UK Budget 2024: Deep dive with two of the UK's top finance experts

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34:53Okay, I'm going to ask you both the same question, but I'll start with you, Paul, because we're here. What are the good bits of this then? You said, I don't want to be too negative here, and you said there are some good things that have happened. Well, I think the best thing in a way is that, as Rachel Reeves said, did something very different to most chancellors faced with the difficult fiscal situation in the 1990s. And back in 2010, what governments have done is just slash investment spending. So slash capital spending, building hospitals, building roads, what have you. And Rachel Reeves didn't do that.

35:23What she did was say that I want to maintain that at the same fraction of national income as it is at the moment. The last government was planning quite severe cuts in it. And she won't get the benefit of this. We won't get the benefit of this until beyond the political cycle. So that's quite a brave thing to do. And I think it's the right thing to do for the economy. And I think, you know, she did face up to the fact that we have this big choice between tax and spending. And she made the choice. She said, look, the public services really are in a terrible place and we need to raise additional money.

35:54and despite what it said in the manifesto as I said earlier I think she was right to look for one of the three big taxes for that money. I mean she made a choice you can argue about the choice but the choice was a clear one and I think given the state of the public services I don't think she had you know I think that was almost certainly the right direction to go in. So I mean if you look at this budget at the macro level at the broad level I think there were you know there were some sensible choices in there. What do you think Claire? Well obviously the Chancery is operating in very difficult circumstances and I think that everyone watching would agree that we do need to rebuild public services.

36:35Anyone who's tried to get a doctor's appointment, a dentist appointment, find a nursery place for their child is going to come up against all kinds of problems that have been exacerbated by years of underinvestment in the public services. So I think that argument is one. She courted business, the bosses of big businesses, a great deal before this budget happened. And some of them have been publicly supportive of her after the budget, despite the changes that have happened. I think there's a feeling among the business community that it perhaps could have been worse. This is a very unwelcome extra tax burden, but they're hoping it will be one and done.

37:21That will be enough, and they can move on. Corporation tax, full expensing, all of those things have stayed the same. The crucial test now will be, can she get the level of investment from domestic companies, but also from international investors coming in? is this going to increase Britain's standing in the world and give us the economic growth that we really need? That's the vital recipe for success in this budget, as Paul was saying. My feeling when she eventually sat down after making her speech was, you know, for FT readers and for people like me who are not fantastically wealthy, but nevertheless are very focused on making the most of the money that we have and putting it to work by investing it even through ISIS, or pensions, I felt it could have been worse because there were so many rumours before the budget, you know, well-founded rumours as well.

38:17It's not just the press fanning flames that pensions could have been targeted in a much bigger way, that the tax-free lump sum could have been affected, that there could have been moves towards ending higher rate tax relief, which is very, very valuable for anybody earning more than£50 ,000 a year. Could it have gone to a flat rate? What would that have meant for pension savings? Could employers have been taxed on our pension contributions which would have certainly lowered the amount of generosity that they're prepared to give to workers? Now none of those things ended up happening, although Paul and others have quite rightly said lots of people nevertheless made decisions to take money out of pensions and to liquidate investments where they maybe after the budget could be looking back and and regressing those decisions.

39:05Now it's interesting that lots of professionals are calling for what they're saying is a pensions tax lock. Pensions are a real case in point here. They are investment vehicles that we're paying into throughout our working lives, you know, for many decades, from our 20s to our 60s and beyond potentially. And I think although any sort of rigidity in saying we're not going to touch this tax rule but we could touch that one, is very, very difficult for chances to work around. We saw that with all of the manifesto commitments not to raise income tax, national insurance, corporation tax, VAT, that really boxed her into a corner.

39:40But nevertheless, I think the case for a pensions tax lock or certainly committing to making fewer changes to people's long-term investment decisions is an interesting idea going forward because if she had made any of those other decisions we talked about, I think it really would have dented people's confidence to not spend that money today and invest it into a pension and as I said at the beginning of our of our talk I think that not saving enough for retirement it's one of the biggest problems coming up to to haunt us in society but because of the short-term nature of politics and the fact that parliament's only run for four or five years it's not a problem that any political party in my view has really ever attempted to address in a serious way.

40:23thank you so i really agree with that point about uncertainty i mean it was really damaging having all of that uh uncertainty and speculation before the budget and i really want the chancellor to say you know that's it on pensions or if it's not it on pensions to say so we're going to do something to the lump sum or what have you if if before every budget because she may well come back for more money if we have this before every budget it's going to be incredibly damaging and we really do need uh we just need stability in this pensions last you what 60 years between when you start putting it in and how long you're drawing it and we get tax changes every six months it seems yeah i've been super critical about the political hockey puck and they should just say these are the rules and leave it alone because how can you encourage long-term savings in a product that changes consistently but paul do you think there could be someone left a comment that said i felt like i was going to get hit in the face with a baseball bat but instead i got punched in the face So do you think that this this could be the political kind of the world of the politics?

