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Bloomberg's editor in chief John Mickelthwaite is in conversation with the UK Chancellor Rachel Reeves.
Let's take a listen. Three bits of news maybe to deal with. First, and the biggest and most obvious is Donald Trump's inauguration. He's already kicked off with tariffs on Canada and Mexico. Now he's talking about China. Now. Britain is an unusually open economy. I think we will argue about the numbers downstairs, but by some counts, and if sixty percent of trade equipment to sixty percent of GDP,
I suppose. My question is, you know how vulnerable are we to this, especially given the fact that we've already come out of the European Union. One of you your trade Good morning everyone, it's a yeah.
I mean going around Davos, seeing making eye contact with all your trade ministerial counterparts, you can.
Imagine what is on our mind, right and no conversation, but I think it was a few things on this. First of all, yes, the UK is a.
Very globally orientated, trade intensive economy. That is a good thing. That openness to the rest of the world will be championed by this government and actually there are opportunities to expand on that. I think at a unique selling point in terms of our relationship with the Gulf and the trade deal, negotiating our aspirations with India, the EU reset, hopefully maybe some things with the US that come out of this, the China engagement that you have kicked off, Chancellors.
So you know, yes, there's a vulnerability, that there's a strength that comes from that openness to the world as well.
So let's recognize that.
The second thing is, look, we understand there is a genuine, you know, analysis in the US that feels that the very big trade deficits in goods that the US has bok with the EU and with China, you know, the sense of unfairness that that is the proof point of we understand that we might disagree, but we know we'll engage with that. Now you're right to say we are an incredibly globally orientated economy, but also we obviously don't have that trade.
US does not have that trade deficit on manufactured goods with the UK.
Musing we have said this to the Cabinet last week, but the UK and the us actually believe we have a surplus rate to other own goods because of asymmetric statistical quirk. So there's the basis for a conversation there as to the future. But you know it will be a truppy time to be a trade minister, there's no doubt about that. But our job is to navigate through that. You don't get to pick the world as you want it to be. You get the world as it is.
And I do believe you know, the unique pitch from the United Kingdom can be first of all, a return to political stability, which we appreciate after their Brexit referendum has been challenging in the UK, but that's also relative to some other European countries as well.
That pitch to openness.
And then I know something you'll want to get into, which is the willingness of this new government to use its mandate to use the opportunity we have to fundamentally improve the business and investor environment in the UK.
So can I come on to that straight away because another piece of news is overnight you got rid of the Chairman of the Competition of Markets Authority, and people conceive that as being a pro growth, pro deregulation because one of the things about Trump is yes business people people at Davos are scared of his trade wars, but they do like the pro growth deregulatory side of Trump. Is this a sign of more things to come in terms of regulation?
Growth is the number one mission of this new labor government.
Six months in.
We are building the foundations to deliver that strong growth that has eluded the UK for far too long, more than a decade of very slow, sluggish economic growth, and we want our regulators to be part of that growth mission.
Now.
Of course, the regulators are independent and the chair of the CMA decided to step down, but he recognized that this government have got different strategic approach when it comes to regulation, and he recognized that there was time for him to move on and make way for somebody who does share the mission and the strategic direction that this.
Government are taking.
So we wrote myself, Johnny the Prime Minister, to all of the regulators, as more than one hundred regulators in the UK were written to all of them and said, what can you do to reorientate your organization to regulate not just for risk And of course regulating for risk is important, but regulating for growth. I've done it with the financial services regulators. We've now done it with all
of the regulators. I've got to say the responsors we've had a lot of them have been incredibly positive about things that they can do.
Would you want financial services? You just mentioned that. Would you ever consider ring fencing? You know we are unusual in Britain in since we've ring fence banks, we've said, look, you have to put your retail bank separate. In an era where Trump and other people are pushing out with regulation lots of fronts, is that an area you would also? Look? You just mentioned financial services.
