Bean Counters Beware

too cautious. And I think that David Linnington, they're a former minister for the Cabinet Office who actually joined us in an interview a little bit earlier on this week to discuss the ousting of the Treasury's most senior civil servant. That's right, fran See. And of course we have the huge stories still dominating the news of the death of Queen Elizabeth the Second. Officially we are in a morning period that means there should be no government business actually

happening this week. However, however, the new Prime Minister is doing exactly that. She's setting the turn for administration and he's made changes. That's right. They she has fired or her new chance to Quasi quarteng has in in his second day on the job, he has sacked a very

senior civil servant called Tom Scholar. This has caused waves around the civil service, to the government and more broadly, because what it shows is that the UK government is going to push ahead with it's very zealous reform of Britain's economic policy. I'm David Merritt and I'm Francine Laque and this is in the City, Bloomberg's podcast, connecting you

to the stories at the heart of the City of London. Now, this week the Beam counters Dave get the Boot look at liszt Trust's mission to bring the civil service into line and what that tells us about her plans for the economy. Yes, and joining us this week we have a Lego Straton, author of our daily UK newsletter, The Readout, and former Downing Street Press secretary, and Philo Audrick are

UK EK reporter. What happened? I can't I mean, I can't believe what They two into the job and suddenly you realize a Legro that the Prime Minister, through a transfer sacked a top civil sort event. Well, the funny thing is as well that because of the nation going into mourning, you didn't really realize because it was it was not really that high profile because all of us were focused on the not supposed to do anything right, I mean, the government supposed to do any business during

this period, right, That is a good point, Dave. But we now know, we've seen that this is a government that intends to do things differently. They're in a hurry

and things are being broken on Tom Scholar. I think it's important to remember that the guy who's now the new Chancellor was the Business Secretary and potentially Quasi Quoteng over time felt that the Treasury was you know, he would have had a front row seat slash interaction with that the Treasury and he will probably over time have felt that it you know, he would have seen very clearly, but also have felt it wasn't doing quite what he

would like. And so it isn't like we have a completely new government that didn't have any interaction with these characters. There will be people who you know, Quasi and others officials and his advisers who will have felt we need we need a personnel change. This movie feels so profound right in this meaning a film. Is it to send a warning shot to others and saying you phull into line, you look at growth, stop counting the beans, or you're out,

or is it just a campaign promise. It's definitely is the attempt to change the mindset at the top of the Treasury. I mean, obviously it's just Tom Skoller who's going They're not they're not sacking you know, the whole clairel On Bedelli and the other people right through the treasury. So it's like a warning shot, fall into line or you're in trouble. I think it's the way to read it.

The idea is, as they've said, to focus more on growth, and there have been changes within Treasury which have been moving in that direction a little bit previously, so this, I guess, is to really accelerate that process. I mean, he's not a household name, right Tom Scott, I mean who tell us a bit more about him? And do you know who did you work with him? What did he stand or was did he did he stand with the bean counters. But they're not household names. They're not

meant to be happening. By definition, they're meant to not be household names. And I think any any prime minister would be very wary of a perm sect that have become a house on name. They're meant to be behind

the scenes officials providing expert advice. I think the tension you get into with the Treasury, which we are going to see being tested now, is to what extent he is there to provide advice to the Chancellor and then the Chancellor provides advice to the Prime Minister, or the extent to which that the Treasury is became this this

rival ideas powerhouse. One of the things that I think is the interesting implication when you look at what they're now trying to do with these very innovative and to be welcomed policy programs around the energy package for business, you know you need institutional knowledge there, and so the key question will be where the Tom scholars departure means that you've lost a little bit of that muscle memory and a bit of that you know, I was in

the Treasury and I worked alongside Tom Scholar when they we devise the furlough. It happened very quickly. That's the last manual you have on the shelf for doing stuff differently. Again, when we did things like eat out to help out, you know you you are you are doing policies where there is not no one's done it before, there's no precedent. You are being told by officials that's not going to work, and so you're trying to find a way around it,