41:26They make it feel like it's going to be really bad. So when it's kind of bad, people are like, oh, that was that's all right. Well, that's quite impressive, isn't it? With, you know, if they've got away with that, as it were, with 40 billion pound tax rise and taking taxes, the highest level ever, they've done. They've done pretty well. And partly, of course, that is because it looks like a lot of it's layered onto employers. I think if you're a small employer, then it might not look so good. My finance director has just, I don't know if I'm giving away too much, just emailed me this morning to say this is going to cost the IFS£100 ,000 per year.

42:00That's quite a lot for us. I mean, we're a charity. We don't make a profit. You know, that's going to pretty much wipe out the surplus that we make to sort of maintain our reserves. so you know this is you know that's clearly going to hit small businesses small organizations charities whatever you want to call them fairly hard in the in the short term but in terms of individual taxes I think broadly speaking the Chancellor was quite careful not to you hit individual savers and and others on the whole with with the except with you know with these individual exceptions I mean if you're looking to buy another house sorry to go on about stamp if you were hoping to avoid inheritance tax by having money in a pension, if you were hoping to leave on an extremely expensive farm without an inheritance tax.

42:52If you're in those positions, then you have been hit by this. But actually, that's not very many people relative to the population. Yeah. Do you feel for the farmers at all? I lived on a farm once and they tend to be asset rich, cash poor. And a million quid isn't a lot when it comes to a farm. You can have equipment that reaches that cost quite easily. So do you think it's a bit aggressive on the farmers? No. Lovely. I agree. If you actually look at the numbers, the vast majority of farms that were inherited in recent years use less than the million pounds of agricultural relief. so this will affect a very small number of on the whole very valuable farms and as I say if you're going to have inheritance tax and that you can have a reasonable conversation about whether you should have it I could make a case for you know people in North London having a higher inheritance tax allowance than other people because homes here are worth more or people who have not inherited themselves and therefore they've saved all the money themselves perhaps they should have a lower inheritance a low inheritance tax rate or perhaps those worked in the public sector or those worked in the private sector or what have you and the problem is of course once you have an allowance like this it's very hard as we've seen to get rid of so the number of people here affected is absolutely tiny it is still a much more much more generous inheritance tax system than is available to pretty much anybody else and actually with a with a little bit of tax planning and this is obviously not the point of the system really quite easy to to get around if it's genuinely a family farm we'll hand it on earlier and if you're worried about dying early well you can buy life insurance you've also got 10 years to pay this rather than the sort of 10 minutes that Claire was quite rightly complaining about for most of us paying inheritance tax um so no i i really i i really don't and i i appreciate that will be very bad news or that will sound very harsh to any farmers listening but but i i really do believe that if you've got a tax system then you need to treat similar people similarly not give special breaks to particular groups i think paul explained his point very well but i am concerned um about farmers and I do feel that they've been targeted by this because so many so-called lifestyle investors, because they know that farmland has got this inheritance tax exemption, have been piling in over recent years.

45:36I mean, only 40 % of farming transactions last year, according to the property agent Strutton-Parker, were actually from farmers. The rest of them were investors as moving into this sector. And of course, anyone buying in, if there's a vogue for an investment, as we know, it pushes up prices. So the value of farms has gone up, as Damien said, you know, you're asset rich because what you own is technically worth more on paper than it would have been. And it's going to take a while for that to work its way out of the system. But I think all of these inheritance tax changes that have happened, the one with pensions and the ones that were feared but didn't happen because there were quite legitimate worries about other areas of IHT being changed, the lifetime gifting an individual could make, for example, it is prompting anyone who has got a few bob to rub together to think, well, what is my strategy here?

46:35Am I going to give away more of my wealth to my children earlier than I might have done to get that seven-year clock ticking, the seven-year rule? If you make a gift while you're still alive and you survive for seven years, then under the current rules, that can pass free inheritance tax. And the article that I've written, although not yet published, for the Financial Times this weekend that's coming out tomorrow is all about that generation windfall, I've called it. Worries about tax rises in the budget have prompted a lot of people who are better off to A, sell assets to beat perceived problems ahead, like whether it's the rise in capital gains tax or fears that their pension lump sum could be taxed more highly in future.

47:17So they've got that money and B, they're passing it on to their children. And there's been a big wave of this happening before the budget. And the expectation now is that the children in many cases will go out and try and beat that stamp duty deadline when the thresholds change again in March and go and buy a property. Now, that's something that definitely is happening. It's hard to quantify, but I'll leave you with a thought. it's also becoming harder and harder if you're somebody who doesn't come from wealth who hasn't got that parental bank of mum and dad behind you you know the bank of mum and dad in London and the southeast are involved in like practically every property transaction in some way shape or form according to you know mortgage advisors that I've been speaking to this week and if you don't have help from your parents then that gulf between being a renter for longer potentially even the rest of your life and actually ever being able to buy a property or having to buy a property on a 40-year mortgage one of my step-sons has got and encouraging them to try and pay off extra every month to clear it quicker.

