Host
Philippa Lamb
Guests
- Iain Wright, Chief Policy and Communications Officer, ICAEW
- Frances Haque, Chief Economist, Santander UK
- David Williamson, Chief Political Commentator, Daily Express
Producer
Natalie Chisholm
Transcript
Philippa Lamb: Hello, and welcome to Behind the Numbers. Today, we’re celebrating an anniversary, or at least reflecting on one. The UK government has been in power for a year, and it is probably fair to say that things have not gone as well as the PM might have hoped. While there have been some clear wins over the past 12 months, particularly on the international stage, domestic politics have felt far less controlled.
Iain Wright: With one or two exceptions, around the Cabinet table, these people have not served in government at any level. You know, you’ve got Ed Miliband and you’ve got Yvette Cooper, but if that’s about it. It will be a shock to go into government,
Frances Haque: Because at the end of day, we’re a small economy, you’re going to have to pick winners, and to a certain extent, those winners would have been known. It’s not as if the government were plucking, you know, things out of the air.
David Williamson: On paper, this is the golden opportunity that might not come again for another two decades, and yet we’ve just watched it being vaporised.
PL: Here to discuss the previous year and where the government goes from here are our usual economic and political dream team. Frances Haque, Chief Economist at Santander UK, David Williamson, Chief Political Commentator at the Express and Iain Wright, ICAEW’s Chief Policy and Communications Officer. Welcome back everyone. I’m going to ask you to start with a one-word assessment of Labour’s performance so far. David…
DW: I think oceanic. I think of, you know, those Japanese pictures of giant waves where there’s a tiny ship, and it’s like, how did the sea suddenly deliver this? I think this is probably what goes through the thoughts of the Prime Minister and the Chancellor most nights. Just a great image. Frances…
FH: I don’t know how to follow that, I have to say. I was going to go with a very boring U turn. Well, quite frankly, that has felt what it has been like for the last at least, the last six months, if, if not, the whole year. Hard to argue.
PL: Iain?
IW: Can I have David’s words? That was pretty good.
PL: Yeah, great image.
IW: Cautious.
PL: Would it be fair to say a bit unlucky as well?
IW: Well, actually, you could argue that where there’s been success for the new Labour government, it’s been overseas. The Prime Minister’s done a really good job of helping to restore Britain’s international standing, you know, in terms of a new US President, linking in between the US and the EU, doing stuff on Ukraine, defence spending. That’s where the success has been, as well as, you know, some of the really strong trade deals.
PL: I think that is true. I mean, it it’s fair to say I think Keir Starmer has been surprisingly strong on the international stage, hasn’t he? I’m not sure anyone quite thought he was going to be as good as he was with Trump.
DW: Well, that’s it, because the question has been, how do you defuse that situation when you walk into the Oval Office? And I think every world leader was hoping that they would never be put in the position where Zelensky found himself and suddenly Starmer, who knew that he had such a gift for theatrics, reaching into his jacket and pulling out an invitation from the King? It was stagecraft.
PL: It’s a great card to play, isn’t it? I mean, it has to be said, if you’re going to bring something into the room, that’s a good thing to bring into the room with Donald Trump.
DW: It is. And there seems to actually be genuine rapport among the team, the two teams, across the Atlantic, where not only do they literally speak the same language, but they have both come through an electoral cycle where lots of things were in flux. They both understand that things can change again very, very quickly, and both of them have a sense Trump is in his second term, so he’s got to make a massive impact very quickly. Keir has also led his party out of 14 years in opposition, and is aware that the party could be entering another long period of opposition unless he can frame with the public the idea that they’re a competent team. So for both of them, it’s enormously high stakes.
PL: And he did handle it really well. I was wondering, I mean, is that him, or is that he had a great policy team who really sat down and thought, this is the way to handle Donald Trump? And he did that, and it happened.
DW: I think that’s an element of it, someone who, in UK once described him as, he’s somebody who actually is very ambitious, where he enters an organisation and sees the next job up and thinks, yes I could do that, and he climbs to the top to become Director of Public Prosecutions. That doesn’t happen by accident. He knows how meetings work, and he knows what the pitfalls are in them as well.
PL: I mean, thinking about other wins, Iain, we were talking about this on the last podcast, the launch of the industrial infrastructure and trade strategies. I mean, there’s been mixed response to them, but you, I know, feel it was a genuinely new approach, particularly the Industrial Strategy.
