Bloomberg Audio Studios, Podcasts, radio News.
Earlier this year, before the election, the Labor Party seemed to be all in on its mission to be party of business. We've covered in a lot on this podcast the amount of courting of business people, investors, time spent by the new Chancellor or the shadow Chancellor, their ritro routes. Here in the City of London, everyone seemed to be convinced that Labor was different than it was going to
be a pro business administration. But now cut to just three months after the party's landslide victory, questions are emerging about how committed the party is to its pro growth pledge. This week, We're going to take stock of Labour's progress to win back the support of corporate Britain and ask what's at stake if the city's leaders are losing faith in Labour's commitment. Welcome to the City of London, The City of London, mind gad between the financial hearts of the country.
The City, the City.
Welcome to In the City, Clear of the Doors, Pea.
Welcome to another episode of In the City. I'm David Merritt, I'm Alegri Stratton and I'm Francine Lackwall. Later in the show, we're going to hear from Richard Harrington. He's the former government minister who published a review into foreign direct investment in November of last year. His review made recommendations about how the UK could attract more cross border investment, and we're going to get his thoughts on whether the Labor government is taking his suggestions on board and what more
could be done to tackle the barriers to investment. But before that, with us in the studio is Bloomberg Radio host Karen Hepka, who has authored a piece on how how the city is now viewing the Labor Party's first one hundred days.
Welcome to the.
Podcast, Karen, Thanks for having me.
So you spend your days talking to business people, interviewing them modern radio. How has the mood shifted from you know, before this year when everyone was thinking, hey, Labor is really making efforts to be seen as a pro business party, to what they've actually done and what's happened since they won power.
Yeah, well I spent the last few weeks sort of trying to ascertain that with a few key players. So people like Anne Glover from Amadeus Capital Management. She's key in that investment scene in the UK. People like Lloyd Lee from you Capital working on one of the biggest regeneration projects in London. Phoenix Group their CIO. You know they if you recall, at their heart of the mansion House Accord trying to get pension funds to invest more in the city. Spent a few weeks talking to them.
I think surface level there is trepidation, there is anticipation about the budget. Mostly everybody agrees that in the first one hundred days, which is what I was looking at, actually nothing much has happened on the economic front. I think quite a lot of other things have happened.
I think one of the things that labourhood trumpeted a lot to business was we're going to bring back stability to Britain. We've had weeks of headlines of freebies for government termoil reports of all those inviting. Do business people feel frustrated by that ongoing sense of chales.
I think there was such huge desperation for some new direction in the UK after fourteen years of increasingly erratic government that yes, I think there was a huge moment of relief. The fact that Labour has this huge mandate and a five year term I was talking about a ten year term. That's why I think there's a lot of anxiety. There is not just a huge amount going
on geopolitically, but also domestically. And I think that the people that I spoke to talked about the government having to learn on the job and how it's very difficult to do that in just the space of three months, and that's immensely difficult. I think it's put even more emphasis on the tone and the content of the budget.
Basically that there have been all of these strands that they've talked about, infrastructure spending, the National Wealth Fund, gb Energy, all that is a good damn payment, but nothing's actually been done. That's kind of top level.
I wonder rather when you speak to you know, Blackstone, black Rock, Golden Sex, I'm not sure they're aware of who the chief of staff of Kerestarmer is. I mean, it's been a hundred days, but I wonder whether it really impacts you know, you know, someone saying, look, I want to put one hundred million, I want to put two hundred million in this country. I think they're probably waiting more for the budget, to see the non arm, to see the taxes and where they land on this.
The issue though, also is that the timing of the Business Summit has been has been mistimed. Right. Everybody pretty much was in unanimity that the Investment Summit should come after the budget, and that's happening.
That's just because that's happening next week, this big summit where the government is trying to pull in huge names from business all around the world to come and sort of celebrate habritains over the business. But it's happening in this sort of gray zone before we know what the policies.
Are going to be.
And weirdly, of course, it was a success from the conservative era right that the Toys did that two years in a row. It did bring in big announcements and also big global investors at least to have the conversation without the UK.