and that is a creative relationship. It's not always a bad relationship that then they're they're not, by the way. Usually sometimes it is the case, but they're not always just saying no because they want to. They're saying no because it can't work. So so there's an interesting question around you have this new government that wants to do it things very differently. Can you do it when you've

lost one of the key characters? And by the way, you have standings right now, but you'll take whoever comes next sometime together. Head around that the people, their teams, their expertise, the brain trust of the treasury hasn't been affected apart from this one person at the top. And the sense that you know you get is that they believe. People around the new government believe that he could have proved an obstacle to sort of re engineering the treasury

because of ideological clashes. Now the fact that they got rid of him is an ideological move, and that is the type of thing that shouldn't be happening that this high level in the civil service, because everyone should understand obviously that the civil service will do what it's told. Now, I don't know if they always do. I can't promise that.

But just the act of sacking scholar is is pretty shocking because it is saying there's there's these ideological devices introducing politics into an a political sphere effectually during an energy crisis. During a crisis, it makes it even more But this was Lizzar's trust campaign, right, it was like she didn't believe in orthodox economics. So is this how she's going to govern as Prime minister? It's clear she

doesn't want to be stopped in her growth boosting policies. Now, when I said only there's been some changes in government in terms of trying to refocus on growth. There's a thing called the Green Book, which if you do cost benefit analysis for every pound that's invested in Rhodes or whatever, and you have to work out, you know, what's the best way of doing and that was a very beam

counting process. And actually Rishi was changed. He changed the rules on the on the Green Book to make it easier to actually invest in things even if the numbers didn't add art necessarily. And so you have these tiny little moves in that direction, and clearly they've youre that that that sort of process of change is so slow that they just want to push it extraordinarily fast. And if you think she's only got two years to deliver, and she's like, I'm delivered, delivered, deliver, she needs to

do everything extraordinarily quickly. So any sense of an obstacle in the way she probably want to get. How are economists reading this then? I mean, are people the people who are crunching the numbers are making a forecast for growth, you know, widespread forecasts for a recession in this country. She's talking about a huge fiscal stimulus with the energy package.

Do people think it's gonna work? Well? I mean this like the one thing she's doing is introducing policy sort of uncertainty and concerns like everywhere, Like you've got enormous amount of borrowing. We don't know how much because she haven't told us yet coming for the energy package, the business support plan, you know, they haven't actually drawn it up.

It's just a bunch of words at the moment. You know, the Bank of England that we're going to change the mandate and then you sack this sort of very stable figure at the top of the treasury. And so the markets are not liking economists are not liking it the streets saying, you know, we this this is just adding to the uncertainty, and we're seeing the pound react as

a result. We were already saying, people like Phil and I, before we heard the energy package, that it was a gamble, because we knew she was going to come in and she had this different Liz orthodoxy, if you like, which was my way or the highway. We're going to cut taxes and that way we're going to boost growth, and a lot of economists were saying, well, I'm not sure

about that. So she already had this kind of intellectual economic gamble which she was going to unfall on us all and then having said during the leadership campaign no handouts, she has now announced. Not only has she announced, I'm not saying necessarily that she is is wrong. I mean, there's a lot of people who think that had Richie got in or whoever was going to be in charge and the autumn is going to need to do something along these lines. It's just the magnitude that it's extraordinary.

And also in the context of saying no handouts and then whatever the biggest handout, I mean, everybody agrees it's an extraordinary magnitude, you know, I mean this needs to be said. You know, there are Martin Lewis is a very well respected, important and alert campaign are very worried about households this winter. You know, people like him think this will go a long way to addressing real vulnerability.

So we spoke to the former Transfer Philip Penland and he was saying, well, the only thing to keep the government check is the market. The markets are looking very very closely at political pronouncements and the UK does face some serious headlines. We've got a big balance of payments challenge.

