Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the special edition of Marrin Talks Money, the podcast in which people who know the markets explain the markets.
I'm Merri in Sunset Web.
We are recording this episode today in front of an audience. Hello, audience, welcome at our Bloomberg headquarters in London. And we're doing that because it's a special day. On how you define special, it is the day after the long awaited budget, which I'm sure you all watched very carefully yesterday. So before we get onto introducing the guests, let me just take the mood of the room. Who felt better after the
budget yesterday? Okay, So that's quite a lot of hands, a lot of people felt better, who felt worse?
Okay? And of those of you.
Who put your hand up and said you felt better, did you feel better because it wasn't quite as bad as you expected, that's all the hands. And did anybody feel better because it was really really great?
Okay? For those of you who aren't in the room, not a single hand won't up.
So there is obviously quite a lot to unpack here. We're going to unpack those announcements. We're going to look at the tag sites, look at the extra borrowing, and look at the smaller measures and what they actually mean for you right onwards.
I'm very lucky today.
I don't just have money to stilled author and Bloomberg writer John Steppeck. Obviously we have him most times. This is fantastic, but today we are extra lucky. We also have Stephanie Flanders, head of Economics and Government at Bloomberg News and head of Bloomberg Economics. And as an extra treat we have Andy King, who spent ten years at the UK's Office for Budget Responsibility, most notably as a member of the obr's Executive Budget Responsibility Committee, and who
is currently especially partner at Flint Global. So welcome all of you, thank you, and he could possibly start with you. As we saw from the show of hands here we've
got an audience that wasn't madly impressed. And when you look at the bear numbers, what you see is a massive tax rise, very significantly larger than anyone would have expected if they'd listened to any labor politician speaking before the election, much more than you might have expected if you'd believe the manifesto, A very sharp rise in spending both investment and current a tax to GDP ratio that's going to be one of the highest ever, a state
spending ratio that is possibly one of the highest we've ever seen.
And when you.
Look out over the rest of the decade, really quite shockingly low growth numbers. We get to two percent next year on the forecast, but beyond that we're well below two percent into the end of the decade, and we average out the decade at one point five eight percent. And that's not GDP ahead, it's just GDP. So look at those bad numbers, it's hard to feel good about it on a big sweep. Is there anything that you
can see there that makes you feel a little better? Well, this is a tone I'm planning to use the whole way through it.
A very leading introduction, Thanks very much, you know, I mean, I thought that the show of hands really told the story there.
What was it?
Sixty percent unhappy? Forty percent could have been worse. And that's probably a decent outcome for this budget because the Chancellor's inheritance was a tax burden set to rise to the highest in decades, was a larger state than before the pandemic, but was a state that was the plans were to cut that back quite substantially, without any detail.
On how that would be done.
Now, my former colleagues at the GOBR, who are not allowed to make normative statements, did their very best to say that that was implausible, perhaps even impossible, And so what we saw yesterday was a replacement of essentially unrealistic numbers with at least possibly deliverable realistic numbers. And the
difference was huge. As you say, seventy billion pounds going into public spending, most of that two thirds of that into public services, a third into public investment, a huge tax rise adding to what was already a huge tax rise baked in that had been announced in the budget since the pandemic, and strangely, it leaves the size of the state in five years time roughly where it is today. It's a decision not to reduce the size as opposed to increase it. Of course, it is much larger than
it was pre pandemic. That's down to things like aging, down to things like their health troubles in the country, and the very important point at the end, it's because growth is weak and has been weak now for fifteen years, and is essentially expected to remain weak for another five and there are those who would say that the OPRS have been optimistic, not pessimistic about growth. But it is a very still a very challenging outlook. And I think
that was my takeaway. You needed to do all of those things to get the public finances and public services on a path that can be delivered, but is still quite difficulty.
And it is incredibly fragile the whole thing.
So it is incredibly vulnerable to shifts in inflation, and we may see how inflation as a result of this budget, incredibly vulnerable to shift in interest rates and positive the positive part of this budget is very far out the idea that as a result of this kind of spending over the next five years, we'll see an uptick in GDP over the much longer term.
And it is fragile, start right, it.
Is it isn't you know? There are parts of this budget that unfortunately looked like those from pre elections. So fuel duty has once again been frozen only for one year for the fourteenth time, and you know, the fiscal targets have been changed. One is actually tighter and one is looser than those that were inherited. But there's only
a tiny fraction of headroom against them. So any of those things you mentioned, or any decisions that are taken defense spending, say, they all will require either trade offs or will make you know, will make life difficult because because the outlook is challenging.