We'll always keep an open mind about things. Already, since the election of President Trump, the pra Prudential Regulator has pushed back the implementation for Barzil three. So that was going to be January twenty twenty six. We've pushed that back for a year. We're ahead of the European Union in recognizing that the world has changed, so we've put
back that day. I think that shows that our regulators are willing to be pragmatic, recognize the importance of attracting investment into the UK and not being out of kilter with our major trading partners and our major competitors.
So I think you've already seen that.
We saw the letter from the Financial Conduct Authority to the Government just last week about what they might be able to do to drive investment driving growth in the UK with a number of practical propose That's what this government wants to implement, practical things to make it easier more in Britain, make it easier to get things done in Britain, because that's how we drive growth.
Is another that's a very good example of that. Which is my third piece of news which people are talking about, is the idea that next week, there's been the leak ahead of it, that you would say go ahead with the third runway, he throw go ahead with the expansion of gap, maybe the bridge over the Thames as well. You know, that would be a sign you're prepared to take tough decisions that help growth.
We've already taken a number of big decisions on City Airport, on Stansted Airport, on a number of planning decisions that this government have called in that we're on the desks of ministers in the previous on housing, on data centers in the creative industries, not going to sort of comment on speculation about what I may or may not say next week. But Johnny started with a sort of pitch that Britain is an open, trading, vibrant economy.
We want to remain as such.
Use your example of taking tough decisions. If you push you ahead with you throw that might cause problems with Sikon, might cause problems with your colleague Ed Milliman, Like.
This is the problem with the last government. There was always somebody that said, oh, yes, of course we want to grow the economy, but we don't like that investment, or we don't like that wind farm, we don't like those pylons, we don't like that airport, we don't want that housing near us. The answer can't always be no, and that's been the problem in Britain for a long time, that when there was a choice between something that would grow the economy and sort of anything else, anything else
always one. Now, of course there are other things that matter, but when we say that growth is the number one mission of this government, we mean it, and that means that trumps other things, and so we're making pro growth decisions in the national interest.
I feel like John Well, I genuinely feel there is in the UK and perceptions of the UK at the minute. People haven't quite recognized how resolved this group of people in the new cabinet in the UK are to make these decisions to make a difference, right, And I know that the proof points of that are not what we say or what strategies we published, but the kind of
decisions that we seek to make. When Rachel says gross the number one mission, you know, that's about attracting product capital to the UK.
That's why I've getting things done more quickly. There are things we know the UK needs. I mean, look, we could all tell.
Stories of UK infrastructure that you know, there's a famous example of the M six tool was sort of initiated under the Kalahan government, delivered by the Blair Labor government.
You know.
I mean it's we've got to do things quicker and better, and I think people don't yet quite appreciate.
How resolved we are to do that. Isn't isn't that I mean to come to the point, Isn't that? Isn't that to do with in some ways the budget? I mean, if you talk to people here, they will come up with a variety of complaints. They'll talk about fiscal headroom, which work we'll come back to. But their basic point with the budget was they thought that came across as
something that was not in favor of wealth creation. You know, at the heart of it, it had big pay rises for public sector workers, paid for big taxes on business. And that is the main thing when you wander around the halls of Davos, you've just come back for New York that you seem to have started on the foot of being people who are not pro business. So it's not just to do with these past decisions, stupid Conservatives.
It's to do with that particular thing with the budget, and do you wish you'd done things differently that When I.
Became chancellor there was this twenty two billion pound gap between what the previous government were bringing in in revenues this year and what they were spending.
It wasn't some years in the future.
It was an in year gap that hadn't been disclosed to the independent forecasters, hadn't been disclosed to Parliament. You had an idea of it because if you looked at the monthly borrowing numbers every month it was coming in a billion or two above what the Independent Forecaster had suggested the government would be borrowing on a monthly basis, but until we were elected, we did not know the
scale of that inheritance. Now, I said during the election campaign that I would never play fast and loose with the public finances. Liz trusted that the previous government did that and it caused untold damage in terms of borrowing costs and confidence in the UK.
So I had to.
