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I'm Francis Laqua and I'm Alecra Stratton. What, Fran can you believe it's only been eight months since the change of government.
Back then it felt like a much simpler time for Cures, Darmer and probably everyone else.
Back then, public support for Kissed Arma and his party was higher. The US elect felt like a distant reality, and with the clear intent to reset relations with businesses, the Labor Party's promise of tangible improvements to Britain's quality of life felt achievable.
So here we are in March, popularity of the government sleeping. Of course, we have the US President Donald Trump firmly in office, which brings its own challenges, and those key election pledges, well, are they on.
Track, Legra well, indeed, So we're going to try and answer that in the city this week. And to do that, we've got the team here at Bloomberg who just in the last few days have published a scorecard on how the government's doing. And we've got the two brilliant minds who put it together, Phil Aldrich, Senior UK Economy reporter and Dan Hansen, UK economist on the Bloomberg Economics team. So do we want to do methodology or not? Why?
Why the score a card?
Why or not not?
How? We picked five key measures, basically the economic measures that the Labor government has set itself again. So those are the ambitions it as this said, it wants to have the highest growth in the G seven and they've put a nominal two point five percent and your growth rate on that. And they also have an additional one, which was raising living standards by real household disposable income.
Ahead there as an eighty percent employment target. There's a pledge that we're going to have fiscal stability and economic stability. They're saying ending austerity and they want to build one point five million homes. So we just took what their ambitions were and then we said.
How they do.
I mean, eight months is a good timeframe because it's eight months into a five year fixed term parliament, and there's a lot going on.
Obviously, when you say in a five year term, you might argue it's probably a bit unfair to give them a mark at the moment. But actually these things, they are very stretching targets. I think that's the thing first to sort of pick out with this. Perhaps raising living standard is in the very stretching target, but two and a half percent growth year is a very stretching target. Building that many homes is very stretching targets. Obviously, feel
said about the employment target. These are all very as I say, stretching things to achieve, and it's important I think that the government not just held account internally, but we're here to sort of cast our eye over it and look at these things. As you've both said at the top of the show there the world has changed dramatically now they're going to have to adapt labor as
well as we go forward. But I think at least the top line of this that we've Phil and I looked at the sort of living standards piece, I mean, surely it's every government's goal to raise living standard over at Parliament, right, and actually when we looked at it, we think they'll probably do it, but it's not going to be as convincing as they'd like it to be. We don't think, at least it.
Doesn't really matter that it does it if they've got a numerical increase.
No. I think it would matter though if they turned around in twenty twenty nine and said, yes, we've raised living stands, but it's not as fast as the last government. Okay, yeah, that was one of the big economic reasons at least why didn't do particularly well in the elections. So I think people want to feel richard, don't they. They don't want to see a number higher. You want to actually.
Feel better off than you are five years Yeah, exactly.
Do you feel like there's more money in your pocket?
And also I was struck at the growth event that Rachel Reeves did some weeks ago. I think you were there, phil In is it Seamen's factory where she was asked what is the metric and she chose to say increase in living standards.
Yeah, it's effectively a downgrade in their ambitions because no government since records began in nineteen fifty five has failed to improve living standards, and so Dan's measure he adjusts the OBR outlook for productivity to something which is a bit more in line with the consensus forecasts, and on that measure, the forecast would suggest that they are going to have the smallest increase in living standards since nineteen
fifty five, which would be a failure. Basically, if you delivered the smallest uplift in real let me stand that that's not something to celebrate, is.
It, phil I think for boosting growth and living standards you give them a five out of ten. Yeah, And this is also because basically you know that you measure it by a real household disposable income for ahead, Why is it five out of ten? Why are they not doing better on metric?
Because you're starting with just eight months of the five years having gone. So you've got to look at what policies they're putting in place and make a judgment on what they've been able to achieve so far. And so the outlook is not particularly good if you take that those measures just mentioned, but what they've done so far to boost growth. On the downside, one thing they're doing which doesn't help growth is the Knicks rise, So the payer all tax, which obviously everyone is saying is damaging
for growth. But on the upside, they've got this longer term plan to basically invest much more in a public infrastructure, and the OBR did score that as a net growth enhancing investment. It takes time to deliver, though, and that was something missing from the last few governments. They are delivering on that, So it's a bit of a mixed bag, which is why kind of put them and bang in the middle.
Basically, I think that's important the point that film's made about the timing. Time's not on their side with this, because the policies they need to put in place just will not yield results immediately. So investing loads more, building bridges, building school they take time, and the economic benefits accruing from those things take a long time to come through. Planning reform as well. It's a really positive thing. If they're successful in doing it, it will be a positive thing.
