Host
Philippa Lamb
Guests
- Frances Haque, Chief Economist, Santander
- Iain Wright, Chief Policy and Communications Officer, ICAEW
- David Maddox, Political Editor, The Independent
Producer
Natalie Chisholm
Series Lead
Mark Rowland
Transcript:
Philippa Lamb: To call the economic backdrop to yesterday’s budget ‘challenging’ would be a bit of an understatement. Borrowing costs are a 30 year high, Iran pushing up energy costs and inflation and annual debt interest approaching £100 billion. John Healey could at least point to the strongest growth in the G7, but balancing the books without undermining even that minor growth must have kept him awake at night. So, what did he do? What does business and the markets make of his first budget? Here to weigh the Chancellor’s choices, two longstanding friends of the podcast, Frances Haque, Chief Economist at Santander UK, and ICAEW's own expert on all things business and finance, Iain Wright. Joining us for his first appearance on Beyond Finance, we are delighted to welcome Political Editor at the Independent, David Maddox. Hello everyone.
Frances Haque & Iain Wright: Hello.
David Maddox: Hello.
PL: So, 24 hours after the budget, right now. How are you feeling about it? In a word, Frances?
Frances Haque: Modest, but could I also have the word gherkin?
PL: You can, and we all know why. Iain?
Iain Wright: Frances has pinched my word of modest, so I’ll say understated, at best underwhelmed. If you’re being harsh.
PL: Okay. David?
DM: I would say, and I’m not just saying this to wind up the other guests, early election.
PL: Okay, we’ll definitely get to that. I know he’s been slightly criticised for his delivery, but I thought it was an unexpectedly confident delivery after the first speech we had from him about six weeks ago, which felt much more hesitant. Did you feel that or was that just me?
IW: There were a couple of slips that were quite funny, about oil and gas and the energy secretary.
PL: But there were jokes and quite relaxed?
IW: I would imagine a new Chancellor delivering your first budget. That’s a bit nerve wracking.
PL: I wouldn’t want to do it.
DM: I thought it was okay actually. I mean it, it was very John Healey. It was solid.
PL: Yes.
IW: That’s a good word for the budget actually. This was solid, prudent to quote an old Gordon Brown word, which is all we could do in the fiscal context of the economy.
DM: He was in Gordon’s Treasury, wasn’t he?
IW: Yeah.
PL: He said he was aiming for a ‘ steady as she goes’ budget, didn’t he? And that’s, I guess, what we got.
FH: Yes. Definitely.
IW: I think he had to do two things, didn’t he? I would imagine the Liz Truss era haunts the treasury. So he can’t do anything to spook the gilt markets, do anything in terms of, higher borrowing, that sort of thing. But then he had to demonstrate to businesses and households, “ We understand it’s painful out there. We’re going to try and help a little bit”. I didn’t count the numbers, but the amount of times he said ‘breathing space’... “ Can we help a little bit?” Which was the centrepiece of the budget, wasn’t it? In terms of that £100 straight into the bank account to help with energy bills. So those two things he was trying to deliver and I think probably he did.
DM: Yeah, but the problem was he was kicking everything of any importance down the road again. So you just need to listen to the IFS, Institute for Fiscal Studies, this morning who was saying that you can have as many tiny cost of living measures as you like, but they won’t actually have any effect until we actually have a strong economy and we don’t.
PL: Okay, yeah. Let’s roll back to that. Frances, the context for the budget in brief. We all know what it is, but I want you to lay it out for us.