The pound has had a pretty tough time over the last six months, and I think there's a very strong need for the government to provide not only reassurance to its citizens that it will provide short term help to get through this winter, but to markets that it does get the fact that it can't keep on printing money to bail people out from these challenges. I mean, is it an obstacle when you're in government do you look at do you listen to head funds or look at

you know, sterling and guild. Somebody said to me the other day that the pound is the nation's share price. So they in government, they do look at it. I think the thing about this government, Quasi is one of the most incredibly astute and bright and well read, and indeed he's an author himself. Politicians we've seen in recent times. He's very intellectually confident, and he I think has formed a view and and there's there's some credence to this.

He's formed a view that people will wear more borrowing and that this is a wartime situation and that this government needs to spend and borrow. But we don't know because we're waiting for the actual price tag in next week, but borrow money we expect um and that the markets will wear it. And I think the evidence point he has for that is if you look back during the furlough and so on, there was this sort of nervousness in government about how much can we push it? And

in the end the answer was you could. You could. Not only were other countries around the world doing the same, but it was the right thing to do and had they not you'd have had mass unemployment and so on. So he's very very anyway, a very very intelligent, clever chap and he has made a formed of view with his very very close and old friend Liz trust that

they can they can push it. Of course, you've got to remember that the counter factual here is that doing nothing was going to just punch a massive, massive hole in the public finances anyway, because you're going to have a very very deep recession, which now it looks like we could avoid, like the UK could avoid a recession if this, if this energy bailout plan does work, you know, optimally. But there are rumors and actually the tax cuts that

they promised will be limited in scope. Another I don't know, I don't know what's coming on. We're going to learn. We will learn all about this when we because it supposedly going to come out next week. But yeah, I mean those cuts of sort of thirty billion plus a years, I mean they're considerable. That One of the lessons from the pandemic is we spent years actually do fiddling around on the edges of making small policy changes, and like like two or three billion here always felt like a

big policy. This is a thirty billion pound tax change, right, And it's like the pandemic showed, you know, how do you get inflation you spend four billion quid or you know, there's all you know, you get you do. You basically make big discore moves and they actually do affect the economy, and thirty billion might do something for growth. It's a bigger, it's a big You have a billion here been in there that it would be said to be unraveling if

someone said it wasn't costed somewhere else. And I mean this is just slightly on another planet. This is the new normal, the new normal. The systems are bigger. Yeah, but the balance of payment hasn't it's still there that that's not changed. Yeah, I mean that's pretty funny. So the real numbers are actually slightly distorted. The owners says that the eight point five record deficits can't be fully

trusted because there's been a break in the data. But even so it cooms to say it's five to six percent, which is twice what we were coping with before. And the kindness of strangers of people going to still invest in the UK. The pound does look very fragile. It's

not a good backdrom. But there's one other thing to mention, which I always thought before it looked like Lisztrust was going to win that in some ways was more pertinent to your listeners and to Bloomberg readers, was was what happens on the protocol and with Northern Ireland, because I think that that feels like actually the thing that people are wanting movement on in order to make investment decisions and so on. So I actually always thought ahead of

her becoming leader that some of the other parts. I didn't know about the hundred and fifty billions at that point, but the other parts were probably something that would be absorbed. But actually, unless there was real progress on the protocol, that would be the thing that would continue to cast some kind of chill over the over the UK's economy. And if we were to interpret her actions talking about sacking Tom Scholar, she's not afraid to do provocative things.