But sort of the cloud hanging over it all, as Phil just said again, is this Nicks rise which happens immediately, that's happening in April, and it's that balance between this sort of near term cloud and actually this longer term vision, which I think they've said a lot of good things and some of the right things, but time is just not on their side. So you have this really tricky balance between and I think that's where the five out
of ten comes from. Between this sort of doing the right things and waiting for them to read benefits for the economy. That's a really tricky place to be.
How much when you were both doing this, did you think that this is about them wanting to be a two to you know? Really twenty nine it's the halfway point.
I think that's a really important point. When I write stuff, I think what would an investiget from this note that I've just written, and what would they think? And it's I'd read it and think maybe twenty twenty nine isn't it given for them? In terms of if you look at living standards, if they come to the Electric with that performance on living standards, maybe twenty twenty nine isn't they given for them? I think you're right Allegra though, that this is like a ten year plan for them.
That's how they view it. But if they turn got.
To get reelected standards, it's all inter linked. And then if you're tacking to the right, for want of a better phrase, to try and head off reform slash. Yeah, exactly, because a lot of those new MPs they've got are in traditional them there's nothing traditional anymore. But they're doing a bunch of shape shifting right now in order to head off that reform threat, if indeed it is a threat, because obviously there's a lot going on with the reform
party right now. It's just they've got to at that twenty nine. They've got to keep a large number of the huge landslide they have right now.
Yeah, they do.
It's really interesting you're saying sacking to the right, defense spending. We're going to hear about potentially welfare cuts in the next week or so. You know, they aren't classic labor policies at all. One thing I have heard from people is what do they really stand for? What's the strategy?
Is it supply side reform? Is it classic labor sort of tax and spend policy, And it feels like it's a bit of everything at the moment, and there's there's a real question mark about the sort of overall strategy. All of that said, you know, I think that's the score of the five out of ten. I think they've done some sensible things they're just going to say time to come through.
And so that's kind of what the budget felt like in the autumn, that it was a bit to throw everything at it and see what sticks. Are they going to change? I know a lot of it is on regulation. If you look at financial and planning regulation, will that be torn up to finally unleash the animal spirits?
They're talking, well bonfire are the regulations? Yeah, that's certainly the way they're going. They did always say that they were going to make us a better regulated country, and they are pushing ahead with that. I think the planning reforms we all knew that they were going to they were going to really try and push through a complete supply side delivering that. And actually one of our scores to seven out of ten is the one point five
million homes. It's a stretch target. They're never going to get to one point five million, but I think they know that, but they're pushing for that. And they get one point two that would be a massive success. And so that would be huge. And what they're doing on planning just simplifying some of the environmental measures, removing the right for smaller quangos to interfere in the planning process CPO with no hope values. If your land is just a piece of derelic lands, you can't claim it to
have residential value. So there's all sorts of things in a new Town's commitments. There's all sorts of things in there which everyone in the policy was says, this is what needs.
To be done.
Will they get it through or unchanged with no legislative adjustments, then that's a big test. But fundamentally what they've done is so far has been pretty good. So the general bonfire of regulations is some of it feels a little bit like they're just desperately trying to claw any kind
of growth measure. They want to send this message that we are the growth party, and it feels like they're trying to fix the problems created by the budget where we had lingering fiscal uncertainty which raises the prospect of further growth damaging tax rises down the line. They need to get growth going. Some of these things you would not have expected, like heat throw you never would have expected that. And then the financial deregulation they're pushing card
on that and other areas. You can see the idea behind it.
I also see a one out of ten.
There is a one that's terrible, one out of but yes, employment only gets a one out of ten. That's because they said this eighty percent employment target, which would require two million people currently aged between sixteen and sixty four to be moving into work now effectively to get tricky unemployment. Yeah, and then the next exactly in the next cut, so that if you were saying, what policy have they done to help that, they've done a policy so completely antithetical
to that. They've said, well, there's two things. They've raised the minimum wage and so you can't pass this cost down in slower wage growth towards that, and obviously people just above the minimum wage are also going to have big increases in there wages to keep the differential going. And at the same time, you've passed a cost on to the employers. They can't pass much down through lower wages,
so they've got to do more unemployment. You could just see economically, that's how it's going to have to go. So you give them kind of nothing on policy leaders to increase employment, and not an awful lot on anything else. The ege percent also is so stretching. Only five countries in the world have it, and it seems incredibly unlikely we're going to get there. But if you know, again, if it's a stretch target and we get to sort of seventy eight, that we'd all be celebrating.