48:21We've got this real divide in society as a result of the housing crisis and I wouldn't be surprised Damien if there are lots of people who are on this session today who are thinking well maybe she should have clipped the coupon you know maybe she should have tried to raise inheritance tax further and invest some of the proceeds into trying to fix this dreadful situation, the housing crisis that millions of renters are coming up against every day. And I have to say, I am sympathetic to those views. Paul, do you think that the taxation agenda now or the regime will do anything to solve inequality in the UK and the growing problems there that Claire's just talked about no claire um claire's absolutely right that it's increasingly important that um uh wealth is increasingly important uh inheritance is increasingly important um a huge fraction of people getting on the housing market particularly on the southeast are dependent on their parents all of that is absolutely true um so this is kind of it's a very interesting situation in the sense that income inequality over the last 15 years has actually fallen.

49:32Wage inequality has fallen. They've fallen quite a lot, actually. But it doesn't feel like inequality has fallen. And that's because wealth has become so much more important. And part of the reason wealth has become more important is that incomes and particularly earnings just haven't increased, whilst asset values, particularly over that period of very low interest rates, have increased. So my best advice to young people is often to choose their parents wisely. If for some reason they feel they can't do that, then perhaps they should choose a partner who has chosen their parents wisely. And that's not a good situation, I think, for society to be in.

50:11It's very difficult to deal with. But it needs a long-term strategy, part of which is building lots more houses, part of which is getting stamp duty. I am going to go on and on about that. part of which might be trying to make inheritance tax more effective than it is absolutely part of which is to do everything you can to get growth going so that earning becomes more important again relative to inheriting but the trouble is once you've got into this kind of sort of spiral it's really hard to get out of it and I think the government really needs one of its missions one of its long-term strategies actually to be focused on this particular issue because it will change the nature of our society and it will change social mobility and it will change people's ambitions and therefore I think the sort of have a negative knock-on effect to productivity and growth in itself as people see that they cannot earn their way to up the distribution, as it were.

51:22Essentially, they have to rely on investments, inheritance and the luck of the draw. Would a wealth tax have been simpler then than all of this? I'm afraid wealth taxes really aren't simple. We should start by trying to sort out the wealth taxes we've got. We talked about no reform there of capital gains tax and we need that absurdity of council tax where, you know, Buckingham Palace face the same council tax as a three-bedroom semi in Blackpool. I mean, you know, we have sort of, we have taxes which could help here and we use them absolutely unbelievably badly. You know, you might have scope for some kind of wealth tax on the very wealthy.

52:12I mean, there's no world in which we can or should be having a broad-based wealth tax on people on you know if it ends up taking money out of their pensions or taxes them in addition to council tax on um on their homes uh most countries that have tried wealth taxes on the wealthy have not had a very happy experience because the wealthy tend to be really quite good at um using any loophole that's in there to um to avoid it to use lawyers and so on and I have to say when I do speak to lawyers who advise the wealthy it's a really depressing experience because their view is that whatever government does they'll find a way around it now that's that's a bit depressing but I'm afraid that is the experience both here and internationally of what happens when you try to do it right well we've got about 40 minutes left so we could talk about taxation all day couldn't we but let's move on to spending.

53:09Paul, could you just outline what you see as the biggest commitments in terms of spending, the real commitments, not the things that were spoken about in the speech, but where the money is actually going to go over the next few years? Well, there's two. I mean, let's talk about the investment and the day-to-day side. I've already said I think one of the positive things about what the Chancellor said is that she's keeping investment spending up. Exactly where that's going is always difficult to determine but I think we can see two or three elements to that. First of all the biggest winner here is the department in terms of government departments the department of energy and net zero so quite a lot of this is as you'd expect going on green things on getting us to net zero.

53:53Second you can see there's quite a lot in there for schools and hospitals and so on very much needed now two things that

54:04about those we talk about investment as being something for growth well we do need to spend money on schools and hospitals but that's no more growth friendly than spending money on teachers and doctors so there's nothing special there in terms of growth and getting to net zero also is absolutely something we should spend money on but it's a different thing for getting towards growth. The thing that surprised me most about the investment spending was there was a cut in the Department of Transport budget. Now that does not strike me as a growth friendly thing to do. So broadly speaking good that there's investment money how much of that will really impact on growth in the long run I think remains to be seen.

