A looming coup for Starmer?

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1:09Ed Balls: guys.

1:26This is Political Coancy with Ed Balls and George Osborne.

1:40Ed Balls: So we are back and remote. I am recovering this morning from a late night dash back from Windsor. I arrived back about quarter one in the morning. I remember you saying about how these state banquets went late. They definitely do. And you, I think, are abroad.

2:00George Osborne: I was just wondering whether Carstens came in with some kind of Alka-Seltzer in the morning to nurse your hangover now you live this kind of Downton Abbey lifestyle.

2:09Ed Balls: There were lots of people in slightly more military uniform than Carstens, but it was, look, it's such a Rolls-Royce professional machine. Amazing.

2:22George Osborne: And you're probably taken home in a Rolls-Royce, given your new lifestyle. But I'm here in...

2:28Ed Balls: Definitely not.

2:28George Osborne: I'm in the Bavarian Alps, which are unbelievably beautiful. today in the sunshine. I'm in a great big kind of Schloss hotel, which I imagine must have been used for lots of sort of G7s and G20s. Anyway, at a conference of essentially kind of European businesses and political leaders and some Americans too. Not many Brits, as far as I can see, from the guest list. But I guess I'll be taking the temperature of the continental European and economy here in the beautiful countryside around me.

3:04Ed Balls: Well, maybe we should talk about that next week when you've had a chance to immerse yourself in Bavarian. I'm not sure. What do the Bavarians immerse themselves in?

3:14George Osborne: Well, we're not too far from the eagle's nest. So there was a time when they immersed themselves and things we weren't very keen on. But now I think looking out of my hotel window here, they seem to be hiking and cycling. And I've seen quite a lot of people in lederhosen. I mean, it's like a film set. It's looking absolutely wonderful. But I would much rather be indoors with the curtains shut talking to you.

3:37Ed Balls: Good.

3:38George Osborne: But look, we've got a lot to talk about, haven't we? So we should crack on with it because we're going to, first of all, talk about the Trump state visit, which we're right in the middle of, of course. And we're recording this podcast, we should say, before the crucial press conference later today. But we'll reflect on the banquet and indeed on the visit so far and whether it's achieved everything that the Prime Minister has wanted it to achieve.

4:04Ed Balls: And then one week on from the sacking of Peter Mandelson as the American ambassador from the UK, the deputy leadership election underway, but lots of speculation about Keir Starmer, his leadership, his strategy, questions about whether or not there might even be a leadership change in Labour over the next year. So we're going to talk about the state of the government. I think also, though, the state of the Conservatives, because quite a few defections happening from the Conservatives to reform at the moment.

4:37George Osborne: Yeah, that's right. And then, of course, the backdrop to a lot of the politics at the moment is the economics. And we are talking just as the Bank of England has made its decision not to cut interest rates. But this comes a day after the American Federal Reserve did cut interest rates. So we're going to have a look at the bond market, what's going on there and how that is the backdrop to the politics, at least here in Britain this autumn with the budget looming. So lots to get on with. But I want to start with, come on, you know, we're like the little kids with our noses pressed to the glass as we see how the other half lives.

5:15George Osborne: You were at the state banquet. I want to know, did you say hello to Donald Trump? I want to know what you ate. I want to know what you drank. I want to know if you other interesting people. Come on, we want the whole inside story. Come on, spill the beans.

5:30Ed Balls: As the House Martin said in that kind of famous album, you know, our faces pressed against the window looking in to see a bunch of bankers. And there were rather a lot of bankers there, but also quite a lot of AI tech executives. It's the second ever state banquet I've been to. And the first one we talked about when President Macron was here. I mean the first time you go you're so worried about you know did I find the right place in the seating plan and have I stood up at the right moment but actually I think you know the thing

6:02George Osborne: which is that's what the British establishment does Ed it takes lefty radicals like you and it gets you all worried about like whether you're picking up the right fork or the right

6:11Ed Balls: knife that's how we control you look the true patriots um have always been um you know uh on the labour side of the political spectrum I have to say but no it was I think my second time was a chance to to take it in and you know to not simply be worrying about all the things happening but actually kind of feel it one of the things which is really kind of emotional now is at the end of the the dinner when the the pipers parade around the table and play the bagpipes from one of the regiments. I can't remember which regiment it is. I probably couldn't look it up and tell you. It was from the 1st Battalion, the Scots Guard.

6:57George Osborne: Are you looking at your, of course, one of the kind of swanky documents you got given when you...

7:02Ed Balls: I was looking at the seating plan. And the thing is, because of the passing of the late Queen and that amazing image at the end of the funeral, of the lone piper playing. Nowadays, when you hear the pipers, I mean, it's actually very emotional, very moving. Although one of the people I spoke to at the dinner said to me she was at a state banquet and the person she was sitting next to produced this funny thing from their pocket at a key moment in the dinner and pressed a button and she didn't know what it was. And it turned out to be a remote control for his hearing aid, which he used to turn down the hearing aid as the pipers passed because they were so loud.

7:42Ed Balls: But the pomp and the ceremony, beautiful table decorations was, you know, it's brilliant. And Trump. Come on. Come on. I met the president, introduced by the king, who said, you know, former cabinet minister, partner of the foreign secretary. I thought he was going to say host of the political currency podcast, but he didn't.

8:03George Osborne: And we think the royal household, I mean, I'm not saying our head of state, but the royal household, there are some fans there of political currency. I should, by the way, have mentioned on my way here, the pilot.