Yeah, yeah, and we had everyone at the time. You had a number of sovereign wealth funds also from the Middle East that showed up last year. It was very well done. It was well prepared.
This year.
When we speak to a lot of Wall Street titans, a lot of them can't be there because of boards, so they won't say it's because the budget is two weeks afterwards. But timing makes a little sense if you're going to put a lot of money in this country.
And we've talked quite pessimistically about the UK.
But the other weird.
Dichotomy the numbers are not that bad, and that there should be more kind of optimism. We understand what the issue for Britain is, right growth and the lack of investment. Nobody knows the exact recipe for how to boost economic growth in Britain, but we know that you know what the various levers are. It is the difficulty what do you do on day one a one?
You know, in the first few days their emphasis on planning reform was manner from heaven. That was what the city wanted to hear, wasn't it. And we should remember that that they made a lot of kind of the right noises early on.
But also they just need to make sure that they have growth right. So I imagine that every lens they're looking at is like, okay, I can get twenty millis you know, private equity carried interest? Does that lead if you make that higher, does it lead to extra growth or does it lower growth? I don't really know the answer to that.
Like what you were saying is that this budget is tricky because they need to show the world that they're open for business, get money in, but actually it's understanding what can be taxed and not hurting growth because at the end of the day, it's not the time. I mean, they can get money in, but they really need to grow the GDP of this country.
The thing that has emerged in the last week ten days, which I think she's they've let emerge because they realized that they were in a massive hole of kind of you know, you've been too pessimistic, which is this borrowing to invest? Yes, I don't know, but I suspect that was a kind of pull down from shelf, not in case of emergency, but in case everybody's grumpy and you need something to kind of shift the narrative.
Yeah, And I think the people that I speak to, you know, they are all saying, we are standing ready like females, we are standing ready to put the money in there, but we've got to understand the direction. I think there's even more emphasis on the budget and on getting that right. And also I kind of just wonder when she does stand up. You were saying, as the first female chancellor in like eight hundred years in the UK.
Can she actually deliver tonally that shift you know that we are hope of a business that we're going for great, She's got to come up with some great phrases, you know, to galvanize the nation.
Right, Thanks so much, Carolina. Thanks now, as promised, Richard Harrington joins us. Lord Harrington is a former government minister who published a review into foreign direct investment in November of last year. We're happy to have them with us to check in on the recommendation he laid out nearly a year ago and whether the Labor government has taken any on board. Richard, welcome back to in the city.
Thank you. It's a pleasure to be here. And of course the review itself was launched here at Bloomberg. I felt very optimistic about it. Jeremy Hunt was very much behind it and they're opposition now. The government were so although a.
Year's gone by, Richard behind it well.
The new government was behind it in opposition and very much in favor of it now. And we're expecting an announcement on the subject because it's all about stuff which a lot of people think is quite boring because it's not the most glamorous sun headline stuff. But it's reorganizing the government in a much more favorable modern way for inward investment.
And we've got the Investment Summit happening next week and some people are saying, well, the timing of that's a bit strange. You know, everyone's really just waiting for the budget. You know, there's a lot of nervousness about what sort of measures might be there in terms of wealth, you know, coupital gains, all these things. But what is your outlook
for the investments on me? Are you saying we're going to actually get some substantive announcements ahead of it that are going to really attract investment.
Well, first of all, you know, everyone that's not involved in something is always slacking it off. I mean, it's normal in polity. But actually I think it's a very good time to have the summit. Yes, there will be some tax questions and things like that because people are waiting to see what changes are, but decisions are not made on the day. This is not something where someone will arrive in the morning not thinking they're going to invest, and leave in the afternoon and think, oh, I'm going
to invest now, or I'm not. It isn't that so I think the fact it's before the budget is not relevant. But the government with a lot of effort of put together a large group of very senior investment people from all over the world. I'm assuming so because these are the people that were there last year. They were the top people from banks, from multinationals, from sovereign wealth funds, et cetera. And it's a big show piece for the country.