54:48In terms of the bigger bit which is day-to-day public service spending, the health service, teachers and justice system and so on. It's quite a big increase this year. Now that's what's very striking about this is, and I think this is part of the, you know, the inheritance, which was a really bad and difficult one. It was a really difficult inheritance for the Chancellor, for the government. They've seen there's a big hole this year. It's partly to pay for additional public sector pay. It's partly, you know we've seen the waiting lists and the health service prison service in pretty much crisis the justice system in real trouble and so something more than a four percent increase in spending um across the piece this year and unusually it's not all going to the health service actually local government and the justice system and so on have done relatively well um out of this and that just reflects the fact that those are the areas that have been really really starved of money and really struggling next year um uh about two and a half percent increase in spending relative to this which is decent but it's not super generous but you know take these two years together and you've got quite a significant increase in spending across the piece as i say with places like justice and local government doing quite well um now these are the only two years where we know where the extra spending is going because that was it where we've had the spending review apart for education knows how much money it's going to get the health service knows how much money it's going to get and so on over those two years look forward look to 2026 and beyond and what the chancellor has done is say look we haven't had the spending review yet so i can't tell you how much health is going to get how much education it's going to get and so on but i can tell you what the overall envelope is going to be and and what she said is i'm going to increase spending in each of those years by 1.3 percent a year now that is a very small number it's partly a very small number because we know that the health service will get a lot more than that and defense will get more than that one or two other things will and once you take account of that that implies probably cuts and certainly at best no increases for the rest of public services i think it's pretty unlikely that we'll get these increases this year and next and then suddenly uh the taps will be completely turned off because like the idea that um the local government of the justice system and so on and so will be going at that point that's fine um and that Rachel Reeves cabinet colleagues will accept cuts or will accept um flat budgets I think is pretty unlikely and I think that is why uh the you know unless growth surprises on the upside unless tax revenues come in more than expected I think that's why we may well be coming, Chancellor may well be coming back for more.

57:43Do you think it's just to balance the books that, because they've got this promise of big spending here and then it dips, is that to make it stack up? I think it is, yes. I mean, and this is, you know, this is on a much smaller scale. I think it's similar to the sorts of, you know, what Jeremy Hunt did last year. So remember, you know, and this is my big, big criticism, and not just mine, lots of people's criticism of the last government was they were saying look we're just about meeting our fiscal rules and the way they were just about meeting their fiscal rules was to effectively pretend that they would be increasing spending by a tiny amount for the next five years implying big cuts in quite a lot of areas including on investment now Rachel Reeves obviously is spending a lot more up front but I think there is a degree of that pretense in saying that spending will just stop growing after the first couple of years.

58:33I think one that's quite relatable is fuel duty right so they say oh we're going to raise loads of money in a few years from it but then they just keep freezing it so you know is it realistic that they're ever going to unfreeze that? This was the second time when my head was banging the table I mean it just beggars belief I mean in every single year for the last 15 years chancellors have stood up and said I'm not going to put fuel duty up in line with inflation this year. But honest, I'll do it every year after this. And so those numbers will appear in the public finances. And then Rachel Reeves went and did the same damn thing.

59:09And if you're not going to increase fuel duty this year, when you're doing 40 billion of tax rises, and petrol is quite, you know, much cheaper than it was two or three years ago, and you're right at the beginning of the parliament, I can't see that she's going to do it again. And yet, just like all of her predecessors from the Conservative Party, she's saying, won't do it this year, But honest, I'll do it next year. Yeah, yeah, it's interesting because at the same time buses have doubled in price and transport spending is a cut. So what you're incentivising is people to drive petrol cars, right?

59:42You know, fuel consumption cars. Claire, do you think the spending will be enough for people to see a meaningful improvement in the public services? I want to be optimistic, and I really hope that it does make a difference. But especially with areas like health and education, it's really important to invest in them. but often it takes a long time before we see the results. Now, you know, think about health and preventative health care. If you can stop people from getting ill by making it easier for them to access treatment, for people who are pre-diabetic to be prioritised and, you know, treated in a way that they can go on to stop developing full-blown diabetes, all of these kinds of things.

1:00:31You know, the healthcare system, my colleague Camilla Cavendish at the FT has written lots about this. You know, prevention is not happening. You know, it's really firefighting, people clogging up A &E departments and being unable to be seen by a doctor when they need to be, or indeed a dentist. I mean, I'm very lucky that I get some kind of private health cover with my employer. otherwise I wouldn't be able to go to the dentist and it's just increasingly impossible for people to get the basic treatments that they need. So I would hope that this big upfront injection that you and Paul have been talking about will do something to resolve that.

1:01:14But going on further forward, as somebody who's writing about personal finances, I mean it's very common for people to say your health is your wealth. As soon as you get ill or you know people talk about healthy life expectancy you know you might be living for longer life expectancy broadly speaking you know over the last century has been has been rising and rising. The state pension age has also has also been rising but the fact is because of under saving for retirement more and more of us are going to have to be working you know into our 60s into our 70s in fact many people still are and if you're healthy enough to do that that's that's one thing but there's an awful lot of people who won't be which is why it's so vital to invest in providing us with a decent health service but also for it to focus more on prevention looking at the long-term needs of the population now with education I was pleased that more money is going in, the breakfast clubs idea, that sounds like something that's good and Labour certainly have got a track record of really wanting to fund early years education, the sure start centres which the Conservative government got rid of, that was a real travesty but there wasn't a huge amount for early years funding in the budget, lots of people who read my columns and follow me on Instagram know that I talk a lot about about childcare.

