#30 PwC UK: The Chancellor Should Break Her Fiscal Rules

18:43Rachel Reeves:We want to maintain a flexible environment.

18:46Marco Amitrano:But I mean for new joiners, what is the kind of baseline expectation? You must have some guidelines.

18:50Rachel Reeves:No, no, we do. We say minimum three days in the office. But what I'm finding with our new joiners is they want to be in the office or on client site as often as they can be because they're hungry. They want to learn. They know, you know, it's often referred to now as we are now in with young people, the age of realism, not the age of idealism, as some people have called it. The age of realism. What does that mean? Well, they want to come to work. They want to learn. Yes, they want to be paid well. They want to be able to afford things. They want to progress through their careers. But they're ready to take it on.

19:24Marco Amitrano:I don't know what the starting graduate salary is at PwC. Some professional organizations have said that actually things like the raises to minimum wage, the extra employment rights, all that kind of stuff. Not only has it been a disincentive for some businesses, perhaps not yours, to hire people, but it's also meant that full-time salaries on those wages are beginning to push up against starting graduate salaries. And in that sense, some in the business community think we might have overdone it in terms of wages, employment rights, and actually there's a disincentive. What are the barriers to growth and hiring that you see in your client companies?

20:02Rachel Reeves:Yeah, well, first of all, for us, I mean, we're constantly keeping those graduate salaries, starting salaries under review so that we make sure. You've frozen them recently, no? Well, not universally, but there are areas where we've looked to make sure we understand what is the right amount, what is market, because actually it's a start point here. Actually, wage growth is a constant through a career here. So, you know, whether it's through promotion or annual salary increases or both, wherever you start in an organisation like mine, your remuneration is always growing. in the client base yeah look various varying views on you know what workers rights combined with increasing minimum salary minimum wages done and national insurance and the hiking employers look I would say that going back to November 24 and the impact on the economy probably a miscalculation by the government in terms of bringing all those things together at once a reticence to hiring, a reticence to taking risk with people.

21:04Rachel Reeves:You know, I think we've been working back from that as a country and a business community. And some of the things that, you know, are being loosened, the last budget being, you know, less business unfriendly, let's call it, is all flying back. But look, we did make hiring feel a little more risky for a while.

21:22Marco Amitrano:OK, that's interesting because the government came to power with a promise to be very business friendly, wants to be the growth is our number one objective and yet here we are we've got a youth unemployment crisis we've got a bit of a graduate jobs drought at the same time and some people think actually the government I think from what you're saying is the government did overdo it with that package of measures yeah look I think they did I think they did overdo it

21:45Rachel Reeves:with that package of measures but then they have since responded and you know I think we've seen over the last 12 months in particular the rebuild if you like of a dialogue between government and business a number of really important initiatives like Charlie Mayfield's Keep Britain Working, which we as an organisation are a vanguard employer in.

22:05Marco Amitrano:That's to get people who are out of the workforce back into the workforce if they've been long-term sick or blah, blah, blah.

22:09Rachel Reeves:The needs, as they're called, which is an alarmingly growing number. We and I personally are leaning into that agenda with the government because it's fundamentally important to us as an organisation, to me personally, given where I started. So look, I think there is better dialogue today but it was damaged by that that moment in November 24 for sure.

22:30Marco Amitrano:That's interesting too because the government the number of businesses I speak to I'm sure you speak to even more think that they weren't convinced that the government was on their side. Look I think

22:39Rachel Reeves:the government wanted to be on their side I never felt that the government wanted to be on our side as business leaders I felt there was probably a prolonged period of time of focusing on inheritance and what was inherited and what needed to be dealt with, which, by the way, was hugely complex. But I think there was some unintentional fracturing in that relationship, yes.

23:08Marco Amitrano:And is it mending? Yes. And what are the, you know, you've seen that growth has been anemic at the moment. You talk to business leaders, you know, what is holding them back from investing, from hiring, from growing? What are the major obstacles?

23:23Rachel Reeves:Well, look, I think we have, by the way, sentiment up to 10 days ago, two weeks ago was really positive again. We had the budget behind us, a better budget behind us from November 2025. We have the cost of finance falling and projected to further fall. We have wage inflation, if you like, starting to outstrip cost inflation. And then actually we've got a situation in the UK where corporate balance sheets are actually very strong. There's a lot of cash on them. There's a lower than average level of debt on them. So you kind of add all of the conditions for liftoff, then the Middle East conflicts.