So from that can we extrapolate that she's prepared to blow up the protocol? But it doesn't doesn't doesn't look like it. But we can't quite untangle the extent to which what we're dealing with at the moment is a nation and the government in mourning, and that you know, clearly we saw King Charles in Northern Ireland yesterday. Clearly everybody has agreed to to pause on all matters related to the protocol, which is obviously the right thing. And

we're haven't the grace period extended? I mean some some people do say the grace period will continue to be extended and extended and extended is what we live with

and what we're trying to arrange is the permanent. So we can't quite figure out the extent to which the pause is because of mourning or whether it's because actually her government is choosing and I don't know the answer to this is choosing to be extremely radical on its tax cuts and on its bid to to sort energy the energy crisis out, but in other ways will will will will trim. This feels very like, you know, Ronald Reagan. This is like Reaganism. It's back with a vengeance. Do

be encounters matter? Yes? They do? I mean, are you sure? Yeah? I mean, here we are the economists Bloomberg. Surely, the being counters matter. They They're very important. I mean, the Office of Budget Responsibility is the being counter in chief, and it is telling that they the document that they're going to release, the fiscal Statement is not going to be costed by the o b R next week. There will be a budget later in the year where there will be a sort of OBI costumes. So the bean

Counters tells something as well. Right, she's sidesteps the being counter in chief for the purposes of this budget. That is so, I think because as far as I understand, what they're going to do with this is they're going to put in the tax cuts alongside the big energy bill stuff, and then they're going to want the dynamic growth model because inflation will mechanically be lower, so the cost of the national debt will come down, so that she wants to. I think they're going to want to

put in all of these kind of moving parts. It's a bit like Gordon Brown before the OBRE was set up, where you can control effectively what the result is once you put put the equation together with the O b R. They don't control it. So it's quine that kind of handy to to leave the OBI are to one side of this. Even we are right, well, you can blame them if something goes wrong. Is that they because they blame the bean counters if something goes wrong you is

it like get out class? I don't think then they can get it wrong, doesn't it? But it's somebody marking your homeworks Yeah, it was set up, wasn't it. Tonge government over spending perhaps two billion pounds on support, stopped fiddling the book social sie stepping. So surely they've outlived

their useful, haven't. I mean, people are saying are they going to actually continue with the I mean, but again it's one of those things where in all of this policy uncertainty, to get rid of the guy who checks your homework is only going to make the market scape. I'm really not sure about this country, that's right. I think you can make a kind of you can make a an argument that, let's trust this government is taking the right gambles in with the parts that we know

about right now. I think I'm trying to kind of channel this trust is kind of riskiness and radical, radical nature, you know. I think that as soon as you start to be disbanding the kind of official monitor that either way, you know, George Osborne, you know, your one time colleague brought in, I think that's the point at which you know, kind of jumps the shark, right. I think it's the point in which it goes a bit too far, which is come I mean, in terms of the scholar sacking

that doesn't go too fine, as much it is. It is a massive statement, is a massive gesture. But you haven't ripped out the heart of the treasury. The treasury is still the treasury. You just it's the management of the treasury that's they're changing with the top guy. I mean, someone actually reminded when the markets were at war, right, is that through Is that the prism through which the government can do this and actually get away with it,

spending spending, the spending the way out of whatever. I think she said as much. Yeah, and it's it's manifestly the case. And you have families very real, you know, having to choose between eating and eating. I think the point that people in government make is, you know, look

at us compared to some of the European nations. I think we sort of in this building can fixate on versus the dollar and versus America and so on, but actually, when compared to the continent, which you know very well, you know, actually we it's not not such an unpretty picture. Thank you so much, thank you allgrat thanks, don't do that again, thank you, Phil, thank you at thank you. I was just remondered of what Golden Brown always used to say, what did he used to say, what did

you ever shake his hand? And he'd say, thank you for all that you do. Thanks for listening to this week's in the City. We'll be back next week, and don't forget. If you're looking for a daily rap of the stories that matter in the UK, sign up now for our newsletter, The Read Out with acro Stratton on Bloomberg dot com Slash Newsletters, or check out the show notes for a link. And if you like what you listen to, head over to Apple Podcasts or wherever you

listen to podcasts and rate, review and subscribe. This episode was hosted by me David Merritt and me Francin Laqua. It was produced by Samasadi. Special thanks to legros Stratton and Phil Aldrich.