IW: I think the Industrial Strategy will be seen as a really good win. I mean, the devil will be in the delivery, but it’s a 10-year plan designed to really reshape the relationship between business and government and produce more investment into our country so we get higher growth, because that is essentially the backdrop that the Starmer government has found itself: quite disappointing growth. Growth can raise all ships, can’t it? And that has been a bit lacklustre.
PL: And we’ve seen some decisive action from Wes Streeting, haven’t we, in the NHS?
DW: Absolutely. It takes lots of courage to go in and say that you’re about to abolish NHS England. Yeah, I think Wes is someone who’s very good at reading the room. And I think he realises that it used to be that families would sit together at the Christmas dinner and say, I had to go into the NHS and wow, the nurses were lovely, everything was great. I think there’s a lot of families that have horror stories of how they’ve sat for so many hours in A&E and it’s where, actually, if there is an appetite for reform here and coming out with a 10-year plan, I think a lot of people, even on the front line, accept that moving away from paper and fax machines is probably a bit of a no-brainer.
PL: About time. Yeah, absolutely. Frances, before we move on to setbacks, any other wins that you can think of?
FH: Oh, talk about putting me on spot! Well, I mean from an economic perspective, which is obviously the way I look at things, it’s quite hard, but I would say the trade deals probably, I mean not in terms of, you know, the amount of growth that they will provide, per se, but more around the sort of climate in which they were done and that calmed things down. I think it gave people a bit more assurance that things hopefully would be more stable, at least in that environment.
PL: Obviously, we all know there have been setbacks, some self-inflicted, some not. But it does seem to me, in fairness, you know, there have been unexpected problems to navigate, haven’t there? I mean, Trump’s election has created all sorts of problems that one might not perhaps have expected. Things like suddenly we’re going to need to spend a lot more on defence.
DW: That’s probably one of the areas where Starmer will count as a win, that he managed to keep Nato as something that Trump will, in theory at least, still want to be part of, getting the coalitions of the willing together as well, managing to create the impression, at least, that Europe gets it, that America is no longer going to foot the bill, whether it’s a reality, how on earth you get to spending 5% of GDP on defence is, you know, when it’s going to be enough of a challenge just to get to the present targets. These are all huge, huge questions of whether the country is ready to make that sacrifice as well.
PL: Rachel Reeves is the one who picks up this headache, right Frances? Where does the money come from?
FH: Absolutely, and I mean, even without that, she’s got a headache from a fiscal perspective, so that only adds to the complication. I mean, the one benefit they will have is some of it obviously will be sort of more capital driven, so that will help to a certain extent, but still, it’s a big number to have to find.
PL: Going back to setbacks Iain, and there’s been a lot written about this lately, I think, the lack of preparedness of this administration, that’s become self-evident over the course of the year.
IW: I think that’s probably fair, with one or two exceptions around the Cabinet table, these people have not served in government at any level. You know, you’ve got Ed Miliband and you’ve got Yvette Cooper, but that’s about it. David Lammy served in a more junior role. It will be a shock to go into government and deal on a 24 hour basis, civil servants, keeping on top of things, trying to address the media as well as driving through your policy vision. But your point about what do you want to achieve by being in power, I think, hasn’t been addressed, and I think people can pick up on that.
PL: You do wonder where those conversations were before they came into office, don’t you? Because you think about, you know, the Blair administration way back when. I mean, they arrived pretty well fully formed, and that just doesn’t seem to have been the case, strategically thinking, with this administration.
IW: I think there are pockets, you know, you’ve talked about wins, and I think, you know, I think Wes Streeting is very clear what he wants to do with the NHS. I think Ed Miliband, regardless of where you view net zero, is very clear about how he wants energy security and our energy mix to go, and has had experience at government to deal with that and to deliver it. So that’s that. But in terms of what’s a Starmer government for? I think they’ve struggled to articulate.
PL: David, you made the point that Starmer has proved remarkably effective on the international stage, but just much less so at home with his own people.
DW: This is the thing, people, again, who are close to him and admire him and like him, do admit that he hasn’t had a history of campaigning. He came into politics late, so it’s not as if he has grown up handing out leaflets and having to make the case on the doorstep, which actually those air miles do count for everything. And there’s also the fact that in a lot of governments, people have had the long slog of being an opposition frontbencher, where you’re talking to regional journalists, you’re going around the country, you learn to spot the pratfalls and the bear traps. And there’s been a great sense of, well, there’s been great suspicion that the Treasury is having a field day where ideas that have long been kept and drawn, so Minister, it would make so much sense if you would just take away the winter fuel allowance for millionaires, for example. Thus, this’ll sell well on the doorstep, and this is where you see that level of experience coming through.
