Latest / Merryn Talks Money / Blair Versus Starmer - Can the Government Get Out of Britain's Way?

Transcript

Blair Versus Starmer - Can the Government Get Out of Britain's Way? · Merryn Talks Money

0:02
Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
0:09
Speaker 2: Welcome to the Merlin Talks Money Market, where we talk
0:12
Speaker 2: about the biggest moves in markets this week and what's
0:14
Speaker 2: been driving them. I'm join Stepic Senior, the poster that
0:17
Speaker 2: Bloomber and Authory money distilled newsletter, and I'm filling in
0:20
Speaker 2: for Mern this week because she's on holiday, so join
0:23
Speaker 2: us this week. Is Simon French and friend of the
0:25
Speaker 2: PoID and also the managing director, chief economist and head
0:29
Speaker 2: of research at PAN Your Libroom, the UK's largest independent
0:32
Speaker 2: investment bank. Simon, welcome back. It's lovely to have you here.
0:36
Speaker 1: John's great to be here.
0:39
Speaker 2: We'll start out talking about the UK energy cap because
0:42
Speaker 2: we just got the new cost of our bills coming in.
0:44
Speaker 2: Just a weird chat about what's going to happen with
0:46
Speaker 2: inflation and maybe how that's going to affect the consumer.
0:50
Speaker 2: And then I thought she'd have a chat with guilt
0:51
Speaker 2: markets and the Labor leadership battle and Tony Blair's interesting
0:56
Speaker 2: intervention in that today's written a big, long letter basically
1:00
Speaker 2: talking about what the Labor Party needs to do to
1:02
Speaker 2: get serious about winning elections and getting the country going.
1:06
Speaker 2: But let's start with the energy cap. So from July,
1:10
Speaker 2: household energy bills are going to be going up by
1:12
Speaker 2: a substantial amount, and I really just wanted to ask
1:15
Speaker 2: you about what you think that's going to do to
1:18
Speaker 2: inflation and the Bank at England and the UK consumer
1:22
Speaker 2: from here.
1:23
Speaker 1: Yeah, so a bit of context here. The energy price
1:26
Speaker 1: cap for the second quart of the year about one
1:29
Speaker 1: thousand and six forty pounds for the average du fuel
1:33
Speaker 1: the household.
1:33
Speaker 2: Yeah, this is important when people talk about this because
1:36
Speaker 2: I think people often get confused, and they still get confused.
1:40
Speaker 2: But the energy price cap is for the average household.
1:43
Speaker 1: Yes, so the.
1:44
Speaker 2: Price is actually per unit of electricity and gas that
1:48
Speaker 2: you use. So if you're wanting to know what your
1:50
Speaker 2: bill is going to be, it's going to be that
1:52
Speaker 2: times the amount of energy you use. Eighteen hundred pounds
1:56
Speaker 2: is not the maximum regardless of how much energy you use.
2:00
Speaker 2: So I think that that's important for people at home in.
2:02
Speaker 1: The way that's important for people at home. And also
2:04
Speaker 1: the fact that this gets reviewed every quarter used to
2:07
Speaker 1: be done every six months, and therefore, obviously the peak
2:10
Speaker 1: energy usage is coming into the winter period and this
2:13
Speaker 1: is for probably the quarter where energy is least used
2:16
Speaker 1: by household So it is not just this move and
2:19
Speaker 1: we'll come on to talk about this, but his movements
2:22
Speaker 1: potentially in Q four and into Q one next year
2:24
Speaker 1: that are probably more material for UK household spending and
2:29
Speaker 1: of course for inflation. You ask what the transmission mechanism
2:32
Speaker 1: is here, Well, there's an arithmetic change from the fact
2:35
Speaker 1: that about four percent of the CPI basket is made
2:38
Speaker 1: up from household energy and that going up by thirteen
2:41
Speaker 1: percent quarterm quarter in about twenty percent on the year
2:46
Speaker 1: will mean at about zero point four zero point five
2:48
Speaker 1: percent to headline CPI. This is correct. But to move
2:55
Speaker 1: to the transmission mechanism through to managey policy is that
2:59
Speaker 1: is a known effect and it's the type of thing
3:02
Speaker 1: which the Bank of England will be quite comfortable looking
3:05
Speaker 1: through as something relatively that I'm going to use the
3:08
Speaker 1: word transitory. What we worry about, what banks central banks
3:13
Speaker 1: worry about certainly now and did worry about in their
3:16
Speaker 1: defense back in twenty twenty two, the last time we
3:18
Speaker 1: had an energy price shock, is those second order effects.