I mean, there is no getting away from the fact that we've seen extraordinary changes in the role of the state and in the amount of debt we have in the UK over the last couple of decades. So if you go back to before the financial crisis, are debt DP race you collect correct me if I'm wrong, Here's definitely because you're the expect here was around thirty. It was about thirty I think thirty percent or so eighty
eighty before COVID. Now we're up at one hundred and there's no I think any of us can see sort of credible reason to expect it full significantly from there. Back in the nineteen nineties, the state state spending was what around twenty eight to thirty percent of GDP, and now we're up into the high forties. You know, we've made some fairly extraordinary shifts. And when you look at a budget like this, can you see any way that we rowe back from those rather extraordinary.
Now, if you make a substantial different change in the way you think about public services and the quality and the degree of generosity or adequacy of the welfare system, then you could take us back to those levels.
I think it's a.
Little bit odd to focus on this budget in isolation and focus on that debt number in isolation. You know, the budget caps. As Andy has said, the budget came at the beginning of a parliament when I imagine nobody was expecting it to be a give away a budget it never is, and when it had been very widely flagged that there was a complete disconnect between sort of the realistic spending plans and the level of taxes that
people had committed to on either side. And I think actually the polls suggests that no one everyone did, in fact expect the Labor government to raise taxes more than was indicated in the manifesto, and that would also be the case for the Conservatives if they'd wen't.
I think so.
I think it has to be placed in the context of where we are, what the plans were like before, and I think the very tough challenges I mean Andy's right, I mean, for me, this just told us how much you have to do just to begin to narrow the gap between what we want as a nation in terms of our welfare services and our public services, and how much we're willing to pay for it. And it's a very common thing that people talk about the gap. But
you know that is why we're going up. It is an all time high, even slightly higher tax ratio than it would have been under the previous government's plans.
Or you could put it.
You could say we're moving towards the European average because we actually want European style public services, and that's a choice. But I think it sort of shows you you can do all of this. You can spend another seventy billion, of which forty billion came from higher taxes, and still only be sort of as Andy said, sort of paying for what you need right now.
At the most basic level.
The other thing you look at in isolation is the rise in debt, and I think, to look at what's happened to our growth and what's happened to our debt as a country without looking at the global context, and what's happened to the debt of every single advanced economy. I mean Germany, I think truly is the exception in not having seen a more than doubling of its I think it's even Germany has seen a doubling of its debt,
but it's still relatively let low. Every other country has seen a move either beyond one hundred percent of GDP or closed one hundred percent of GDP. As we know, the US debt trajectories even more unsustainable, but with a stronger growth underpinning it. So this is not to say that you know, everyone else a terrible so we get to be terrible too. But I think that we're clearly our country has responded to similar challenges and has sort of had to run up debt in response to that.
Whether we can can I think that your right to highlight the weak growth picture, but it is it is over the piece, no weaker than it was looking before and has been since the Global financial crisis. It is fundamental to the narrowness of the choices we face that we not be able to get that productivity growth rate, long term productivity growth rate back anywhere close to where
it was before the Global financial crisis. But I mean that too, is a shared challenge, and I think at least we have a very clear effort to invest over the next five to ten years in an effort to try and move the dial on that. And I would say I think the officer budget Responsibility is optimistic in some way areas because it's been proved wrong on its
productivity forecast for a very long time. Where it was quite negative I think was on the impact of public investment on private investment and on the broader capacity of the economy. As they say themselves, there's perfectly possible that that public investment will crowd in private investment. They're assuming it won't, and they're assuming, in fact it's a one for one for trade off. We could in the US it was learned that you could make room.
Through those kind of investments. We'll see, we'll see.
So if it had to be done, best done quickly, and was employer national insurance the right way to do it, do you think? I mean that puts quite a burden on businesses. And if you add up employer national insurance rises and you add that to the rise in the minimum wage, you've got a lot of smaller businesses and businesses and the services sector screaming slightly.
You have chosen to put quite a lot of pain on I think medium sized, a lot of the very small employers. I think they've made an effort to at least partially protect them. But I think you're quite right that the combination of the national living wage increase and the national insurance rise is a sort of upfront challenge and an increase in the cost and cost of labor.
I wouldn't have cut national insurance last year, and I think there was no economists who thought that was affordable, especially by taking twenty billion out of the future public spending plans.
That's what happened last November.
Is you know the way A large part of how it's I'm hesitant to say this with Addy King because I know he will immediately correct me if I come wrong, but a large part of how the national insurance cuts we were quote unquote financed was through these very unrealistic spending plans. So in a sense, Rachel Ries was just
reversing cuts which were widely felt to be unaffordable. I think it's unfortunate that the reversal has been is as bad for or it is affecting labor supply in a negative way and hurting employers when youbably would have wanted to just add some a few pence to income tax.
But that's that's not the world we live in.
Now, this this rise in n M, we should mention it.