PL: Yeah. I mean, some of those radical changes do look a bit ill judged, don’t they. As you say, and also they’ve really disaffected quite large chunks of the electorate, because we, you know, there’s the winter fuel, that’s the business national insurance. We’ve got the non-doms. We’ve got the farmers with inheritance tax, private school parents. And obviously, it’s niche, but they’re there. And now, of course, disability claimants in the latest round of welfare changes. That’s a lot of people who aren’t very positive right now, isn’t it?
IW: But there are difficult choices to be made. The economy has not performed well, arguably since the 2008 global financial crash. You know, productivity has stalled; economic growth has been moribund. Somebody once said, you know, there’s no money left. So in that era, when you’ve got a an ageing population, so more demands on health and social care, there’s more demands for our national security, so let’s spend more on defence. There’s not much fat after that, so you’re going to have to make difficult decisions and alienate a lot of people. And you’d think perhaps the buffer of one of the largest majorities in recent British political history would allow that to happen, but they’ve still found it extremely difficult to do that.
DW: It’s fascinating. Jeremy Hunt, a couple of weeks ago, was saying that actually the magic ingredients to do the big types of welfare reforms that everyone knows are going to have to be done at some time, they’re right here. It’s a government at the very start of the administration with an absolutely unassailable majority. On paper, this is the golden opportunity that might not come again for another two decades, and yet we’ve just watched it being vaporised.
PL: It’s the messaging, I think, I mean, we all understand about the difficulties in terms of, you know, there is no money to burn here, but thinking about non-doms, thinking about the national insurance changes for business, the messaging that you’re sending out there. Is there no contradiction between saying, we want to be a high-growth economy, want to be agile, and yet the non-dom thing. I mean, I don’t know, what do we think? That looks like a misstep, doesn’t it?
FH: I would say it’s wrapped up in all of this sort of business side of things. I mean, if you want growth, yes, you have to have productivity, and you need, obviously, investment, you need to think about your skills base. And it just sort of felt as if they’ve alienated the one area that you need. You really do need business, because the government can’t carry, as you say, we haven’t got the money, and actually, that’s not the most efficient way of doing it. It’s much more efficient for businesses to pick up and to do the investment and all the rest of it, but you’re not setting the right conditions for that to happen.
PL: Or tone.
FH: It’s that feeling of, at what point, well, this is the problem with U turns. Okay, so at what point are you then going to turn around and this isn’t going to happen. I mean, I think the Industrial Strategy is one way of trying to mitigate for that by saying, right, this is what we’re going to go after. And that’s the that’s the right play, because at the end of day, we’re a small economy, you’re going to have to pick winners. And to a certain extent, those winners would have been known. It’s not as if the government were plucking, you know, things out of the air. We’re strong in life sciences, we’re good at clean tech, all those sorts of things we already knew. So, you know, they’re just trying to enhance that. But that, you know, might be one thing that could turn to be more positive given the environment that they’ve created. And I’m afraid they created that rather than necessarily inheriting all of that.
PL: Is the danger that there’s now also going to be a kind of perceived lack of honesty, particularly from Rachel Reeves, because, you know, she started at the beginning about not taxing working people. You know, it’s becoming pretty evident there’s going to have to be tax rises in the autumn. And so it starts to look like broken promises.
FH: That is the problem. It’s well, what do you go after? I mean, I’m asked all the time, well, what taxes are they going to raise? And, you know, you don’t know for sure, but you know, maybe it will be something slightly new. But if they go, you know, obviously, if they go go back on their manifesto pledges, that will also be a problem for them.
PL: So what do you think? Will they? Because there’s the three taxes she said she won’t rise.
FH: Yeah. I mean, there is, of course you could, you know, freeze thresholds again, but that is causing all sorts of problems, you know, around the £100,000 mark, because that’s when you start to lose your, you know, personal allowance. There’s also issues around that, of course, for people with the childcare vouchers and stuff like that that you get into that problem. So by not actually increasing it, you are starting to also create even more problems. So it’s one that she could do and probably say that she hasn’t broken her manifesto pledges, but it all starts to get a bit like semantics.
PL: Which brings us to year two. You know challenges ahead. I mean, it’s a sea of troubles. There’s no denying it is there? But what do we see as the key challenges up ahead? Obviously, you know the pressures from overseas that they continue.