So don't criticize them for the timing at all. I'm sure it will be a success because these things have the right kind of people in the room. But it's not a question of yes or no, because a lot of it just helps create the environment that we need, and I do feel an announcement on that day will be very important towards investment.
What is the environment that you know global investors need? So, is it again on paper cutting out the red tape so that if a blackstoner of black Rock wants to put two million pounds on where they can do it in twenty four hours, or is it actually just making sure that the new government, then a lot of people are still getting to know, are really pro business.
Well, the answer is both. That's a classic politicians answer isn't it. But very briefly, the former I found in the and we interviewed about two hundred companies, sovereign wealth funds, pension funds, et cetera. And the course of review, and if I just go through what the obstacles were, and then we can decide whether investments some it's going to help.
First of all, lack of consistency in policy investors, be their sovereign wealth funds or indeed companies, they want stability of policy and a very reason to believe that a new government, hopefully there for four or five years, irrespect to what parts of the art, will bring some stability. But beyond that, we've got a series of obstacles which were first of all money. There were pots and challenges and funds all over the place. Companies get very frustrated
by this. What they really want to know is if the government's partnering up with me in any way, this is what we need, You've done all the due diligence, have either got it or I haven't. Then there's a whole series of other obstacles, such as connections to the grid, planning skills. There's a lot of things like visas, etc. So by having a new organization which has been rumored to be called invest UK and what it would be called,
it doesn't really matter. Bringing together all of the different groups in government that do this into one unit I think would help a lot, providing it has the power and the power of the Prime Minister to make sure that the whoever runs this as Investment Minister and the OFIB behind it has real clout to give an offer to a company saying yes, here's a site we've found with planning permission for you. It will be connected to the grid. If you want visas, you'll get them within
fourteen days because you're investing so much money. And we're going to actually have a skills academy near you because we know you'll need thousands of new engineers or whatever it is.
Richard, this doesn't sound revolutionary. I mean it's just common sense.
I'm not a revolutionary person. Well, thank you very much. It is common sense. I think the Investment Summit itself is it's a different matter. You know, that is a great summit, and it's just a good opportuittunity for the government to say, actually we accepted the Harrington Review. The previous government did it wasn't fully implemented because there was a general election. So to give you an example, Jeremy Hunt convened a Government Investment Committee, which is all the
main sectors of states. The first meeting had to be canceled because the election was called. I mean, but I hope they will say, yes, we accepted in opposition the review. We're now formally accepting it, and here's our plans and that for example, we're going to have a greatly enhanced Office for Investment, which will have instead of reactive powers, that is, someone comes to us with a possible investment and we scurry around, We're going to spread through our
trade commissioners all over the world. We're going to identify what sectors we want to entice people and companies to come here, what we're going to do to help them and sort out all of these obstacles for them. Other countries do, Other countries do.
But so what the UK is very good at, is it at least meeting number ten is very good at meeting with a lot of these chief executives that want to invest. I would say people are still trying to get to know this government. They don't really one hundred percent know what they stand for.
In this long wait, in what we hear and what we've been talking to. Karen Hepca from Bloomboth Radiation's interviewing investors' private eputy companies. Everyone is really nervous.
You know.
There was a lot of talk before the election, Rachel reospend a lot of time in the city saying we are pro business. Now there's been this long period for the budget, reading headlines about changes to capital gains, carried interest. What was this week was about a potential exit tax if you wanted to leave. All of this stuff is creating a lot of uncertainty in nerves and people saying
do we really want to invest in Britain? So the Coman seemed to be creating that uncertainty rather than dealing with it.
Aren't. Well, yes, you're right, and the investment summit is a good, very good opportunity that have the right people in the room and the right people listening externally to say very clear and I'm sure in the ChIL A's speech, not that I've seen it, but I'm sure she'll be reassuring companies and perspective investors precisely to get over those hurdles and it's time that from the investment point of view, the government controlled the narrative instead of allowing all these
rumors to come out. Having said that, you know, investors are nervous. Generally, the world's in a difficult position. I'm sure other countries. It's not that other countries are brilliant. You know, if I if I had five quid for everyone that told me that they had Macron's mobile on speed dial because he'd given it to them at some investment, yeah, I don't.