You speak about employers and employee and I in the same kind of breath, right, they're sort of the same thing. So does the Office of Budgets, So does the Officer Budget Responsibility exactly, but RAG does not. So we must assume, must't we andy that this does end up coming through at lower wages or certainly lower razors to wages.
Absolutely, and so the OBI said that yesterday they expect in the end three quarters of that tax rise will ultimately manifest itself in lower real wages, probably over time, as next year's four percent pay rise will actually be two and a half, and those kind of decisions. They do think that a quarter of it will come off profits.
The way in which the tax rise was structured, with actually most of the revenue coming from moving the point at which your each employee's wages start to be liable for an I back to five thousand pounds, means that the tax rise itself is quite concentrated on low paid people. It doesn't matter whether you're a large employer of low paid people or a small smaller employer of low pay people. It's low paid people, whether whether tax rise is largest.
But also that is the same group where your room for maneuver is reduced by the living wage, So you can't actually choose how much you pay rise you give. So that looks quite risky to me.
Well, maybe it's just a way of trying to boost productivity.
Like it very expensive to hire people down at the bottom en you've forced people to introduce productivity enhancement measures.
That has always been one of the arguments for why minimum wages could work. That although in someone's model it says you can't have a latent productivity gain that a business has not already taken advantage of, in the real.
World, can can definitely and just so just on that though, I mean, ever since the minimum wage was introduced by Golden Brown, this has been the fear, and it's been gradually increased, and there was always a feeling that at some point it would start to really hit employment. But up until now and that has actually been surprisingly positive for both employment and living standards at the bottom end.
So who knows whether we've reached that critical point I mean, it is now getting closer to the average earnings than you would have ever thought was possible without having a big impact on employment.
But if a lot of the studies was.
Looking at one in Manchester and other places, it has actually raised productivity in these in these low wage sectors in a way that you might want to see, and hopefully that will continue.
Actually, one thing I'm curious about when that point is, I mean, presumably it has they had an mpicked when for example, read comprehation in or the gaps between So if you're a minimum reja or not, then the person above view, in the person above view, the gap between those wages get smaller, and therefore the reward for if you like taking on more responsibility or going for promotion
also becomes smaller. Is there any kind of evidence of that or I mean the other thing is also you know, the choice between working as say, a low paid position in the NHS and working when the tells it tesco one of those jobs I think most people would degree is much harder than the other. But if the gap between the pay for them is non existent, then that's why it's perhaps how they recruit for certain roles and others.
I mean that speaks to this.
There's much broader question about whether or not, for example, in social care, whether there's enough money going into that system to have people be paid in a way that reflects the hardness of the job. So I think that's
sort of the basic together. But you're absolutely right that there is a It does cause compression, but it isn't the case that everyone just gets pushed, and that means that you're not paying more to everybody in order to preserve those differentials, which depending on how look at it, maybe it maybe it certainly is a good thing for people at the bottom. Yeah, and employment is a good thing for employment because you're not having to pay more for everybody.
You're just paying more for those people.
Johnny, you wrote the money just sailed last week or as earlier this week. There are several criteria for whether this will be a good budget or a bad budget.
How did it go?
I mean, but it didn't crash the gout's market, So that was the FoST wine. I did feel at the time that was a pretty low hart Oughty clear because you know, generally I just don't crash the gout's market. That doesn't happen that often in terms of making the tax system less complicated.
I don't know. It's hard to gather a tech for that.
Wine you've sort of introduced, I knew levels of inheritance tax, for example, without really reforming it, particularly.
In fact that we should have a little little pull on that.
Did anyone in the audience move their pension from dB to DC in order for their children to be able to inherit it? No, I mean think we do have quite a few listeners who did do that as a disappoint die for them yesterday.
I did, Well, that's a good point. I mean, that's one thing on the inheritance tax thing. I mean, I don't know, but I remember when that first happened and it became clear that you could use a defined contribution pension to stash away your assets from inheritance tax. I realized this may not may or may not be a popular thing to say about. I remember when we first realized that and we were writing about it, we were like, this cannot last. This is a really gray area is
definitely going to be reversed. So the fact that it then hung around for so long that it actually became a tax planning tool.
It was always something.
I think it was on the cards, and I feel that it's difficult to object to put it that way. As far as the other things inherent tax inheritance tax goal did I mean name market rallied because they only get hit with twenty percent in hurdance tax instead of forty percent, So you know, I mean, I'm sure AIM investors are we relieved about that. The farm stuff, now, I don't I know nothing about farming, to be very clear, I think that people are quite shocked about the million
pound limit that does come when topowin allowance law. So it is a two million pound limit around a million pound limit from what I'm like to believe from looking at Twitter, most farms are still bigger than that, but.
