Hello and welcome to the forecast. Rachel Reeves, the chancellor, has just given her big growth speech and yes, she's backed 1/3 runway at Heathrow, expansion of transport links in the north of England and also an Oxford Cambridge arc which involves transport, housing, reservoirs and lots of infrastructure. But when will that growth arrive? Will it be enough? And will it solve Labour's political problems on the economy, which are quite deep seven months into their term of
government? Joining me today are the economist and former adviser to George Osborne when he was chancellor, Rupert Harrison and from King's College, Cambridge, and the Financial Times, Gillian Tett. Let's put aside the politics for a second from the economics and get your instinctive reactions to the announcements in the speech, Gillian. Well, listen, this is good news that she's now embarking on a policy shift, or a tweak, as they like to say. I only wish she'd done that
three months ago. Frankly, I thought the messaging up until now has been pretty bad for international business. What we're seeing right now in America is animal spirits unleashed in a truly extraordinary way, which makes Europe in general and the UK in particular look pretty dismal by comparison given the loss of business confidence. So the fact that they have belatedly realised they need to do more to unleash and noble spirits is great.
I still think they can go further, but I do welcome the fact they are shifting now. Rupert. Yeah, I totally agree. And actually, you know, you say separate the politics. There isn't a lot of sort of traditional left right politics in what she's announced today. There's a lot of local politics and, you know, facing down interest groups and taking on, you know, locally and nationally objectors to things like expanding Heathrow on environmental grounds or building new housing locally.
So there's kind of politics there, but it's not, you know, this could easily have been a speech of a of a Conservative chancellor and in many ways should have been. There's a lot of stuff in here that the last government should have done. And so if she can deliver on this stuff, then that is definitely a positive for the
longer term. But Julian's absolutely right that, you know, it's quite extraordinary to me that this is coming seven months in when we had an, the whole election campaign was growth is everything. We're going to come in with a big growth plan. And then there was really nothing. There was sort of nothing there. And it's taken them this long to kind of cobble this together. In the meantime, a lot of damage has been done to animal spirits, as Julian says, because tax
rises doom and gloom. And there hasn't been a kind of, you know, a narrative that the UK was open for business and, you know, doing the kind of things that that you need to see to get people excited about investing. But how does it stack up as a growth plan, Gillian? I mean, given growth is a problem now and all of these things are quite long term. I think that the budget that was announced was quite damaging for the growth messaging because for
two reasons. Firstly, that instead of simply having simple income tax cuts that they had foolishly ruled out putting essentially this burden on business through the National Insurance contributions and also introducing these number of measures that is scaring away growth capital. And if you like financial entrepreneurs and financial investors from London right now, and I know a number of them who are leaving as we speak, was very, very damaging overall.
She hasn't talked about reversing that sadly yet. I wish she would, but she hasn't talked about that. And I do think that's definitely something dragging down the animal spirits amongst financiers and entrepreneurs and investors talking about things like the Oxford, Cambridge Link, Heathrow expansion, house building, getting better water infrastructure, that's all fabulous, but it's also a long term project. It's not going to happen
quickly. And so one of the problems is knowing how quickly this will come through. So good they are at least trying to kick start animal spirits, but they need to do more. Rupert, what, what could they do right now to, you know, to release the animal spirits as Gillian talks about them? I mean, is there much, you know, there? Are there many options? Well, there aren't very many options that don't involve a sort of political reversal of things that they've done or are
doing. So, you know, you could reverse the employee National Insurance rise. That's pretty unlikely. As Gillian says, You know, if you were going to have raised taxes, and I think that they, you know, there were, there were probably preferable alternatives. But if you wanted to raise taxes, it would definitely be better to do something like income tax or VAT from an economic point of view because there'd be much less distortion, much less reduction of incentive
to higher. So the employer next rise was kind of almost the worst possible tax you could choose. There are other things they are doing that again would be a question reversing. So I think they've pushed some of the things around the non Dom regime too far that is pushing people out of the country. The labour market reforms that are promised, they are large parts of those are going to be very negative for business sentiment and for recruitment, I
think. And again, that's a difficult thing to reverse on. So, you know, there's there's not very much they can do short term that isn't a question of sort of reversing stuff they'd already done. They she could in the budget. Yeah, or not, sorry, the spring statement is not going to be a budget.