1:02:40It's an issue that many members of my own immediate family including me indirectly because I'm helping my stepdaughter to afford to pay for her childcare for her twins. You know this is an issue that is really holding people back financially, holding people back in the workplace and it's really affecting women's career progression. Talking about part-time jobs earlier on, much more likely to reduce your hours if you're a woman and you have children to kind of square that childcare circle. And much more likely, unfortunately, to have a big gap in your pension when you eventually retire. So I would have liked to have seen more in the budget for early years, but the best investment in reality is in education.

1:03:23If we're going to close the inequality gap in society, if we're going to skill up, if to improve the productivity of workers which is a big problem for Britain that economists have puzzled over for ages then you know education is a fantastic thing for governments to invest in it's a fantastic thing for us all to invest in you know Damien you and I talk about investing your spare money in the stock market and educating yourself about your finances that's certainly a very valuable form of education but also upskilling and making sure you know just because you've left school or you've left college or university it doesn't mean that you should stop learning now I've learned an awful lot through you about the power of social media I've learned how to edit videos I've been on training courses in my 40s in order to pick up these new skills and that has been very valuable to my career at the FT so that the outlay for me in financial services has paid off and I know we've talked about a lot of depressing stuff in this in this hour and a half that we've had together but that I think is a positive investing in yourself and I should say I am a proud product of the state school system I work my way through university and the only reason that I'm a journalist is because my master's course was funded by a 100 % grant from the Humanities Research Board if I hadn't have got that grant then I wouldn't have been able to to get my job here and I've always been very very grateful for that but also it's made me even more resolute that you know we need to fund our education system properly to give as many people from a diverse range of backgrounds the best chance of fulfilling their potential regardless of whether their parents are wealthy or not.

1:05:10You speak about a diverse background and I'd like to ask you something Paul I'm I'm originally from the Midlands and now I'm a proud northerner even though everyone from the north says I can't call myself a northerner because I'm from the Midlands but do you think that plans around devolution are credible within this do you think there's going to be meaningful budget for an investment outside of say London I don't know there wasn't really very much in there at all that I saw on devolution I think the you know the the positive bit was that there was more money for local government generally And that's clearly a good thing, given the problems that local governments had.

1:05:51There's been a real, really big cuts in local government funding over a long period of time. Local government core funding is actually growing by something like more than 3 % in real terms next year. So I think this is a government that has taken account of the real problems of local government. Now, that is a different thing from devolution, which was not really mentioned in the budget. The other thing is worth saying is that there was a cut to and then probably the abolition of something called the UK Shared Prosperity Fund or plan, which is about the only, quote, leveling up pot that we've got.

1:06:34it replaced the old European Union system that gave lots of money to a place like South Wales and Cornwall and so on, the very poorest bits of the UK. And actually some of that is going to be used for local government to fund some of those local government changes. So that's not something I've seen much coverage of so far. We'll wait to see what it means for local government. You could argue that if the money goes into those same poor areas through local government finance that makes some sense because it gives uh you know rather than all these different pots it gives the money to um those responsible in the local area but we'll see how that ends up actually getting distributed and what term control they have over that money yeah there's always seems to i mean that's someone who's who's seen it there seems to always be a lot of promises and then not not much delivery so i do i do hope that we see some the the how meaningful is the the budget the money to local governments paul is it is this a big sum of money look on your chart of where the spending increases will be that's the top that's above um the green stuff the energy stuff yeah i mean the local government um uh funding is is welcome and it just reflects the fact that we've had a number of authorities effectively declare bankruptcy over the last couple of years they are they have been at the back of the queue for funding for quite a long time and not only that i mean part of the problem here is that the um the pressure on things like adult and children social care has grown enormously as have some of the other um sort of uh services that they have to provide to those most in need for the homeless, for children with special needs and getting transport to school and so on.

1:08:26All of these things, the costs have really gone up. Whilst this is a relatively generous increase in funding, I suspect all it will do is stop things getting worse. It's certainly not going to be enough to sort of transform the amount that local authorities have. Yeah, well, there was actually some... So just a bit of context, I go to a local gym and one of one of the people who goes with me was a former director of finance within the NHS. And we've also had a paramedic in the comments who said and they both said something similar. More money is not always the answer here. And it often just falls into a big pit or encourages laziness within within the system.

1:09:08This was this basically both said the same thing. there's also a real reliance on private contractors within things like the armed forces that are super expensive um do you think that more spending is the answer do you think that like we should just all say okay we're going to this bigger state we're going to be like you know germany or other places where we spend more money and that's inevitable well i mean we absolutely have to um get better at spending the money i mean our health service is massively under managed, partly because, you know, politicians say, well, you know, we're going to put the money on the front line and cut these middle managers and so on.