24:06Rachel Reeves:And I think that has sent a particularly big shock back through the system. So I think we were getting there up to 10 days ago. and we've now got the current conflict war in the Middle East to deal with and how long that goes on for, the implications for oil and gas prices, the fact that we are the most expensive country in Europe for energy, how that flows through to business, inflation, that could be really difficult for us again.

24:35Marco Amitrano:That's interesting, isn't it? Because there were some signs, tentative signs of business confidence, consumer confidence recovering, all the big things, like interest rates, inflation, we're going down.

24:47Rachel Reeves:And I can see it in my business pipeline. From consulting to deals right through to the regulatory parts of our business, I could see it. Now we'll see what happens in the weeks ahead.

24:58Marco Amitrano:And just quantify the level of the shock. Is it back to that old bugbear of energy prices or is it something more intangible, just sort of that kind of secret source of confidence?

25:09Rachel Reeves:It's the tangible and intangible, isn't it? I mean, the tangible is the core of it is energy prices. and the impacts so broadly that that can have on the whole business system here or whole of your operating model here, your operating cost base. But there is the intangible too. And actually, we will see that a little bit in the Middle East as well. That is a source, you know, I'm responsible for our Middle East firm. You know, in addition to the 23 ,500 people we have here, I've got 12 ,000 people down in the Middle East across 12 countries. the awe-inspiring optimism, hustle, art of the possible that I've seen for the last decade down there associated with growth in business, growth in sectors, and then growth in our business.

25:52Rachel Reeves:Actually, you know, we've benefited from huge growth down there. That optimism will take a hit. I suspect it will be shorter term. The quicker this conflict is over, the better.

26:01Marco Amitrano:Okay. And what about your staff down there? What have you told them? Clearly, it's, you know, It's a physically dangerous environment. What are you doing?

26:07Rachel Reeves:Yeah, look, I mean, I will say all of our staff are safe. And actually, you know, the learnings, if you like, the infrastructure that only ever got improved from COVID meant that we were very quickly able to get our people to safe locations, make sure that policies were clear for them, that they could go where they felt most safe, whether that be home or somewhere else, suspended all travel, suspended all expectation of them needing to be anywhere other than where they felt safe. And then, you know, we see business continuing down there, by the way. I mean, it's the oddest thing, talking to one of my partners only this morning, you know, there's a siren will sound on your phone, you go to somewhere safe, a siren will sound 45 minutes, an hour later when whatever it is that was anticipated is dealt with or didn't happen, back to work as usual.

27:01Rachel Reeves:now there's a level of comfort with that but a level of discomfort that will continue

27:05Marco Amitrano:to sit on the top of it okay and on that on the energy shock the um i'm just trying to how can the government help on this one um we've the bugbear of high energy prices much higher than in europe way higher than in the u.s has been a perennial problem how do you see that playing out and what if anything can the government do to help? This is a longer term solution that will

27:32Rachel Reeves:involve some short term loosening of fiscal policy in my view. Really fiscal policy?

27:38Marco Amitrano:What does that mean spending more? Bunging people money?

27:42Rachel Reeves:Loosening the rules around our borrowing. I don't see any way that the Chancellor is going to find out of this without finding a way to loosen the rules around what we're willing to borrow. But in order to make sure that there is a medium to long-term fixing, we have to invest in infrastructure. And that's got to be a combination of government and business, as it always is. But continuing to say there's no money for these things isn't sustainable for us.

28:11Marco Amitrano:So you're saying that Rachel Reeve should break her fiscal rules in order to get us to do it? Yes, look, personally, I believe that. Sorry, just to be clear, you said yes.

28:18Rachel Reeves:Yeah, well, because, look, I think that has to be explored. And, you know, I think as long as that's done openly, transparency, transparently with business supporting the way forward with that, business investing alongside the government and the Chancellor on that, I think that starts to address the things that we need to address.

28:38Marco Amitrano:If she does that, then bond markets take fright and start charging her more money for the extra borrowing she wants to do. Because one thing that reassures the bond market are these fiscal rules saying, don't worry, we're not going to break them. You're saying break them, at which point the bond market says, well, we want to charge you a bit more money for that additional risk.

28:55Rachel Reeves:Well, I think like every market, they will react more adversely if you surprise them. And I'm not saying we just change those rules tomorrow. I think we start to table a plan that shows how loosening those rules will lead to investment and growth in the medium term. And what should we spend that money on, the additional borrowing? Well, I mean, there are kind of three aspects, really, that we talked about for some time. Technology, talent, and infrastructure. And actually, that enables greater levels of overseas investment coming into this country. I can't remember the number that was recently given to me, but it was referred to as an infrastructure gap.

