker 1: is so crucially important? And also how it can be
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Speaker 1: that she used to have headroom, that she called it
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Speaker 1: physical headroom of nine point nine billion, and then she
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Speaker 1: fiddled some numbers yesterday and now she's got head room
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Speaker 1: of nine point nine billion again the same number, which
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Speaker 1: sort of tells you that everything's a pile of nonsense.
1:46
Speaker 1: What is this all about?
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Speaker 2: Look, it's basically me adopt so what arn't after the
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Speaker 2: financial crisis? This is marview. Not everyone would agree at
1:57
Speaker 2: a disagreement with Stephanie finds TV Yes today about this.
2:01
Speaker 2: But basically the Office for Budget Responsibility was set up
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Speaker 2: by George Osborne when the Tories came into it, so
2:07
Speaker 2: not the Tories, the coalition government came into for in
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Speaker 2: twenty ten, and that was meant to be a sort
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Speaker 2: of fiscal watchdogs. It was too meant to make sure
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Speaker 2: that the future government did not blow the budget, and certainly,
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Speaker 2: as far as IF concerned, there was a purely cynical
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Speaker 2: political move to basically create a Scotts Earth world in
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Speaker 2: which labor would be saddled with problems in the future.
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Speaker 2: In any other kind of future government that wanted to
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Speaker 2: spend you, we're going to lock in this kind of
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Speaker 2: I guess fiscal discipline for the wanted a bit of
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Speaker 2: the world, and instead of what harmed is it sort
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Speaker 2: of it got this almost religious tuitemic significance and now
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Speaker 2: pretty much everything has to be run past the OBR,
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Speaker 2: and if the OBR doesn't like it, politicians panic about it.
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Speaker 2: And this obviously became much worse after the Liz Trust experience,
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Speaker 2: which is I've said over and over again, we took
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Speaker 2: completely the wrong lesson from that. What happened Liz Trusted
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Speaker 2: in twenty twenty two is not that she didn't get
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Speaker 2: the OBR in mar her homework. Is that she and
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Speaker 2: quasi qualteg talked very aggressively and carelessly, recklessly. But they
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Speaker 2: were doing it when the guilt market was about to
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Speaker 2: fall over because of a completely separate issue. So what's
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Speaker 2: come out of that is that it suddenly looks as
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Speaker 2: if the OBR and this made up all these made
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Speaker 2: up sums actually matter. They don't matter. What would matter
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Speaker 2: is a government telling a good story, a government looking
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Speaker 2: as if it's got a decent plan for growth, looking
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Speaker 2: as if it's not going to kind of you know,
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Speaker 2: just go wild and the spending. But the problem is
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Speaker 2: that we've now got this kind of fake decimal point.
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Speaker 2: Yeah system.
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Speaker 1: Yeah, whenever you see a decimal point, you know there's
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Speaker 1: a problem. Right, So two things to say that, two
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Speaker 1: immediate thoughts. The first is it isn't it amazing how
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Speaker 1: the British can make a religion out of anything except
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Speaker 1: for actual religion? Yes, r whatever, send in your listening padding.
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Speaker 2: To Paddington anything pless it'd be his family savages.
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Speaker 1: That thisbr nonsense. What it does is it puts us
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Speaker 1: automatically in danger because it kind of anchors the bond market.
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Speaker 2: Right, So the OBR anchors the bond market.
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Speaker 1: Yeah, I mean not anchors, but it provides something for
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Speaker 1: the bond market to react against.