I think in business, what do they call them, big hairy audacious targets? What's those bat hags? We have them in government all the time, So big hairy audacious goals. There's a thing, right right, No, it was a Richie Scenac thing, may even have been a Matt Hancock thing, which was you have these targets and then if you fall slightly short, then you've done better. I think they work in business. I'm not sure they work in politics,
where your opponents can say you felt short. Started this podcast by saying, you know, I think I get it in business, I don't get it politics. Do you think they regret the national insurance increase on employees?
They figured that they didn't have any choice.
The reason I'm asking is it does seem to be the kind of lead weight that's weighing on everything else.
I think personally, they found this black hole. Yeah, it was later in July, wasn't it found this black hole? It feels to me like they could have turned around and said this is consistent with the Knicks cuts being unaffordable. Even if they'd done half of it on employee, and I know you're right, Phil, they would have broken their manifesto pledge. But they didn't know this black hole existed. What we're turning around and saying is this employee Nicks
cuts just not not affordable. And then they could have split it between even if they wanted to do a bit on employer next, it just wouldn't have been as bad.
So you've got the two issues, which is the business community. It feels totally betrayed, very very angry. These taxes are going to be passed in large part through to prices and to you know, employ smaller wage rises and higher unemployment. So there's some damage coming down the line from this. To repair the public finances, there was always going to be difficult decision. They tied their hands too much beforehand,
and they left themselves so little fiscal headroom. There's belief that they were establishing economic stability with this with the October budget has been proved demonstrably not to be the case, because they're coming back in six months and they're having to do welfare cuts, they're having to do public spending cuts because they just need to re establish them.
He so Dane, what's the way forward for them?
There are sort of three elements in this upcoming fiscal event that we're going to sort of I think they are worth watching. One is how much is the OBRE going to change its forecast, because that, I think at least is a source of some of the concern around the UK's fiscal position. The optimism in the obr's forecast, so when investors look at it, they're like, you know what, you're going to borrow a lot more than the obl says you're going to borrow it as gross not going
to be as strong. The second thing is obviously how big of the fiscal hold does that leave and how much does Rachel Reeve think she needs to repair the public finances because as Phil's just said, ten billion pounds in terms of headroom is just peanuts, and we are now in a much more volatile world than we were in October, in a much more volatile world, so we need much more head room. And then three is it's the policy leaver that you pull, so is it benefits spending?
Do you run the gauntlet on spending cuts again and do what Jeremy Hunt did and pencil spending cuts in at the end of the forecast.
Not many options for them.
This is the issue that on departmental spending, the plans are already so tight they can't go further benefits spending year. There's some stuff you can do there, but it's not very labor like. And then you've got tax risers, which they just don't want to talk about. The last one is more borrowing, but they know what's going to happen in terms of how the market is going to respond to that.
So I do I envy them.
Used to work in the treasury, didn't you Dad did?
What would I do? I'd raise taxes?
Would you have done it in July? Well, in the last fiscal.
I say that as a as a sort of yeah, well, I don't say that as a politician. I say that as a being just completely analytical about it. And there are things they can do, like you know, the freezers on the personal allowances they can continue to put and that raises them and it people don't feel that in their pocket right now. It's one of these. It's a
bit like cutting spending in the future. You know, it's one of these that you just delay the difficult decision, but actually it feels like taxes are the only thing that really you can do. The other thing you can do, of course, is decide to completely change what public service provision looks like. Think about the NHS, think about not education or they've chosen on defense, but the NHS in particular. Does the NHS have to just look different going forward?
There is a huge question around that. But as things stand, if they're not willing to really change how things look in the NHS, then it everyone's just going to have to pay more tax And I know that's not a particularly positive message, but that's the world we find ourselves in. And that's not just a UK specific thing either. That's a European that's a European European question that is hanging over every government now with what's going on with defense spending.
It's a really tricky situation. But I think the world has changed dramatically since October and I think it's going to be really interesting to see how Rachel Reeves perceives what needs to be done with the UK fiscal policy to make sure it's able to stand up to this volatility and shocks.
Phil, Dan, thank you so much, Thanks very much, no problem at all. Thanks for listening to this week's In the City from Bloomberg. This episode was hosted by me Francis Laqua and Allegra Stratton. It was produced by Sersaudi and Moses and App with sound design by Blake Maples. Brendan Francis Newnam is our executive producer. Special thanks to Phil Aldrich and Dan Hansen. Please subscribe, rate, and review wherever you listen to podcasts.