But if she does have to to tweak her spending plans anyway she should, she could come back with something that was more growth friendly around corporation tax, around incentives for entrepreneurs, around capital gains tax. You know, maybe she can find money to do that.
But, you know, the truth is that in the short term, you know, as as all chancellors, certainly over the next 12 months, she is really at the mercy of the global economic cycle at whether, you know, if there is a kind of boom in the US, can that lift Europe and the UK out of the doldrums? What is the Bank of England going to do? Are we going to get some relief on inflation and can that lead to interest rate cuts? Those things are probably all all of which are outside of her control.
They're probably more important for what is going to happen over the next 12 months. And if she were going to do anything immediate to help business in in the spring by giving them some money back, effectively she'd have to find, you know, she'd have to cut something when she she'd have to
cut spending. Yeah, she'd have to reduce her spending envelope that she has set for the spending review either over the three years that they're going to set out departmental budgets or the years after that, because her fiscal targets bind in, in the 5th year. The, The, the problem with, if she only does it at the end of the, of the period, the problem then is one of credibility because it's basically saying we're going to massively increase public spending in years 1-2 and three.
And then we're going to be very, very tight with public spending in years 4:00 and 5:00. And, you know, governments have done that before and, and you know, everyone will question, well, you you say that, but is that really likely to happen? I mean, Julian, in terms of optimism, I mean when you talk about the change in mood in America, I suppose what Labour is trying to do here is set a new mood and saying we're we're doing all the things that needed to be done.
This is going to set Britain on a new trajectory and to try and lift optimism and spirits. I mean, does that work or or is business more short term? The core problem is right now is that in America you have a group of people who've either been in business or been start up entrepreneurs essentially running the government and setting the tone so they know what they need to do and say to actually appeal to business.
And they basically scream from the rooftops that America's open for business, They'll do whatever it takes to help business flourish and grow. And that is a number one priority. The problem with the UK right now is that not only do we not have a group of business people running the government, but so much the messaging in the first few months was not the kind of thing that businesses and investors and entrepreneurs want to hear.
Sitting here in Cambridge where there's incredible intellectual capital around AI, quantum life sciences, green tech, all the sectors that are going to grow the economy in the future, we think and hope. Sitting here surrounded by all these wannabe entrepreneurs, you know, at the Entrepreneurship Lab Kings and elsewhere across the city, who are just desperate to get out and start building things.
What they need to see is both a really strong message of support and championing what they're trying to do and recognizing that wealth creation, building companies, actually creating innovative platforms is a good thing. We need to be screaming from our rooftops about what we have in Britain, both Oxford and Cambridge and all the other amazing universities, and talking about it really loudly.
And we need to be putting in measures that actually encourage people to want to build businesses here and to stay here. Because at the moment, one of the biggest problems is that we have this brilliant brainpower in Oxford, Cambridge and elsewhere that create start-ups, but then they go to America and breaking that cycle is going to be absolutely critical going forward. So, so I mean the, the Oxford Cambridge arc, which she's announcing today, I mean that that doesn't do it for you.
No, I think it's a fantastic first step. Thank heavens they're talking about actually putting in money and getting that rail link ASAP, because that's an obvious no brainer that needs to happen very quickly. Thank heavens they recognize this appallingly embarrassing impediment for Cambridge, which is in a country where it rains the whole darn time. We don't have enough water to actually in the reservoirs to actually build more housing. This is a fundamental infrastructure problem.
And if only we looked at places like the Middle East right now. And so it's all, say, Saudi Arabia's doing with all of its desalinization techniques and how quickly they're getting the deserts to bloom by getting water to the places that needs it. You know, if we looked at that, we should be asking why can't we just quickly get the reservoir situation sorted out in Cambridge to enable the city to
boom? There are so many infrastructure projects which could and should happen really quickly with determination which are critical. And if those could actually be implemented quickly using central government power if necessary to breakthrough a lot of the regulatory obstacles, that would send a really powerful signal that the government actually means it when they want to create the conditions for enabling business
to flourish. And sitting in Cambridge using our brilliant intellectual riches that we have, these are world beating riches. We've got some of the best talent in the the world sitting in our universities. We need to find a way to get that moving as fast as we can.