8:14Ed Balls: And it's like, you just cut me off on my key anecdote about Donald Trump. I was about to say that the king turns to me and says, you know, introduces me. And I say, but also I say, present John, good morning, Britain. And Donald Trump, because he likes a TV presenter, then beamed and said, excellent. So there we are. But you are right. There were quite a few fans. And also, you remember in August, we talked about speech making in one of the special episodes and praised the speech writing of the king and also for the late queen, how brilliantly, authentically judged those speeches are. And that had made a few people in the staff very, very pleased to see that their contribution recognised.

8:56Ed Balls: So that was kind of good to know.

8:58George Osborne: I should say, Ed, I did promise the pilot on my BA flight, Darren, this morning, who is a massive fan of the podcast, that I would mention him. and uh he actually came up to me and said i love love love the podcast as we uh as we uh as he turned off the engines in munich uh this morning so can i ask what has that got to do with nothing

9:19Ed Balls: the king donald trump the state banquet or anything just all people in positions of authority

9:24George Osborne: whether they're flying us or or guiding our country are uh you know listening to this important uh conversation we're having well maybe not so important we need to get on to the important

9:34Ed Balls: bits go on sorry i keep interrupting you go on go on you do thank you darren um the truth is though on one level you will totally recognize this when you are part of a foreign delegation at a big event in this case in windsor castle um and we've many times been you know kind of visitors in you know blair house in america or in tokyo or whatever politics is also unfolding at the other end and you can sort of see the conversations and the phones and that, you know, it's not the case when you are accompanying the president to a state banquet in Britain, that all politics and activity at home is suspended.

10:16Ed Balls: And actually, the most dangerous time politically can be when you are diverted. And you can sort of see from what was happening around the room, politics was still unfolding in America. On the speeches, though, the King's speech was typically excellent. Donald Trump made a really good speech and it was very passionate in talking about Britain and his family links and the king and Prince William and Catherine and you know the depth of the relationship. If Keir Starmer's strategy, look there's a press conference happening later today and you know as somebody said to me when the cameras turn on it always becomes more risky but the reality is if the strategy was to use pomp, circumstance and the state visit in order to kind of bind Donald Trump as far as you possibly can into the importance of this relationship, the economic relationship, the tech relationship, but also the political relationship.

11:12Ed Balls: Last night worked as well as they could have possibly possibly hoped.

11:16George Osborne: I mean, isn't that the kind of irony that when people were looking at this autumn, them they were saying oh my gosh this uh state visit from donald trump is a real uh problem for keir starmer you know they're going to be protests it's gonna be very unpopular you know he he issued that invitation to come when he was sitting in the oval office and it kind of served its purpose but now he's actually got the visit and it's going to be a bit of a nightmare for him and quite the reverse has turned out to be the case this has been the lifeboat for him because he's had a torrid week, which we're about to come on and talk about.

11:50George Osborne: But in fact, he's able to pivot into being the prime minister on the big stage with the American president. He's able to announce, you know, significant investments by big American tech firms who are all traveling with him. And he's able, in fact, to play, I think, his strongest card as prime minister. I think if you were to say, you know, if you're trying to be objective and say, what has Keir Starmer done really well as prime minister, the handling of the Trump administration would be, well, certainly probably be my top choice and would be a lot of people's top choices. Whether you like, you know, I guess the question is, is he paying a price for the way he's handling Trump?

12:27George Osborne: But in terms of the objective he set out, which was to engage with Trump, to try and secure economic benefits from that engagement, you know, job done. And the state visit is turning out probably to be the highlight of his autumn. I don't want to guess that things are going to get worse for him between now and Christmas, but they probably are. And so you may look back on that night last night and say, well, that was the high point of the second half of this year.

12:54Ed Balls: It's true. And it is in contrast to what we saw in the run up to elections from Mark Carney, now the Canadian prime minister, who ran against Donald Trump to become the premier in Canada. Antony Albanese in Australia, very critical of Donald Trump and his opponent in Australia for being too pro-Trump. And then here in Britain, we've had over the last few days Ed Davey, the Lib Dem leader, boycotting the state dinner because in protest at Trump and what's happening in Gaza. You had Sadiq Khan, the mayor of London, full frontal attack on Donald Trump in the front of the Guardian on the day of the state dinner, in which he says, you know, these actions aren't just inconsistent with Western values.

13:43Ed Balls: They're straight out of the autocrats playbook, talking about some of the things which have happened in America. Ezra Klein, the very well-known American columnist, wrote a piece a week or so ago and being very influential in American politics, saying that the Democrats have now got to take on Trump. What he's doing in America is so shocking and that they oughtn't to be agreeing a budget deal. They should be shutting down the government in protest. But here in the UK, Keir Starmer is sticking to the strategy which he set out, which is not to be slavishly devoted. I mean, I think if it was Nigel Farage or Kemi Badenoch hosting the president, it would be different in tone to Keir Starmer.

14:23Ed Balls: He's willing to sometimes say things which are where there's dissonance and some criticism. We may see some dissonance and some criticism in the press conference this afternoon. But fundamentally, the line he's walking is that by staying close to the Americans and to the president and a cooperative relationship, he hopes to get better outcomes. You know, we didn't get a cut in the steel tariff, but maybe it would have been worse on tariffs. There was a tech deal. Nick Clegg says it's not a very good deal. But, you know, what was Nick Clegg doing for the British national interest when he was working for Facebook over the last few years?

14:56Ed Balls: I'm not sure we're going to take lectures from Nick Clegg on what is a good deal for Britain when it comes to the tech world. But what Keir Starmer is doing is he is not only trying to say this gets me better deals. Also, as you say, it allows him to say, I am the serious, unflappable guy who, in a grown-up way, can do proper politics. I think the really interesting question for me is how long? I mean, it's a long time between now and election day to walk that tightrope. And you remember Theresa May getting into trouble when Donald Trump, in the first term, suddenly did the Muslim travel ban when she's in America.