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Speaker 2: It does that, so you're right. I mean, there's the
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Speaker 2: thing you didn't have this number before and something you've
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Speaker 2: got this number, and the bond market can sit there
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Speaker 2: and kind of panic off the back of it. But
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Speaker 2: the probably the fake sort of detail that the fake accuracy,
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Speaker 2: the fake precision, is that what it creates is it
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Speaker 2: creates a hostage to fortune. But also it creates this
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Speaker 2: weird world where a government and a chancellor and the
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Speaker 2: treasure and are just running around try to find a
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Speaker 2: million here, a theoretical million here, and a million there
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Speaker 2: to shave a bit off, because as she said, it's
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Speaker 2: like the tail. Here is the fact that she had
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Speaker 2: nine point nine billion after the autumn budget, she lost
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Speaker 2: that and now she's manage to get it back to
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Speaker 2: nine point nine million somehow. Is this kind of precision
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Speaker 2: and the fact that she was running around after the
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Speaker 2: kind of benefit or so the reductions in the increase
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Speaker 2: in real terms of spending on welfare had been annouxdcausing
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Speaker 2: that's really important. It's like, this is not austerity by
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Speaker 2: anyone's definitions. Nothing going up by one percent in real
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Speaker 2: terms is going up by something like point five percent
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Speaker 2: the points it is still going up in.
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Speaker 1: Real it's still going up. That's exactly the case. This
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Speaker 1: is not austerity. Nothing is being cut here, which is saying,
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Speaker 1: maybe you know, maybe fewer people could claim this stuff.
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Speaker 2: Yeah, and I think that it's endlessly frustrating. So we've got,
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Speaker 2: like I said, we've got fake precision. Everyone knows that
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Speaker 2: the obr's forecasts are wrong. It's not because the OBR
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Speaker 2: is particularly stupid or bad. Economics is because no one
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Speaker 2: can predict what's going to happen next. And also everyone
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Speaker 2: keeps talking about how uncertain things are at the moment,
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Speaker 2: and I think that's actually fair to say. I think
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Speaker 2: things are unusually certain. They are unusually dependent on kind
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Speaker 2: of a big, big changes in the way that politicians
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Speaker 2: are treating economics and the economies in general, so that
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Speaker 2: things are probably more uncertain than they were and maybe
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Speaker 2: the early two thousands generally in terms of the way
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Speaker 2: things are going. But the point is that knowing that
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Speaker 2: seems to we still kid on that these numbers have
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Speaker 2: some kind of meaning or some kind of significance behind them.
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Speaker 2: And what we should do is have a much a
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Speaker 2: somewhat more relaxed system where the government says, right, but
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Speaker 2: we're going to try this, I'm going to try that.
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Speaker 2: If it's not working, then we're going to change tack.
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Speaker 2: But we shouldn't be sitting around saying trying to measure
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Speaker 2: exactly what's going to happen with you to these things,
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Speaker 2: especially whenever they will be a sort of setting. A
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Speaker 2: lot of that elements don't take into account things like
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Speaker 2: behavioral changes, and of course lots of tacks moves and
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Speaker 2: benefit moves are designed to drive behavioral changes. The other
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Speaker 2: false precision thing is where they start talking about, oh, right,
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Speaker 2: well these cuts are going to drive you know, another
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Speaker 2: fifty thousand kids in the poverty. You're kind of like, well,
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Speaker 2: how do you say that way? Any can quite apart
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Speaker 2: from what is your definition of poverty, because it's not
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Speaker 2: the normal human beings definition of poverty. The point is
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Speaker 2: that you don't know what these numbers are the place
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Speaker 2: if people go off these benefits but then get a job,
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Speaker 2: you know, that's not going to increase the poverty numbers.
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Speaker 2: There was a Bloomberg article which kind of like helped
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Speaker 2: this go viral, which pointed out that one in five
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Speaker 2: new cars in Britain it's basically purchased way a PIP,
7:23
Speaker 2: you kind of know, the personal independence payment. And of
7:26
Speaker 2: course everyone's sort of looking at this and saying, well, well,
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Speaker 2: I'm not well, this thing isn't even means tested, and
7:30
Speaker 2: you can get it by kind of jump through enough
7:32
Speaker 2: hoops to say that you have one of these very
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Speaker 2: poorly defined ADHD type illnesses. This is not this isn't.
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Speaker 2: Anyone who's got mental health issues are very very sympathetic
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Speaker 2: to that. But it's clearly the size and the scale
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Speaker 2: shows that those are scut incentives at work here.