FH: Yes. He didn’t inherit a very great set of circumstances given obviously we’ve seen oil prices, gas prices, hiking, we know inflation’s going up. It was quite interesting. I think the OBR's got a peak of about 3.8%. Now that’s below most other forecasters have it going over 4% next year. That’s partly due obviously to what will be the rise of the Ofgem price gap in January, which not a hundred percent knows what it’s going to be, but it’s going to be fairly chunky. So, on that side, the OBR are, I think, a little bit below probably where we’re going to be, but of course they did lower growth for next year. So they increased it for this year, and actually just to have something positive for once to say, growth for 2026 for the UK has been quite frankly, amazing given the set of circumstances we’re facing. So, that’s at least starting from some positivity for the Chancellor. But, going forward, obviously growth is tailing off in 2027. What was interesting and this is getting into the nitty gritty of the OBR forecast, but they do obviously break down how GDP’s going to be put together. So household consumption, what are they spending, what’s government spending, what’s business investment. It was quite interesting that the household is not forecast to be the heavy lifter of growth. Particularly with obviously falling, they have got falling real household disposable income next year. That’s inevitable given where inflation’s going. So yes, he didn’t have the greatest set of economics to start with, but perhaps, it could have been worse. Growth this year could have been a lot worse, in which case he would’ve struggled even more. The one interesting point, because I know I have talked about productivity quite a lot on these podcasts. So just to circle this point, obviously they did mention that the OBR did mention it in their report. Quite interestingly, they’re kind of rolling back a little bit from where they’ve been in the past on productivity. But the one thing they did say, which I thought was interesting, so the near term forecast is not so great, but the sort of 1.1% for the outer years. They’re saying that’s partly based on capital deepening because we’ve actually seen a big increase in business investment certainly over this year, and that should support growth going forward so that actually, trying to take some positives rather than negatives. That was one of them.
PL: There were measures that weren't there in the budget to encourage entrepreneurship.
IW: I think in many respects it was the most entrepreneurial friendly budget I’ve seen in a long time. I reread the Red Book this morning and something that came out to me that hadn’t really confirmed in my head when the Chancellor was on his feet and then reading it the first time round, and it links in with Frances’s point about productivity is there’s an awful lot on the quiet about AI in there. We are betting a lot as a country, as a government, as an economy on AI. There’s a particular statistic I think from the OBR, which is if productivity growth increases by no 0.5% government borrowing goes down by £50 billion pounds. Those are big figures. So in terms of that is why to some extent, I don’t think John Healey was betting the farm on anything, but if there is any sort of selling of the field or betting on the farm’s fields, it’s on AI in a very quiet way.
PL: Yeah, I mean he talked about data centres, didn’t he? Thinking about AI and the paraphernalia around AI talked about data centres and the fact that they would be permitted to generate their own power, not linked to the grid straight away. It’s obviously been holding back development data centres, but David, that is a political hot potato. People don’t want them in their backyards, do they?
DM: No, they don’t. It’s interesting that the whole conversation on data centres is changing quite rapidly. Voters on the left and the right were first sold and correctly sold as drivers of economic growth and productivity. Now, they’re becoming planning issues. People are getting really wound up about them.
PL: And sustainability issues?
DM: Sustainability, water, power, taking all the electricity. I’ve got one in my patch where I live, a local counselor’s banging on at me about doing a story on how a data center’s killed all the local fish, allegedly. So these things are becoming much more difficult than they were.
PL: By no means a cure all and everyone knows about the American experience there and the Irish experience. So there’s some bad news stories leaking out.
IW: I think in the US it will have some impact upon the midterms in certain states. But I was interested in the red book about that data centre covenant where it’s saying, we will try and fast track and it’s based upon the impact upon communities and the positive contribution a data centre would make to the economy. They are trying to streamline and fast track planning permissions. The other key thing when it comes to AI is, let’s not rely on other countries. Let’s have AI sovereign capability and independence as much as we can. Again, that seems a sensible approach.
PL: That was a strong point, wasn’t it?
DM: That interestingly, that is the argument. It’s consistently coming up against rejoining the EU, the whole Brexit issue is that European regulation on things like AI is so much worse than here. But actually if you are betting the farm, Rishi Soak started this process and these labor’s kind of built on it since I think then, it’s that technology that really is going to make us competitive and bring the growth in if anything.
PL: Yeah. Not a straight road though.
FH: The UK is very much positively viewed by the likes of open AI and that ilk, particularly in terms of regulations and things like that and security. So, we do actually have a good advantage, which would be a shame to give away. Of course.
IW: But going back to your original question about entrepreneurship. Things like that first year allowance were really important. If there’s relief, it's really important. Then if you’ve got a side hustle increasing the threshold from £1000 to £3000, that probably, not in the next year, but I can imagine, a billionaire in 20 years time saying something like, “ Do you know what? That really got me interested in business and enterprise because I was selling stuff on eBay or vinted, and it got me the entrepreneurial book.” That might be a seed that really helps the entrepreneurial business climate of this country.
PL: One would hope there’s the young entrepreneur thing, isn’t it there, Frances? And the female founder thing as well.
FH: Yes, I was about to say that.
