Does anyone in Burnham’s government understand economics?

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0:37Tim Shipman: Hello, welcome to Coffeehouse Shots. I'm James Heal and I'm joined today by Michael Simmons and Tim Shipman. Now, Michael, we've had a raft of economic data over the past few days. Talk us through what's happening. Yeah, it's been a busy week from the ONS. We've had the labour market figures first, which had the unemployment rate staying flat. But that's actually not good news because it had been expected to fall. And actually what we've seen is 13 ,000 job losses in a month, which was the same as what we saw in the month before. So bad news on employment. We then had bad news on inflation a day later on Wednesday, which went up.

1:12Is this like the House of Commons?

1:13James Heale: We need to cheer or boo each time you say one of these things. And that was totally expected. Inflation picked up a bit to 2.9 % because of the energy price cap going up in the summer. So that was expected. No one's kind of wrong-footed by that. But I think what was interesting was literally the day before, Andy Burnham wrote a blog for LBC about his love of buses, in which he said, you know, I am going to be the cost-of-living government. And I said to somebody in the Treasury on the civil service side, don't you think it's a bit odd that the Prime Minister is, like, really going hard on cost-of-living a day before it was, like, guaranteed that inflation was going up?

1:51And their response to me was that there is not a single special advisor in this government who understands economics. So that's good news.

2:00James Heale: Ah, this reminds me, old bastard that I am, of the time when Theresa May's staff used to comment on Philip Hammond and the words economically illiterate passed the lips of someone then.

2:10Tim Shipman: But it's true, isn't it? There's a sort of lack of big hitters, isn't there? We were saying on last yesterday's podcast, no Andy Haldane, no Jim O 'Neill. Sorry, go on. Well, no, absolutely. So that's kind of an interesting tidbit. But the big economic news today was in the public sector of finances, which is the monthly release we get from the ONS on tax spend borrowing. And there was a nasty surprise here for John Healy, which is although in the year to date, total borrowing is kind of not as bad as had been feared. It's kind of just above OBR's forecast and it's down from last year. July alone, we've seen a deficit, which the OBR had not expected.

2:46And indeed, most economists had not expected because in July, you get this bumper tax take from self-assessment tax funds. And that did come in. That came in higher than ever before. But still, we managed to record a deficit in July rather than a surplus. What's the reason for that? A massive increase in welfare spending and a big increase in debt interest as well. The two kind of toxic problems that are going to haunt this Chancellor and any Chancellor until we do something to sort out debt and welfare.

3:18Tim Shipman: We turn over to my right honourable friend, the Honourable Tim Shipman here, given that performance. Yeah, yeah, yeah. He's banging the table, listeners. I mean, the budget is going to be the make-or-break moment, isn't it? Everything else is just froth.

3:32James Heale: And I know we get accused of writing about froth. There's a lot of froth around. You know, reforms seem to be tearing each other limb from limb and then turning their ire on the media. The Greens seem to be imploding and are turning their ire on the media. There's a lot of stuff around. But, you know, I mean, as I wrote in the magazine this week, it shows, those numbers show that reform turning their attention to welfare makes sense. They've laid out cuts of 50 billion quid. And frankly, we need some cuts, as Michael's numbers vividly illustrate. Andy Burnham has talked about buses. He's out and about again this week doing all sorts of exciting ephemeral things.

4:12James Heale: And all of it is really just the phony war. We're in that period between the fall of France, the fall of the Starmer government and the start of the Battle of Britain. And the Battle of Britain is going to commence this summer when Andy Burnham finally outlines a budget. And then we will know what the parameters are, how much money he actually wants to spend, where he plans to get it from, who he's planning to tax. People will then do work on the likely implications of that and what impact that is likely to have. and any sentient opposition of which reform and the Tories are the two most obvious is going to be all over that like a rash and needing to provide an alternative prospectus and on the basis of what Burnham does how the public the markets and the opposition react will the decision be made as to whether or not he calls a general election for next spring those are the two big questions in British politics and there's going to be a lot of froth and noise before during and after all of that but really those are the two big questions and until we know the answers to them we are speculating like everybody else.