Farms that are sustainable or profitable will be much more valuable than that. If a hobby farmer is going to be more valuable than that, So that was quite an interesting move. And I also felt that a bit like with AM is one of those things once you've broken the taboo of adding inheritance tax, so those it could go on. So I know everyone who invests the name is very relieved, but I wouldn't be at all surprised if there's another bite at that one.
Yeah, and I mean to be fair again, it was always dafted aim was being propped up by being a funnel for inheritance tax avoidance because you know, the the companies, the companies should be good enough not to just be getting money because it's a way to minimize your your losses. But at the same time, if you're not then going
to replace that. We already have an issue with raising funds for small companies in this country or released it's not actually, it's more the funnel between small companies and big companies. And obviously the budget didn't do and in particular for capital markets. It wasn't against them, but it wasn't for them either, which was something that had been talked up a lot before the election. As far as our stuff goes. Capital gainst tax going up from twenty eighteen percent to twenty to.
Twenty four percent.
Again, that was more a relief from what it could have been. Doesn't before men and doesn't make anything more straightforward. So yeah, so in terms of complexity, I would have said that, you know, it wasn't. No Chancellor has passed that for years and years. You know, they don't ever make it less complicated. And I do think that I do think that's a problem. It is like I politically speaking, if Rachel Reeves could not get fuel duty through now at the start of a five year term, way I
mean a shallow but wide landslide victory. You know, it's never going to happen. And this is why, for example, like the OBR, there should be something in the rules that says it's not biased on making a judgment. If a politician is clearly not going to have this in the next budget, for us to take it out and
put the pressure on them. You know, I'm actually in a way that would be a good way to take the fiscal watchdog side of things, because politics is the thing that gets in the way of improving the structure of our tax system. And if we want to get more productive, then we're going to have to simplify it. And simplifying it doesn't mean making the tax take lower.
It actually would probably make the tax take higher. But there are so many things that have been done over the years because they don't show up on working people's pace lips, you know, even though actually it poly means a load of working people will get fired or not get hired as a result of this. So I think that we don't think enough about the structure of our systems in terms of, you know, the bare numbers as long as the spreadsheet adds up and we can put
up with it. You know, there's a reason that we've not had growth since two thousand and eight, and that clearly comes down to something qualitative rather than quantitative. It doesn't mean it's easy to effects, but you know, it's not like I mean, because we blame demographics all the time, but we didn't all age overnight. In two thousand and eight. There was a global financial crisis and that did something.
So either the productivity before then was artificial, which I think is partially true, but also since then we've done something to the economy that's made it much much harder to be productive. And whether that's too much financial regulation, be carefully going down that route, or if it's something else. But that's the sort of questions we need to have, and they are divorced from.
Quite a lot of those kind of thing in the budget.
I mean, if you look at it, and if you look at several of the of the tax changes that effectively, when you look at the numbers will raise no money at all, so vat on private schools, the changes to non doms regulations, the abolition of that, and the private equity rising private equity taxations, so thirty two percent on carried interest. These will raise almost nothing. But if anything, that had to be done because they're so clearly laid out in the manifesto.
So fair, Yes, absolutely. I mean the choice to try and tax those with the broadest shoulders always means that you're that you're looking at choices for people who are well advised, are savvy, can have lots of options, and so I mean one thing is to take it as a good thing that those tax measures are not in the budget book raising massive amounts of money. It means that they've taken a realistic assessment of what people will do in the face of higher time tax rates.
Yes, so there has been more of a focus on behavior than you might have expected, and the run up for them.
Not more than I would have expected, because I spent ten years trying to put those kind of assumptions into numbers. But there was a lot of focus on the types of taxes where behavioral responses are big, and it's good to see that you know they thought about them. Whether they're right or wrong, you know, unknowable because there's some of these taxes where you're talking about hundreds, maybe thousands
of people, not millions as the tax base. And you know, I remember asking the AHMRC officials that you know, you can't tell me, but could you just like google the fifty biggest and find out if their kids are you know, school age, are they likely to move? I think this is more important than finding the right elasticity from a study of Swiss cantons.
Yeah, I suppose one thing that people say is that there'll be a relief out there because the rise in the taxon carried interest are only thirty two percent, wh was expected to go much higher. Proof that you can still lobby this government, and if you've got plenty of manay to lobby, you can still make sure that it works for you.
And to be honest, it looks like they're kind of following the evidence that those are the models I remember of, you know, the revenue maximizing rates in hmrc's giant spreadsheets. So that's a good thing too.
Definitely, what do you expect another round of tack phrases from this government?