PL: Venture capital, female founders, the proportion they get. So all that’s helpful, but as you say, it’s not going to yield any results anytime soon. But you know, seeds capital for later?
FH: Yeah, I mean it was quite interesting given everything that’s been said about youth unemployment, about the, young persons allowance and things like that, entrepreneurial allowance. I thought that was actually quite positive potentially for people if that was one way that they might look at it, given that quite a lot of them do the side hustles and things like that. So being able to actually focus their time and energy more on that.
PL: Thinking about the cost of doing business— living wage, up?
IW: That will have an impact. One of the things that ICAEW was calling for was no additional employment tax. Because in the first budget from labour, the thing on NIC’s really hurt the labour market. We saw that in real time with our members saying, we’re going to either reduce the amount or lay people off. Minimum wage you want people to be able to have a standard of living when they’re working, but business owners will go, “I’ve got to balance this in terms of making sure that I have a sustainable business.” That means if I might employ 20 people, but a rise above the cost of living might mean I have to reduce that by two or three in terms of headcount. So these are difficult decisions to have been made and put on business owners. There,
PL: There was talk, wasn’t there, a parity for the under 21’s on the minimum wage? That hasn’t happened. Presumably that is a nod to employers to perhaps look at the very youngest in the workforce as a bit more affordable?
IW: If you’ve got a 19-year-old fresh out of education or whatever, and you’ve got maybe a 35-year-old with a bit of experience and you’re going to pay them the same, who are you going to go for? So, that’s why there’s an element of trying to nudge businesses to when they’re thinking about recruitment to maybe think about a young person that hasn’t got that experience yet.
DM: There’s already a disaster going on with graduates at the moment because none of them can get jobs. Unfortunately most of them are above 21. Anyway, it was the NIC’s increase and I’m afraid the minimum wage increase won’t help.
PL: No, we talked about this on the podcast before and it’s still an intractable problem as far as one can see.
FH: The data marks it out. We’ve got charts showing just how bad. You can see it in the hospitality numbers that have fallen, the payroll data. You can just see it. If you take it from the autumn budget of 2024 and run it forward , you can see it quite plainly that it had quite an impact. One of the things that is interesting though on the living wage was, I think there was reference to a £ 5.7 figure, which is what the low pay commission would’ve come out with, but obviously they can take into account how the labour market’s looking. That’s why it was less than that number. That had, I think, been talked about initially, so slightly lower than where it could have been, but equally still an issue for businesses.
PL: But thinking about young people’s jobs in retail and hospitality, we did see the small business rates relief threshold frozen, didn’t we? So, good news?
IW: The Chancellor, backed up by the Prime Minister, is very keen on, ‘how do we help high streets?’ and he kept saying, didn’t he— the bakery, the pub, the hairdressers. It’s all of that. It’s a case of giving them a little bit of relief. I think it’s important to this government by the looks of it.
PL: We got this 20%, was it a 20% reduction in rates for pubs, music venues, social clubs? It’s quite narrow in scope. Iain, too narrow?
IW: This is the problem of tax policy, isn’t it? And something that we argue about constantly. You can imagine in an annual fiscal statement, there are tweaks, but, and somebody from our tax team mentioned this word yesterday when we were watching the budget and I think it’s a really good word, the ‘ yo-yoing’ of different reliefs of different allowances. Businesses just want that stability, they’d rather just see it there for 10 years, even if it’s at a slightly higher level because they can plan with some degree of certainty there. So this yo-yoing adds additional complexity. The singling out of different sectors for certain things does increase complexity. There was a lot in the budget yesterday about HMRC and compliance, making sure regular payments as part of income tax self-assessment. That provides a greater degree of complexity as well. So, we want to stop injecting, and this is not confined to this government. This has gone on for 30 or 40 years. Complexity upon complexity of tax affairs means the cost of doing business is much more expensive.
DM: This is a problem of tinkering, isn’t it? Constant tinkering. John Haley was accused of tinkering yesterday, but you know, you could level the same argument against a list of Chancellors who’ve preceded him now. It’s again, I’m kind of going back to the IFS, but the IFS is more to say the tax system is a mess because of his constant tinkering.
IW: I would say the tax system’s not only a mess, it’s bonkers, because it’s got these different cliff edges. It incentivizes bad behaviour that hinders growth or promotional prospects, which is why, let me get my plug in, which is why ICAEW has announced the launch of a future tax commission. This is meant to be looking in a holistic manner, not in ad hoc different, direct taxation VAT, but what should a tax system look like for the UK in the 2030s? When you’ve got, changing demographics, you’ve got changing technological issues, how do you tax a robot?