5:13Tim Shipman: In the Times today, Patrick Maguire talks about having Andy Burnham wants to have a battle line between sort of hope and optimism and the sort of doom and gloom of implicitly reforming the Conservatives. When you look into your crystal ball for the next 12 months or so, are we likely to have that kind of good economic news, that feel-good factor that Andy Burnham so desperately wants or is it quite confected and a sort of result of easy wins and TikTok policy. Yeah, I think that it's a battle between reality and delusion, unfortunately, because I think people on the optimist side of economics and indeed labour politics may think, actually, apart from what I've talked about this week, the last few months have seen relatively okay economic news.

5:54You know, we've seen better growth than expected. In the first half of the year, we have had the fastest growth in the G7. So I would forgive any political advisor to think, oh great, maybe things are not so bad, we can use a different data set that shows that productivity growth was actually okay under Rachel Reeves, and that's going to continue under the optimistic vision of Andy Burnham. But I think the problem with that is the reality of economic history, and that is specifically something quite niche that happens in our GDP figures. For reasons that statisticians don't fully understand, we have this trend now in Britain that almost any country doesn't seem to have, where you have quite strong growth in the first half of the year, or relatively strong growth compared to what we're used to, that just totally tails off in the second half of the year.

6:44Tim Shipman: When did this begin? Was it post-COVID? No, this has been going on for quite a while. It's kind of got worse, more pronounced post-COVID, but it seems to be a structural feature of our economy, or certainly our economy.

6:54James Heale: It's always good when the experts don't really understand what is happening. It's kind of scary.

6:58Tim Shipman: The opening scene of a film where the lights are flashing red. There are theories for this, but if you look at some of the things coming in, you know, wage growth is slowing. We know inflation is going to continue to pick up a bit in the rest of the year because of the straight-up form years, because of what's going to happen to energy prices. So there's a lot of evidence that that will be a dampener on growth. So you may have this position where you get these optimistic, you know, visions, policies, move growth to number 10, that's not matched up with the figures that right now are not too bad.

7:27Tim Shipman: Yeah, because it feels like, Michael, we haven't yet seen anywhere near the full impact of what's going on in Iran on our economy and the politics subsequently of that. Yeah, I think the government has benefited slightly from the alarmism of some of the international predictions originally. You know, we have reported that whether it was the OECD or the IMF, we're saying Britain's going to be the worst hit. Britain's going to be the worst hit. And there's good evidence for that, but for various reasons, those prices have not really pulled through. And that's nothing to do with the government, by the way.

7:59It's largely thanks to industries like our incredibly competitive supermarket sector, who at the moment have not passed on increased producer costs to the consumer.

8:10James Heale: Because they're in a dogfight with each other to keep margins tight, essentially, and prices low. Exactly. But if we get kind of an escalation in Iran, if we have the straight up formula is kind of fully closed for the rest of the year and oil prices and everything start going up again, then eventually that does become unavoidable. And this pass through goes on. And, you know, we're going to see the energy price cap go up in October anyway. So all these things kind of come together to make me think that there's no reason that this year we're going to break this H2 growth problem. And the relativist stuff doesn't matter to the public.

8:41James Heale: It may be that it's less bad than everybody wants. But when their bills start rising, that's when they'll notice. And that's when it becomes a problem for the government. Most people in the dog and duck are not paying attention to international predictions of quite how badly we'd be hit by the straight-up. They will sure as hell notice when they've got less money in their pocket each month. And this is a crucial point about even his intervention on VAT for energy. People, I think, have taken that to mean that in October, the price cap is going to come down by£45 a year. No, it's going to go up.

9:11It's just going to go up by£45 less than it would have. And as Tim says, no voter is going to think that that's, oh, thank you, Andy Burnham.

9:18Tim Shipman: So a few more weeks of froth then in conclusion, but overall, the long term pattern is decidedly grim. Thank you, Michael Simmons, for reminding us about Fiji Wotahouse's quote. Never hard to distinguish between a Scotsman and a ray of sunshine. Thank you, Tim. I hope I'm wrong, at least. Well, as usual, Michael, we hope you're wrong. Thank you, Tim. Thank you, Michael. And thank you for listening to Coffee Hour Shots.

10:07Tim Shipman: for half a million customers. That's a level of expertise you just can't fake. Ready to talk with an expert? Visit bill.com slash proven to get started and grab a$150 gift card as a thank you. Terms and conditions apply. See offer page for details.