Get a grip of the public finances, and that did mean difficult decisions actually on welfare, on spending, and on taxation to get the public finances in under control. And I strongly believe, and I think businesses instinctively know this too, that stability is the prerequisite for economic growth. You can't grow an economy unless you have that stability. So we've now wiped the slate clean under the economic and fiscal
mismanagement of the previous government. It did require difficult decisions and not immune to the challenges posed by the increases in tax But let's look at the alternative. The alternative was that I did half measures and then everyone would know that I'd have to come back for more next year. Or I swept things under the carpet and pretend those problems didn't exist, but they would reassert themselves at some stage. What businesses can know is that our public finances are
now in order. We're never going to have to come back again and do a budget like that, so we have the stability.
Upon which we can now build as a government.
There's a limit, though, how much you can blame back on the Tories. I don't think anyone here regrets the Tories going that you look at the numbers. The British Chambers of Commerce said that British business confidence is its lowest EBB since liz Trust's mini budget. Two thirds are worried about tax, half say they have to raise prices, firms already cutting back on investment, employment, that British economy is actually smaller now than when the Tory's left.
You've given the bad news. Let me tell you two pieces of good news. PwC survey that came out on Monday whilst you were here in Davos showed that we are second to the UK as the place to invest.
For global seers.
That is the first time in twenty US to the US. It's the first time in twenty eight years that Britain has been in that position.
That is good news and there's a vote of confidence in the UK.
The IMF forecast that came out last Friday revised up growth for the UK this year and puts us top of the pack of the major European economies. So we can trade surveys and data. But you know, I'm here to sell Britain, to talk about the strengths and what we are doing. We're reforming the planning system, we're reforming our regulatory system, reforming pensions and also this year we're
going to be publishing an immigration white paper. And although we know that we need to bring immigration down, particularly illegal immigration into the UK, we are going to look again at route for the highest skilled people visas, particularly in areas like AI.
And life sciences.
Because Britain is open for business, we are open for talent.
We've got some of.
The best universities, some of the best entrepreneurs in the world, but we also want to bring in global talent into Britain.
There's no complacency by any of use.
I would say the challenge of our inhuritance has made us even more resolved to do those things that.
Rachel has described, because we wanted to do them. We thought they were essential.
I think that that case is even more compelling as a result of what we have in Hurt.
And it comes back to this, people.
Should not doubt how resolved we are to make a difference. It's not just about the economic performance and what it means for our constituents.
Of course that's important. It's also about to be honest with the.
Legitimacy of the political system, showing people that you know, government can make a difference to their lives, avoiding some of the populist pressures which are evident and discussed quite widely. An event like this, we know what's at.
Stake, and that's why we're going to deliver to you on this issue as you here again and again from people here, this issue of wealth creation. I just thought, as I said, I just saw Tony Blair walking on the street. He was famously relaxed about wealth creators getting wealthier. Listening to people here, they'll say taxes. We've got taxes on business, taxes on wealth, taxes on school fees. You've got small businesses spending all their time now worrying about
inheritance tax. Non doms complain and say you're Rachel Leaves, not Rachel reeves because they were heading abroad. The record of left of center governments that are unpopular with business or start on the wrong terms with business, it's not a good one. You think of francois Land in France, there is a problem there. And beyond sort of announcing some things around the edge, what are you going to do to change that idea that is out there at the moment that you're not in favor of wealth creation.
Maybe you can correct that. Now you relaxed about wealth.
Creation, absolutely and we want that. I just said, the best talent, the best people to come to Britain, create jobs in Britain, to grow our economy. We had an international investment summit two months into the Labor government sixty three billion pounds of inward investment into the UK, primarily in AI and in clean energy. That is incredibly exciting and shows the strength that we have as an economy.
I'm not going to apologize for the budget because although I hear criticism, what I don't hear.
Is any real alternatives.
If you're a CEO or a CFO and you're coming into a new business and you've got these massive problems with your finances, you have to stabilize them, and that requires difficult decisions. But if you don't make those decisions, you're going to be plagued by them for years to come. So we have now wipe the slate clean. Businesses can be confident that my instinct is to have a lower taxes, less regulation, make it easier for businesses to do business.