PL: Yes.
IW: And it’s like, how does this all fit together? Because this drip of complexity is really undermining our economy. Our tax code, something like 23,000/24,000 pages long. It’s the longest in the developed world. We’ve got to do something about this.
PL: It must be a direct disincentive to entrepreneurism, giving with one hand, taking with the other. The idea of wading through all that, if you’re just starting up, is daunting, isn’t it?
FH: Totally inefficient and not good for productivity.
PL: Devolution. David, that was a constant theme, wasn’t it? Throughout the speech. This plan for regents to keep or regional mayors to get a 100% of business rates. When is it? By the end of the decade, 20% next year? I mean that did strike me as interesting and new and what did you think?
DM: And pass on income tax as well. I think it’s an interesting idea and it won’t happen immediately because I think there’s limitations to this passing on of powers, but eventually we are going to get some tax competition as a result of this. I think because the pressure will come up and we’ve seen it actually already in the discussions to Conservative and Reform. Mayors have talked about this, about being able to lower taxes, to incentivize companies to come to their areas' most attractive regions. For example, if you are in Lincolnshire, it may not be the most attractive place to go to. I grew up near Lincolnshire, so I think it’s lovely but you can see why people may be reluctant to go there. So if you cut tax it’s an incentive. So that pressure’s going to grow. Nobody’s going to take these powers away, but they may well add to them in future. We see it in the States, which has properly devolved to the United States. Places like Florida have very low tax rates and it’s stealing businesses from California, which have much higher tax rates.
PL: Yeah. The financial capital has all been dragged south in states.
DM: That is the long term trajectory of where we’re going. It kind of fascinates me that Andy Burnham is so obsessed with it. I know he was a mayor, but it’s so low on people’s priorities. But actually if we do end up in a tax competition, I think it’ll be a good thing.
PL: Could be very significant. Surely. What do you think, Frances? Good thing.
FH: Yeah, no, I think it is a good thing and it obviously we talked to quite a lot about before Andy Burnham became Prime Minister and there was a lot of words from like, Andy Haldane and Jim O’Neill and others about the positivity of trying to push out some policy to the regions. It makes sense in some ways because they’re more efficient in terms of knowing what’s going on in their patch, in the middle of London. So I think there are some definite benefits. I suppose the one drawback or the potential issue that might arise is how you deal with fairness in terms of obvious regions or areas that are already poor.
PL: Yeah, how much income loss can they stand?
FH: Yeah. I mean that obviously has been talked about and I’m sure there are probably ways to be able to deal with that, but I suppose that’s the only potential drawback.
IW: I would add to that. I think this is a positive thing. I think local decisions or decisions made as locally as possible is a positive thing. But I see two big barriers. The first is mayoral authorities do not have the capacity and capability to do this yet. I think that’s acknowledged by number 10 North. So the rewiring of the state to allow that to happen will take time. The second thing, just building on Frances’s point, I’m a proud Northeasterner. It’s the best region in the world. I would encourage all businesses to relocate there, but our business base is low. Not
PL: Not Lincolnshire then?
IW: No. Don’t come to Lincolnshire. Come to the Northeast! Moving on, the business base is low. Some degree of redistribution of tax revenues from say, a city of London and Westminster to the north needs to happen. How that is a transitionary process, I think will be very important too.
PL: Building on the idea of the capability of organisations to go elsewhere, banks, Frances, looking at you, obviously the banks, I think it’s fair to say, got off a bit lighter than they thought they might do yesterday?
FH: Yes. I think everyone thought it was going to be sort of 8% but also it’s time limited. I do remember talking to someone about this windfall tax and I said, a windfall tax by definition should be time limited. Because it’s a windfall tax. But it’s very easy to see how these things just carry on and on forever. So, I think from that point of view, certainly that was more positive for the banks
PL: And the Chancellor was at pains before he said a word about what the numbers were going to be, to say how much he loved the banks and how important the banks were and how they were a huge contributor. But, David , still chat about them potentially going elsewhere?