DW: The situation in the Middle East remains absolutely volatile. It does seem to be that President Trump does have the ambition of getting the Nobel Peace Prize. In which case – stranger things have happened to Henry Kissinger, Richard Nixon, I think people will be hoping that that is somehow what happens. Ukraine again remains as perilous as certainly the last few times that we’ve all been together, if not more so. There’s certainly no sign that Putin is going to settle for anything less than a place in the history books, because it makes his own position utterly untenable. And against the backdrop is everything is China and the question of rare earths supply chains and the realisation that the disruption that we’ve had over the Ukraine war, my goodness me, what happens if China goes after Taiwan? These are absolutely the known unknowns.
PL: I mean that potential for kind of disruption of sea trade routes seems to be really popping up now, doesn’t it? I mean, that would be very, very inflationary, right Frances?
FH: It would. I mean, to be fair, I think a lot of the routes had already diverted anyway. And they’ve not gone back. So, I mean, from an inflationary perspective, that’s a one-off cost, if you like. But still there are, there would still be, you know, trade that had to be diverted, which would be, yeah, inflationary.
PL: Government debt…
FH: Oh dear!
PL: Talk us through it Frances, how worried are you? I suppose you speak to some economists, it’s like, it’s not a problem, others, it’s a disaster.
FH: Well, I think there’s two things, isn’t there? There’s what’s right for the UK, and how bad is it for us versus perhaps other countries, and obviously the US. I mean, we’ve seen, they’ve they’ve just done their Beautiful Big Bill, and that’s going to
PL: How many trillions more?
FH: Absolutely. So, you know, you sit there, we aren’t the only country with this problem, by any means, but you know, we have felt it in the past, and we know what could happen. And that is a massive straitjacket, obviously, for Rachel Reeves as well. But one could only hope that realistically, the only way out of this problem is growth. We’ve got to grow the economy, and by growing the economy, then, you know, that will help push us out of the of this issue. But how you do that? And you know, maybe we can get on onto that in a minute. But, you know, that is, that’s got to be their key point. They’ve got to be able to drive that forward, otherwise they are constantly going to be up against, you know, the problem of borrowing and the fiscal position.
PL: It’s a slow solution...
FH: Yes, and it will be because you can’t, because of the fiscal issue, you can’t do it from what we will call the demand side. You can’t, sort of, you can’t throw money at the problem in the hope that you can build out the infrastructure and all the rest of it, because we don’t have that ability. So you’re looking at all these supply-side, removing some of the supply-side constraints, which they’ve started actually with planning and things like that. But it’s going to take years and years for that to be able to feed through.
PL: We’ve been hearing a lot about the bond markets, haven’t we? I mean, we’re recording this well a week after the Chancellor was sadly weeping in the Commons, and which, you know, we saw a direct line between that and then how the bond markets felt about the about the world.
FH: And it was quite noticeable that as soon as number 10 came out and said, No, we’re absolutely behind. Rachel Reeves, all the way the bond markets then calmed down.
PL: It speaks to fragility, doesn’t it? Yeah, that’s kind of knife edge response.
FH: Yeah. And hence her problem is that any misstep could be very costly, for the wrong reasons.
PL: I keep reading about the bond vigilantes Frances. Are you two familiar with that?
IW: I think I’ve got an album by them.
PL: Is this something that we need to be thinking about?
FH: They come and they go, I think. From my point of view, I’m far more interested in the fundamentals. If you’ve fundamentally got a strong economy and you’re dealing with the issues, then it should be less of an issue. But if you’ve got an economy that’s, you know, wobbling and confidence is low, then inevitably, these things come up more often. So what we need: nice, stable environment, and that would help to quell some of those fears.
PL: Yeah, so they need to stick to their last. But Iain, I mean, I was thinking about the, you know, the impact of the national insurance rises for business. I mean, they only came in in April. We knew about them since last year. But the reality is only just really kicking in, isn’t it? I mean, it’s start of July now. Where do you see that going in terms of hiring intensions, investment spending, potential job cuts? I mean, do you think there’s more, quite a lot more pain to come from that?
IW: I think you have to look at things like national insurance in the wider context, and the cost of doing business is rising, and, you know, so national insurance is one; stickiness in inflation, and what do you do with your maybe input prices? Do you pass them on? But also the Employment Rights Bill. It’s going to cost more to hire people and to take a punt, you know? You know, you’ve got to encourage a little bit of risk taking. Improve our risk appetite, and it’s a case of if, for whatever reason, taking on this person doesn’t work out on either side. It’s not easy to have that discussion and say, look, I think we should just call it a day. You do want a degree of flexibility. So just that general cost of doing business, costs of compliance, you know, the approach about how do we become … a focus on more deregulation to help inspire growth. I think that’s important as well, because things are dragging entrepreneurial firms back.