3:21
Speaker 1: And when you're trying to understand how high inflation will
3:24
Speaker 1: go and whether monetary policy has to respond, it's whether
3:28
Speaker 1: those second order prices in manufacturing and construction in services
3:33
Speaker 1: feed off the initial impulse. So companies do they have
3:36
Speaker 1: the pricing power to retain their margins? Do workers have
3:40
Speaker 1: the negotiating power to raise their wages to maintain their
3:43
Speaker 1: value in real terms? Is demand strong enough to withstand
3:47
Speaker 1: all this? And I think that is where when trying
3:51
Speaker 1: to get to the conclusion why central banks, the banking
3:54
Speaker 1: particularly are unlikely to respond in anything like the same
3:58
Speaker 1: way as they did in twenty twenty two because the
4:00
Speaker 1: demand conditions are much softer. Particularly, is the excess savings
4:04
Speaker 1: that a lot of households, not all households, but a
4:06
Speaker 1: lot of households a built u during the pandemic that
4:08
Speaker 1: is no longer the backstop to their demand that was
4:11
Speaker 1: very prevalent to the start of twenty twenty two.
4:14
Speaker 2: So basically we would need a stronger economy to generate
4:17
Speaker 2: second or dun inflation. So the kind of bad news
4:20
Speaker 2: is good news element is that the economy is just
4:23
Speaker 2: not strong enough to have people in the companies pushing
4:27
Speaker 2: through the places and people able to my entire wages,
4:31
Speaker 2: And so that's why the bank will look through it.
4:34
Speaker 1: I think that's right, and I think we're coming on
4:36
Speaker 1: to talk about the bomb market and there's a vigorous debate.
4:39
Speaker 1: I know you and may sometimes engage on this and
4:42
Speaker 1: social social media is what when you decompose the movement
4:45
Speaker 1: in gill yields, how much is that is responding to
4:47
Speaker 1: inflation versus political risk? And clearly looking at the likely
4:53
Speaker 1: bank of response will influence the shorthand of the guild curve.
4:58
Speaker 1: And we have seen to your point on bad news
5:01
Speaker 1: is good news when we saw some pretty soft jobs
5:04
Speaker 1: data out of the UK economy last week, illustrating certainly
5:09
Speaker 1: weakness in hiring intentions amongst firms that started to price
5:15
Speaker 1: out some of the rate increases that have been penciled in.
5:17
Speaker 1: And if you'd interpreted literally the yield over the short
5:20
Speaker 1: end for the second half of this year, that makes
5:23
Speaker 1: the point that bad economic news probably limits those second
5:27
Speaker 1: order effects and therefore the urgency for the Bank of
5:29
Speaker 1: Eington had to respond to this kind of energy led inflation.
5:32
Speaker 2: Think the Bank of England will just be able to
5:34
Speaker 2: get away. Reading are interested Peter Hages this year? I
5:38
Speaker 2: think central view on it, it's a.
5:40
Speaker 1: Cential case and I think that prior to the last
5:45
Speaker 1: munity Policy Committee meeting was my view. I haven't heard
5:48
Speaker 1: anything from the NPC, who of course now produce and
5:52
Speaker 1: I think it's a very welcome development. Qualitative comments from
5:54
Speaker 1: each of the nine members on how they interpret the
5:57
Speaker 1: inflation and the growth picture, and most of the MPC
6:00
Speaker 1: members talked about financial conditions. The curve doing some of
6:06
Speaker 1: the heavy lifting, because if you take listeners back to
6:09
Speaker 1: the start of the year, the curve was pricing in
6:12
Speaker 1: a couple of rate cuts from the Bank of England
6:15
Speaker 1: and therefore it's something of a whip sort to start
6:17
Speaker 1: pricing in rate increases, and of course the real interest
6:23
Speaker 1: rates faced by businesses and households in terms of offered
6:25
Speaker 1: rates from lenders have responded to that. So mortgagees have
6:29
Speaker 1: become the offered interest rates have moved higher, and that
6:32
Speaker 1: is doing some of the policy work that otherwise would
6:34
Speaker 1: be required of bank rate We also need to acknowledge
6:38
Speaker 1: that four years on from the last time we had
6:41
Speaker 1: the energy price shock, the balance the balance sheet of
6:43
Speaker 1: the Bank of England is in divestment mode. It's reducing
6:48
Speaker 1: the amount of held guilts by about one hundred billion
6:50
Speaker 1: pounds a year. At the time of the last entry
6:53
Speaker 1: price shock, it was still accruing assets that were still
6:55
Speaker 1: buying guilt. So again that transmission through to tighter financial
6:59
Speaker 1: conditions is doing some of the heavy lifting. The NPC
7:02
Speaker 1: would like the market to do its work for it,
7:05
Speaker 1: so you have to get its hands dirty to be back.