15:36Ed Balls: And when it's something which he does, which is international, at a certain point, that could put acute pressure on the British prime minister. And I guess the closest we've come to that so far was the Zelensky moment, which Keir Starmer handled really well. But how long can Keir Starmer walk this tightrope? Does he have to end up sharpening his position as you get closer to an election? At the moment, though, it feels to me he's sticking with this strategy.

16:00George Osborne: Yeah, I mean, I think the most obvious divergence is going to come, isn't it, on Palestinian recognition next week at the United Nations General Assembly. And it's quite obvious that the British government has sort of delayed making its big announcement on that until after Trump leaves the country. And it may come up at the press conference. We just saw an observation on the kind of tech, on these tech giants. I think it's fascinating, isn't it? When these companies first started to emerge, you know, when they were literally being created, the Googles, the Facebooks, and let alone the Open AIs, which are, you know, very recent, a recent company.

16:38George Osborne: You know, they were sort of separate from government. They were very West Coast. They were almost sort of anti-government. And they set out their own mission statements of, you know, do no harm and so on. And they certainly wanted nothing to do with Washington. And yet now they've become real instruments of American power around the world. So when the American president turns up on a state visit, I guess, you know, 30 years ago, he would have turned up, wouldn't he, with the kind of head of GE or the head of Ford or the head of Exxon or something like, you know, oil companies and car companies and so on.

17:13George Osborne: And now he turns up with the tech titans and they are they are an explicit instrument of American diplomacy because they make these announcements on cue about investments in Britain. And, you know, I'm sure if it was a state visit to Paris or Rome or whatever, they'd be making announcements about investments there. I don't know whether Clegg's right that I'm glad your friendship continues, but I'm not sure that Clegg is right, you know, whether these are the small crumbs or not. But, you know, they look to me like significant sums of money and maybe they were coming anyway. But if I was doing my old job as chancellor, I'd be pretty pleased with the announcements this week.

17:51Ed Balls: I think the real question for the government is whether they bend when it comes to regulation and in particular regulation around content. And, you know, I think part of my scepticism about Nick Clegg trying to pour cold water on this deal is he spent the last few years at Facebook lobbying the British government not to do the kind of regulation which the tech companies are now asking to be softened. I hope the government doesn't give ground on that because that would be the wrong thing to do. But in terms of the wider kind of economic planning relationship and how that translates into jobs on the ground, it may not be stellar, but it's a step in the right direction if they don't pay the wrong kind of cost, if they don't listen to all that Facebook lobbying.

18:39George Osborne: now look we should turn shouldn't we to whether whether this has bailed out keir starmer after an absolutely terrible fortnight you know has a successful state visit uh has uh his trump handling have these big economic announcements or investment announcements have they have they uh sort of put a stop to that commentary we were getting louder and louder that this is a real crisis for the starmer premiership we should we should turn to that next shouldn't And we will come back after this break.

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20:31Ed Balls: Welcome back. So who'd have thought that the visit of Donald Trump would be a bit of light relief for Keir Starmer, as you said in that first item. Although I say that knowing that there's a press conference coming today and who knows what might happen at that press conference. We will discover after this podcast is well and truly put to bed. But it has been a torrid couple of weeks for Keir Starmer. the loss of his deputy, Angela Rayner, the loss a week ago of the American ambassador, Peter Mandelson, and all the questions which continue about what Keir Starmer knew when and how that decision was originally made in number 10 and in the cabinet office.

21:14George Osborne: What about the head of strategy again? Can I just, because you're talking about people going, that was not really much notice, but he had to resign over some extraordinary things he said about Diane Abbott.

21:22Ed Balls: Is he a big loss? Well, I don't know him well, Paul Ovenden, but he's clearly been with Keir Starmer a long time. And what he said was, you know, Downing Street say, or his unattributable friends in Downing Street say was, you know, it was a joke and this is very unfair. But I'm afraid when you look at the words, not the kind of thing you should be writing down, especially in the modern world and committing to WhatsApp. I'm afraid that's kind of another example of that and I think it will be a loss because Keir Starmer relies upon those people around him who he's very close to and it's a it's it's a smaller band than it was before the fundamental thing though is his ratings are so low and they've continued to fall and that's partly because of that sense of division and but also because of the cost of living crisis and the sense that people aren't feeling better off and I guess um if you're Keir Starmer you need things which can turn this around he's got a few big moments in the next month or two um as you said the UN next week and the announcement about the recognition of Palestine the following week his speech to the Labour Party conference a few weeks later the budget these are moments which are huge and which the media has to report and they are cut through moments and those have to be those set pieces he needs people to look at and say there's direction i understand the values which underpin it this is what keir starmer's government is all about but the reality is um that is hard in an atmosphere of swirling politics and we've had quite a lot of swirling politics in

23:06George Osborne: the last week well i think what's extraordinary is you know last week we were talking about the deputy leadership contest and then it all kind of morphed into conversations about a real you know like a leadership contest but can we let's take them in turn so we start with the deputy leadership contest um so that's now underway um lucy powell versus bridget philipson um i thought lucy powell uh who i know pretty well because she was a manchester mp when i was an mp you know on the outskirts of manchester um i thought she did a really really good um interview with Nick Robinson. I think it was for his podcast, Political Thinking, but I heard it on the Today programme.