PL: Yeah. I mean, that does kind of take me back to the non-dom thing again. This messaging, how open to business is the UK? Because the regulatory issue is big for overseas investors, particularly the US, and then the sense of we don’t really want entrepreneurial people here.
IW: I think we have to be very clear in how we pitch ourselves to the rest of the world, which is, we are open for business. If you want to start a company, grow a company, scale up, you know, we are in the business of ideas and entrepreneurs. You’re welcome here. That’s going to be fundamental to economic growth and success. And especially when you’ve got almost like the US. So the US, let’s be honest, the US is growing like mad. I think that in the last year it’s grown by 2.8%. It is dynamic, it’s entrepreneurial. But there’s a risk there, with the Big Beautiful Bill fueling tax cuts by borrowing. We tried that three years ago, and look how that turned out. And of course, the US is not the UK, you know, it’s the world’s largest economy. It’s 25% of global GDP. It’s the world’s reserve currency. You know, very different, but there is an element of risk there. So are we a bit of a safe harbour? And then you’ve got EU, where it could be: is there more regulation? Whatever your thoughts on Brexit were, does the ability to leave the European Union give us some freedoms and flexibilities to forge a path of entrepreneurialism, dynamism in an economy? So there’s, there’s a strong vision that could be there in terms of, we’re open for business, we want growth. Welcome entrepreneurs.
PL: Yeah. I mean, other countries are offering golden visas, aren’t they? Directly our competitors.
IW: We haven’t talked about Reform UK and of course, one of the things that will be exercising labour strategists is the number of constituencies in the last general election where Reform came second, particularly the old red wall. And it’s a case of, if we say too much, one about European Union and maybe resetting the relationship and getting closer, but also being a bit more liberal when it comes to immigration, whether it is golden visas or whatever. You know, we want to bring talent in. Yeah, Reform will be on all that like a ton of bricks. And so the political straitjacket is still there.
PL: What do you think? Is that really going to fetter the government doing that?
DW: The extent to which Labour is now aware of the Reform threat to its base just can’t be exaggerated. When you have some of the most respected commentators of the country now actually saying Nigel Farage will be the next Prime Minister. It’s astounding.
PL: It’s happened so fast.
DW: It has, it has. It is a true revolution, and they have a very, very clear idea of what they are tapping into. They understand their voter base. They understand that people feel that there’s been a great act of dishonesty and breaking manifesto, certainly announcing taxes that weren’t in the manifesto, that cuts through various demographic groups. I was just talking to one Conservative who survived in the red wall that he was saying that he has never seen an issue that cuts through so much as the winter fuel payments for pensioners, just that sense, because it’s so retail, whether it’s the £200 or the £300, it is something that you notice is no longer there. And that sense of having been asked about it at every opportunity during the election campaign, and giving the impression that this was not going to happen, that’s when there was already a great crisis of trust in politics, has been a bit of a coup de grace, unfortunately for the party at the moment. So Reform are tapping exactly into that; they have managed to communicate to the people who voted for Boris in 2019 so there’s a sense as well that there’s a readiness for state intervention. This is not your typical laissez-faire Thatcherism by any stretch of the imagination. This is actually a willingness to crank the levers of government. So within the Labour movement, you have the blue Labour phenomenon saying, well, you know, what on earth are we doing becoming the party of neoliberal policies? We need to get back and actually do the same type of things that Reform is doing so successfully, by recognising community, family, these types of things. There’s one party that’s very happy. The interesting thing about the polling is that whether you love them or hate them, people are very, very clear what Reform and certainly what Nigel Farage stands for. There’s a huge cloud of unknowing when it comes to the Conservative and Labour leaderships. Still. So that hasn’t been rectified yet.
PL: The really, really key challenge in year two that we definitely know is coming is the Budget Frances. I mean, all this just makes it even more delicate ground, doesn’t it?