But unless you can have that economic and fiscal stability, then to be honest, I think that you're not going to have any serious plan for economic growth.
We saw that under the previous government.
We've seen that government around the world that get into financial difficulty.
We have avoided that through.
The difficult decisions that we've made. But on every other area, I think businesses will say on regulation, on planning, on pensions, on capitol markets reform, that we are doing the things that are needed to unlock economic growth.
And come back to the issues of other things you could do in a second with with Johnny, but first with you this particular issue of stability, and the issue is you know about fiscal headroom. You know you left yourself a very small kind of buffer. I looked at zero point three percent of GDP, or to put it in another way, it's that's nine point nine billion dollars nine point nine billion pounds against total public spending a more than one point three trillion, so very little margin. Verio.
You've seen all those moves in the bond markets, which you'll point out have been corrected. But each time that happens, it kind of pushes through the buffer. You know, are you at some point going to have to make a bigger a bigger buffer at some time?
I see the two fiscal rules that this government will meet. The first is that we will pay for day to day spending through tax receipts previous government didn't achieve that in fourteen years, and that we would bring down as a share of GDP. We meet those rules two years early. We meet those both of those in year three of the forecast at the moment, and in the final year of the forecast as a nine point bill pound amount of headroom. That is more headroom than we inherited from
the previous government. We actually put more money into increasing.
This was a famously small amount as well.
Yeah, it's so it's tight, and those fiscal rules are important to us because they are the sort of bedrock and foundation of that stability that I've spoken about, so we will we will continue to make decisions to ensure that we meet those fiscals. I just say another thing about the fiscal rules and why we chose to pay for day to days sending.
Through tax receeats.
That is so important for this government to get a grip of day to day spending because that allows us to free up money to invest in capital infrastructure projects, whether that is energy or transport, or in tech compute capability for example. And we're only able to unlock one hundred billion pounds during the course of this parliament.
For those capital projects.
Additional one hundred billion because this government are getting a group of day to day spending. And some of you would have heard our Chief Secretary to the Treasury, Darren Jones, and our Science and Innovation Secretary Peter Kyle yesterday speak about the possibilities that.
Tech have to transform our public.
Services to get better value for the money that we put into them by using tech better the creation of a government a digital app that will have our driving licenses on and other things by the end of this year, using tech to cut out some of the costs in the back office functions of government. The more costs we
can take out. The less we have to do on the tax side, the better services we will deliver for citizens, and the more we can free up to invest in that capital the projects that can help transform our economy.
Sounds as if you're going down the same route as Elon Musk with his Department of Government Efficiency.
Well, look, we want to route out waste in governments.
Then to I think maybe the fiscal headroom you've got the Officer Budget Responsibility is forecast updates at the end of March March twenty sixth, and that says my question is can you leave it that long?
If you're riding a bicycle and you hit the curb twice, you tend to move a bit closer to the center of the road. If you've you've already had two incidents where those the sheer rise in borrowing costs, which occasionally happens, could have wiped out that buffer. Isn't that something you're going to have to deal with eventually?
Well, there's been no undoubtedly global movements in financial markets this year, mainly driven by the US, but of course the UK gets caught in those headwinds. The Officer Budget Responsibility are just starting their forecast process, and that don't take into account just one week's moves. In financial markets, they look at a period of time. But I don't think we should get ahead of ourselves. There's a couple of months before that OBR forecast is published.
I will respond to that in a.
Proper way and make sure that we continue to meet those fiscal rules.
To kind of come to you on the issue of growth again, it strikes me you look at a lot of the things you've been talking about. The chances has been talking about planning reform, infrastructure strategy, pensions reform, making regulators more friendly. Those are quite kind of long term things, whilst what business is looking for desperately is something short term to make up for the tax rises. Is there anything you particularly can sort of focus on there.
I would I would come back a little bit on.
That, John, because I think what business wants to fundamentally see from us.
Is are we good for our word? You know when we say gross of.
The mission, How we're going to prove that, How we're going to convince people that that is absolutely where.