29:41Rachel Reeves:That was the money we need to spend on infrastructure to be competitive globally. And it's not a number I've been able to audit, but someone said it's£2 trillion.

29:52Marco Amitrano:And what is that? That's in energy infrastructure, in roads, in fibre optic, all of these things? All of these things. Okay.

29:59Rachel Reeves:All of these things that enable investment in business that will grow.

30:04Marco Amitrano:But some would say businesses should stop asking the government to do stuff. Business investment in the UK has been chronically low for a decade or two now, ever since financial crisis and even before that. It's actually businesses are the ones who are sitting on their hands. Don't ask the government to do this. Get out and do it yourself.

30:20Rachel Reeves:Look, yes, I agree with that as well. But I think it's both. You've got to be moving in collaboration and combination, government and business. That's the same in every country in the world. I do think we could be bolder in business in the UK. I think we are being encouraged to be bolder. I mean, I lived in the US for three years of my career. Get away from the politics and individuals that we might listen to on the news in the US. Business is bold in the US. Business is bold because failure is not seen, well, first of all, success is celebrated. And failure is seen as something that you just move on from.

31:00Rachel Reeves:And I think that business culture in the US that allows organisations or encourages organisations to lean forward further, I'd love to see more of that in the UK.

31:09Marco Amitrano:It's a hell of an environment to lean into at the moment with the shocks that come almost monthly, daily, etc. You're asking for a sort of fundamental change in British culture towards business. Possibly, but we are a great country.

31:24Rachel Reeves:We're envied for so many things. I mean, one of the things I have the great privilege of in chairing EMEA in PwC, which is about 88 countries, is my colleagues in countries, mainland European countries, they envy what they see in the UK. Whether it is about life, stability, actually, we're more critical of ourselves than anybody else is. Yeah.

31:52Marco Amitrano:You talked about talent, technology and infrastructure and that the government should spend more money on this, break its fiscal rules to spend more money on those three things. In tandem with business. In tandem with business. But I'm just saying, what does the government spending money on talent look like? How does that get realised? What do you mean by that?

32:08Rachel Reeves:Well, I mean, some of it's happening in government programs to let's call upskill. One of those buzzwords now that I increasingly dislike, but I'm going to use it. Upskilling, investing in the broader population to be more skilled in using technology, more skilled in using AI, encouraging funding higher education, making sure more people, whether it's at university or another form of education, stay at school. It worries us, doesn't it, this, you know, not in education or employment. You know, their investment in capability, investment in skills that lead to greater ambition, actually that's got to be something that is a North Star.

32:50Marco Amitrano:So up the education budget in some way, target it better at the people and give them the skills they need, basically? Again, in dialogue with business.

32:58Rachel Reeves:So we know that what the government's spending money on is more likely to hit the target of what's going to work for business and therefore growth of the economy.

33:05Marco Amitrano:And then the spending on technology, what is that? Government co-funding data centers, subsidies for companies? I mean, I'm just trying to wonder what is spending on technology?

33:14Rachel Reeves:There is technology infrastructure. You mentioned fiber optic. You know, actually getting our energy system fixed is directly related to the ability. So that means the grid, basically, and stuff like that. The grid, but also making technology available to people the way we did when computers first arrived. You know, when government sponsored people having computers at home, getting access to the internet. All these things become important to basically make sure the technology infrastructure on top of the, if you like, the physical infrastructure is actually moving forward.

33:47Marco Amitrano:Okay. And just returning to your business, there's been some longstanding. You said you've been around since the 19th century or something like that. Is that right? PwC, yeah, 176 years. 176 years. There's been a big four for a very long time. Some people would say, that doesn't look very competitive. What we need is a bit more competition. And there are some splinter groups coming up from some of your old employees that are starting up other firms. I just wonder whether they're nimble, AI-equipped, whether the big four, that monolithic big four, could be vulnerable. Is that something that keeps you awake at night?

34:20Marco Amitrano:Look, every sector has disruption on its risk radar.

34:25Rachel Reeves:Not yours, it seems. Well, no, but it does. But it's not disruption that I worry, you know, threatens our extinction. It's disruption that you just have to make sure you understand. You know, competition in professional services somewhat uniquely grows the sector. competitors it's unlike some sectors when new competitors appear in professional services it tends to grow the market um i'll give you an example and therefore you know when you're leaders in the sector you tend to benefit from that i mean you can demonize competitors coming in or you can kind of celebrate and embrace them watch them closely understand what they're doing and learn from that and then when you're one of the bigger players you're able to say okay that's interesting what if we did that here differently?