I. Mean you you sound like you you you do agree with that criticism of government that it that it doesn't in some way really understand business that the levers it's using are about, you know, infrastructure transports and you know, is that what you're saying that they're they're not really getting it It's. Both I saw some of the business leaders in Davos last week and they were doing a dramatically better job now of trying to sell Britain to the global business and investing community.
And so IA 1000% salute what they're trying to do in terms of getting things moving. And I just wish they would hurry up, deal with more force. And I hate to say this, but, you know, I think Britain really has to learn to hustle. And there's so many bad things about America right now that we
don't want to borrow. But I think one thing Britain has to do is be a little bit less British about hustling on the global stage if it wants to get the business to really believe it's open for business right now. I. Mean Is that possible? Is the Treasury capable of hustling? It is possible I. Think the British government has in the past done that. I mean, I, I would say this because I was a part of the government.
But if you go back to the the the government between 2010, two 1015, that that government came in with a very similar sort of political message, which was of course kind of blaming its predecessor for the state of the public finances and a kind of focus on reducing the deficit. But there was also a clear plan to say Britain's open for business. We had a corporate tax road map which was pre committing to reduce corporation tax over a series of years.
There were reductions in the cost of employing people and the hustle. There was like trade missions, big focus on kind of overseas deals. There was something called the Great Britain campaign where we actually put a huge amount of resource and people and celebrity into kind of advertising that Britain was open for business. And you might think that this is a bit superficial, but it actually all adds up. And I think that businesses don't.
Businesses understand that these things have long lead times and that investment takes a while to pay off because that's what they see in their own businesses. You've got businesses in the UK where their investment cycle is 10/15/20 years. So they understand that the problem is you've got to see the pipeline. It's got to be credible.
So doing these things takes a long time, but if you've got a clear plan on infrastructure, if you're doing good things around regulation, if you're investing in skills, if you're saying we're open for business, if you're setting a tax regime that attracts globally mobile entrepreneurs says if you're, if you're sorting out your capital market so that a successful business can actually list in London instead of having to go to to the NASDAQ, You know, that that kind of package, even
though a lot of the, you know, actual impacts on growth might take five, 10-15 years. That can create a sense in the business community that OK, the UK is getting it's act together, it's serious, and then you can start to get the investments flowing. So, you know, it does, it does. There's a sort of as well as tackling the tough decisions and actually delivering on what you say, there is a sort of, you
know, sales element to this. And can I just say that, I mean, for me, aside from what happened after 2010, the first decade or the until between 2000 and 2007 or so, there was this whole mantra of Cool Britannia. And there was a real sense on the international stage that London was a fantastically cool, trendy place to be and the rest of the country by default. And we were attracting a lot of talent into the UK then. And I think we desperately need to find this Cool Britannia vibe
again. And in some ways, we have this amazing opportunity right now. As someone who's spent a large chunk of the last 15 years in America and talks a lot to American business leaders and investors, Many people are both excited about the potential for America's growth right now, but also pretty scared about the political climate with Donald Trump in the White House. And there's a real concern that actually America's over hyped and too expensive.
So there are a number of business people and investors who want to diversify and hedge away from America. Where better to do it than the UK? So we're basically in a race against time against countries like Singapore, Dubai, Switzerland, to some degree, Europe, continental Europe. And if we can get our act together right now and put out our stall as Cool Britannia.
Talk about welcoming in life science groups that are worried about the potential arrival of Bobby Kennedy Junior at the health department in the US. If we can pull in, say, the AI computing people who want to diversify, and green tech, which of course is getting a big backwards push from the Trump administration right now. If we can do it, now is the moment to be absolutely aggressively trying to grab business away from America because people do want to
diversify. I mean, I suppose that's exactly what Rachel Rees would say, isn't it? I mean, isn't that what Rachel Rees would say she's doing by both deregulation making planning easier, and taking away the the objections? But she's, you know, she's doing it after seven months of the reverse, right? I mean, that's the the problem is that there's been this incredible negative messaging and then suddenly they're kind of scrabbling to realise they've they've overdone it.