And I think the big risk is that we've all said this is this is an amazing huge budget, and there was also this kind of expect insane expectations around it that it was going to kind of set the political weather for the whole of the Parliament and resolve all of the sort of disquiet on both on the labor side and in sort of in the broader public, and solve all our economic problems. I mean, it just was never going to be able to wear that carry
that weight. You've raised forty billion, more than almost any other chancellor as a share of GDP in the modern times. You've stopped the rot in the public services, but you've chosen to inject. She has chosen to inject front load most of that additional a lot of that additional spending in the first year and a half, including for the NHS and then for the as Andy pointed out, the for the unprotected departments. You're looking at a slightly less
less of a squeeze. I think half the squeeze in real terms every year that was the previous plans, but still much tighter than we've recently achieved. So I think that the risk is this money. You know, there's a there's an you know, one and a half percent of GDP extra going into the NHS over the next couple of years, give or take. Hopefully we will notice that, and hopefully it won't just get swallowed up because of the speed she is, speed of which it's going in.
It won't just get swallowed up in ways that don't build lasting improvement, you know. I hope there is a sort of step change in the way that it works. I hope they're willing to hire us some more managers to actually handle this money, which is always politically difficult, but that's what they desperately need, actually, is more people to actually to.
Manage in the NHS.
And get those kind of output and productivity numbers better so that we continue to notice it, because otherwise you may be sort of in a sense, squandering this big tax rise that you were able to do at the beginning of parliament with not and having to go back in a couple of years. And I think they will inevitably have to come back. I think the question is that when they come back, will people say, Okay, we can see this is working, and we're willing to kind
of spend a bit more money on it. Or are they going to say, well, hang on a minute, you know, why should we throw more money into a black hole? I mean maybe we will then be talking about a different kind of black hole.
Yeah, I mean, here is the big risk for this government, right, so they've done this. It's a big blade. Lots of new spending and say, lots of new money going into the NHS. Even though they said there wasn't going to happen, it has happened. So the general public is going to really need to see a result there and reasonably quickly.
And at the same time, one of the results of the budget has been that we now expect great to force slightly more slowly than we might have before, and that will help people's mortgage payments, etc. So it may there's a lot of risk in here for the government politically. Yeah, I mean, obviously we should get too excited about the numbers. I think it's true that we stopped expecting another a second, I mean a December rate cut yesterday by the time that Rachel Ruth had stopped talking.
We still expect in November one. I think the difference that the OBR is suggesting it's maybe interest rates or bank rate over the course of the next few years will be zero point two percentage points higher something like that. I think ordinary people may not notice a lot of this tax increase, but it certainly is quite a squeeze on business and potentially is not still not doing enough.
You said earlier, Andy that that the possibly the best thing you can say for this budget is that public sources are now going to get worse.
Is that really the best we can say?
I hope it's not the best we can say.
I think.
I just I read all the front pages of seventy billion of extra spending. I looked at the line that shows the state roughly the same size over the next five years, and I just thought to myself, like, it tells you more about what could not be delivered before than it does about the generosity of what's been announced. And if you look at public services today, you know, you can name any public service and there is something
equivalent to a backlog associated with it. Overcoming that I think is part of the reason why the spending is front loaded. But overcoming that in two years for some of these things is going to be quite difficult. So possibly, yes, you know, not things look quite broken in quite a lot of places right now, like them. Not being broken is probably, you know, is a good outcome, but it's probably not that kind of feel good. Everything's brilliant because the public spending numbers are so generous.
Okay, I'm not really hearing massive positivity, John, Was there anything in here that you think will make things better for ordinary investors?
Rare?
I mean, the good news is that isis weren't fiddled with and we're set on our set on our allowance there for five years VCTs we get to hang onto aim twenty forty percent. But for me, the big problem was no active signal of confidence in the stock market.
You know, we wrote a lot you and I and a lot of other people in the run up to this budget about wouldn't it be great if we could see some reduction in stamp duty down perhaps to historical norms, or perhaps even an abolition of stamp duty, which was some kind of a signal. We were very keen on the brit I say, which we obviously knew wasn't going to come up, but we were waiting for for some kind of a signal from the government that there was
going to be intense support for UK stock market. It's even although we slightly disapprove of it, mandatory mandatory investments in UK markets from DC pensions.
I think they could have thrown a bone because stamp duty and shares is a good example because it raises three point five billion a year and if you would you could either even just reduce the rate, or you could say extend the relief up to foot say two fifty companies, and then you say if it made a difference, and if it made a difference, then take it further.
You could have tested that, and I get that, you know, it's it was a small thing, but the end of the day's again one of the slight problems I think the way we do things here anyway is that the Chancellor stands up in literally names schools and hospitals that they are going to individually rebuilding a kin like Is that no a local councilor's job. So that kind of thing, you know, So they could have done something in that front.
