Joe, can I ask you a dumb question, Why do we say this is the most important budget if they're likely gone in the next twelve months.
I guess it's just their last chance, right. It's like, if you're going to try and win the election, this has to be a killer moment.
That's a quite good question for the show.
Okay, that's our open.
There you go, There were you recording summers always recording. Welcome to in the City, Bloomberg's podcast, connecting you to the conversations and the stories shaping the world of finance. This week, we have UK Government reporter Joe Mays to run us through Bloomberg's Budget Game, an interactive game that will help us explore the different options available for the Tories and think about how Jeremy Hunt's choices could shape the election.
Squeeze public spending. You can't do that, okay? And the change.
Finally, like gro we have like our own UK wordl's the budget?
I don't think so.
Joe May put together this new game called can you make better decisions as transfer than Jeremy Hunt? And we've all played it and it's quite fun.
I'm playing it right now.
Right Leg was storing up our projects you speak.
As we speak, I was actually stuff stumped on the third question.
So what I love is basically, you know, you're trying to navigate this tricky situation, so you need to not crash the economy, but you also need to not lose the elections. So this is from a Tory perspective.
Joe, Yes, I mean your idea is to come up with a package of tax cuts effectively that will woo voters, but don't go too far to the point where you end up breaking your fiscal rules, frustrating markets, and triggering a twenty twenty two mini budget episode all over again. So you have to find the right balance between a kind of political risk taking. If you're not risk taking, and you can't.
If you do it, you can.
You can get to a successful outcome in the game, as you see, but it's tricky. The path to winning is is narrow.
How many outcomes are there?
There are sixty four different ways of playing the games, so yeah, and only about four of them can you win, So you have to be careful.
Have you won?
Oh?
Yes, I had to win the game. Jeremy Hunt played the game onto his advisers as we speak. I want to see how he doesn't know whether.
The time for games is now.
Adrian, welcome to the podcast. Do you want to play the game? He's still the first one. Okay, the first one is basically do you so the first big decision will you squeeze public spending to give yourself more money for tax cards or do you want to stick with current spending plans?
I would stick with current spending plans. I think squeezing public spending is not probably the right way forward for political and economic reasons.
I mean, we included that choice because Jeremy Hunt is considering doing that. People inside the Treasury say, we've had to look at the public spending assumption because if we don't, we really have so little room to maneuver to offer these giveaways. So that is a realistic choice. But you're right to say that there's also an awareness in the Treasury that it would be politically dangerous to do that because you could be accused of austerity once more, and that's not a headline you want.
So yeah, but it is interesting as well because if you think about the different different seasons of Jeremy Hunt. About a year ago, he was very much in do you know, do nothing, be very very conservative, small sea. And then then after the event, the fiscal event at the back end of last year, and the mood changed and the briefing changed, and it was we are now a tax cutting government. And now I think they're sort
of having to follow through on that. And they were able to do it last November because the numbers worked. And now you're in a different economic context and I think he'd probably quite like to go back to being the Jeremy Hunt of a year ago.
But in terms of expectations management, they made a big mistake, didn't they. Yes.
I think they'd let us think that this was going to be the big pre election tax cutting budget and that expltation had built, as you say, But then they turned around in the obi I've gone, well, you've only got thirteen billion bounds, you near historic low, how are you going to do that? And they've had to row it back slightly with those expectations.
If I played ten times, will I win?
I think you'll find. I think you'll find the victory part soon enough.
What's the hardest question on here?
The hardest question, Well, the final question you have to answer is around fuel duty, and that's tricky because It costs a lot to keep fuel duty where it's at because the chancellors since twenty eleven have frozen fuel duty. They've not let it rise with inflation. And there's also a five p temporary cut to fuel duty that will expire in March. So the chance has to decide, am I can to let that happen. Am I going to
let fuel duty go up? On my watch? It costs him about six billion pounds to maintain that fuel duty freeze. That's almost half the headroom you start with the right, So you can see why that's a big pressure he has to respond to. So if you get that choice wrong, you're likely to annoy motorists. So be careful with fuel duty I.
Mean inheritance tax. There is also an option to abolish inheritance tax, which basically would also cut seven billion pounds of headroom.
It's a very expensive measure, and that's why I think that's unlikely. I think it's unlikely the Chancellor would worttion hotor tax. It's politically contentious as well.