And there is an opportunity to present the UK as kind of dynamic, competitive, but also stable and predictable, which I have historically been British, British, you know, strengths. We certainly, you know, we undermine some of those strengths a little bit over the last decade with, you know, sort of things like Brexit, which was seen as kind of very sudden and unbusiness friendly decisions. But we still have, you know, relative to the USA, very functional political system.
We have a legal system that's extremely reliable and you know, we should be able to retain those benefits. And I'd also say, by the way, there are things they could do again to signal like getting the youth mobility visa with the European Union in place as quickly as possible. Again, sitting in Cambridge, you know, we have these brilliant students who want to be able to travel. We want to also attract the best talent from the continent as
well. And there's a lot that, you know, wouldn't cost the UKA lot in terms of either economics or politics, but would go a long way to signal that we're moving. Let's talk about Heathrow for a second. I mean for a lot of people this is sort of, it's counter intuitive. There's a lot of Labour people in the cabinet who were traditionally opposed to 1/3 runway at Heathrow. Ed Miliband once said it sent
the wrong signal. But now that's all kind of been swept away by the the push for growth. And there's this argument that if you can do it all within Britain's carbon budgets, then there's no there's no problem with development and there's no problem with aviation. I mean, first of all, how much of an economic boost is 1/3 runway to to Heathrow? Or is it really about signalling and messaging? Well, it's a good signal
message. It actually is an important economic boost because Britain's role is very much as a kind of entrepreneur, entrepreneur, trading hub. I mean, you know, in many ways I used to joke that London was like Constantinople when it was called Britannia because everyone came here to trade and to do business here. And that was really powerful. We have a very important judgment crossroads position in the global economy. So I think it is important. I do understand the green
concerns. You know, there are a lot of people who involved in sustainability who will be disappointed. I would just say, though, that again, in the UK, we have some of the world's leading research outfits looking at green aviation and how to get aviation
more sustainable. So I would suggest that if Rachel Reeves wants to go ahead with this, she should be simultaneously throwing money at green tech researchers across the UK that we should feel very proud of to show that we recognize we need to travel, but we need to also fight to do it sustainably in the future. I mean, Ripley, are you surprised at how quiet the opposition is at the moment? Well, look, they are not going to be quiet. Look, there's this is going to be a huge row.
It's going to be a huge row within the cabinet. It's going to be a huge row with the environmental groups. I mean, on the substance, look, this is this clearly is pro growth. It's definitely pro growth directly because you get more activity. It's also pro growth because the key thing about 1/3 runway and more flights is that you get more direct flights from the UK to fast growing parts of the world.
And that means that the UK becomes a much more obvious place to locate your headquarters or your logistics hub. And so therefore those direct flights from the UK are kind of definitely growth positive. You know, if you're sitting in the treasury about what can move the dial over the next 1020 thirty years, this definitely sits in the kind of obvious wins category.
And on the environmental, you know, side, a lot of these routes, if they don't happen from Heathrow, will happen from Skipol or Charles de Gaulle or other, you know, airport, other airports in the EMEA time zone. And so, you know, from a global emissions point of view, having these in the, having these routes flying from the UK rather than from someone else from somewhere else is, is, is neutral, right?
So in terms of the overall climate impact on the world, this is just the UK beating someone else to it by having a better airport. The problem is that we have this kind of unilateralist approach to climate change in the UK, where we've set these UK carbon budgets. And the the problem is this is going to increase the carbon budget for aviation and therefore the government is going to have to show how it can reduce its carbon budget
elsewhere. And so this is going to put pressure on delivery for things like home heating, switch to electric home heating, electric vehicles and transport and reducing emissions elsewhere. But the true impact of the Heathrow decision on global warming and climate change overall will be pretty neutral. It's just that we might as well have these flights happening from the UK then happening from another country and giving them the economic boost.
Having everyone who comes through Heathrow being asked to make a small contribution to green tech research in the UK as well. Green aviation research.