DM: There is a , and I don’t know if it’s cyber rattling or not, but there is a lot of chat, especially investment banks. Obviously not retail banks, but investment banks de-headquartering, which would have a dreadful impact on the economy in terms of bringing investment into this country and the city is still so hugely important to the success of this country. Especially in a kind of post Brexit world as well. We managed to survive that particular shock. I thought it was interesting. I was being told yesterday that his very kind of loving language actually was very much aimed at ‘please don’t think about going please stay’, sort of thing. The one warning I would say though is temporary and has a habit of sticking around. The most famous example being income tax, temporary in 1799 and and yet still here. If I look at Alistair Darling’s 50p rate, higher rate, which admittedly George Osborne cut to 45 p, but that top rate is now not temporary. It’s still around. In fact, people on lower incomes than originally set are now paying it. That of course creates one of the cliff edges that you were talking about because people lose all their tax allowance with it as well. So it’s quite a serious history. So, temporary? We’ll see.
PL: Yeah, Frances, we are obviously talking about investment banks here rather than retail banks, but what do you think the likelihood is that we could see that sort of drain?
FH: That’s a very leading question.
PL: Or not. Yes, or not?
FH: I always think never make a decision until you’ve sat down and gone through the numbers and everything else. So, cold light of day can bring a different story. So yes, I think it will be interesting to see. Obviously, retail banks are different and we obviously want to do the best for our customers. But yeah, investment banks have a slightly different outlook. But I would’ve thought in the cold light of day, given it is temporary and that’s what they’ve promised. I totally accept that one never knows a hundred percent. Also given the fact that they are looking at other areas in financial services, so, we are obviously talking about the budget, but the Chancellor has written to the FPC about capital requirements and regulation in terms of financial services, which actually from a growth perspective, if you can start cutting some of that so that there’s more to lend to businesses, which, has fallen considerably since the GFC. So, things like that actually could be positive. So, it’s swings and roundabouts. I know we’re talking about just the budget, but there are other elements out there that will hopefully benefit the sort of financial services sector.
DM: Just on that windfall tax, because the push to have this tax on the banks or to increase the surcharge was coming from the TUC. They kind of led the way on that. When I was interviewing Paul Novak, his general secretary, last Christmas about it, and he was describing it as a windfall tax. I said that means it’s temporary. He said “no, just stays.” So they don’t see it as temporary. They will no doubt continue to push for it to be up to 8% and to stick around.
PL: I mean is this about politically acceptable targets? Because I’m thinking about landlords, obviously a minor sum compared to talking about taxing the banks, but the fact that landlords will now pay more on their profits since yesterday. I hate to say no one likes landlords, but they’re an easy target, banks, landlords, easier to tax them than other people. But what do we think about the consequences of that? Because it's not going to tighten up the rental market to the disadvantage of renters?
IW: I think you make a really important point. So I think in many respects the contours of the banks and the landlords are very similar. Banks are very different in some respects. Banks are an essential part of the UK economy. One of our strengths, we are leading in the world on this one of only two markets anywhere in the globe for this global expertise.
PL: Embedded in industrial strategy.
IW: Exactly. 1.2 million jobs across the country, not just in the city of London. This really matters. I do worry that, and the point about ‘it’s high interest rates as part of the interest rate cycle’, they are making higher profits, therefore, broader shoulders and all of that. That is a sort of compelling case for the general public. I do worry that will be passed through in some way and then it restricts the supply of credit and it increases the cost of borrowing at a time when we want ambitious businesses to take a punt. To take a risk.
PL: So it could be ultimately counterproductive?
IW: In terms of, I hope it doesn’t limit the growth trajectory. In a similar way, landlords, if they have additional costs, will be fed through to rent.
PL: Yes. Or they will disinvest and tighten the market.
IW: Again, the supply of property will be restricted. So, you’ve got to think about these unintended consequences as well.
PL: Yeah, I was surprised about that. Particularly in the wake of the legislation we’ve seen on residential renting already this year.
DM: I’m not sure who would want to be a landlord at the moment. You can’t raise rents without it going for a review. Everything is hugely restricted and you’re just getting taxed more on what you do get. We’re seeing a real crisis in the rental market. It’s certainly something that feeds our algorithms as a digital newspaper because people are very worried about it.