23:43George Osborne: And I think she's playing this card of being the kind of critical friend, explicitly the shop steward of the MPs. And everything she said, you know, I thought was said with sort of moderation, but at the same time, clearly not the Starmer camp and, you know, helped by the fact she'd just been fired by Keir Starmer. And she said explicitly that as deputy leader, she wouldn't take her job in the cabinet and she didn't think the deputy leader should take a job in the government. That's a big challenge to Bridget Phillipson, I guess, and her positioning. Is she at the moment, I guess I haven't heard so much from her, but maybe I've been paying quite close enough attention.

24:23George Osborne: But has she got her hand tied behind her back in the way that you predicted she would have a week ago? And I know it's like early days, but it's a pretty short contest, isn't it? I mean, who is the moment looks like the front runner?

24:38Ed Balls: There isn't yet proper polling. There was a salvation poll, but I'm not sure whether I would at the moment kind of give that much credibility. But I think you are right. Lucy Powell had a good first week. It was a good interview on the Today programme. I wouldn't underestimate Bridget Philipson. She got a lot of nominations for the backbenchers. There's a lot of respect for her. as a cabinet member. Of course, if you go back a few months ago, she was one of the people being heavily briefed against by Number 10, saying that she was for the sack because she was taking an approach to academy reforms, which people said were a betrayal of Tony Blair.

25:19Ed Balls: And I don't think that was right myself. That's because you agree with her on all this academy stuff

25:27George Osborne: rather than Tony Blair.

25:29Ed Balls: well look as the person who opened more academy academies than any other Labour Secretary of State I'm fully in favour of academies but I think that they aren't independent schools outside the state sector they are state schools and and and have to accept their proper obligations as do all other schools to you know to cooperate in around behaviour or to teach the curriculum so I definitely do but I wouldn't underestimate.

25:53George Osborne: That's code for yeah exactly you're you're definitely more on the what we now call the Bridget side of the argument rather than the Number 10 side of the argument.

26:02Ed Balls: But that is my point, which is that Bridget Philipson isn't simply on that issue a leadership or Starmer stooge. It was actually the people in Number 10 having a go at her. However, there's no doubt that from outside the Cabinet, Lucy Powell can position herself as the critical friend, passing messages in. In passing, I actually think it would be better for the deputy leader, whoever it is, to be in the cabinet, not on the outside. I'm not sure that's the right decision in the end for either Keir Starmer if Lucy Powell makes or for Lucy Powell. But there is no doubt that it is harder for Bridget Philipson and will be harder in these debates if she's tied into cabinet collective responsibility.

26:45Ed Balls: The party is going to want a lean from the deputy leader on the issues in the Middle East and Gaza and Lucy Powell was doing that this week. And we will see whether Bridget Philipson follows her. And then on the issue of fairness, I mean, there is some suggestion that people are trying to turn, you know, tackling child poverty into within Labour, like in a factional divide. That if you are on the left, if you're Lucy Powell, you think getting child poverty down is really important. And therefore changing the two-child limit is important. Whereas if you are, you know, with Keir Starmer and you know on the centre ground you don't think child poverty is important and don't want to make that kind of mood look I think that's a ridiculous dividing line to establish I don't think Bridget Philipson will lose badly in the debates if she's on that side of the argument Bridget Philipson and Lucy Powell both have to be for tackling child poverty and Bridget Philipson will need to advocate positions as education children's secretary on child poverty which go further than what at the moment the Treasury and the Chancellor want to do.

27:53Ed Balls: I mean, we were being told a few months ago, Keir Starmer wanted to move on child poverty and the two-child limit. So on that, I think she has to be given latitude or take latitude. If she is the status quo on Labour's policy in the Middle East and doesn't think child poverty is important and the defender of the Starmer style, Well, very, very hard to win this deputy leadership election in the current climate.

28:21George Osborne: Although, of course, you know, in all of those positions, you're, you know, if you take those positions as deputy leader, you're actually ducking the decisions a real leader of the Labour Party has to take as a prime minister, which is, OK, you know, your position on the Middle East. How do you actually have influence over what's happening on the ground there? How do you have any influence over the Israelis? Or indeed, you know, if you take positions that are markedly different from Donald Trump, have you lost any influence over the Americans? and on child poverty. I don't think, you know, of course, every Labour MP says they'd like to get rid of the two-child limit, which I introduced, although I think they are misreading how the public might react to that when it happens and some of the cases you're going to find if it does happen of people getting very, very large sums of money suddenly of large families.

29:12George Osborne: But the question is, how do you pay for it? I mean, that's what Rachel Reeves is wrestling us with and we'll come on and talk about that. So some of these positions in the deputy leadership contest are, you know, like I guess in many, like in any kind of party leadership, they're kind of, I would say, kind of swerving around the decisions you actually have to take in number 10 Downing Street.

29:31Ed Balls: I know, but that's not the point. I mean, I said last week, if I was Keir Starmer, I would have downplayed the importance of this election and I wouldn't have had a cabinet member standing in the election. But they have. And so it becomes a debate about what is the cabinet going to do. even if you don't think we should move on the two-child limit I disagree with that but that's fine but that is not the same as saying it's not a priority for a Labour government to do things on child poverty and whether it's a two-child limit or something else Bridget Philipson has to be advocating for action if she's going to be a credible Labour figure but the question we were talking about was not you know what is the right position for Keir Starmer in the next election we're talking about how you win the deputy leadership election I mean that's the reality and if you if you are on the wrong side as the electorate which in this case is not the general electorate but the Labour Party electorate if you're on the wrong side of the of the debate on the Middle East and on fairness and child poverty and speaking truth to power you can say all you like I know but I'm for unity and I'm for tough decisions but you know I don't think that's going to win you the election and I don't think Keir Starmer wants Bridget Phillipson to lose this election?