And I think the other problem is there's an element of you know, they clearly decided to just go down the non dom route they were already planning, which's absolutely fine. Was nothing. Maybe it'll pan it, maybe it won't. May we we'll just find out if they're all up and leave or if they don't. But it's more that point of signaling a continuation of the support. Basically, it's like I think a lot of people in the city maybe voted for Labor thinking it was New Labor two point zero.
Obviously times have changed, you know, the nineteen nineties was a different world.
So it's not just that.
But I think that with this budget they've sort of confirmed it. Guys, this isn't Tony Blair again, it's not Jeremy Cobbyn either, but it's something closer to just kind of big state, you know, not really kind of hugging the rich sort of mode. And I think that that is an ideal given that we're wanting to get more investment in the UK.
Yeah, and then a lot of our listeners will be by to let investors by to little vests.
Quite a lot of our listeners are by to little vesters and.
The hands only when like that.
They didn't they didn't got quite advised, they didn't.
Lost them before they.
And they will be mildly disappointed with this rise in stamp duty. And I did.
I got some response on on social media to talking about this last night, saying why is why is this a problem? You know, buy to that investors already owned their houses wide vay care of stamp duty goes up. But because as we've written about over and over and over, stamp duty is in the end paid by the seller, not the buyer, so they'll theater and reduced prices when they sell.
So that's going to be disappointing.
That's good to disappoint.
I'm being bick to be honest. If you're still a landlord at this point, then you must really know your business, because I mean since George Osborne, the writing has been on the wall for I mean, I'm amazed that. I'm amazed that survived as long because all of the tax advantage has been taken away. It's no, it's no extremely taxed and efficient and lots of we used to be
a lined lord. And I mean I'm not necessarily I don't have a big issue with that in some ways because too much capital in the UK is locked up in hosies. But you know, yeah, if you are style alnedlord, then you know, I can absolutely because it must be very good at your job and to be making money at it.
Thank you. Go. Congratulations from John to the landlords and the audience. Well done. Right.
We're going to move on to questions we'd have quite well, we have twenty minutes or so, so if you do have them, now's your chance to start with over here.
Thank you. We are just to remind you we are.
Recording, so your question will be recorded, and so will the answers, and so you will need the mic and you'll need to speak directly into it.
Thank you.
Following the budget yesterday, both sort of following the commentators on Sky News BBC, there was strong opinion raised that potentially the Labor government don't actually have a mandate to do what they've done, considering the discussion on tax rises was considerably less than what they've actually gone ahead and done. Yes, Rachel Reeves is blamed this twenty two billion black hole, but I'm wondering whether what the three you feel on that issue.
I mean, I think I'm going to hand that to definitely, because she did just slightly answer it earlier in the conversation by saying that the polls do show that most people thought that taxes would go up more than had been suggested in the manifesto. Regardless off he won, But I would rather agree with you that they were incredibly clear, incredibly clear pre the election that this wasn't going to happen, and whatever excuse you used, it did happen, and it happened on steroids.
But definitely I'm going to disagree.
I'm going to take a risk because this is being recorded, so you know it might be making a mistake. I would say, I think the way you judge an election campaign is not by exactly what the debate is about, but about the sort of direction of change that people
are indicating. And if you go back to twenty ten, and as someone who was the economics editor at BBC at that time, I remember quite clearly that the argument over austerity was plus all minus twelve billion of austerity on Alistair Darling, the last Labor Chancellor, had brittle in what was considered by Labour status to be quite an austere government, a seteer budget earlier in the year and was trying to kind of fix some of the mess
from the global financial crisis, fiscal mess, and George Osbourne was claiming he was going to do twelve billion more of squeeze in spending and we had a big debate about it. Of course, that turned out to be, for memory, a fifth of what he actually announced in the summer budget, so you could but the director, we knew that they were going to be tougher on spending, and that was the sort of the honesty in the message was not
the number. It was like, we will care more about fixing fiscal mess, and we will do it more by spending cuts. And I would argue people would disagree that this election campaign had that flavor, and I suspect the tax increases are about five times what they admitted to give or take. But we sort of knew that labor was going to be worried more about the quality of public services and didn't think tax cuts were priority. And that was the So we knew the flavor. We didn't know the numbers.
Yeah, I suppose that ordinary voters might actually listen to the numbers, and they might have actually listened when they were told that it would be you know, eight billion fully costed, etc.
Reason the extent that it was.
I think if we make a big thing about how they should now be you know, taken to task for having you know, misled the public, then we would have to go back through many many governments who done it, thordered Andy.
Prior to this election, the public spending numbers, which is the source of the problem in my walk of life, everyone knew that they were too low by a massive amount. Some people thought twenty to thirty, some people thought fifty to sixty. Yesterday's number was seventy, of which twenty is a decision to do more public investment. So the order
of magnitude was known. The other thing that everyone in my walk of like was kind of lamenting was that no party could say that these public spending numbers can't be delivered and therefore we'll need to raise more taxes, because you open yourself up to the tax bombshell retort. And so there was a what did Paul Johnson called it a conspiracy of silence? Didn't This was well known but not part of the debates.