PL: Yeah. We’ve talked about it before on the podcast and we’ll talk about it again, but rent's a huge proportion of people’s disposable income. Should we just circle back to energy a bit? We talked about it a bit and obviously as you said, Iain, we’ve got this £100 for households in council tax bans A to D, which is great, but we know we’re going to see much, much higher bills there. We’ve got quite broad strokes you mentioned about greater sustainability in that area but none of it seemed very, none of it seemed very concrete in terms of bringing down the cost of business, of energy. We saw some good stuff on fuel duty, didn’t we? I suppose there was that.
IW: I think this gets to the heart of what is the budget for, what is the annual fiscal statement for, and is something broader about, the broad contours of strategic and spending allocations, something that’s separate? I think a business would do it in a separate way, rather than just that annual cycle as opposed to, strategy and growth. They would be different. So, I’ve got some sympathy with the government in terms of, that 10 year growth plan, the spending review, that has to be separate from the annual budget. That makes sense. But this is really important if we as a country want to re- industrialise, and that’s what the Prime Minister says is important, in terms of that tech enabled resilient manufacturing and subsequent industries.
PL: That’s about energy resilience too, isn’t it?
IW: I had a dinner a week or two ago with CFOs from across different sectors. Not just confined to manufacturing but retail. There were manufacturers there and I said, if there’s one thing that you want the government to do on anything, tax hiring, investment, what is it? And it’s Reform energy costs. Because that is the thing that is hindering competitiveness. So that has to be a long term fundamental plan to make us as an economy and the business base much more competitive.
PL: We have seen its baby steps towards that, haven’t we, David, with the gas fields?
DM: Yes, with Jackdaw.
PL: Yeah, and possibly Rosebank?
DM: Rosebank looking less likely, but we’ll see. It seemed, they both seemed to be obvious decisions, certainly for the short term. But they’ve come with some political pain. Not a lot, but maybe too delayed in the end. But they’re not going to solve the energy price problem. This £100 off council tax band homes, the A to D when I think Resolution Foundation, which is fairly labour friendly, was pouring cold water over it almost immediately. Because bills are going to go up about £600 at least. It’s just not going to touch the sides.
IW: But David, there’s a fundamental point there. We’ve had to some extent, the global financial crash from something like 20 years ago. We’ve had COVID and we’ve had the war in Ukraine and the spike in energy costs. Are we a society expecting government to solve all of our problems? This is a global matter. The Middle East conflict is brutal for energy supply and then that wave of inflation. We can’t expect the UK government to solve everything that’s happening in the world. Can we?
DM: No, we can’t.
IW: Then that’s a bit of breathing space. You can understand where the Prime Minister and the Chancellor are coming from, but it’s the idea that let’s do more while maintaining that fiscal situation. You can see the difficulties they’ve got. There’s a wider point about government shouldn’t solve everything.
DM: Yeah. But I’m sceptical about measures like that, which don’t really have a big impact, but cost quite a lot and would look good on, getting back to my first answer would look good on election literature. I’m not blaming John Healey for a lack of investment in our energy infrastructure for decades, which is criminal, actually in what’s been going on. So it’s certainly not, but there are much bigger issues than trying to chuck a lot of money on a tiny bit of help.
PL: Should we look at what he didn’t talk about and we won’t hear about, and that’s welfare and defence all well down the road into next year now. Does it matter?
FH: It’ ll be interesting come, I think it’s April when the review is.
PL: Do we have a date for that?
FH: I’m not sure they’ve actually given a date, I think it would be around April.
IW: Is it the Spring and Whitehall terminology? The spring could be anything from February to November.
PL: Well the fact that the people at this table don’t know, suggests to me that we don’t know.
DM: I mean the chat yesterday is that we won’t see it until the autumn.
PL: Yes, that’s the latest I've seen, which is a year away on the things that are really going to cost and will be really significant. And of course, defence tied very tightly to the Chancellor’s own past history, having resigned his job over that very question. Which brings me to David’s point about the potential for an early election. Now obviously Andy Burnham has ruled it out again, I think, hasn’t he? Since the budget speech, I think, hasn’t he? David, you’re not buying it?
DM: I’m not, if it looks like a duck in quacks like a duck, then there’s a good chance that it might be a duck. As I was saying, a lot of those measures yesterday in that budget would look good on election literature, a hundred pounds off your bill. We’ve had a conference speech, which sounded like an election manifesto and essentially did what John Healey’s just done with defence and welfare and kicked everything down the road. And so, “ we’re going to do great things. We took a wrong turn 40 years ago and we’re going to completely change things.” But after the next election, I don’t think you can stick around having that hanging around the neck of a government for two to three years. If you look at the polling, the dynamics of the way that Reform’s collapsed, but only to a point where it still cancels out theories. We are now seeing a series of polls with labour potentially getting a majority again. Admittedly, and I know Iain’s going to say much lower than Labour currently has.