Our political priorities will lie. Exactly as Rachel has said.
They've heard from other people or the governments in the past. They want to know when you get that countervailing pressure, but what about this? What about that? What about that person not liking it? Are we going to say.
No, this is the mission and this is the imperative and we are.
So I don't think it's about people just banking the long term, because the one thing the UK has needed in the last few years is more of a long term, serious focus.
Let's be frank, we've been bobbing along from one prime.
Minister to the next, sometimes month to month, right, So they want that long term focus and I think that's where you get the confidence. If people do not look at the UK, they riskmissing out right. That's genuinely the case, because this is a government so resolved to make the difference because we know that is what we have to do.
So I don't think it's a.
It's a it's a question of you know, okay, people think the long term is great, they want the short term. They want to see that long term following through and the commitment that comes with that, and then they will see when you know, some of the pressures, some of the conversations about the global trading position, the leadership rule the UK will take in terms of open markets being
a key part of that. I mean, as we both said, we want to stress we recognize the challenge of our inheritance and how we've got to provide people with the confidence and the certainty for the future. It is important to say we're still you know, you benchmark, you know, payroll taxation in the in the UK still very internationally competitive, capital gains tax, corporation tax lost in the in the G seven with the best allowances available. So there's there's
a compelling competitive offer there. But what you need, I think, to generate that confidence is people recognizing this is a government serius about your building.
Is surely the most to the single thing that you could do that would change give the most amount of growth is to do a fresh deal with Europe, to do something like a customers union. That's what most Actually every number that people have run on that that shows the biggest increase in GDP compared with all the other things you're talking.
It's it's first of all, you will just about ever ever, I.
Mean, I think I think about rejoining the European something akin I would I would say something that first of all we want and again there's a high degree of ambition on our side, a reset of that relationship with Europe.
And there's a whole range of specific elements to that.
The SPS proposals, the recognition of mutual qualif visual recognition of qualifications, the regulation of goods in particular, we're from ambitious conversation about that. I do think again people someone s failed to recognize that. You know, the problems, the evident problems that the challenges of leaving the European Union for the UK were obviously about a significant change in our terms of trade, but the political uncertainty that came
with that was also a real problem. So our decision to not relive, not to refight those arguments, but to focus on improving that relationship practical things as well as build those relationships with the Gulf, with India. Maybe the US look at how we've been an outlier in terms of our lack of engagement with China. How can we turn some of that around? Difficult but important to do.
I think that is a much more comprehensive approach. And I think you've got to recognize if you're, as we have done, leaving something about the Single market, there's a cost there you have to mitigate that. But I think a conversation just about Europe. Honestly, it's not enough, and it's all right to give the UK the platform.
And you see yourself, Chancellor, in competition with Europe to some extent. You have a lot of international business people here. Somebody yesterday said that Britain's claim to fame is we could be the tallest tree in a not very tall forest, which was Europe. You look and see what's happened to Germany, you look and see what's happening in France at the moment. Do you see yourself in competition with Europe International?
Of course, of course we want the jobs investments to come to.
Britain.
We're here to represent the UK and all of our strengths. And look, you know, Johnny and I both voted to remain in the European Union. But we're outside the European Union. We have been for there'll be nine years this summer. We've got to move on if there are opportunities outside of the European Union, opportunities for example in AI, where we have a very different regulatory approach to AI compared
to the European Union's approach. That makes Britain a more attractive place for AI and tech companies to invest than in other European countries.
We could take advantage of that.
We just should shout about it and we should get that investment in. Just in the six months that we've been in office, forty billion pounds of private investment into AI and tech into the UK. That's really exciting. I think some of that has come to the UK because you look at the UK compared to other jurisdictions and we are a better place to invest. Take for example, the Barsel reforms. As I said, we've gone ahead of other European countries. We have that flexibility, we can be
more nimble. We are taking advantage of that.
That said, I was.
The first British chancellor to go to the Eurogroup meeting of finance ministers in December in Brussels. We do want a reset of our relations. We don't want the antagonism and the battles that the previous government seemed to quite relish. It's why also I went to Beijing and Shanghai last weekend to.