Well known, well known by you, definitely me and john but maybe not by the electorate.
Yeah, Paul Johnson was quoted over the course of the campaign. I mean, it's true that maybe no one's watching the BBC ITV channel for anymore or listening to podcasts, but I think in any one of those, any any economic discussion on any of those media featured the quote, or at least the thought that Andy's just giving.
Yeah, yeah, okay, So yes and no is the answer to that?
Another one over here, hang on for the microphone please, we'll try and get the answer to this one to be less yes and no.
More clear, Thanks very much.
Just a question about the sort of the politics of the budget, where it seems from what the OBR have said that in twenty twenty eight, twenty twenty nine, when we're likely to have election because of the actions in this budget, you're going to have or we're going to have slow in growth and rising inflation, which to me seems quite a bizarre political choice to sort of fatally front load the consumption and potentially face the country when things are getting worse.
That seems fair, definitely.
I mean, I think when you say bizarre politically, so I guess we can't say that this is an overly political budget because it's possible, as Andy suggested, that it actually was a realistic and sensible strategy to be front loading that spending, or at least to be doing more of the spending in the first couple of years given
the backlog. And I just I think only those who will be overseeing the way that money gets spent can know whether that's really true, but they conceivably have chosen to actually do the thing that will make makes most sense as opposed to the thing that's politically savvy. But I agree with you, there's a very at the moment, there is an unusual arc to the way the spending and the sort of pain, if you like, is being felt.
And I guess that's another reason for thinking that this will not be the end of it.
But it never is. By the way, is any more budgets, So you have to come up with more.
They have to come up with more, and it seems unlikely that those coming budgets are going to involve falling Texas or projections of rising growth.
You're nodding away. Did you want to have something to that? Oh?
I just think I wouldn't pay too much attention and no offense to They will be hard and you know, and all the other think tanks in the bank at England because you know, the wrong usually and the and the wrong for a good reason, because stuff changes. You know, It's like there's stuff asn't static. People react to forecasts.
The entire market, the entire you know, economy as reflex of so I think, you know, even if I mean at the end of the day, it's not going up by that much, and if curth it is only at that level by that point, yeah, I think we will all be heartily disappointed. But yeah, I just wouldn't attached too much, especially ninety five or so, because anything.
Can happen, and models, as Andy has discussed, models can't encompass all the behavior elements and the technological change elements, etc. So anything, anything could happen a good or bad, hopefully good others when you're in the front.
Thank you, John.
I agree with you that the the IHT pension loophole was It's hard to argue of that being scrapped, but it is just another example of the government making changes to the pension system. And as someone who's relative early on in his career, I'm expected to invest a lot of more money up in this for another thirty years,
forty years with complete certainty. Is it time I start thinking about diverting someone that money going into my pension elsewhere into other vehicles or as well, like how can the governments regain my trust.
Like by to that for example, good things.
I mean, obviously we can't give personal financial advice, one thing we've always recommended, and to be very clear, I mean this is entirely bipartisan. Government's just and it kind of goes back to what I was saying before. It's like we've got a structural issue that boys down to politics, largely militating against good policy, and that seems to have become an even greater problem I think over the last ten years or so. So this is both Tories and
labor and anyone else that will ever get in. So your pension is subject to political risk in a way that I feel. For example, your eyes at isn't so much because an eyes is a really straightforward financial product, despite effort's to complicate it. You can take your money out of it pretty much instantly most of the time. And also they're very popular because people do understand them, so that's one reason why governments have tended to avoid
targeting them. Whereas pensions come in all shapes and sizes, it's a lovely port of capital that's just locked up there not doing anything. You know, It's like it could be getting used to spend on public services, et cetera. Et cetera, and so there's always a temptation to go after it. So basically, as a loose guide, I would sort of say, don't you know, obviously you need pent your pension. If you get auto enrollment, for example, in your workplace, then that's money that you're passing up on
if you don't take advantage of it. But at the same time you should probably be putting some money into your ISSA as well. So basically want to diversify your savings vehicles as well as diversifying your portfolio.
So that make sort of sense.
And with John all the way on this absolutely right. There's so much political risk in your pension, much less political risk in your ISSA. You know, whenever we write about this way, you know, they'll joke on banks. Why did your own banks? That's where the money is. That's how governments feel about pensions. We have a question at the back here.
Hi.