7:07
Speaker 1: Then then I'm never going to say this, at least
7:08
Speaker 1: if that explicitly in the minutes. But that's the subtext,
7:11
Speaker 1: isn't it.
7:12
Speaker 2: Yeah, I mean, I suppose it's fairly obvious because the
7:14
Speaker 2: mortgage market rates have gone up a lot. Although I
7:17
Speaker 2: suppose the point now is that it sounds as if
7:19
Speaker 2: that's likely to settle down for the rest of the year,
7:23
Speaker 2: as human that they Iran war aspect doesn't get any worse.
7:29
Speaker 2: I mean, have you get any thoughts on that? I mean,
7:31
Speaker 2: obviously you don't have any idea any more. And the
7:33
Speaker 2: rest is whether whether the street of the Moves is
7:35
Speaker 2: going to open or not. Is there any signs of
7:38
Speaker 2: I guess you know, there are the elements. I've noticed.
7:41
Speaker 2: There's a lot of infrastructure being built that Kaina helps
7:44
Speaker 2: to bypass the straight in some ways. A lot of
7:48
Speaker 2: discussion about I don't think we're using quite as much energy.
7:53
Speaker 2: It's interesting in the easyjecument and one the other day
7:56
Speaker 2: that you know is summer bookings haven't been biant, and
8:00
Speaker 2: that's you know, on the one how you can see
8:02
Speaker 2: that's consumer weakness, but on the other hand it looks
8:05
Speaker 2: as off. A lot of it is simply don't you
8:07
Speaker 2: people not really annoying what to do and not wanting to,
8:11
Speaker 2: you know, take a flight whenever those are award or
8:13
Speaker 2: in not that far away, we can.
8:15
Speaker 1: We take a moment to celebrate something. I know you think,
8:18
Speaker 1: are you celebrators? I do the role of prices, the
8:22
Speaker 1: role of markets, of sending signals to destroy demand, to
8:27
Speaker 1: encourage supply. They send really crucial signals. And as I
8:31
Speaker 1: know later in the podcast we're going to talk about politics,
8:34
Speaker 1: but I think politicians get in the way of those
8:36
Speaker 1: important price signals at their peril. And what have events
8:40
Speaker 1: in the Gulf and indeed events in Ukraine, Dart they
8:46
Speaker 1: have sent messages to agents across the world, in both
8:51
Speaker 1: energy markets and energy adjacent markets that they need more resilience,
8:56
Speaker 1: more pluralism in terms of supply supply of different sources
9:02
Speaker 1: of energy. And they're responding to that price stimulus you're
9:05
Speaker 1: talking about holidaymakers. They're responding to the messages to of
9:10
Speaker 1: potential constraints of supply capacity in the airlines market of
9:15
Speaker 1: jet fuel by being more cautious in their demand picture,
9:19
Speaker 1: and that is enabling some of those pinch points we
9:21
Speaker 1: were worried about in terms of supply to be somewhare mitigated.
9:25
Speaker 1: I also think give a bit of credit to not
9:29
Speaker 1: just corporate UK, but the global corporates, particularly in the
9:32
Speaker 1: travel industry, airline chief execs, who turns out a bit
9:37
Speaker 1: more about their industry than some of the substackers that
9:39
Speaker 1: we were all reading about a month ago, who were
9:41
Speaker 1: telling us there would be here really acute supply pressures
9:44
Speaker 1: by the end of May, of the straits weren't reopened.
9:46
Speaker 1: Where it turns out that the economic supply chains, the
9:51
Speaker 1: energy supply chains, are a little bit more flexible. Operators
9:54
Speaker 1: are a bit more flexible than we first thought. That is
9:58
Speaker 1: a good thing. Those mess is politicians get in the
10:01
Speaker 1: way of their peril in my view, and we need
10:04
Speaker 1: to be much more comfortable. Yes, I recognize there is
10:07
Speaker 1: political fallout always with inflation, but the message it sends
10:11
Speaker 1: to the supply side of the economy is really really important,
10:13
Speaker 1: and I think we perhaps can look at how markets
10:17
Speaker 1: have risk. Markets have cast off some of the risks
10:21
Speaker 1: in the in the Gulf in terms of being quite
10:26
Speaker 1: a celebration of global supply checks.