FH: It’s going to be very hard to walk that tightrope. And obviously we don’t exactly know what the hole will be. I mean, what do you think people are talking about £30bn, aren’t they? Yeah, probably between about £20bn and £30bn, I’d have thought, right. But obviously things like gilts, the bonds, all the rest of it will be important there. It’ll also be important to see what the OBR and how much they perhaps reduce their growth by, I mean, they’re going to have to reduce it a bit, because they’re, they’re far and away above any sort of consensus forecast. But that will also have an impact. So, but it’s difficult at the moment. That’s why there’s the range, because it’s difficult to know exactly how much. I mean, we know the £5bn that they’ve got to find, and then the one to fuel allowance on top of that, and obviously defence spending, and, yeah, the list sort of goes on, and you start to get a bit worried really about what that number is going to be. And that’s why people are concerned about, you know, the tax rises, because, I mean, really, we want to keep entrepreneurs in and that’s exactly what we should be doing. Then are they going to have to change their non-dom status, you know, and all of that around that. You can’t then use capital gains as a means of trying to, you know, extract more tax. So that’s why a lot of economists are going, Oh, are they? Are they going to have to break their manifesto?
PL: Yes, because the other alternatives just aren’t going to come up with enough, they’re too small.
FH: They are too small. And the problem is, as we’ve seen, is they’re quite distortionary, and they create very odd effects. And actually, capital gains is one of the worst for that. So it’s quite difficult actually to be able to forecast what you would get in addition, too, because people’s behaviours will change as a result. So even then, you don’t quite know exactly what your take-home pay would be, so to speak. Whereas, obviously, if you hit income tax, you’ve got a much, much better idea about what that number is.
PL: It’s very quantifiable. Do you think they will? Is income tax going to be the one do you think? It’s the most reliable way of raising money isn’t it?
FH: It is. If you want to do it. In a way, you see things like VAT, VAT is very regressive, because obviously it will hit the lower income spectrum more. So that seems to not quite go with the whole feeling of inequality and all the rest of it, and then, you know, you’re left with, well, corporation tax, but obviously the businesses have been hit.
IW: It doesn’t raise that much money actually. I mean, the big ones are income tax, VAT and national insurance.
FH: Well, I suppose they could look at maybe reversing the cut that the Conservatives did. But I’m not sure that, in and of itself, I don’t think would be enough. So you’d then still be looking elsewhere.
IW: I don’t think the big game changers that would generate a lot of revenue are on the cards. So, purely speculation, but abolishing the pension triple lock, it’s just not going to happen. If we saw something which was relatively small scale, with the winter fuel allowance, ending the triple lock is just not going to happen. In a similar way, you could generate billions if you change pension tax relief, especially for high earners. I suspect that’s not going to happen either. You know, maybe flat rate of 30% if you’re on a higher income. Maybe Frances knows more about this than I do. That gets rid of the concept that you don’t pay tax putting into your pension. You pay tax when you take it out and it distorts all of that as well, but that can provide tens of billions of pounds. PL: What do you think Frances?
FH: The pension ones are always hard. I mean, of course, the other way would be to means test pensions. But, I mean, you can imagine that would go down like a lead balloon as well. So means testing is always very expensive, isn’t it? Oh, well, we saw this with the winter fuel allowance. This is the problem: we actually find it well, we find it impossible to be able to means test, which I find incredible, given the fact that, you know, you’ve paid income tax, that we can’t actually do this. And pensioners obviously pay income tax too, so the data must be there, and I find it very hard that we can’t extract it. But I mean, that is where we are, and we’ve been there for many years. But yes, I mean, you know, pensions would be one of them, because, I mean, and this problem only gets worse, of course, in an ageing population. At some point, someone’s going to have to have the courage to ask the question about what we do about pensions. But I’m not sure – I don’t think it’s for this budget, though, Well, with everything, I mean, with Reform breathing down their neck and everything else, yeah, but I have to say it’s an unenviable position to be in, to be fair.
PL: If not that, I’m going to put you on the spot, what specific actions should Labour be taking to not only steady the ship, but move it forward?
FH: Well I’ve got three areas, perhaps not specific policy, but three areas that I think they need to focus on in order to try and bring up productivity and growth, one of which is skills, because this really hasn’t been touched on enough, I don’t think, at the moment. And possibly is something they could do without actually having to spend billions and billions, which is, you know, have a think about looking forward. How do we have the right skillsets in the UK to be able to ensure that everyone can get jobs? And we know that there’s shortages of skills. So it does actually require businesses, it requires educational establishments, so I don’t just mean universities here, and obviously the government is good to lead the way on this, but they don’t necessarily have to be spending lots and lots of money. But I do think we have to have a radical think about what we do about education and skills and all the rest of it, and making sure in a world that changes all the time, knowledge isn’t necessarily always going to put you in the best frame, and a three-year degree could be obsolete within a year. So I think more of a focus on skills would be a good thing. And how you do that, you know, outside of university and all the rest of it. So I don’t just mean children. I mean adults as well.