Let's get moving with sustainable fuels, with electric batteries, with hydrant power flames and what the Whittle Lab is doing, which is basically trying to streamline the friction points around aviation to again cut the emissions using, by the way, the same techniques they've used to help the British Cycling team win medals in the Olympics. I mean, I, I said let's separate the politics. I think we can bring it in now on this one really.
I mean, because if Labour can deliver this and keep going on it in a way that the Conservatives couldn't for all that time, do you think they will get the credit, Rupert? Yes, I think they will in in two ways. You know, in the end, it will come down to the reality. And a lot of this, as I said, is beyond Rachel Reid's control.
So a lot of it will come down to at the next election, can they point to income growth, inflation under control, jobs being created and and some of that is in their control, but some of it is out of their control. But I also think if you can, there is a sort of credibility in voters minds that comes with being a government that clearly
can get things done. And that was something that I think seriously impacted the the sort of tail end of the last Conservative government where voters increasingly got a sense that this was a government that just couldn't achieve anything. You know, it's set out all these ambitions and it all it was doing was kind of cancelling HS2. You know, for example, the, the government actually initiated
the Oxford to Cambridge arc. East West Rail was something that was launched by David Cameron in 2012. It actually went through. So the constituency that I ran as a candidate in Bistrom would stop in the last election. East West Rail goes right through Bista. There are going to be Oxford to Milton Keynes services happening this year. So you know, this, this stuff takes a long time, but it's happening.
The problem was the last government then abandoned the Oxford Cambridge arc under pressure from local councillors and MPs because local communities didn't want all the housing and they were worried about the popularity. And so it was a government that kept sort of abandoning stuff, not able to actually deliver change, even if that change is
controversial. And I think if this government can get to the next election and say, look, we've actually done stuff that's been on on on sort of the back burner for decades. We're delivering on Heathrow. We've got, you know, we've linked up Oxford and Cambridge. We've got growth going in the north of England because we're investing in, you know, Trans
Pennine, you know, links. All of this stuff might sound a bit abstract, but I think voters will reward the sense of a government that is functional getting stuff done. The challenge is it's just really hard to do that. It's not just the politics. There's, there's going to be judicial review, legal challenge process. You know, there's a lot of giving the speech today is, is all very well. That's, that's like day one.
There's there's, there's hundreds of days to come of actually delivering this stuff and showing voters they've got a functional government that can actually get things done. I mean, do do you think culturally Britain is ready to make that shift though, because the planning objections have traditionally been massive and massive political problems. You know, do you think this idea that you can sweep away the objections to. Well, it's about.
Political leadership, I think that the, I think that the country is ready for the message and you've got a government that on the face of it has this enormous majority. So if ever there was a government that would be able to force this kind of stuff through, it's this government, right? They do not have to worry about losing votes in the House of Commons.
And that is a huge benefit. But it's about having the political leadership and the courage and, and you know, the conversation in the prime minister's study has got to be, we have got to deliver Heathrow and not listening to the voices saying, well, we're worried about losing seats and votes to the Green Party. You know, you've got to stick to the goal and then make, you know, have confidence that you can win the political argument at the next election instead of
just sort of chopping and changing and, and, and all these sorts of allowing the short term objections to to, to put you off course. I mean, Julian, there's a, there's a poll out today that puts reform ahead of Labour. So, you know, so, so late Labour's got sort of the Green Party snapping at one end and reform at the other. I mean, what do you think of this sort of the idea that Keir Starmer can lead a sort of a cultural shift towards growth
and to unleash animal spirits? I mean, animal spirits and Keir Starmer are not things that would normally go in the same sentence, are they? No. He's trained as a prosecutor, so he's very good at mastering briefs on a micro level very quickly and understanding logical sequences to get through a brief and argue it. But the ideological searing vision stuff isn't something that natural actually comes to him.
I would argue what you see by the fact that you've got support for Greens and Reform at the same time is people are hungry, desperately hungry for a click up vision that they can rally around and a message about the future. Green and Reform are each offering a strong vision message brand that people can understand quickly. You might hate it and they're radically different, but the thing that's very clear is just technocratic government alone
doesn't do it right now. You've got to offer people a really clear cut vision and sign of hope that they can rally around for the future and a sense of direction for better or worse. And most people in Britain would probably say worse, Donald Trump is doing that in America very, very clearly. Unfortunately, much of continental Europe doesn't have that right now.