10:29
Speaker 2: Yeah, I mean yeah, I mean because it's interesting because
10:32
Speaker 2: obviously the we we have held a lot about police
10:35
Speaker 2: controls recently, particularly regard to supermarkets. And I think you're
10:40
Speaker 2: really I mean there says I can the object less
10:42
Speaker 2: and then the value of praise as a signal in mechanism,
10:45
Speaker 2: and you know, basically seeing any people, look, you need
10:48
Speaker 2: to find there's efferent way to get hold of there,
10:50
Speaker 2: so you need to use less of it. So yeah, yeah,
10:53
Speaker 2: basically inter places at your peral, which is a n
10:58
Speaker 2: bring us any politics as of course. So Andy Burnham,
11:03
Speaker 2: Andy Bundham is the mayor of Manchester, and he's the
11:07
Speaker 2: kind of the person who seems at the moment most
11:11
Speaker 2: likely to eventually become the leader of the Labor Party
11:14
Speaker 2: in there for the next prime minister. And guilt markets
11:19
Speaker 2: appeared eventually giving him a bit of a break in
11:21
Speaker 2: the last week or so. I know how much of
11:23
Speaker 2: that's down to Andy Bundham and how much of it's
11:25
Speaker 2: actually down the economy not looking that great is an
11:29
Speaker 2: art question. But Tony Blair has stepped in too. It's
11:34
Speaker 2: almost as if the guilt markets have faded away as
11:37
Speaker 2: something to worry about. But now the kind of the
11:39
Speaker 2: specter of Labour's most successful prime minister has kind of
11:43
Speaker 2: risen to to give Andy a bit of a nudge
11:46
Speaker 2: in the ribs. So what did you think of this?
11:49
Speaker 2: So there's a big letter that came out from the
11:51
Speaker 2: Tony Blair Institute by the man himself basically making a
11:55
Speaker 2: big sort of wish list of what Britain should do
11:59
Speaker 2: and explain why Libat isn't doing it and it needs
12:02
Speaker 2: to start doing some of it. I mean, what was
12:04
Speaker 2: your what was your tea? Co coin?
12:06
Speaker 1: This radical centrism interest.
12:11
Speaker 2: There's a lot of it's any political tautology, really, it's
12:17
Speaker 2: not tautology.
12:20
Speaker 1: Speech. So what did I make of it? Look? I
12:24
Speaker 1: am no Tony Blair or new Labor fanboy, but he
12:29
Speaker 1: spoke a lot of sense I felt in the letter.
12:31
Speaker 1: There are some policy trade offs that are uncomfortable for
12:38
Speaker 1: what has been called the soft left of the Labor
12:41
Speaker 1: Party that he shines a light on, or maybe holds
12:47
Speaker 1: a mirror up at on immigration on net zero, on
12:53
Speaker 1: the world order, on the relationship with Europe. It's a
12:56
Speaker 1: kind of it's quite an essay as of the big
13:02
Speaker 1: both structural challenges facing the Middle Powers, and he references
13:07
Speaker 1: Mark Karney in his speech or call to Arms in
13:09
Speaker 1: Davos earlier in the year, but also some of the
13:14
Speaker 1: shorter term political challenges and perhaps some of the failings
13:19
Speaker 1: of the prospective Labor leadership candidates and the incumbents of
13:27
Speaker 1: not having the policy debates, which I think you and
13:30
Speaker 1: I share this frustration ahead of ahead of the twenty
13:33
Speaker 1: twenty four general election, and trying to make policy or
13:38
Speaker 1: have the debate with the public about some of the
13:41
Speaker 1: difficult decisions on technology, the cost of aging, on immigration,
13:45
Speaker 1: on welfare spending in parliament, in government without a manifesto
13:52
Speaker 1: to backstop that with which to use to whip your
13:55
Speaker 1: own parties, not literally but at least metaphorically, is a
14:00
Speaker 1: real difficult challenge. And to me comes back to the
14:04
Speaker 1: challenge Andy Burnham will have if he takes that path
14:07
Speaker 1: you lay out, which is he wins the make Field
14:09
Speaker 1: by election, he wins the Labor leadership and he becomes
14:12
Speaker 1: Prime Minister. On one side, he'll be boxed in by
14:15
Speaker 1: the bomb market, and the other side will be boxed
14:17
Speaker 1: in by his own political brethren, and therefore the room
14:22
Speaker 1: for maneuver is quite limited. And by the way, I
14:25
Speaker 1: think it is that limited room for maneuver, the bomb
14:27
Speaker 1: markets have responded quite favorably to because they've really what
14:29
Speaker 1: has been revealed over the last couple of weeks is
14:32
Speaker 1: how much how many limits there are politically and financially
14:37
Speaker 1: on his ability to be particularly radical, be it a
14:40
Speaker 1: radical centrist or a radical leftist or a radical Mancunion
14:44
Speaker 1: or whatever descriptor we want to give it. And to
14:49
Speaker 1: some extent markets saying, well, the status quo is not
14:54
Speaker 1: it's not great, but it's not a deterioration from here.