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Speaker 1: I think the motibility was thing was really interesting. We
7:52
Speaker 1: talked about this briefly before, but it was a sort
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Speaker 1: of cut through a moment, wasn't it. When suddenly all
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Speaker 1: sorts of people went I wondered, how am I always
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Speaker 1: managed to have a brand new car every three years
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Speaker 1: when I have never in my whole life had a
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Speaker 1: brand new car, despite the fact that I've worked my
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Speaker 1: whole life. I always thought it was weird, and now
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Speaker 1: I get it. It feels like a bit of a
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Speaker 1: sea change in the wet sea change might be pushing it,
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Speaker 1: but a cut through moment in the way that working people,
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Speaker 1: not all working people, obviously a lot of people on
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Speaker 1: pips also work, but a way that those who finance
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Speaker 1: the welfare state might look at the welfare state. And
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Speaker 1: I suppose that's kind of a lot of what's happening
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Speaker 1: here is that what Rachel Reefs put here and that
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Speaker 1: the people around her are beginning to have to accept,
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Speaker 1: is that UK has reached the limit of the size
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Speaker 1: of state that the private sector can support, that there
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Speaker 1: comes a point when it's just enough. And we've got
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Speaker 1: the tax burden going up to historically high levels on
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Speaker 1: its way to nearly thirty eight percent by twenty seven
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Speaker 1: to twenty eight. We've got debt levels that one hundred
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Speaker 1: percent ish of GDE. We now have worse debt levels
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Speaker 1: than pretty much anywhere in Europe, which is deeply embarrassing.
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Speaker 1: Got to say, I am ware, okay, fine, but across
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Speaker 1: the EU. Across the EU we're on one hundred, they're
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Speaker 1: in about eighty. Across the U, on average, our debt
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Speaker 1: has gone up fifteen sixteen percent twenty nineteen. Across the
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Speaker 1: EU has gone up more like four five percent. So
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Speaker 1: even relative of the EU, which weep always look over
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Speaker 1: and go, h, we're looking pretty awful. We're up against
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Speaker 1: the limit of what the private sector can afford. And
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Speaker 1: of course that is what happened in the US as well.
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Speaker 1: I mean, there's a reason we've talked about this before
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Speaker 1: that Trump is not a cause of lots of things
9:34
Speaker 1: that are happening in America. Trump is a symptom and
9:37
Speaker 1: a lot of things that he's doing are symptoms of
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Speaker 1: the conditions that already exist. So the Department of Government
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Speaker 1: spending DOGE expenditure in the US that's not didn't come
9:46
Speaker 1: out of the blue. That's a direct result of the
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Speaker 1: unsustainability of the US government debt level, a direct result.
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Speaker 1: And here we are now in the UK, we are
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Speaker 1: in exactly the same position. And if Rachel Reeves isn't
9:59
Speaker 1: going to be Elon Muscus, somebody else has to be
10:01
Speaker 1: Elon Musk, right, And she's not going to be ill
10:03
Speaker 1: A Musk. He's not up to the job. So labor
10:06
Speaker 1: are going to be in a very busy opposition by
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Speaker 1: the end of the year having to hire an Elon Right.
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Speaker 2: Well, yeah, I mean this is the problem, isn't it.
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Speaker 2: Because you've got like Rachel on the one hand, is
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Speaker 2: arguably the toughest talker, and all this stuff in the
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Speaker 2: party and everyone else is kind of like clamor and
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Speaker 2: they have things like wealth taxes and complain and that,
10:29
Speaker 2: you know, kind of trimming the kind of benefits Bell
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Speaker 2: is in some way this absolutely horrific thing that labor
10:36
Speaker 2: government shouldn't be doing, because labor governments are meant to
10:39
Speaker 2: basically hand out money to everyone all times, and everyone
10:42
Speaker 2: who asked for that money is a deserving recipient. So
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Speaker 2: there's a real philosophical kind of problem there. And you
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Speaker 2: could see her trying to grapple in a speech yesterday.