You does your game manage to get the kind of different complexions of you within parties because you have, you know, depending on the kind of factions in the five and six different families. However, many families were up to now, but for the listeners that gloriously don't know what we're talking about. This is the idea that there's these five families within the Conservative Party of different perspectives on what they're doing now and what they'll do in the future.
But some of them are as you say, you know, some of them are inheritance taxes the problem our voters want it removing. But then others, probably more red wall Tories. Are you do that and you immediately signal that you are not a party that is serious about mass appeal.
Yeah, we try to offer the full panoply of tax cuts that the conserative Party is asking for. So in the game you have income tax masch insurance stamp duties in the game as well. That's important measure that a lot of more Centrists and pece want to see action onto show we're helping aspirational people once get the property letner,
inheritance taxes there, I say, a few duties there. The public spending choices there as well, and again that's one where some would like to see public spending reduced to fun tax cuts. Others say no, we can't do that. So, yeah, we tried to capture them.
Do you think there's a real consideration in the conservative body that they might win the election. I think they have to keep believing that themselves, and that's what they tell themselves, I imagine regularly within number ten. And there's a directive inside number ten, which is, do not work if you do not think we can do this, and if you have that negative outlook, just leave.
Now, because we have to believe. So they tell themselves that I think they do. There's like a one percent thought in the head which it says, you know, we've seen a story in the past where things can go well for us, like a job major style outcome or a cameraon in twenty fifteen, where you're kind of written off but it just comes together at the last moment for you. They're still on the kind of bell curve of probability that outcome exists, maybe very much in the tail, but it does exist.
But the game, exactly, I tried to do what's right for the economy, and the game really tries to ask. So I mean, you have to, you know, take into account that you're trying to win the election. A disaster. It tells me the party wanted you to deliver a headline grabbing giveaways, you've delivered upos it. So the point is that you know it's a tough yard for that tough gig.
Yeah, you can't just sit on your hands and do what the OvR or you know, do what everyone all the kind of the economist would like to do. We just keep keep the headroom at twenty billion pounds and you know the MP's won't be happy with that.
What in your game is the easiest way to crash the economy the.
East switch crushed economy is to not give yourself any more fiscal headroom. So stick with the thirteen billion and then just cut all the taxes. If you were to come tax cutlash insurance, you then end up blowing out your fiscal headroom, You break your fiscal rule by a large margin, and you're boring goes sky high and then you crash the markets.
Yeah, but is there a question around do all that but consult the OBR, versus do all that but don't consult the OBR.
Because that latter.
Branch on the decision tree was what Liz trusted. That was In the end, we ended up thinking, didn't we that it was not saying she could have gone away with those tax cuts, but it was tax cuts plus no referee looking at the numbers.
Yeah, perhaps I should added that as choice button, check check your check your measures.
And don't sack your senior civil So indeed that as well.
You cannot choose those in the game, but maybybe next budget we'll add in.
Those, Joe.
I mean, there's been a lot of hints of what we could see in the budget. What are you expecting.
I think personal tax cuts are going to happen. So there's going to be either an income tax cut or a national insurance tax cut, maybe even both of at least one percentage point of income tax. Hunt and Sunak would like to do more. I mean that they say themselves they'd like to do say two pe of income tax cut, but they're waiting to see how the numbers land. That's the big things to expect. But there will be other stuff around the sides, you know, perhaps help on housing.
They talk about ninety nine percent mortgages that could come in the In the world of the city. We have the British Ier, which your friend talks with. The chances we are about. That's very likely to come as well, potentially reforms around the lifetime ier the chances looking at pension funds, how to encourage them to invest more in the UK equity markets, so reforms there. But the thing the big things to look up for is those personal tax tis.
I think that's right. I think one of the things that we tend to think about Hunt is that he's on the left of the party because he's relatively social socially liberal who's anti prectic, But when it comes to things like tax cut, he's actually just pretty much a small government conservative. He's a He's a Thatch right of course, as as Sunak is, so that would be their their instinct.
They're not the leveling up wing of the party. They're very much let's let's cut the state, let's let the free market operator as much as possible, lets people, let money fructify in the hands of the in the pockets of the people, and that sort of thing. So I think that you're right about that.
But it's tricky for him and them because it isn't obvious at the moment with public attitudes what they are that necessarily tax cuts are where people are at.
But I think they think it's the right thing to do for conservative to the economy, and so certainly form well, yes they are, You're right intellectually they have went into politics to cut taxes and to let people make decisions with their own money, both of both Richie and Sunak and Jeremy Hunt.