1:09:45Actually, there are fewer managers in our health service than in any health service in the world. And we can see that in some of the things you've just been saying and which we see every day and the kind of obvious inefficiencies across the system. So you really do need really high quality management. And it's very obvious that there are large parts of the public sector where that doesn't exist. And one of the problems I think this government now faces is having come up with this money and made it available very quickly and up front. How do they provide the incentives in the system to make sure that the change actually happens?

1:10:22And again, you do need to take account of the capital funding here. One of the reasons that the health services, health service productivity efficiency has absolutely collapsed in the last five years to an astonishing degree. um you know we've got something like 20 more doctors and nurses doing something like nothing uh additional um over the last five years uh and you know there are lots of reasons for that one of the reasons is actually this lack of investment over the last 10-15 years i mean we have not we've not spent an unusually small amount on health overall but we have spent an unusually small amount on the capital on the buildings the mri scanners the um the surgeries and so on so those doctors and nurses just don't have the equipment to work with and again part of the reason is that we keep on pouring money into the urgent you can exactly see why we do that whilst ignoring what's important in the long term if you just give me a second guys I'm dog sitting and there's a dog scratching at the door so I'm just gonna let the dog in he's doing my head in come on come on if you can't beat him join him i guess yeah i was like i'll lock him out so he doesn't disturb me but he's just headbutting the door the whole time what do you what do you think in terms of spending you know and what what about your colleagues at the ft i'm sure there's a bit of a split oh yeah it's a it's a good question i'll be honest with you damien i've been so focused on the personal finance aspects of the budget I don't feel sufficiently qualified to comment authoritatively on what else has been going on in the rest of the newsroom markets have been the big concern for us for the last 24 hours like you know how is this news of all of the extra borrowing to fund the extra spending being digested by the bonds market and what effect is that going to have on our personal finances?

1:12:22Again, you know, it doesn't matter if you're invested in gilts, although many people's pensions contain gilts, as we found out after the mini-budget, and I stress that, you know, this is nothing like what we saw after that particular outing by Liz Truss and the former Chancellor, but we're thinking very much at the moment about interest rates. Now interest rates have started to go down but all of the movements on markets in the two days since the budget are suggesting that actually the falls in interest rates that we were expecting to see won't happen as quickly perhaps as anticipated. Interest rates and maybe even inflation will stay higher for longer because the other way that businesses could recoup some of the money that they're going to be spending on those higher national insurance bills ultimately is putting up the price of the goods that they're selling us so if inflation is a bit higher for a bit longer if interest rates are a bit higher for a bit longer i'm sure that everyone is thinking well how is that going to impact on on me financially how's it going to affect my ability to renegotiate my mortgage when my current deal ends or if you are somebody who is looking to buy your first property or looking to move as i am at the moment you know all of it all of these things have got a real real life edge you know the decisions that politicians make can quite quickly impact our personal finances and if it's less likely we're going to get a pay rise going going forwards and even more so I will be very interested to see the reception as Paul says to all of this this extra money it has been front loaded there is a lot of it going in up front and I think that the political desire behind that is to give people a real sense that things are getting better even if you might be finding it harder to get more hours or to get a pay rise or if you're one of those groups that has had to pay more tax through the various ways and means that we've talked about that you'll feel okay well like this is worth it because I can see you know I can see that the spending is making the system better so I'm always an optimist so I'm optimistic that we will see some of the hopeful changes but really you know this is going to be a long haul and the real test for Rachel Reeves she wanted 10 years they've been setting out this long-term vision you know if she's going to get success when they go back to the polls in, you know, four to five years time.

1:15:00Will the medicine be working by then? I hope so. Fingers crossed. So, I mean, some of that medicine will be seen earlier through the growth numbers. I think, Paul, the aim is the fastest in the G7 over this parliament. Do you think that this budget supports that ambition? No. Look, I mean, Again, let me repeat the positive. I mean, this budget was positive for long-run growth. I mean, if we maintain public sector investment at the kinds of levels that racial reef set out, then in the long run, and by the long run, I mean decades, that will mean that the economy will be bigger than it otherwise would have been.

1:15:42And, you know, decades arrive. You know, we will get into the 2030s, 2040s, 2050s, and so on. So for the long run, and I think this is, I really am very positive about that, about that investment. That is good. In the short run, well, if you look at the Office of Budget Responsibility forecast, what they say is, well, essentially, look, we've got a sugar rush over this year and next. The government's chucking loads of money at the economy. That will mean more demand and we'll get a bit more growth in the short run. but over the next the three or four years after that a combination of the fact that that might lead to higher inflation and higher interest rates and the fact that we've got some big tax rises that will slow growth down so net net their view is the economy will be about the same size at the end of the parliament that they thought it would have been if the chancellor done nothing so in other words net net this hasn't had in their view any effect on growth over this parliament Now, what we hope to see is the sorts of reforms to the planning system, the sorts of new housing reforms, the sorts of changes to our trading relationships, competition regimes, regulation and all of those things which weren't in the budget coming out over the next year or so that really will support that growth.