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Speaker 2: You know, a lot of the what she was using,
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Speaker 2: you know, the emphasis when working people and all the
10:57
Speaker 2: rest that could have come st straight out kind of
11:01
Speaker 2: very like kind of like if chat GPT was running
11:04
Speaker 2: a felt of Margaret Thatcher that was a kind of
11:07
Speaker 2: very poor coffee and Margaret Thatcher. The kind of phraseology
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Speaker 2: that might come from where you're talking about hard working
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Speaker 2: families and you know they shouldn't be getting having to
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Speaker 2: pay for people who are slacking off. And also you
11:19
Speaker 2: know there but I away the other problem is that
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Speaker 2: also there were so many magic wind items there and
11:27
Speaker 2: I know that they will be as marked it and
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Speaker 2: I'm happy about it. But you had the tax of
11:31
Speaker 2: avoidance crackdown. So that's yeah, this was.
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Speaker 1: Really interesting kind of taxes everybody because it's going to
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Speaker 1: cost you a lot more, isn't it. The rite and
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Speaker 1: late payment have gone up two three percent and ten
11:43
Speaker 1: percent extra if you're thirty one days late payers bills.
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Speaker 2: Yeah, yeah, I know, something big crackdown when people promoting
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Speaker 2: dodgy tacks avoidance schemes, which I'm all in favor of that,
11:55
Speaker 2: but it's the point is you're trying to get more
11:57
Speaker 2: squeeze more money out of the tax avoidance lemon, squeezing
12:00
Speaker 2: more money out of the kid on. We're going to
12:03
Speaker 2: make the public syctom more productive nowadays, it's not it,
12:05
Speaker 2: it's AI that's going to do that. And all these
12:09
Speaker 2: kind of little areas where there's some of something's going
12:13
Speaker 2: to magically happen that's going to make stuff better. And
12:16
Speaker 2: really what we need to do is grapple. We just
12:19
Speaker 2: drastically v shaping the system and changing and clarifying the
12:24
Speaker 2: incentive structure because that has become so clogged up with
12:29
Speaker 2: regulatory and sort of tax real plaque basically, and now
12:34
Speaker 2: you know, I think that is probably more than anything else,
12:38
Speaker 2: and the energy issue comes into this. That is what's
12:40
Speaker 2: clogging up Britain's arteries and we need to get.
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Speaker 1: Rid of it.
12:44
Speaker 2: And it would be much fairer, you know if people
12:47
Speaker 2: with more money would try end up paying at least
12:50
Speaker 2: as much tax as they're paying just now. But if
12:53
Speaker 2: you just kind of flatten and simplify the tax system,
12:56
Speaker 2: allow more innovation in the energy set that all people start,
13:01
Speaker 2: you know, promping gas, all that sort of stuff, then
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Speaker 2: we could get back to some sort of they grew
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Speaker 2: within the productivity.
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Speaker 1: As we've discussed on a million times before, you can't
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Speaker 1: create growth, but you can create the conditions for growth
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Speaker 1: with cheap energy, straightforward, simple taxes that aren't too high,
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Speaker 1: reduction and regulation. The solid legal system might be. One
13:22
Speaker 1: of the other problems, of course in the UK is
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Speaker 1: how intensely and constantly litigious we are now. And it
13:27
Speaker 1: used to be a litigious society now we are. Nothing
13:29
Speaker 1: goes through without that. But of course there's an answer, John,
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Speaker 1: There's an easy answer to everything. All these complicated things
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Speaker 1: that we've been talking about, all these big philosophical moves
13:38
Speaker 1: that the state needs to make and Rachel needs to
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Speaker 1: get a group of etc. They don't really matter. You
13:43
Speaker 1: and I both know what the answer is, don't we.
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Speaker 1: It's a wealth tax, broad a shoulders broad a shoulders
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Speaker 1: pay your fast share, right us tell us why a
13:53
Speaker 1: wealth tax is absolutely the answer. I can't think of
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Speaker 1: anything better that'll keep those billionaires in the UK.
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Speaker 2: I think you're right. And the good thing is that
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Speaker 2: it's a base, an infinite pot of money from which
14:04
Speaker 2: can be raised.