That's true. But there's this blend at the moment where you could backfire. You know, how much is the right amount to give people of their own money back for them to think it's worth it, versus that sense of a crumbling public realm where people are fed up with the fact that, you know, when they take their mum to hospital, it's miserable, and that's that, And that is the sort of it's almost unknowable how people would react to yes, you get another few hundred quid back, which
is not nothing. But you know, the opinion polets are consistently showing rather than a couple that are manipulated, you know, they're consistently showing people are quite aware of the tax cuts. Yes, you give us a tax pot versus versus well, firstly
versus what's what's the trade off? But the other thing that I think people are quite sophisticated about is this idea of the sandwich, so you know, you get, yes, this might be that moment of tax cutting, but you put it up massively the other day, and there's other things that are coming up in the in the years ahead. So there's a there's a sense of the kind of electra is very sophisticated around what's being done to them.
But is the a sense that if they don't get tax cuts they will be confident that the NHS might be better or their local services might be better. I don't think there's that either.
No, No, are you use the budget for together right, especially if they have an election after the Conservative Party conference?
Or is it actually appealing.
To new voter as I think the overriding thought for the Primeister and the Chancellor is this budget is to help us win the election. It's it's kind of as simple
as that. So it's it's targeted at voters, I think, And I think the reason why personal tax cuts are so attractive is because they want to set up an election campaign that is fought on the dividing line that they want, which is we're a tax cutting party and labor are not label put up your taxes we're the ones who've been cutting them, and that they think that
is the best strategy. They have the entire election around that kind of narrative, and that's why the abolition of the non dom tax status is now also being considered, because they know that by doing that that also spikes Labour's guns, because labor have various spending commitments that are attached to using the revenue that you'd raise from a non tax tax status abolition. But if if the concern has already done that, then Labe, you have to find some new measure to raise the funds to pay for
all those spending commitments. That's exactly what the toys want. The toys wants.
This non dom money is going to pay for an enormous amount of stuff exactly.
And now if they don't even have that Nondon money, oh my gosh, you know what where's it going to come from? So I think we have to view it through that election lens.
It's also interesting if they do that because that's traditionally been seen in British politics as the way you would signify that you are for the many, not the fear, and so on, which which which would be a you know, hitherto. I think the Conservative Party said, well, you know, we
don't have to signify that, we we assert it. But I think if they feel that actually the fundamentally there aren't many pots of money that they can go for, that's part of the problem, isn't it That it's I'm going to play your game with interest, but there aren't actually are there. There isn't sort of lots of kind of hidden cupboards with with with bags of golden no exactly.
And the wright also that many pots of public sentiment they can go for. Nobody's really going to vote for the Conservative Party because I think it's going to give them a better national health services compared with the Labor Party, So they should.
Stick to the text, right or you know, certainly on the Conservative side you hear a lot saying, look, there's a lot of undecided voters. And when you're on that ballad on your own in that cubicle, what do you think about? I mean, do you think about inflation like you know, the food prices? Do you think you actually probably think about your household and your personal situation right, rather than the Tories have messed it up for last thirteen years.
It's a blend, Isn't that? That's the thing. It's a blead. You know, people stand in that ballot box and they make decisions based on family and their identity, and you know, the kind of person they think they are. It's not always homoeconomicus, is it.
But then what have they got to offer? They offer a vote conservative because we don't crash the economy like the labor people. That that one's gone. So there's really very little that they can say is distinctively conservative.
I mean, we've heard it before, but it's finished the job. So it's if you think that inflation is coming down and you like that, you like the fact that, you know, food prices don't feel so kind of strangulating and all of that, then you know, why would you switch right now? And now? Yeah, yeah, that's an argument. The opposing argument is yes, But in the eyes of some people who cause that.
We don't switch horses in midstream is a bit difficult. If you've been in perfect.
Yeah, and the poles are so far apart, what would make a difference. Are there undecided voters?
There are undecided voters, yes, and how they break is obviously a key question for the election. But I think Even then when they do these you know, large poles using sophisticated techniques, and they say, imagine if all the undecideds broke for the Conservatives, even then those poles still show labor winning and majority. So I mean, that's one hope the Conservative Party have, and it shows how how
child tough the task is for them. I just say that the danger of the sticks to the plan narrative is that you risk going into election being the party offering change, and that is dangerous. And uh, but even then they still think that it's probably our best approach we have, just given how much a bindery it mean. Notice which tried the change narrative at the party conference.