30:47Ed Balls: So that's the question. I mean, you know, we aren't talking about the election for the leader. We're talking about the election for the deputy and, you know, and who's going to win, not what you would like them to say for the long-term benefit of the government.

31:00George Osborne: Of course, lots of people are talking about the election for the leader. I mean, I thought Lucy Powell had a very good response when Nick Robinson suggested in his interview that she was a stalking horse for the mayor of Manchester. Andy Burnham, which we should listen to what she said.

31:20Ed Balls: There are people you know who say, hey, Lucy Powell, she's a stalking horse for Andy Burnham. That's what this contest is really about.

31:26George Osborne: I mean, it's just classic Westminster bubble obsession that, isn't it, really? You've got two strong women in an open and transparent contest. And instead of talking about the two strong women, everybody's talking about this being a sort of proxy for war between two men, which, quite honestly, I find kind of sexist. well it probably does have some sexist element to it although there is also some truth to it which is the deputy leadership contest is seen as a kind of temperature check on keir starmer's leadership at the labour party now can i ask you why has andy burnham he's not in the government he's not in parliament he's the mayor of manchester there are a bunch of new labour mps and there are a bunch of Labour cabinet ministers when just over a year ago there weren't any Labour cabinet ministers.

32:14George Osborne: Why is Andy Burnham the kind of king over the water? Why is he emerging as the potential replacement to Starman? We'll come on and see whether to talk about whether that is realistic or not. But it's kind of interesting that he's emerged because I would have thought once Labour were in government, perhaps those mayors like Sadiq Khan and Andy Burnham would become less relevant, less important, because the action would be in Whitehall and Downing Street. But It's interesting. Again, I know Andy Burnham very well. We were in Parliament together and I helped create the Manchester mayorality that he has occupied and I think occupied pretty well.

32:50George Osborne: But why are people looking at him?

32:53Ed Balls: Well, because he was on the Laura Koonsberg show last Sunday at the moment of Keir Starmer's greatest vulnerability in the last few weeks, being very critical of the direction the party and the leadership is taking and endorsing Lucy Powell to be a candidate for the deputy leadership. And, you know, I mean, I totally agree with Lucy that this is a contest between two powerful women. But as we said on our podcast last week, it was going to be seen from the beginning by many people as a proxy battle, not least because Andy has been projecting himself into that proxy battle in terms. But there's a wider point here as well, which is that if you take the lesson people draw from Labour leadership elections of kind of recent years, I think the view is that if you are late out of the traps, you lose.

33:47Ed Balls: and if you go back to 2019 well before the general election in 2019 which jeremy corbyn lost keir starmer and his team we now know because it's all documented in patrick maguire's excellent books we're organizing the keir starmer leadership challenge and because you need to be ahead you can't get caught out and that's what keir did very successfully indeed and now with the ratings low and the polling low people are thinking do we need to do the same thing again and that includes andy if you go back to the period of the pre-election greatest vulnerability for keir starmer around the police investigation in durham we know all these conversations were happening west streeting lisa nandy at the time of rachel reeves if you remember in the patrick Maguire book he documents a moment in the voting lobbies where Wes Streeting and Rachel Reeves are sitting together in the voting lobby and Wes says to Rachel according to Patrick Maguire have you thought about what you're going to do if the worst does happen and Rachel says well I don't think it is going to happen but the conversation was happening if you then transport yourself over to the last week, all of this rolling speculation.

35:08Ed Balls: But more than that, people gearing up. I mean, there definitely will be people thinking, have I got the appointments I need? Have I got the contacts I need? Am I kind of getting myself ready? Again, Patrick Maguire, columnist in The Times, chronicler of Labour, says at the end of his column earlier in the week, ultimately would be for the cabinet to force the issue. Like the vast majority of their colleagues, they vent their splittens privately. To do this in public is to commit career suicide. The only way this is resolved, said one minister of the Health and Home Secretaries last week, is for Wes and Shabana Mahmood to decide who runs, get Rachel Reeves on board, and then tell Keir it's over.

35:51Ed Balls: So Patrick Maguire reflecting that kind of speculation. Now, I think probably West Streeting, Shibad Mahmood, Lisa Nandy will be thinking in government, this is more dangerous. But they'll also be thinking, well, if Andy Burnham is stealing a march, am I ready if it happens? And Andy's thinking, well, if they're going to get ready, am I ready if it happens? And that starts to become dangerously self-fulfilling. And I said at the beginning, what Keir needs to do is get his big moments, get his agenda moving. But if deputy leadership and leadership speculation is taking over, that is very dangerous.

36:28Ed Balls: It's also really important to say on this, if anybody thinks that people within number 10 are starting to sort of tilt things one way for one candidate, and therefore I need to do what I need to do to combat that number 10 effect. That then becomes kind of dangerously toxic in terms of momentum. So Keir Starmer needs to read the riot act to his cabinet. He needs to stop this happening, put an end to all this speculation, but hard to do that unless he really gets his government back rolling that conference speech, that budget. They are now kind of crucially important. But, you know, I don't think he can complain about other people doing in 2025 what he did very successfully in 2019.

37:13George Osborne: My favourite quote, almost in politics, but anyway, in this context, is the Harold Wilson quote when he says, people think I don't know what's going on. I know what's going on. I'm going on. Which is about conversations about Wilson's leadership. What about, I mean...