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Speaker 1: I had that too.
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Speaker 2: Yeah, wherever the gap in your finances is, a wealth
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Speaker 2: tax will fix it.
14:10
Speaker 1: The rich.
14:11
Speaker 2: It's an ingenious idea.
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Speaker 1: Tell us the truth, John, tell us the truth.
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Speaker 2: I don't know why all of it. Okay, well, well
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Speaker 2: look there's the point that you always make. Would be
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Speaker 2: already tax wealth in this country, and wealth in the
14:22
Speaker 2: sense that normal human beings would understand it rather than
14:25
Speaker 2: the accountants. So dividend income I would class as wealth
14:29
Speaker 2: because it's on the income. It's something something that comes
14:32
Speaker 2: from an asee own kind of transaction taxes, stamp, juy,
14:35
Speaker 2: et cetera. Inheritance tax is a big obvious one. The
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Speaker 2: capital gains tax, which is now you know, the annual
14:41
Speaker 2: allowance is three thousand pounds, which is buttons whenever it
14:45
Speaker 2: comes to that, especially whenever capital gains is also charged
14:48
Speaker 2: on price inflation basically, so we already tax we health.
14:52
Speaker 2: And then if you're going to turn around and say, well, okay,
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Speaker 2: we're going to charge you one percent on everything you own.
14:58
Speaker 2: Your net assets are two or even though some people
15:01
Speaker 2: keep talking about and seeing it's going to be twenty
15:03
Speaker 2: four billion a year, I just don't think that it's
15:05
Speaker 2: correct because for the start, your compliance is going to
15:08
Speaker 2: be a Nate meal. Tell you do you helue people's assets,
15:12
Speaker 2: and what do you do whenever they go down? Do
15:14
Speaker 2: they get a rebit? And also people will leave?
15:19
Speaker 1: And also crucially how do you value private company? So
15:22
Speaker 1: I'm an entrepreneur. I started a company. I've got a company.
15:25
Speaker 1: It's loss making, but it's growing fast. So in private
15:28
Speaker 1: equity terms, it's worth worth fifty million quid, but it's unsailable.
15:32
Speaker 1: I can't sell a stake in it. There's no way
15:33
Speaker 1: to get any money out of it. You're going it
15:34
Speaker 1: tells me two percent a year, or tell you what
15:36
Speaker 1: I'm going to do. I'm moving to I'm moving somewhere
15:37
Speaker 1: else in those.
15:38
Speaker 2: Thay yeah, absolutely, and people will because.
15:40
Speaker 1: I can't afford it. I haven't got the cash. I
15:42
Speaker 1: haven't got the cash. I'm not going to do it.
15:43
Speaker 1: And you might say we'll roll it up, We'll roll
15:45
Speaker 1: it up, or roll it up for you with the
15:47
Speaker 1: you know, with the Treasury's idea of what an appropriate
15:50
Speaker 1: interest rate is, we'll roll that up and then what happens.
15:52
Speaker 1: Maybe my company doesn't work out and suddenly in ten
15:55
Speaker 1: years it's worth two million quid or one million quid
15:57
Speaker 1: or absolutely nothing. But I still are you the money?
15:59
Speaker 1: How does this work? I mean, it's no intense to go.
16:01
Speaker 1: I mean there's a reason why basically nowhere has a
16:05
Speaker 1: wealth tax anymore. Those people who tried wealth taxes are
16:07
Speaker 1: we offer you France, for example, when they will backtrack
16:10
Speaker 1: it from not only does it not raise any money,
16:12
Speaker 1: but the admin is intense, it's awful, and people leave.
16:16
Speaker 1: People leave, they just.
16:17
Speaker 2: Go the one thing that I think they are there.