14:57
Speaker 2: I thought it was quientious. And because we mentioned immigration,
15:01
Speaker 2: and he says, first of all, he said, that's something
15:04
Speaker 2: very pointy, which was he said, we need to do
15:06
Speaker 2: whatever it takes to stop the legal immigration, and specifically
15:10
Speaker 2: mentions the small boats. So that's the first thing. He says.
15:14
Speaker 2: We need skilled immigration, but we need to stop the
15:17
Speaker 2: illegal stuff. He says that on energy, we should focus
15:20
Speaker 2: on getting cheap energy rather than clean energy, so stop
15:24
Speaker 2: going down the net zero route. Quite as vigorously and
15:27
Speaker 2: drill for more Nazi oil and gas that's in there
15:30
Speaker 2: as well. He talks about how the New World Order
15:34
Speaker 2: is actually not a new World order, it's just the
15:36
Speaker 2: Americans finally being a bit more blunt about the fact
15:39
Speaker 2: that Europe and the UK haven't been pulling their weight
15:41
Speaker 2: in terms of I mean watching the UK's point it
15:44
Speaker 2: actually has bad in terms of defense, but saying, look,
15:47
Speaker 2: we need you guys to contribute more because the world's
15:49
Speaker 2: getting a more dangerous place. And what way is that
15:54
Speaker 2: he isn't saying anything that I think most people out
16:00
Speaker 2: side of the actual Labor Party and possibly those to
16:03
Speaker 2: the left of the Labor Party would consider to be controversial.
16:06
Speaker 2: I was saying, someone on Twitter this morning said, how
16:10
Speaker 2: do you get these messages across in a populist world
16:13
Speaker 2: where they're going to be unpopular? And I was thinking,
16:15
Speaker 2: wait a minute, Nigel Farash could have said half of
16:17
Speaker 2: this stuff, and basically it is already Yep, we want
16:22
Speaker 2: to ditch net zero, we want to get immigration that
16:24
Speaker 2: there's control, and no, we don't think the Americans have
16:27
Speaker 2: lost their marbles. They've just got kind of frustrated with it.
16:30
Speaker 2: So I just it strikes me as very odd that
16:34
Speaker 2: Tony Blayer is is essentially able to say all of
16:37
Speaker 2: these things and they just come across as being common sense, yes,
16:40
Speaker 2: whereas if the Conservatives or reform had said it, there
16:44
Speaker 2: would be a sense of oh my goodness, you you
16:46
Speaker 2: can't say this, or what are you climate deny us?
16:49
Speaker 2: Are you races for wanting to you know, stop kind
16:52
Speaker 2: of illegal immigration that sort of respoints. I'm just wanting
16:56
Speaker 2: do you think any of this is actually going to
16:58
Speaker 2: help labor to talk about this stuff and the way
17:02
Speaker 2: that mate cheams of policy see let's take Energy Act
17:08
Speaker 2: a bit more sensibly on that maybe at least late
17:11
Speaker 2: you know that some of the licenses continue in the
17:13
Speaker 2: North Sea.
17:14
Speaker 1: Depressingly, I feel it will not change the preferences revealed
17:22
Speaker 1: and targeted from the current cohort of labor MPs, who
17:30
Speaker 1: I have thought really since very shortly after the general
17:34
Speaker 1: election that they cut their teeth in think tanks and
17:42
Speaker 1: special advisors, most of them in a non private sector
17:45
Speaker 1: background during a period where those luxury beliefs on ned,
17:51
Speaker 1: zero on immigration, on the role of the United States,
17:57
Speaker 1: zero interest rates were all conditioning assumptions that could allow
18:05
Speaker 1: those luxury beliefs to come with relatively little cost. But
18:08
Speaker 1: they've all changed. All of that list has changed. And
18:13
Speaker 1: what I struggle to see is how having set your
18:17
Speaker 1: stall out and for different MPs, they've sent this stall
18:20
Speaker 1: out in different ways, because it's actually quite a broad
18:24
Speaker 1: church the Labor Party. The problem, it absolutely is having
18:29
Speaker 1: set your stall out on what you really care about,
18:34
Speaker 1: reversing out of that and saying the facts have changed,
18:37
Speaker 1: the financial facts of changed, the geopolitical context has changed,
18:40
Speaker 1: population flow has changed, you know, your war in Iran
18:44
Speaker 1: has changed. These calculations. It becomes very, very difficult for
18:51
Speaker 1: the individuals. It comes down to those people to reverse course.
18:57
Speaker 1: Cain said, of course famously when the facts changed change.