But if they can come out and carve, really hoist their flag to a vision for the future, for growth, then I hope that will start to turn the economy around, turn around, unleash some animal spirits and also provide a serious, you know, counterpoint to both reform and the other voices that are coming
onto the stage right now. I. Mean Rupert mentioned, you know, that the idea that actually Rachel Reid isn't really in control of this and that if, if, if America has a big economic boost, then we, we, we might get a boost a lot, you know, on, on the coattails, I mean, against that is obviously still the sort of the uncertainty around tariffs and what kind of impact that might have on our economy. I mean, how do you think all of that is going to balance out?
Could I just say thus far, you know, and I talk quite a bit to the Trumpians or the Trumpies, what you call them, thus far, the UK hasn't been focus number one at all. It's been primarily Canada and Mexico and China. I suspect the UK will come into focus at some point. They are more focused right now amongst the Trump group on France and Germany than they are in the UK.
They will be looking to see where Keir Starmer grows again, if he does unleash some kind of growth, pro growth agenda, You know, you know, that's likely to make it easy to negotiate over tariffs and threats. Of course, the main issue within the UK and the US is service sector.
But it's going to be interesting to see, you know, how that develops because, you know, we've already had a lot of messaging from the Trump team that if it looks as if they are going in the eyes of the Trumpians, very left wing, then the risk of tariffs is likely to rise, which I'm not interesting. You know, it's a horrific situation to have this kind of almost, you know, imperial approach towards dealing with
other countries. And we are going back to a world of power politics and very much hegemonic power politics when it comes to trade. But that is the reality. And so it's something which is going to impact the UK going forward. I wouldn't get overly worried about the impact of tariffs on the UK economy because you know, goods and manufacturing exports to the US is not a major part of
the USUK economy. We're a more service based economy and so we're not the most vulnerable, whereas if you're sitting in Germany, you'd be a lot more worried about what might be coming down the track. But also the UK, I think is going to the art of the deal means that the UK needs to be negotiating for a position of strength and to have other
things to offer. And the UK, for example, to the Trump team can offer its leadership in security and defense and particularly defense spending, but also defense
technology. And I think the other area that is going to come under pressure is EU KS relationship with China. And so I do think that it's quite interesting that this government has started this kind of reset with China that is going to go down really badly in the White House. And I don't know how maybe they're doing this because they're super smart and they're basically setting this up so that they can junk it as an offer to the to the US administration.
I'm not sure that they are as smart as that, but that might be what ends up happening. Although Trump's slightly playing it both ways on China at the moment as well, no. He is, I mean, he clearly is angling for a deal on China rather than kind of full on confrontation, at least as far as we know. I mean, he we know with President Trump that he can do a full 180 when you're least expecting it. So any statement has to be
hedged, I think. So I mean, overall I'm I'm getting from both of you that you know, what she has announced today is, is good, but it doesn't really get her out of her immediate problem. I would say Glass half full is a fantastic step in the right direction. Hooray, should have happened earlier, but it's a step in the right direction. Glass half empty, she has a lot of challenges in actually implementing this and actually convincing business leaders who she has already scared off to
some degree. But thank heavens we've seen this. Yeah, look, she is. I agree. Look, it's good. And the messaging from the Labour Party on growth over the last couple of weeks has been so much better than it was. But why wait seven months? It's absolutely extraordinary.
I don't understand it. But also she's going to keep getting a lot of negative messaging from business about the the National Insurance rise, about the labour market regulations, about incredibly high industrial energy costs, which is a massive problem for for UK manufacturing, particularly heavy industry. So there's a lot of other problems that aren't dealt with today, but it is definitely a
step in the right direction. I think we give her AB Plus sitting in Cambridge University. What name minus? I think that's great inflation. No comment. Gillian Tester, Rupert Harrison, thank you both very much indeed. That was the forecast. We'll be back next week. Until then, bye bye.