37:33Ed Balls: I have a feeling Margaret Thatcher used very similar words in the autumn of 1990, on and on and on, and it didn't work out so well.

37:43George Osborne: It didn't work out well, although we did a good what-if if we had survived in our...

37:48Ed Balls: But this is why this deputy leadership election is dangerous, because it's sort of, you know, aside from whether it's a proxy for Keir Starmer and Andy Burnham, it looks like the Labour Party turning in on itself as a government and having internal rows about direction rather than focusing on cost of living and the national health service and the the economy and the leadership speculation kind of flows out of that mood having been created over the last couple of weeks since Angela Reina resigned so um you know I think I think that this is you know concerning for Keir Starmer and he needs to get a grip from the you know first and foremost with his own operation and make sure that

38:31George Osborne: nobody is feeding this yeah but you know you can't plead for unity you can only lead and people will follow and if people see you're doing the job well and you're communicating well and you have something for people to follow a message a mission and you know objective then that's how to solve leadership crises you know with there were plenty in the Tory party and the one thing that never works is get up and say please can we all be united so you know he's got to and his new team around him in number 10 or largely new team have got to do the thing that a leader of anything has to a leader of a football team a leader of a company a leader of a country needs to which is this is our goal this is what we're fighting for this is what we're campaigning for this is the mission and i was gonna the cut we should move on because we've got so much to talk about but I thought there was an interesting change.

39:22George Osborne: Maybe I've misread this. I had always assumed that the Labour Party was averse to leadership changes. The Tories are endlessly ditching their leader. That's the kind of received wisdom. As William Hague said, it was reported in one of these columns this week, it's a monarchy tempered by regicide. I remember him actually explaining to the Liberal Democrats in the negotiation that. But the late party was always seen to be overly loyal to its leadership, even when it's clear that it's not working. Witness, for example, hanging on to Jeremy Corbyn after he'd lost one general election to fight the second and indeed hanging on to Neil Kinnock in the 80s.

40:01George Osborne: But what about the there seems to be a sort of new moral argument, which is we're going to let reform in. we're going you know that there's a kind of moral duty on the left here on a center-left government to not let the far right in and that's new i mean obviously in the past year we said we must let the conservatives in does farage and the looming threat of farage kind of create among labor mps a kind of new urgency of you know we really really can't fail i think that that i mean i hear

40:34Ed Balls: people say that often. So I think you are right to say that that is currently worrying people. People say it's existential about democracy and parties rather than simply about one leader of one government. And the difference between the Labour Party and the Conservative Party is that the Conservatives remove their leaders, where Labour leaders normally decide to go. But quite often they decide to go when things are kind of difficult and under pressure in the case of harold wilson that was it was health but if you think of jim callaghan or michael foot or neil kinnock or tony blair or um ed milliband they chose to leave they weren't challenged but they chose to leave at a time when after an election um it was clear that they weren't succeeding and things that had to change now um in normal politics you would think that election is a general election in three or four years time but what people increasingly saying is well actually no it's next year's local elections and the scottish elections which are will be that that moment where you can see the writing on the wall so i think all this stuff about um challenges and the labour party removing a leader and how difficult it is and the nominations i think that That isn't the point.

41:57Ed Balls: The point is, as Patrick Maguire suggests, the answer would be for Wes and Shabana to decide who runs, get Rachel Reeves on board, and then tell Keir it's over. What Keir Starmer doesn't want to do is be in that position where senior people, a bit like Margaret Thatcher in 1990, are telling the leader the game is up. And I don't think at the moment, given the reform challenge, and the state of the Conservative Party, I don't think that the mood will be that that happens after a general election. I think the pressure to kind of, you know, it feels as though timelines are being shortened in politics, doesn't it?

42:39Ed Balls: And this is just one example of that.

42:41George Osborne: Yeah, I mean, I'm not sure. I mean, I think it was ever thus. I think weak leadership spined in the polls, you know, always face the question of whether they're going to be challenged and brought down. And that, you know, somehow, Star Master responds to that by being a stronger, better leader with a stronger message. Of course, all this begs the question of where are the Tories? Kemi Badenoch had had a very good week at Prime Minister's Questions asking those searching questions about Peter Mandelson to Keir Starmer. But then, of course, it all got ruined when Danny Kruger, a Tory MP, defected to reform the first time an actual sitting MP has done that.

43:17George Osborne: And that casts a big pull over the looming party conference in a couple of weeks' time. I think we will focus on the Conservatives a bit closer to that conference and whether there are going to be more defections that make that conference very difficult to manage. But underpinning all of this, underpinning the reason why the Conservatives were kicked out of office, underpinning, I would suggest, one of the reasons why Keir Starmer is having such a difficult time is the performance of the British economy or lack of performance. And the bomb market that sits there, as many people have observed before, is one of the most powerful forces in politics in our history.

43:54George Osborne: So we are going to turn to that next.

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45:20Ed Balls: So welcome back. We've been talking about British politics and the state visit of Donald Trump. But actually, also in the last 24 hours, we've had very significant economic news. On the one hand, on Wednesday, the Federal Reserve finally doing what the president has been urging for some months, urging. I mean, his attitude towards the US Federal Reserve, the central bank, and demanding the removal of one of his key voting members, Lisa Cook. He says that he has the right to remove her, seen as a massive challenge to Fed independence. But the Federal Reserve cut interest rates on Wednesday by a quarter point with growing worries about what's happening in the US labour market.