19:01
Speaker 1: My view. Keines is not someone whose view is at
19:06
Speaker 1: least not in terms of that quote. Something that this
19:09
Speaker 1: cohort of Labor MP show a huge affinity to him.
19:13
Speaker 2: Was an unusual guy, Kaines, So I think we can
19:14
Speaker 2: definitely give him that. So coming back to Gilts, because
19:29
Speaker 2: the thing that strikes me is that, Okay, it's one
19:31
Speaker 2: thing the Gelts market might be thinking, Okay, the status
19:37
Speaker 2: quo is all right. So if we get kind of
19:40
Speaker 2: bondam and he's going to toe the line. He's not
19:43
Speaker 2: going to you know, completely go off and win. But
19:47
Speaker 2: that then means he's basically going to face exactly the
19:49
Speaker 2: same problem that Starmer's facing just now. He may be
19:52
Speaker 2: a more personable individually, may be slightly better at talking
19:56
Speaker 2: to you know, he may be better at the corms
19:58
Speaker 2: things as they keep talking about, but he's still going
20:01
Speaker 2: to face the problem whereby regardless of okay, he may
20:05
Speaker 2: have taken the message of the market on board, but
20:08
Speaker 2: I don't think all of the kind of further left
20:11
Speaker 2: MPs will have, he's still going to be stuck with
20:14
Speaker 2: things like being unable to deform Whalefield yet another thing
20:16
Speaker 2: that Tony Blas said, you know, we he cut whalefield,
20:19
Speaker 2: of course, so that kind of leaves us rumbling a
20:23
Speaker 2: lawn for the next conceivably three years. Do you think
20:27
Speaker 2: that happens or do you think we get a general
20:28
Speaker 2: election before then?
20:30
Speaker 1: Or it feels like squeezing the balloon, doesn't it. Because
20:32
Speaker 1: if you decide that your room to maneuver without a
20:36
Speaker 1: fresh mandate is very limited, and I think if you
20:39
Speaker 1: want to do anything on some of the proposals in
20:41
Speaker 1: terms of nationalization on terms of property taxation, wealth taxation
20:47
Speaker 1: that have been proposed by Andy Burnham. It feels very
20:51
Speaker 1: difficult to do that without a fresh political mandate. But
20:54
Speaker 1: then you come in to lead your party and you
20:58
Speaker 1: announce that you're going to voluntarily trigger an event that
21:03
Speaker 1: will probably make on current polling three quarters of your
21:07
Speaker 1: colleagues unemployed. Not a direct route, as far as I
21:11
Speaker 1: can establish popularity, internal popularity. So unfortunately, that conclusion therefore
21:17
Speaker 1: is that the mandate bequeathed ta Keirstarmer and the Labor
21:21
Speaker 1: Party in twenty twenty four will be the one that
21:23
Speaker 1: they will run with all the way through to twenty
21:25
Speaker 1: twenty nine, and therefore any radicalism from Andy Burnham will
21:32
Speaker 1: immediately face the challenge of legitimacy. Bringing back to the
21:37
Speaker 1: bomb market which you opened the question with, is I
21:40
Speaker 1: think we also need to look at the other scenario
21:42
Speaker 1: where we've talked a lot about Andy Burnham. But let's
21:45
Speaker 1: say he loses the Makefield dielection, which is possible, which
21:50
Speaker 1: the moment doesn't look I mean, it currently looks like
21:53
Speaker 1: the right of center vote is being split between reform
21:59
Speaker 1: and restore, and that allowing Andy Burner a bit more
22:02
Speaker 1: gap to win that. But if he doesn't, I think
22:05
Speaker 1: the market would be worried about another candidate from seat
22:09
Speaker 1: what they self style themselves as the soft left, but
22:12
Speaker 1: probably more left than Andy Burner, and some character like
22:16
Speaker 1: either Angela Rain or Ed Milliband who the bond market
22:19
Speaker 1: would respond will negatively to. So I think some of
22:21
Speaker 1: that compression of yields spread between the ten year guilt
22:25
Speaker 1: and the ten year Treasury is a result of some
22:28
Speaker 1: more favorable polling Andy Burnham. That actually means that some
22:31
Speaker 1: of those more left wing candidates from the Late Party
22:35
Speaker 1: won't have to throw the hat into the ring, which
22:36
Speaker 1: I think they would never have to do if Andy
22:39
Speaker 1: Burner didn't have a seat in Parliament.
22:41
Speaker 2: So I mean that, I mean what would the crisis
22:43
Speaker 2: actually look like? Because I assume let's see something happens.