Re engage there.
The first economic and financial dialogue between our two countries for nearly six years got tangible benefits, particularly for financial services, quotas and licenses for British businesses doing business in China. So we are re establishing ourselves in the global space, getting good deals for Britain and that's what our jobs are and that's what we're doing.
I've talked earlier about making government more efficient. We made the joke about Elon Musk, but there was a point behind that. One of the complaints that business people had about your budget. There was this very large pay rises going out to the health and things like that, but without a kind of bits of reform with that. When if you're going to make government more efficient, you'd like to see more evidence that that's actually beginning to happen.
Let's just remember where we were on the NHS when we came into government. There have been so many strikes that was having a detrimental impact on business as well as individuals because when people are waiting months and months, sometimes years to get the appointments and the procedures and the operations that they need, they're not available to work. We've got problem in Britain that participation in the labor market is lower than it was going into the pandemic
we've got to sort that out. Some of that is about reforming the benefits system.
We're going to do that.
Some of it it's about making our National Health Service work better. I think there's a business person that would have said seven months ago before we came into office, you know, everything's fine with the National Health Service and making sure we've got a healthy labor market. That was a problem and we fixed it by resolving that industrial action that had played our National Health Service for a long.
Period of time. But you know we're streeting.
Our Health Secretary is absolutely reforming the National Health Service, making more use of the private sector, for example, more dropping clinics local to where people live, using technology better so that people can choose when and where they.
Have their appointments.
So we are absolutely using reform alongside making sure that we resolved that industrial action.
Another area where there's.
Massive open tunity in the NHS, going back to this issue around tech and data, is using data in the NHS to bring in money but also to make Britain the best place in the world to do clinical trials. Massive opportunities there because of our integrated health service.
I think something you said earlier, I think the message you were trying to put across, is that your first priority is going to be to sort out spending. Now now you've got everything, hopefully on a firm thing, You're going to sort out spending before remotely thinking about the chance of more taxes or anything at that And if you would actually also like to cut taxes in the future.
I would like taxes to be lower on people and on businesses, but I'm not going to play fast and lose to the public finances because in the end you actually don't result in anyone being better off because it sends interest rates soaring if you lose control of the public finances. So I'm not going down that route. But if we can run the state better, we can run public services better, we can bring investment into the UK and grow the economy. We don't have to keep ratcheting
up taxes to make the sums add up. That's where I would like to be, But not in that place yet.
So is there a certain level of growth, a certain level of something where you think you would then feel happier about reducing taxes Again, well.
I would like to reduce the burden of taxes, but I'm not going to make promises that I can't keep. Previous governments here and around in the UK and around the world make promises they can't keep. But I'm not going to be that sort of chancellor. We're not going to be that sort of government. But I think you can see my instincts is to do everything I can to make Britain great players, to do business and to invest. As then Kat from Barclay's, I think we're saying yesterday
it's huge potential in the UK. We're just six months in as the government. We are taking the steps that are necessary to grow the economy. Can't turn everything around overnight, but I think people can see in all of the reform that we're driving forward that we are determined to turn around the low growth performance that is dog Britain for too long now.
And I would just say on that, I mean, from my perspective as as a government department, I'm absolutely convinced we could spend money as a country in a better way.
You know, our industrial strategy is.
Partly about coordinating government policy across a whole range of departments. I look at how we've done that as a country in the past and we get.
The effectiveness of that.
You know, when we look at the different regulatory burdens and different departments. Who considers the aggregate burden on business. I'm convinced we could do that, and we know the media always want to know you're going to spend more or less on something, or regulation more or less of it.
It's not that.
You know, it's about the proportionality of those things, the effectiveness of that. And we're up for that conversation because that's how we'll make the business difference.
Rachel Reeves and Jonathan Else, I'm very sorry we're out of time, but thank you for very robust defense of your policies than bloombirds if John mickethways.
Of course they're speaking to the UK Chancellor Rachel Reeves and Business Secretary and Trade Secretary Jonathan Reynolds