PL: He’s literally chewing the carpet waiting to speak against this.
DM: But, if you polled, roughly polled, most people in Westminster now, and I recognise that we’re a bit of a bubble, but most people are talking about May next year, thankfully not December this year, but May next year.
PL: Iain?
IW: I couldn’t disagree with David more. I can absolutely understand if a new Prime Minister gets a bounce in the polls. He’ll never be as popular as he is now because decisions will mean there’ll be a sort of decline in that. That happens to all Prime ministers. It happens to all governments. But good politics will tell you, you go along, why would you transfer a very large, historically unbelievable majority for at best, a majority of what? 10, 20, 30? So you’re scrambling around, dealing with your own back benches or even a minority government dealing with other parties. You go along. I admit the conference speech was electrifying and looked like it was on an election footing. But the key point, the thing that’s absolutely confirmed my view about ‘we’re going to go along, there won’t be an election soon’, is the table’s in the OBR document yesterday, and I think Frances alluded to this growth is downgraded household income or disposable income is down in 27 and to some extent 28, a government’s not going to go to the polls when you’re feeling worse off, surely? Surely?
PL: But isn’t this the argument to do it now? Because, if we’ve got the spending review, which could be potentially, as we said, a year from now, and then as you’ve just said, Iain, things get worse after that, why would you not look at next May?
FH: Yes, and you’ve also got the fact that everything’s got to tighten up in 2029 for you to actually meet your fiscal outlook anyway, so there’s that too. I think there are arguments both ways on this one. I’m obviously going to sit on the fence like a true economist. So I can see advantages of going now, but you’re right, you’re going to lose your big majority if you do that I suspect. On the other hand, you would then be able to obviously take out of the manifesto— he’s hamstrung by the manifesto. The whole of labour has been hamstrung by that manifesto. So if you want to do anything in this 10 year plan, which I assume we will get in the next few months, maybe it makes sense. But equally, you are running a risk that it all goes horribly wrong and you end up with a minority government, which is obviously not where you want to be, and very little will then get done, which is bad enough as it is. So, ooh, I'm glad I don’t have to call it!
DM: For me, the ‘24 manifesto is the big issue here because he has basically accepted the premise that it can’t be changed even though he actually could have done, but he can’t be changed until there’s another election. It ties him up certainly on the big taxes, income tax, VAT, personal national insurance contributions. It ties him up on what he wants to do in Europe. I think it ties him up on a whole range of things. He can’t do his social care stuff until then. I also think you are right. He will want to avoid going after the spending review because the spending review is going to not be a pretty picture.
IW: But we are in the face of absolute unbelievable global volatility thanks to the Middle East conflicts.
PL: But when does that stop?
IW: Who knows? Again, the OBR shows the impact upon government borrowing, if that’s for any length of time.
PL: Yes, indeed.
IW: But I wonder whether there’s a bit of hope for the best, maybe. Can you imagine a scenario midterms, president Trump says, “ Yeah we withdraw from Iran.” Oil price goes back to something like $60/ $70 a barrel. Inflation is swept away. People will start to feel better off as that wave of inflationary shocks recedes. That could be the hub. Maybe this is not a strategy for number 10 and number 11, but fingers crossed and hope for the best.
DM: You’ve actually just supported the argument, midterms are in November. If Trump’s out of Iran by the end of the year and oil prices go down, then you'll get a perfect scenario for our election.
PL: We’re going to stop there because we’re now in the whole realm of speculation beyond anyone’s expertise. I think I’m going to draw this to a close actually. Thank you all very much indeed.
IW: Thanks.
DM: Thanks a lot.
PL: Next time we’ll have another bonus episode for you, in which we’ll take a look at the knotty ethical issues posed by AI and how ethical standards should evolve to help practitioners. As always, this episode is CPD, so log your list and use the link in the show notes if you’re an ICAEW accountant and subscribe to Beyond Finance on your podcast app so you never miss it. If you feel moved to give us some feedback, please do email the team on podcasts@ICAEW.com. Thanks for listening.