Obviously investment, having a more stable environment, I think would be really helpful here. I mean, you know, they are hamstrung. They’re not going to be able to throw lots of money at infrastructure. But, you know, businesses will invest, I think, if they feel there’s something to invest for.
And the other thing, because I don’t want to take up the entire podcast, would be, I do think that they need to start thinking about how they’re going to regulate AI. You know, I’ve talked about it a lot in terms of actually the connection with skills and obviously graduates not being able to get work. There’s been a lot about that recently. You know, AI could be a gamechanger, but there’s obviously a balance that’s got to be struck between growth, that it could provide, and safety on the other hand, I don’t just mean safety in terms of obviously not be able to get a job. I also mean safety and obviously safety of the internet, you know, cyber attacks, that kind of thing. So both of those sides, but I think if they could start to think about how they’re going to regulate it, that might also help from an investment perspective, because people have a better idea about what it’s going to look like, and what they can actually do. They would be my three areas for them to have a think about.
PL: And none of them easy to do.
FH: No, I’m not saying any of them are easy. If they were easy, they probably would have been done already.
PL: I mean, I’m thinking about really practical issues, like energy costs for business, Iain. I mean it’s the highest in Europe, right?
IW: The industrial strategy made a big play for that. In terms of trying to reduce energy costs, there’s a recognition that energy costs are too high in the UK.
PL: Can they do it?
IW: Well, I think trying to bring more energy generation through renewable sources. You know, we’re not going to volatile powers where we get our energy trying to generate our own is, I think, a really important point, and it can help revive some of, you know, the former maybe oil and North Sea oil and gas communities as well. I think there’s some real potential manufacturing and industrial renaissance through the clean tech stuff.
PL: Should there be more focus on nuclear?
IW: Oh, absolutely. As somebody who used to represent a constituency with a nuclear power station, I think nuclear is very much part of the answer. Absolutely, these small modular reactors. Can I just say, I think maybe we should make Frances Chancellor, because those were really, really good policy prescriptions and objectives. I would agree with the skills. You know, we’re a knowledge-based economy. We’re going to compete in the 2030s and 40s through the application of knowledge. And that changes rapidly every couple of years. AI is coming. Goodness knows what’s going to come down the tracks.
PL: So, David, doable things. I mean, is it the stop breaking records on immigration? Is it literally get that done? Is that the big one for you? Or is there something else?
DW: Immigration is a huge issue of trust, which there’s this general bafflement as to why borders aren’t controlled, but also just the staggering numbers, the equivalent of major cities coming each time. But where this really hits the road, I think, is where there’s also a bit of an opportunity, which is housing. And the fastest thing is, if we’d gone back a year ago and we’d said, which cabinet minister do we think is going to have the fewest gaffes and to really be seen as the classiest performer, how many of us would have said to Angela Rayner? But the general impression is that there, she’s actually delivering legislation. Now, it may be fiercely controversial, especially when it comes to the workers’ rights, which we haven’t talked about yet, and there’s certainly alarm bells ringing in lots of business organisations about that, but the housing area is where it’s seen as well, yes, there’s both a social need and an economic need, and this actually brings into question where you get the people as well who have the construction skills from.
But I think there’s also recognition that the target, while building over a million homes seems like a lot over the course of a Parliament, it actually hardly touches the sides of the problem. A truly audacious government that wanted to signal a reset could say that they were going to double it, maybe over a slightly longer period. But yeah, there is, there’s no question that there is land sitting there. You talk to civil servants, no matter which administration it’s been in, this has gone on for decades that Britain isn’t building enough homes. And I think if Keir Starmer wants to rescue his premiership, I think he should look at a property-owning democracy, whether you’re left or right or populist, this is the dream, I think, which everybody has.
PL: Backtrack to what David said about workers’ rights. We didn’t talk about that, and we should have talked about it, because you mentioned this whole idea of of employers feeling comfortable to take risk, to take people on, go secure, the knowledge that if it didn’t work out, they could let them go. The workers’ rights legislation as proposed is going to make that tougher.
IW: What we need in this country – I think I’ve said this before on this podcast – which is, you know, in terms of some of the things that have been dragging productivity and growth and rising living standards over the last 20 years: low level of investment, a regional imbalance towards London and the South East, which sort of heats up this market, which is a problem in itself, but gives deserts of economic activity elsewhere. The lack of ability to take on new ideas, you know, management techniques, or what have you, or technology. But the other thing is: more market dynamism, a bit more risk taking, a greater risk appetite. Now, a lot of that is longstanding cultural issues in our country, we’re perhaps a bit risk averse. But is there anything within the legislative vehicle and in the vision that the government is trying to push in terms of, let’s encourage dynamism, let’s encourage risk taking, and if it doesn’t work out, you can start again. You’re not going to be penalised for that. And I think we need to try and encourage that as well.