46:06Ed Balls: Is the economy slowing down? Is the Trump tariff effect starting to bite? And then today, by contrast, despite lots of speculation that the British economy is going to be slower, the Bank of England chose not to cut interest rates. They were held at 4%. And the reason is because inflation stubbornly high. The news this week that in the latest figure in August, inflation stayed at 3.8%. Compared to Europe, compared to America, the UK has an inflation problem at the moment. And that is stopping these interest rates coming down. But then also, wider speculation are these high interest rates and high long-term interest rates in the bond market, also a reflection of fiscal worries in America, Britain, France, across Europe as well.

47:01Ed Balls: So it's quite an unstable time in the global economy, but at the moment, the UK and the US on different paths.

47:09George Osborne: Yes. I mean, I think let's start with acknowledging that lots of people thought that by the time we got to this time of the year, there would have been quite a few cuts in interest rates in the US and in the UK. and in the case of the US this is the first cut of the year and in the case of the UK now you know rates are significantly higher than people were predicting a year ago and as you say it's the inflation issue inflation issue of course you know buried in that 3.8 percent inflation is a 5 percent food inflation number so out there in the real economy families who are being told by the Labour government you know our economic plan is working are just seeing their food bills go up and you know their their incomes squeezed um i mean i think you have to don't you have to differentiate between things that are going on that are global and things that are particular to the uk or indeed the us i mean things that are global are lots of governments are now running quite high deficits the german government i'm here in bavaria you know has made a massive decision in the context of post-war Germany to run a deficit, spend a lot more.

48:24George Osborne: There is inflation returning to the Japanese economy after several decades when it hasn't been present. And that kind of underpinning of the bond market of Japanese and German bonds has become somewhat unanchored. You've got the French political situation, which we've discussed on this podcast before. And in the US, as you say, you know, Trump is at least verbally undermining the independence of the Fed. So, you know, I think if you were, you know, the Bank of England governor or indeed the Charles Seix checker looking for some excuses, you'd say, look, it's we're part of a pack. We're not there's nothing particularly special about us.

49:01George Osborne: And they'd say there are some other particular market factors in the UK, like the declining demand from pension funds with defined benefit schemes for long dated gilts and so on. that's all true but as you say the you know the uk increasingly looking like an outlier on inflation not cutting rates at the same week that the u.s is cutting rates and ever since the mini budget and indeed that moment if you remember when rachel reese cried in parliament you know the bond market has been very very skittish about britain and very nervous about inflation and very nervous about a kind of collapse of political will around, you know, keeping deficits under control and keeping debt under control.

49:47George Osborne: And that is the backdrop, isn't it, for this budget that is coming up? You know, fundamentally, and we've discussed this before, Rachel Reeves and Keir Starmer cannot break from these fiscal rules. They might fiddle them a little bit around the margins with definitions and things, but they've already done a bit of that. But the pivot you suggested early in the year, which is to say we're in a very different world, very dangerous world. We need to rearm. Tariffs have changed the global environment. We're coming off our fiscal rules. That moment has passed. We know they can't really cut spending.

50:20George Osborne: We've just been talking about the Labour deputy leadership contest. There's no one advocating for austerity or kind of spending cuts in that contest. So you're left with these questions about tax rises. And the bond market is forcing that choice on the British government, forcing that choice on the trans-exchequer. And the news there is only getting worse because it looks like, I suspect this is a deliberate leak from the Treasury, the OBR is going to downgrade the productivity forecast for the UK. And that has, again, a meaningful impact on how much tax revenue you get and therefore on the fiscal black hole you have.

50:56Ed Balls: So I think you are totally right to say the budget is now a pivotal, seminal moment for Rachel Reason, for Keir Starmer, for the Labour government and for the British economy. And if they get this wrong in its content and in its politics, then it's kind of very, very difficult indeed. indeed the only thing i would say is i think if you look at so far market events this year i think they are more about inflation than about fiscal in the uk i mean there's not been a big deterioration in the uk's bond market standing if you look at 10-year interest rates which is you know a good measure of market worry actually there's been barely a rise in britain over the course of this year so far.

51:46Ed Balls: Big rise last year, but not this year. In America, they've actually gone down by half a percentage point. It's been France and Germany where you've had more fiscal worries. The thing which I think has been happening this year in the UK is inflation has not come down. And therefore, people are thinking, well, is there an inflation problem? Maybe the Bank of England can't afford to cut interest rates. At the moment, markets think that the final resting place for interest rates in the eurozone will be two percent and in america closer to three percent in britain three and a half percent you have to have higher interest rates because you're going to have to bear down on inflation even if you sacrifice some growth in the process now that might be because there's a fundamental inflation problem it might be that last year's budget and the rise in national insurance kind of put a bit of administrative price rises into the system it might just be that you know we are working our way through the post-pandemic path in a slightly different way in britain or in um in um in europe i don't look at the numbers and think to myself that what's happening in bond markets despite some of the hype is actually about current fiscal worries but if you get to the budget and the government has to announce a slowdown in growth this year.

53:07Ed Balls: The OBR, as we now think lightly, saying that longer term growth for the next few years is lower. Higher interest rates globally, meaning the debt service interest payments on all of our debt, has gone up a lot. And in those circumstances, you've got a big fiscal gap, 20, 30, 40 billion pounds a year. And if you don't close that gap, and Rachel Reeves has got very little room for manoeuvre. She's got no safety margin. You would have debt rising, not falling in those circumstances. At that point, you definitely crystallise a fiscal crisis. I say definitely. I think you'd be running a great risk of big fiscal problems.