16:20
Speaker 2: Even then, I just don't see them doing this because
16:23
Speaker 2: it would be two people would get annoyed because it's
16:26
Speaker 2: about property. If you were to get out of council
16:29
Speaker 2: tax and kind of reform council tax and the police
16:32
Speaker 2: it was some sort of annual wealth tax, then that
16:36
Speaker 2: would be annual property tax. Basically I can see how
16:39
Speaker 2: that would be doable. I mean, obviously it would be
16:41
Speaker 2: extremely unpopular and also wouldn't just wouldn't follow on the
16:47
Speaker 2: shoulders of the people that are normally considered to be
16:50
Speaker 2: kind of wealthy by people who want a wealth tax.
16:52
Speaker 2: It would basically be anyone that owned the property and
16:55
Speaker 2: anyone that rented the property indirectly. So again I don't
17:00
Speaker 2: I just don't think that said there, or that any
17:02
Speaker 2: government with one ticket ask govern the possession that residential
17:06
Speaker 2: property in this country.
17:07
Speaker 1: Another wealth tax I've just thought of, by the way,
17:09
Speaker 1: double council tax on holiday homes. Yeah, by tax, send
17:14
Speaker 1: us in, anybody, if you can think of a wealth
17:16
Speaker 1: tax that John and I haven't thought of yet, please
17:17
Speaker 1: send it in. And the is the extra extra tax
17:19
Speaker 1: on expensive cars as well?
17:22
Speaker 2: Expensive cars somebody resolso hot with insurance premium duty as well,
17:27
Speaker 2: which I thought was an interesting one. You know you're
17:28
Speaker 2: talking about if you haven't insured in expensive icet, then
17:31
Speaker 2: you know it's proportional. I think, so you know you're
17:34
Speaker 2: how many pay that we.
17:35
Speaker 1: Better bring this to in. But I think that the
17:36
Speaker 1: key thing to say is that John and I have
17:38
Speaker 1: been you know, we've been giggling about a wealth tax.
17:40
Speaker 1: We think it's kind of funny that any government could
17:41
Speaker 1: be stupid enough to introduce something like this. But one
17:43
Speaker 1: thing this government has proven so far. They're really really
17:45
Speaker 1: stupid about this stuff. They don't understand incentives they have
17:48
Speaker 1: paid to actively refuse to understand the centers, which is
17:51
Speaker 1: the big problem when it comes to running an economy.
17:52
Speaker 1: The key thing is that we now have no idea
17:55
Speaker 1: what's going to happen in the next budget. We know
17:57
Speaker 1: that Rachel Raids is in trouble. We know that a
17:59
Speaker 1: headroom with stupid hea drummers constantly coming and going and
18:02
Speaker 1: coming and going more going than coming. We know that
18:04
Speaker 1: the economy has slowed down dramatically since her first budget.
18:07
Speaker 1: We know that the ni for usholds etc. Having a
18:10
Speaker 1: horrible effect on businesses, particularly in the hospitality business. So
18:13
Speaker 1: we do know that there is a very strong possibility
18:16
Speaker 1: that we will see new taxes in her next actual budget,
18:20
Speaker 1: and that means that the next six months are extremely
18:23
Speaker 1: uncertain and difficult, and uncertainty, as we know, makes everything
18:27
Speaker 1: to do with economies worse. So, you know, poor Rachel,
18:31
Speaker 1: Poor Rachel, and could well more to the point. Thanks
18:42
Speaker 1: for listening to this week's Marin Talks Money Debrief. If
18:44
Speaker 1: you like us, show, rate, review, and subscribe wherever you
18:47
Speaker 1: listen to podcasts. Also be sure to follow me and
18:49
Speaker 1: John on ex or Twitter at Marinas W and John
18:51
Speaker 1: underscore STEPIC. This episode was produced by Some Society production
18:55
Speaker 1: support and sound designed by Moses and Our executive producer
18:58
Speaker 1: is Brendan Francis Newnham. Questions are comments on this show
19:01
Speaker 1: and all our shows are always welcome. Our show email
19:04
Speaker 1: is merin Money at Bloomberg dot nex, so do get
19:07
Speaker 1: in touch. If you have any ideas for Rachel Reefs
19:09
Speaker 1: that we could explore on the show, She'll appreciate it.