Remember that, but that got very quickly junked because they realized it's it's so hard to kind of almost with a straight face, make that claim given that you, like you say, Adrian, we have been in power for so long. Okay, let's go back to the old narrative of sticks of land. You know, labor are dangerous, We're the safe guys.
What would be in a labor budget.
I mean.
School face and then everything else is tough.
I mean because at the moment, so much of labors position is our economic stance is the same as the Conservative Party because they don't want that divide because they know that the Tories always exploit that. And and Rachel Rus when you ask her, always says, well, we have to see what the fiscal situation is come that time.
But you know, if they were to win power, they'd have to address all the public service I think situation that we have, they'd likely have to raise some taxes you'd have thought to fund increasing investment in public services. But the Ritard is we never say that at this point because they don't want to give Torri's ammunition for the election. So yeah, very hard to say.
What being a labor jet, you could argue that, you know, there's nothing that you can really do without doing something radical to change the calcus of this country. And one of the radical things you can do is to start to charge people for using the NHS, or at least find them then turn out for their appointments, open that thing. And that might happen under labor. It couldn't happen under conservatives,
I think because because of the dynamics of politics. But you could see something very interesting coming from from from labor in order to just shake us out of this, this this inertia that we have at the moment.
Yeah, and we're streeting who's their health? Does talk in in innovative and different ways. Just the question will be how quickly you go from this sort of conservative in fighting to labor in fighting where they've tried to do something radical, which, as you said, suggest they need to do and maybe only they can do. And then and then you know what did the Union say? What does the left say? What a Corbynist to say?
But I can't see anything that can shake us out of this situation of deteriorating public services and marginal right without something really radical new income.
Joe, I mean NHS is at a lunch pin. I mean does that how many votes does that give you or lose you?
Well, I think if you're the Labor Party, I remember Pat McFadden, who's the national campaign COORDINATSY. He always says we are the party who are known to be of the heart, but we always have to convince voters that we are the party of the mind in terms of
we will make the right scisions. The public know that we are the party of ahs in our hearts, but can they trust us to make the right economic decisions, such we have the funds for the NHS, so we should never do anything that risks our perception on the economy. And that's why we've seen this caution from the lad
Party on the economic stands. But agan you asking what could be done to radically shape things up, I mean, Labor almost had an answer to that when they had their twenty eight billion pound Green Prosperity Plan, which was, you know, their flagship economic ex stands for a long time, because you know, Kis Damer publicly says our mission is to have the heighest growth rate in the G seven and they had a policy which could have been the answer to that in terms of let's do a Joe
Biden style massive Indeed, you know, it's kind of modern monetary economics and so on. But you know, there are advocates of that who say, okay, yes, there's lots of boring, but it could significally increase the growth rate of the country such that it pays for yourself in the future. I mean, that was why the policy was deemed plause won in the first place. But they obviously since rode
back on that right. So again, because we're now in this election focused period where they were getting so hammered over it they've had to pull back. But would that come back perhaps? Would might they perhaps if they were to empower Actually, oh, yes, we are gonna go a bit further on green spending. You know, who knows, but you know, you talk about radical.
In a world of much lower interest roads, yes, exactly.
And it also depends on the size of the victory. So if they've if it's a wamping landslide, then you know, potentially, I mean, there's all sorts of things we can talk about at that stage. But in a world where it's a smaller number and then everybody's grumpy and fighting and you can't be certain how long that that parliament would last, I think they have to be really.
Cautious, exactly. And I think just one fin thing very which is that I think Kirstama has benefited so far from the fact that the party can see that it's perhaps headed for power, and that creates discipline. So those on the left of the party are kind of keeping quiet, really striking. But then, but as you say, if you're suddenly in power, that discipline might disappear and suddenly the left of the party are very vocal again, and we'd.
Be saying, what's the point of this?
This is that moment, Although Tony Blaird did keep the party under discipline for quite some time. I mean it's not just that you once you taste power, there's a certain pleasure in there. But if you've been out of bout for a long time.
Perfectly at end it.
Joe, Thank you, cool, Thanks guys.
This episode was hosted by me Francin Laqua with Allegro Stratton and Adrian Woolridge. It was produced by Sammersati and Tiffany Choi. Special thanks to Jomays