22:47
Speaker 2: Let's see Bondum loses, and let's see that then Angela
22:52
Speaker 2: Red Melbourne deitay that that's the opportunity and rather than
22:57
Speaker 2: see company poele and seeing okay, we'll stick with chi chance,
23:00
Speaker 2: I'll just to keep you for copy the stecks on
23:03
Speaker 2: one to the left of them. Then I mean, at
23:07
Speaker 2: what point would you see I mean the ones less
23:11
Speaker 2: truice moment are vastly over used. Yes, and I always
23:15
Speaker 2: go back to her it was a bit lda, But
23:18
Speaker 2: you know what point you see, actually this is where
23:20
Speaker 2: a kind of loop could start with six percent and
23:23
Speaker 2: the ten YED or what we think that well.
23:26
Speaker 1: I said, I thought the five and a half percent
23:28
Speaker 1: on the ten year is a pain threshold for both
23:30
Speaker 1: the public finances and actually potentially for the Bank of
23:33
Speaker 1: England to have to step in, as they did actually
23:35
Speaker 1: after the LDI crisis of twenty twenty two. But and
23:41
Speaker 1: these maybe you know, maybe we'll pull the tapes in
23:44
Speaker 1: six months time if this this plays out different to
23:47
Speaker 1: what I anticipate, which is, if this scenario were to
23:50
Speaker 1: play out, I think BOMB markets are the most rational
23:55
Speaker 1: of the financial assets that we look at, and they
24:00
Speaker 1: would just somewhat impartially just apply a higher inflation premium
24:08
Speaker 1: for the UK economy for to own Sterling assets. And
24:11
Speaker 1: you can see them most obviously in guilt's I think,
24:14
Speaker 1: but you would also see it in UK focused equities
24:18
Speaker 1: domestic equities as well. Is that the policies that those
24:22
Speaker 1: two have been associated with ned Zeria. In the case
24:25
Speaker 1: of Ed Miller Band the Renters Reform Act and the
24:27
Speaker 1: Employment Employee Rights Act with from Angela Raina, all three
24:32
Speaker 1: of them seen as inflationary, inflationary in energy markets, inflationary
24:37
Speaker 1: in jobs markets, inflationary in land and property markets in
24:42
Speaker 1: terms of rents. That is not a good position to
24:47
Speaker 1: sort of set out your store for a broader economic agenda.
24:50
Speaker 1: And are the markets, as the guilt market, going to
24:52
Speaker 1: wait for those individuals to set out their broader economic
24:56
Speaker 1: stare or just say well, there's the signal. The signal
24:59
Speaker 1: is that that all illustrate with the kind of a
25:01
Speaker 1: higher inflation premium in the UK economy, and therefore we
25:04
Speaker 1: just price things accordingly, which is just an incremental increase
25:07
Speaker 1: on guilt yields nominal guilt yields.
25:09
Speaker 2: Yeah, and there's presumably at that point that's when everyone
25:11
Speaker 2: starts panicking the book of the mortgage and maybe that's
25:14
Speaker 2: what brings the next government into lane.
25:18
Speaker 1: And to your point on there's two responses. There's the
25:21
Speaker 1: private sector in terms of you know, a slow down
25:25
Speaker 1: in demand because of tighter credit conditions. But then there's
25:28
Speaker 1: also the impact the next time the OBR forecast in
25:32
Speaker 1: those widely assumed to be November and the November budget,
25:35
Speaker 1: and if you plug in those kind of yields, some
25:38
Speaker 1: of that twenty two twenty three billion pounds ofth of
25:42
Speaker 1: head room that the Chancellor left herself back in the
25:44
Speaker 1: spring will have largely evaporated. And therefore we're back in
25:48
Speaker 1: that cycle, which I'd rather hope I think we both
25:50
Speaker 1: hope had been left behind with that speculation day to day,
25:54
Speaker 1: week to week. The texts are going to have to
25:56
Speaker 1: go up or spellings have to be cut, which credit to
25:59
Speaker 1: Rachel Reeves and she doesn't get much. But having rebuilt
26:02
Speaker 1: in the last two fiscal events the headroom, we have
26:06
Speaker 1: seen a diminuation of that specuative cycle. If we get
26:09
Speaker 1: that back, that's not great news for the economic monentum
26:12
Speaker 1: of the UK economy.
26:13
Speaker 2: Well, before we wrap up, is the one policy, the
26:18
Speaker 2: anti bondum mission in the is the next playmn Star
26:20
Speaker 2: could playing in That would make you feel a little
26:23
Speaker 2: bit more upbeat a bit prospects for the economy UK economy.