Actually I'm a little bit disappointed.
But the truth is, I'm being sarcastic about President Macron, but I'm sure he networks very well, but it's the delivery that matters. Delivery sounds boring all this organizational stuff, but what has happened in the past, We've had it very good investment ministers. Take Dominic Johnson, who had the job for the last government, who's a very talented salesman.
That was his professional life as well. They raise expectations by doing a really good pitch, but the actual delivery behind it was disappointed, disappointing, and that's why the government's really trying to get to grips with this.
I mean you can't be all things to all people. So what kind of investors would you want to attract? Is it sovereign wealth fund? Is it for private public partnerships? Is it infrastructure?
Like?
What is this? What is the industrial plan for this country?
Well, the government, I hope, will also be announcing that the third, so one string, is the new National Wealth Fund, The second is reorganizing the investment part of government, and the third is Industrial strategy. And I believe the government will be announcing the chairman of the Industrial Strategy Council, something which Greg Clark and I set up under Andy Haldane. I think it was in twenty sixteen. Unfortunately, for some reason, Boris decided to abandon it. But I'm sure they will
bring this back. They're pledged to do it. And what that will do because it's people think oh industrial, that means it's sort of banging pots and pans and factories, But it's a business investment strategy. It's saying, look, we are we can't do everything exactly is the point you made, because you know we're too small, don't have the money. But what we can do is identify as a strategy
where we think we've got a competitive advantage. For example, it might be in in I don't know, wing manufacturer for aircraft. We good at that. What do we need to do to attract other companies in that field, suppliers for the supply chain and everything else. So it sets out a strategy for where we can succeed and with what resources we have got, what we're going to put into it. And then the machinery, which I hope will be the beefed up Office for Investment, which I hope
will be announced, then provides the implementation of that. So I think I think the industrial strategy or government investment strategy, doesn't matter what it's called, is very important.
I mean, just in general, I'm sensing a lot of timism here that we are going to make progress with this government on a lot of the things that you put in your report that you've recommended, and a sense of continuity on the business environment, and that is, you know, that's odds with some of some of the nerves that we're hearing around the city, like what does the company need to do next week to really put to rest all of those concerns.
Growth is the big thing for the government. It's the only way for the government to be able to invest spend the kind of money they want on public services. No secret there. They can't put up taxes much because they're very high. It's got to be growth and a combination of Jonathan Reynold's the Business Secretary and Rachel Reaves the chance too. I've got a lot of time for
both of them. Makes me optimistic, but they have to reset the agenda and just a press release say are great, we want growth, etc. Investors are sophisticated people.
You know, they overdid the doom mungering a bit, didn't they. They did I've crushed a bit of confidence or yeah.
I didn't approve of that, but it's exactly what the coalition did in twenty ten. It's blaming everything on your predecessor, isn't it like that? But the reality is now people are looking for more than just the superficial messaging. And if there are detailed plans for the Wealth Fund, for an industrial strategy, and for reorganizing the whole investment area, then I think investors will really come back into this country.
Richard, what about pensions? What would you do with pensions and pension reforms? I mean, you know, there's an issue that not enough investors, retail investors, but even pensions take enough risk.
You know. I think what Jeremy Hunt started was a good thing in the mansion House compact. But in the end, the only way pension funds are going to invest here more of their money is by having tax breaks on investing in UK companies. And I think that's quite a legitimate tool for countries to do. Other countries do it.
There's slightly more carrot than stick in a way, is it.
Well, you can try the stick, but in the end they look at the numbers and if there's a big advantage for them for investing in UK companies, they won't do it out of philanthropy or charity because they've got the fiduciary duty to their beneficiaries that people that have the pensions. So I would strongly incent them to do that. But I also think I again I have a bit
of a plug for myself. But when I was Pensions Minister, we did the auto enrollment scheme, which is bringing more money in and I think if they increase the amount that employers have to put into that and the employees have to put into that, that will have a lot more funds. But they do need more incentive to get them to invest in the UK.