I am aarity chief exec, which I think makes me very unusual in this room. But one of the things that I'm really interested in asking is charities have been propping up the public sector for really quite a long time now, and some of the some of charities are obviously enormous, but most of them are small, and this hit on national insurance is going to be really really
challenging for charities. Do you have any views or what views do you have about what the Chancellor might have been able to do for the charity sector which does employ more than a million people.
You know, I got thoughts on that.
No, Okay, maybe are tricks and I think it speaks to that. I think the answer is we don't, but I think that they it does speak to even when you've you know, you pick a broad tax like this, and that's what we would have wanted them to do, rather than try and find billions here and there in ways that could actually be very costly for certain chucks
of people you are hitting. You know, people in social care homes will be also facing some of the biggest squeeze from the increase in the in the national living wage and from the national insurance rise. Charities, you know, there's there's there's lots of sectors that we wouldn't necessarily want to be stressed. Who will find this But I guess that that speaks to a sort of structural issue, that that those parts of the economy are being lent on too much.
But no, I think it's you know it is. It is something that's going to it's going to be different.
And I have a very unpopular answer for you, which is that there's an awful lot of room for consolidation in the charitable sector. There are many, many, many far toy small charities all doing exactly the same thing. They're very heavily supported by the tax fayre, via gift gift aid and via direct grants from the government. And I
think it's a it's a space of astonishing inefficiency. And if this is one of those things that drives the third sector to slightly put itself together, I'm not sure that would be a bad thing.
May not have been the.
Answer you wanted, but no, it is the answer you wanted. Excellent, So you're out for consolidation, right. We have another question here third row.
I think so is the panel arguing for the setting up of a DOGE Department of Governmental Efficiency US style.
More departments? I mean, this is like another one that Elon Musk is going to run.
Yeah, yeah, I mean I'm never sure about setting up any any new departments to do anything else. They do. Remember that back in the day, there was one of the big banks that had a form you had to fill in for the applying for the creation of a new form. And so whenever I hear about the creation of a new department to help other departments do things, I worry about it slightly, but it's definitely may happen.
Actually I'm interested in with it. I mean, in the this is a constant theme of public sector productivity, you know. Obviously part of the part of the challenge and having to put more and more money into public services while it remains flat, even just to keep it in the same scale. Is that the challenge of getting productivity growth in public services, and we particularly found that in the
NHS over the last few years. So I just I mean, I wondered whether are there approaches to increasing public sector productivity that seem to you more or less credible when you're looking at these plans.
I think surely the best news for everyone is that they are setting up a new institution called the Office for Value for Money, which we'll try to do this maybe I'll soignd a note of optimism. Some of the addition to public investment is not private growth enhancing investment,
is public sector productivity enhancing investment. So if you look at anyone who's been into the NHS knows that the computer system is not conducive to the productivity of the people who work there, and that can only be addressed with public investment, and so putting more investment in is a way of helping that. And I think basically that kind of you've got to invest the save or you spend to raise is where usually I think it looks
more credible. You know, the other way that public sector productivity is typically raised is just by squeezing pays.
And it does feel that we've got to do something about public sector productivity. When anyone talks about the productivity Cristis in the UK, they're not really talking about the private sector. They're talking about the public sector because that's where the drag is. You look at those charts and you can see public sector productivity is basically flatline for twenty years. And so we must do something. I'm not
sure that's the answer, but we must do something. Right, I think we've got time for one more question, and I did say I would take this one here, third.
Row, thank you, A question really about workers and productivity, and given the government got itself into a pickle, defining workers. Has this budget actually been good for working people however you define them, and specifically this great big black hole of economic inactivity that's affecting about ten million people. And to the point about productivity, there's a considerable lag in the private sector as well.
And again, has this.
Has this budget done anything to improve the chances of work and working people? Doesn't appear to me that it necessarily has done.
Okay, big question, and we've got about twenty seconds.
Definitely, working people use public services. I mean, I think it just goes back to that fundamental point that probably this was not quite the minimum, but not close to the minimum what was needed to just sort of to prevent public services from getting worse.
As Andy suggested, John.
You've made employee working people more expense of so that enhances the OIDs of them getting replaced by rulebots. So in the one hand, productivity will go up. Is it good for working peoplebably not.
Fifty But everyone will feel better if the NHS starts working get your hip operation, you're going to feel better working or not?
And any final thoughts to add there.
If the government can achieve its aims on reforming the planning system, everyone can have more buildings and equipment to use, and productivity will.
Well automatically awesome, excellent. Okay, on that note, at the beginning, you're all absolutely miserable. Who feels better as a result of what they've heard on the podcast?
Those of you aren't here.
About ten percent of people feel better, So I don't know what that tells you about the podcast.
Time.
Yeah, there we go, we'll get we're getting there. Thank you all so much for coming today. We really enjoyed having you, and I hope you enjoyed being here. Thank you, my wonderful guys.
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