26:28
Speaker 1: Yes, and he has spoken about this, albeit he hasn't
26:34
Speaker 1: defined the exact parameters of it. And this is a
26:37
Speaker 1: land value tax or a proportional property tax. I look
26:42
Speaker 1: at the sixty four billion pounds that the exchequer raises
26:47
Speaker 1: off combination of stamp duty, land tax and council tax,
26:51
Speaker 1: and you think of them as two very poorly designed taxes.
26:54
Speaker 1: Stamp duty is a friction, and you and I were
26:57
Speaker 1: desperate to talk about stamp duty and shares, but let's
26:59
Speaker 1: talk about stamparesidential property. It's a friction of fourteen billion
27:02
Speaker 1: pound a year friction, and then a fifty billion pounds
27:04
Speaker 1: a year very regressive tax, which is council tax, which
27:09
Speaker 1: has been unreformed in the UK since the early nineteen nineties.
27:13
Speaker 1: And if you swept those away and replaced it with
27:17
Speaker 1: a proportional property tax, you incentivize right sizing of the
27:22
Speaker 1: property stock, you incentivize moving, and it's a broadly progressive move.
27:28
Speaker 1: I don't pretend it is easy. I don't pretend there
27:31
Speaker 1: aren't losers associated with it in terms of distributional losers.
27:36
Speaker 1: But as a pro growth initiative, because effectively you are
27:42
Speaker 1: engineering new supply, particularly by right sizing, and you're generating
27:47
Speaker 1: bat receipts from a higher number of transactions home improvements, etc.
27:51
Speaker 1: That feels to me a very very pro growth policy.
27:56
Speaker 1: And the question really for Andy Burnham is whether without
27:59
Speaker 1: a fresh manifesto and mandate, whether he can push through
28:02
Speaker 1: something that politicians have ducked for thirty five years.
28:07
Speaker 2: I mean that is that's a fascinating wine and I
28:10
Speaker 2: can see, well it touches on that thing that's so
28:13
Speaker 2: important to kind of UK voters, isn't it. They can
28:17
Speaker 2: place their houses and the houses are castle and the
28:22
Speaker 2: it's always they they can a pension of living in
28:25
Speaker 2: some world in Mayfield who is a cash poor and
28:28
Speaker 2: us kind of vastly wealthy who then gets hit. But
28:33
Speaker 2: I suppose if any she the government can push through
28:37
Speaker 2: that sort of issue, then is quite possibly early about wine.
28:41
Speaker 2: So I know that's an interesting one.
28:44
Speaker 1: But I think if you look at thematically, what is
28:48
Speaker 1: wrong with the UK economy, it has been the sclerosis
28:52
Speaker 1: of our supply side, and property and land most obviously
28:58
Speaker 1: has been underdeveloped, underutilized. It has become a store of
29:06
Speaker 1: value rather than nasset to promote geographical mobility, labor mobility, aspiration.
29:14
Speaker 1: And therefore they're part of that. Part of that legacy
29:18
Speaker 1: is a result of how it has been taxed, really
29:20
Speaker 1: poorly taxed, and so at some point and I hope
29:23
Speaker 1: it's not in crisis. I hope it is proactively you
29:26
Speaker 1: address that and address one part of the three legs
29:30
Speaker 1: of the stool, with energy and the capital markets being
29:36
Speaker 1: the other two, where the supply side has been neglected
29:40
Speaker 1: for decades a growth story and this is maybe we
29:43
Speaker 1: end with the sort of some of them. He else
29:44
Speaker 1: Blair said in his letter is you know, if growth
29:48
Speaker 1: is your primary mission, you don't add more frictions to
29:53
Speaker 1: generating growth, which is basically the criticism of the last
29:57
Speaker 1: two years of the Labor government having come in missing
30:00
Speaker 1: your growth was their primary mission. They've introduced a lot
30:04
Speaker 1: of policies that have made growth in the private sector
30:06
Speaker 1: even harder to achieve.
30:08
Speaker 2: Excellent, Well, so fingers crossed for a land value tax then,
30:12
Speaker 2: but if you're listening, mister Burnham, you have to replace
30:16
Speaker 2: the existing taxes, not add an extra one on top.
30:27
Speaker 2: Thanks for listening to this week's Merton Talks Money debrief.
30:30
Speaker 2: If you like a show, rate review and subscribe wherever
30:32
Speaker 2: you get your podcasts, and be sure to follow me
30:35
Speaker 2: Join at Join Underscore, stepeck on x and follow Simon
30:40
Speaker 2: at French Economics. This episode was produced by Summer Sadi
30:44
Speaker 2: and Moses and Am Questions and comments on this show
30:47
Speaker 2: and all our shows are always welcome. Our show addresses
30:50
Speaker 2: Melton Money at bloombard dot net and a very special
30:53
Speaker 2: thanks as always to Simon French, Parmier Libroom p