1:17:01growth. The last thing I'll say on this is it does seem to me at least plausible that we'll get lucky in the following sense that we've had terrible growth for the last 15 years. A large chunk of that has been down to the overhang of the financial crisis. Seems like a long time ago, 2008, 2009, but it's had a big effect on the UK and I think that effect is finally probably going. We've got sensible levels of interest rates rather than at zero, which I think were very bad for the economy at least a large chunk of the cost of Brexit we've had um Covid is gone the you know the energy price spike is gone if we don't get any more shocks we might just get a better period of growth um over the next five years than we've had for a while that's not a forecast but it is a I think a ray of hope and you think things like planning reforms are more aligned with growth than the budget for example you would that's what you think we need to see yes and I think they need to be super radical i think that i think we need to make a a big change to the cost of building things and how easy it is to build things whether that's houses roads windmills uh whatever it is um i'm not convinced well when we we don't yet have plans that do that um i think this will be what a huge opportunity um to make a a big change here um the problem is there are obviously risks here the more radical you are the more people you irritate by building roads through their back gardens or pylons in their front gardens but I was really encouraged by what Keir Starmer said that the Labour Party conference actually he kind of he laid out the choices he laid out the trade-offs he said look if we're going to have growth we're going to have to do some of these things we're going to irritate some people who are living near these new um these new new buildings it was kind of very different from the sort of you can have your cake and eat it rhetoric um of Boris Johnson for example but the proof of this will be to mix my you know sweet puddings metaphors the proof of this will be in the pudding but you can't have your cake and eat it yeah I've got a question here from someone on growth his name's Colin he on the fact that the top line in terms of increases in spending are around green but you you highlighted there Paul that that really isn't direct investment as you would say that might lead to growth do you think economic growth is compatible with the green revolution because he feels that it's increasingly necessary that we have that green revolution yeah there certainly is absolutely compatible it's just a different thing so if your number one priority were growth and you didn't care about green then you would do a different set of things if your number one priority were green and you didn't care about growth then you do another set of things now what we need to do is get a balanced set which allows us to do both those things um uh you know and in in some respects the the growth will uh the green investment will help with growth particularly given what's happening um in the rest of the world but to some extent we're you know as a world we are doing things that we wouldn't be doing if climate change weren't there and therefore um growing less than we would have done if climate change weren't there but climate change is there and we have to recognize that dealing with it is going to cost us we absolutely have to do that and we have to make the growth and the dealing with climate change compatible with one another what worries me is when politicians claim they are the same thing that you can achieve two things with the same set of policies and when you try and do that you often just get things horribly wrong so I'm absolutely not saying that we shouldn't be focused on getting to net zero I was a member of the climate change committee for a decade I absolutely think we should be doing that but I don't think we should be fooling ourselves that that's a completely free lunch your book highlighted some of the challenges there and the levels of spending required I read it and made a video on it and I thought it was really good we'll link it in the show notes if people want a bit more of a deeper dive into into that I think you were talking, was it 50 billion a year or something for net zero for quite a sustained period of time, I think, was the number, if I can remember right.

1:21:18Yeah, I mean, we have to be clear. Thank you for advertising my book, Follow the Money, it's a bestseller. Please, please buy it. It's Treasure Trove of Killer Facts and all those sorts of things. It is above my head. There's a whole shelf of them there. The paperback's only about 10 quid. It's very well worth it. Anyway, what was your question? Spending with climate change. I think the key thing is, of course, that most of the large majority of the spending which will get us to net zero will be done in the private sector. So thinking of green energy, the windmills and the solar farms and so on, governments put nothing into that or next to nothing into that.

1:21:59That's private investment paid for, of course, broadly speaking, in our bills. the long-run effect will be potentially to bring the bills down but the short-run effect has clearly been to put them up but that's not government spending and electric cars again that's not government spending I mean the the worldwide car industry has invested billions in the R &D to get us where we are there but going forward there's clearly going to have to be some a really big government interventions because we are not all going to rip out our gas boilers and put in heat pumps or whatever the alternative is um involuntarily um we're we're going to have to get some a a government that some government sponsorship um for that we've seen um the governments giving grants for example to uh steel producers so that they can move to electric um uh furnaces uh to produce their steel so there will be costs and they will be significant but they're not stupidly significant I mean they are perfectly manageable over the over the next 25 years which is what we need to think about now it's only 25 years to 2050 which is where when the target is for for net zero so that will be significant but not but but but by no means unaffordable pretty pretty scary that it's only 25 years to 2050 I'm hoping AI figures out how we all live forever by then um okay sounds terrible you probably have a different view after the week you've just had you probably have that view of it but you know i'll be lucky to make it till monday i reckon do you do you think um do you think what taxes are on the cards then into more tax rises to to accommodate for these big problems well i think um uh again i mean what what the chancellor has done has been very clear that she's not going to use additional taxes for the sort of investment that we're looking for there and actually that that's where her new borrowing rule or debt rule has in a sense allowed her but she's decided to borrow more to invest and it's the additional borrowing which will fund the green investments and the other and the other investments I think the additional tax will come because the pressures on things like public services are going to be significantly of course in the end we'll have to pay back that borrowing and one of the big problems facing us now is that we're spending so much on debt interest that there's not much money for other things.