35:13Rachel Reeves:What if we evolved our existing services this way? And the whole of the client base and the market benefits from that. So today, financial due diligence is an example. One of our traditional services, probably not been there for 176 years, but probably 100 in terms of supporting deals, supporting M &A. My head of deals here shows me a slide that says 10 years ago versus now, we have four times the number of competitors. So four times the number of competitors for financial due diligence work today than 10 years ago. Yet in that period, we're twice the size we were, and we're still the market leader.

35:49Marco Amitrano:Yeah, that's just to explain financial due diligence, kicking the tyres, make sure the accounts are in good shape before you go and sell in the marketplace. Well, not just the accounts anymore, but, you know, the commercial model, all of those things. And on that, there's been, you know, we've had a rough couple of years where a lot of people have said that the London Stock Exchange, the London capital markets, where people come to raise money, whether it's equity or debt, have been slightly dying. What's your prognosis for London as a centre for finance?

36:18Rachel Reeves:Well, I think London still is a world-leading centre for finance. I think we are challenged with making sure we're modernising. And, you know, one of our reports released a month or so ago that we worked on with CityUK looking at the modernisation of the financial system, and we had input from 300 senior executives across financial services in the UK, were very focused on what we need to do to modernise around things like tokenisation. That's using cryptocurrency? It's not the same as crypto, but ultimately allowing underlying assets to be traded more freely. But ultimately, that modernisation is key to maintaining being a leader.

37:02Rachel Reeves:And what does that modernisation mean?

37:04Marco Amitrano:What regulations that are currently there, what are the current impediments that you'd like to sweep away and your clients told you should be swept away?

37:09Rachel Reeves:Look, actually, this one good thing that the government has focused on is trying to alleviate regulation, particularly around public markets and around financial services, to lower some of the barriers, ultimately, whether it be the listing rules or indeed requirements when you're a listed company. They have focused to some good progress on lowering those barriers. With any dividend? Do you see any promising signs there? Well, look, I think we are looking at a stronger pipeline of companies looking to list in the UK than we have done for a couple of years. So, you know, there is a bigger pipeline of potential IPOs in the UK that I do think is directly correlated to the feeling that actually there is a commitment to deregulation here.

38:00Marco Amitrano:Final thought. You are a parent. You talked about that earlier. You know, there'll be a lot of people who thought that the natural progression in their professional life might come through your doors at some point. If you're, I don't know, 12, 14, 16, you pick the age. Give that person who wants to go this route some advice. How do they prosper in the modern world? Look, I think never check out of education.

38:27Rachel Reeves:um you know i think even today um and we describe ourselves as a learning organization i describe myself as a lifelong learner i think you've got to be curious in this world you know you've got i used to drive my children nuts when they were little because i wasn't the sort of person that would say um what was your favorite part of the day you know i would ask them what questions did they ask today uh and you know it's progress when they start lying to you because you know they realize you're not going to go away you're encouraging them to ask more questions but actually that curiosity that natural curiosity in people makes them more valuable makes them able to do more things and ultimately makes them more ambitious you know I think stay in education but then start any opportunity that young people get to embrace the working world as early as possible alongside education I think is has a disproportionate impact on their ambition there are stats that support this by the way and we as an organization look to not just continue to give school leavers and graduates a route through to great careers we encourage work experience you know and we do that right across our global network it's actually what we it's a big part of what we exist to do Simon is to make sure that we inspire people to turn into great professionals and have great careers.

39:50Marco Amitrano:Do you understand why some young people we've spoken to when they come up against an AI gatekeeper and they sometimes get a rejection within minutes of having to fill the end of you know they're doing hundreds of different applications they begin to get a bit demoralized they're feeling more detached from the world of work.

40:06Rachel Reeves:Yeah no look I mean I can't I can't talk that away that is a that is a fact on how people feel. I think though organizations like mine and as a nation the UK must get its arms around this. We must not be of a, we must not just be letting these things happen. Some of the initiatives I've already mentioned in government, some of the things we're leaning into like the Keep Britain Working review, how we encourage and look for opportunities to work with our clients on bringing younger people into the workplace and making them feel less uninspired if you like that but uh that they won't be able to

40:48Marco Amitrano:get a job okay i'm a try now pwc thank you very much thanks to marco and simon for that please do of course check out the big boss interview back catalogue in there you'll hear conversations with the chief execs of some of the world's biggest companies and you can contact us email if you like we're on bigboss at bbc.co.uk that's bigboss at bbc.co.uk the best b2b marketing gets wasted on the wrong people so when you want to reach the right professionals use linkedin ads linkedin has grown to a network of over 1 billion professionals including 130 million decision makers and that's where it stands apart from other ad buys.

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