FH: Interestingly, I think that was brought up recently, actually, towards banks, and the fact that our risk appetite – I say our obviously, working for a bank – we should be able to lend more and all the rest of it. But obviously, our risk appetite, you know, acts as a straitjacket. And part of that, obviously, is to do with regulation too. So, you know, it may be, there’s things start to open up from a regulatory perspective, you know, having a look at that, that that might be able to change as well, because it is about risk appetite, a lot of it, and you actually need every part of the economy and all the people that drive that, all the businesses, to be able to help.
IW: But you must have to deal with this every day, Frances. I’m old enough to remember 2008. And the run up to 2008 which is, you know, 125% mortgages, you know, I’m not going to really look at it, you know, do you want some money? There you go. And look where that got us, here and in the US. So you’ve got, and quite rightly, the regulatory reforms that were put in place after 2008 strengthened banks’ balance sheets gave a more risk-averse approach, which helps safeguard the global economy. That’s good. So what’s the right balance in terms of, take a punt, have additional risk without blowing up the global economy when people default on their loans? That’s what you have to deal with every day, presumably.
FH: Yeah. I mean, absolutely. I mean, there’s a lot to do with risk appetite, not just that. And you know, everything that’s going on in the world, but you’re absolutely right, is the banks got to be able to understand what the appetite is and and how that’s going to affect the balance sheet and all the rest of it, and will people be able to pay back their loans? It’s all very important. And you know, you have got to have some regulation around that. We obviously saw what happened in 2008 let’s face it, it wasn’t a good outcome. So you do need a certain amount of structure around it. It’s just a question of whether, you know, everyone talks about the pendulum, has it swung just a bit too far the other way, and it just needs to come back a little bit. But you do want to be careful that you don’t go too far back the other way.
PL: David, is the overarching imperative for Starmer to get a grip on the parliamentary Labour Party? And doesn’t everything flow from that?
DW: What we’ve discovered in both Boris Johnson and Keir Starmer’s experiences is that having a big majority comes with a lot of dangers, because your powers of patronage are so limited. Now it was tough for Johnson because he couldn’t give roles to everybody to keep them in line. But when you’ve got twice the size of the majority, it’s even harder, but I think the key thing is this, you have people who didn’t necessarily expect to be elected, who are going back to their constituencies, and they’re having to sell things on the doorstep, because they are actually to be fair to them, very aware of the fragility of the situation, because through the quirks of first past the post, you have a government elected with a massive landslide, but with, I think it’s just under 34% of the vote, which is an extraordinary situation. So they are already fighting for their lives, but when they ring the doorbells, there are people even the first year, who can reel off all these issues. So they’re saying, why, why, why? And I think the feeling was, that if personal independence payments reforms had gone ahead, well, every family knows somebody intimately who would be affected by it. And again, it’s a retail thing. It shows up in the in the bank accounts, and you can put a finger on it, while with things like income tax threshold freezes, arguably far more punishing, but it isn’t where is that money gone that I was expecting?
PL: I mean, various newspapers ran the numbers, didn’t they on that about, you know, just how many MPs would lose their seats?
DW: Absolutely. And if it was just a case of having to worry about the Conservatives, it would be totally different. The problem is that here you have another party that appears to have clean hands on these issues. Of course, the danger with freezing thresholds is that it goes back to pensioners again, because there’s a lot of concern among charities who champion senior citizens that we could be in the ridiculous situation, as it seems, where the state pension is then getting pulled into it, which is an extraordinary situation. So what we’ve learned from Jeremy Corbyn onwards is that a pensioner’s vote, essentially, is worth several votes, because you can have hundreds of thousands of people at Glastonbury singing your name, but they are infinitely less likely to actually go and vote on polling day.
PL: You know, it’s sad to say we’re going to wrap this up because we are running well over time, but thank you very much. It’s been absolutely fascinating. Behind the Numbers will be back in August to discuss the history and indeed, the future of money. Meantime, the Insights podcast will look at recent research on mid-tier accounting firms and the big questions they’re asking themselves about the year ahead. Find them both wherever you get your podcasts and reassure yourselves that listening is always time well spent, not least as it counts towards your CPD. So make sure to log each episode at icaew.com as you listen. Thanks for being with us.