Talking about the climate, though again broadly, I mean the bond market is starting to twitch a little bit about some of the messaging from the government. We've seen the spreads for UK debt widening over Europe, interest rates creeping up. That has all sorts of consequences. Of of course, we've been here before when they were talks about big fiscal expansion under list trust. I don't think anyone's predicting that sort
of crush again. But do you think we should be a little bit nervous or that the markets are starting to take note of things like the suggestion that Reeves will change the accounting rules so that she can borrow a lot more money.
I think it may well frighten Rachel Reeves off from doing some more of the more radical.
Thing fifty six billion because of fears.
Of what happened with quality quality. And I'm sure she and her advisors we're doing everything they can to calm the markets. But the reality is that you know, a lot of stuff like investment in infrastructure is excluded. You know, it's treated as capital expensure, but a lot of things aren't. For example, housing, which is very important part of growth. Money to housing associations is treated as basically it's a current expenditure. The asset side of it's not taken into
consideration in public sector financing. So I don't think changing those.
Rules that sensible to change.
Yeah, and I don't why didn't she see that?
Do it when he was chancellor or.
Next time is here. You'll have to ask him.
I have no idea, and that's a promise. We will definitely ask him.
You should. I don't know the answer to that question, seriously, but this has been mooted as part of the government's housing strategy, and I don't I can't believe that will spook the markets because really, quite clearly real estate is an asset. So if it's sensible like that, if it's just an excuse for more public expenditure, then it would
spook the markets experts of it. But you've seen it in front of it, the infrastructure investment for us that would have your support, says that's a good use of changing the count was giving you some headroom borrow more investing infrastructure. The more that public accounting rules are like corporate accounting rules, where an asset is an asset. A liability is a liability, and they're not all on the P and L. To me, not an accountant, I was
in business for thirty years. However, it's a very sensible thing to do.
What about the PFI, I mean, for those listening, this is a private finance initiatives which are these basically long term contracts.
They are, and I'm sure the government is looking on ways to bring them back a new modern version of it. Of course, like so many things in politics, in the end, the media, the populist media, brought down the last loot of PFIs because it picked out things where light bulbs had to be paid for for thirty years at ten times the price on Amazon. But I'm sure there'll be
a big adjustment. But the reality of doing off balance sheet accounting and bringing in private funds, I don't know why anyone could think there's a better way, and to me, that is the ideal way to expand the infrastructure in the country. The tweaking and the rules of course have to be worked out in detail, and that's really beyond my scope to do so.
I mean, it's got to be appealing to the private sector as well. Hasn't that mean, if you look at like the Thameswater situation, investors are very cautious about somehow parting into that that mess, I suppose you can call it. Does Britain have the right conditions to set these public private partships up.
As long as they learn from their mistakes. I mean, you know, the whole Thames Water thing came about because of an ill thought out phony privatization in the past, where I think Investment Bank has probably amboozled ministers and civil servants into doing stuff they didn't quite understand. If anyone's listening to this that was involved in that, it's not personal. That's what I'd have done if I was on millions of pounds worth of bonuses.
You would have done that.
I would if I was the head of Gold and Sachs or JP Morgan or something. But I wasn't, so don't worry about that. But I'm sure a modern version of a way of working out partnerships quite seriously, just as the industrial strategy, the sector deals wed with aerospace, automotives etc. Have brought in a lot of investment. You know, it's not an option. Some people on the right wing of the Conservative Party think that it's if you just
reduced taxes, that's enough. Government shouldn't get involved in in help. But the world is not like that. We have to have partnerships been government business and quite what the mechanism is has to be worked out.
Richard, thank you so much for joining us.
Great pleasure, anytime.
Love That was great, awesome, Thanks for listening to this week's In the City from Bloomberg. This episode was hosted by me, David Merritt, Francin Laqua, and Allegra Stratton. It was produced by Somersadi, with production support and sound design by Moses Adam Brendan Francis Nenham is our executive producer and Saide Bauman is Head of Podcasts. Special thanks to Richard Harrington and Karen Hepka, and please do subscribe, rate, and review wherever you listen to podcasts.