1:24:28We have to stop in a minute but let me just make this last point because I think it's a really important one. People often talk about government borrowing as it was almost a free lunch but that free lunch has come back to bite us at the moment. We're spending more than£100 billion a year every year just on debt interest payments at the moment. That's£100 billion that the government has to take from us and just give to the holders of government debt. It means that for the first time in decades, the government is going to have to take more from us in tax and other revenues than it gives back to us in benefits and public services and so on, because it having to spend so much of that money on paying for the huge pile of debt that it holds.

1:25:14and that means in economic terms it has to run a primary surplus so we are we're spending more on debt interest than on any public service other than the health service I mean the scale of this is enormous and it does indicate you know the limits or the costs to borrowing for even for investment that is good in the long run. Thank you Paul I'm going to finish with you Claire because like you said we've got four minutes first of all I want to shout out your book what they don't teach you about money just so that we're thank you so just so that my giant my giant copy of it here yeah that was our first ever episode on the podcast and you got us off to a great start so we're eternally grateful to that book i don't have a book so i've got nothing to promote but i got not yet damien because your next skill that you're going to get under your belt your belt is going to be book writing and trust me oh it's it's a tough discipline but i was doing like a thousand words every morning before coming into work at one point um and that's how i managed to get it written so quickly i would much i would much rather stand on the shoulders of people like yourselves yeah i don't think i've got that much interesting to say i'd rather pick your brains to be honest with you maybe i'll do like a collection of all of the wisdom of all the people i've spoken to over the years so just final question you can answer this as well if you've got time paul but i understand you might not claire do you think people should feel better off as a result of this budget do you feel better off you know or and and and how do you think average people should feel after this i do feel a sense of relief that it's happened because there's been so much speculation in the run-up to this budget i mean like saying that you've got this 22 billion pound black hole nearly four months before you actually hold the budget and don't give any indication of how you're going to fill it i do think that that was a mistake because it has caused people to make you know irreversible decisions about their personal finances in many cases, even though I might be sitting here today thinking, oh, you know, it wasn't as bad as it could have been from a tax point of view.

1:27:20There wasn't enough reform, as me and Paul have alluded to, but I think it became obvious pretty quickly after the black hole announcement that any hopes after the general election that we would see a tax reforming Chancellor gave way to the fact that we would need to see a tax raising Chancellor but who knows I mean I would hope that if you know we've both been optimistic about growth prospects on this on this call today I would hope that if that does happen then maybe reform better reform can be looked more looked at more deeply in the future because the tax system in this country is just so unbelievably complicated and you know those reasons to protect pensions and our very very long-term investments from frequent changes as I've said before so let's let's try and end it on a on a positive note but as for me this weekend I've got one of my stepson's birthday parties and after that I'm having an hour-long massage I've treated myself to it because my shoulders my fingers my RSI is all absolutely terrible as a result of being chained to my keyboard but it has been a fascinating week and thank you very much Damien for inviting us both to share our thoughts with you with you today no thank you for thank you for coming on and I mean Paul I know you've got to go I just wanted to say thank you for your time as well and I know that you're I know that you've announced that you're leaving the IFS so I just want to wish you good luck in future endeavors thank you it's been very very sad leaving after all this time but um you know I've been doing it for quite a while perhaps I should get a um perhaps I should get a massage like Claire but I'm going to the fireworks at Alexandra Palace instead.

1:29:01And indeed, I've got for the first time tickets to the beer festival there as well. So I'll be drowning myself probably. Maybe you can get a YouTube channel as well and an Instagram account. Well, I might need some training from someone at the FT. Train me on how to do that. I volunteer myself. Excellent. Yeah, you can tap me up as well. And you get one pee off those beers, I hear, now. So, you know, they bought that. That was the biggest cheer of the day, wasn't it? The one pee off the beers and everything. Again, something that made me so angry, actually. I mean, I've got no problem about one pee off beer.

1:29:33But the fact that all of these MPs sitting around listening to£40 billion worth of tax increases and all these serious changes to public services, all they can do is have a big cheer on one pee off beer. For God's sake, guys, take this seriously. I mean, this matters to people. Yes, it's nice to have a penny off beer, but for goodness sake. Yeah. Sorry. They were constantly reminded that the public were watching. It was like the public are watching this, you know, you need to behave. Like the speaker kept reminding everyone. It was, yeah. Anyway, the public have been watching this. So thank you so much for your time.

1:30:09I'll let you get on with your days. All right. Lovely. I'll speak soon. Bye-bye. Bye-bye.