53:51Ed Balls: Rachel Reeves cannot afford to have debt rising over the next five years rather than falling. And therefore, you're going to face some very, very difficult decisions in that budget. Can Rachel Reeves politically come along and say to this Labour government, this parliamentary Labour Party to the country, that the solution is going to be big cuts in public spending. I don't think she can do that. I don't think she'd have support for that. I don't think it's actually what the economy or public services needs. But what she's going to have to do on tax is going to be very painful. I don't know whether you saw the head of the CBI saying that what the government now needs to do is accept that the manifesto commitments on VAT, national insurance and income tax, they're out of date because of this growth and fiscal challenge.

54:41Ed Balls: The worry from the CBI or that business world is, if not, it's going to be business and capital taxes which bear the burden. I thought it was a very interesting contribution for her to make. But it may be an inflation challenge so far this year, but it becomes a big fiscal challenge if Rachel Reeves doesn't do what is going to be, you know, her second eye-wateringly challenging budget in 12 months and where the politics is much, much more delicate and difficult for her and Keir Starmer.

55:13George Osborne: Well, maybe the bond market hasn't balked at the kind of fiscal moments because the government have stuck to their fiscal rules. Exactly. And the only moment when, you know, when she, you know, sorry to make it personal, But when she cried in the House of Commons and people thought she might resign that day, the bond market did react immediately. And so, you know, it's interesting, her challenge. which in some degree she has more flexibility on spending than people realize, because the change in the definition of debt to this new definition of public sector net financial liabilities, which is called per snuffle, the measure, amongst the technicians, means that she can spend money through certain kind of quasi-state entities, like the National Wealth Fund, the British Business Bank, Great British Energy.

56:08George Osborne: The new nuclear power station at Sizewell is being funded that way, essentially kind of off the balance sheet of the state for the purposes of the fiscal rules. And I think in the budget, you'll see a load more of things like that. Second, I think the OBR is being attacked now by the left in the same way the Tory right attacked it. The Tory right says tax cuts pay for themselves. Why don't the OBR recognize it? And the Labour left says spending a load of money, you know, gets the economy started and pays for itself. and neither are true in my view and or at least not to the extent that though both sides argue and the OBR has scored dynamic changes it does score investment as contributing to growth and it says certain tax rises don't you know cost as much on paper as you might imagine most notably did when I cut the top rate of tax but you know the OBR I think will probably think we do have to downgrade productivity but we don't we're not going to take it all the way down in the way that some independent commentators are, because that would really put the rate to reason in a terrible mess.

57:12George Osborne: Because you could justify reducing Britain's long-term productivity growth forecast by half a percent. And that would put a£50 billion hole, because each 0.1 is roughly£10 billion in the public finances. I don't think they'll do that, but the ground is being laid in the press for some kind of downgrade. I think there's a final kind of interesting observation about politics. If people thought that Keir Starmer was going to go, that Andy Burnham was going to come in or Bridget Phillips or whoever was going to come in, that there would be a very different economic policy, different chancellor, most certainly, different fiscal rules.

57:52George Osborne: I think you might see the bond market again, you know, sort of asserting itself and putting a shot across the bow of British politics or Labour politics. I mean, there's a sort of irony that, you know, that both Keir Starmer and Rachel Reeves are now the guardians of fiscal discipline as far as the market is concerned. And if they look like they're falling, which at the moment, you know, the speculation is there politically, but it's not there in the financial markets, things could be very different. And then you find yourself, which I think, you know, if you look at the history of the Labour Party and Labour governments, quite often Labour leaderships have sort of found themselves trying to defend, you know, fiscal prudence against their own party and their own movement, you know, famously and, you know, very divisively in the 1930s, but also in the 1970s.

58:43George Osborne: and anyway there's this kind of you just don't don't don't there's a kind of bond market element

58:50Ed Balls: to the starmer leadership speculation that is true and um i think one of the potential candidates we didn't talk about earlier lou lou haig who was sacked by kirstama from the government a year ago her contribution before saying she wasn't going to stand in the deputy leadership election and she'd be standing from the left was to say we need to change the fiscal rules i don't think anybody would win a Labour leadership contest from the position of loosening the fiscal grip. But I don't think anybody's going to win the Labour leadership election from the point of view of big further cuts in public spending.

59:26Ed Balls: And so it is going to be a tax where the pain is going to come. And that is what the government's going to have to face up to. And that would be true whoever is the chancellor and whoever is the leader and if you look like you're ducking that or you can't get your decisions through and of course in France for the last couple of weeks the government has been failing to get big decisions through as Keir Starmer failed on welfare reform those things are where the real destabilization comes the thing there was an interesting piece by Rupert Harrison to link my point about inflation and fiscal in which he was saying if you're going to move on tax which i think everybody's expecting in the budget don't do so through the kind of tax rise which pushes up inflationary pressures um vat is the most obvious one uh there you know arguably employers national insurance did a little bit of that last autumn as well i guess my question is um for the government at the moment is is what's the narrative I mean, what is the explanation that they are giving to the public, to the country, to MPs about difficult decisions happening at the end of November?

1:00:44Ed Balls: There was a narrative at election time. They didn't choose to take about the inheritance. There was a narrative post-election, which was about the in-year inheritance last year. But we're not in the first year of the government anymore. There was a possible narrative, as you referred to earlier, around Donald Trump and the global economy and tariffs and growth and defence pressures. They chose not to take that narrative then. I'm not sure now that they're going to find it easy to pin an OBR productivity downgrade on the last government because that is an argument which has been made in a kind of intellectually compelling way sufficiently in the last 18 months.

1:01:27Ed Balls: And so the story of this budget at the moment, I'm not sure what story they're going to tell.

1:01:35George Osborne: Well, the story is going to be because Keir Starmer doesn't have a control over his party, he couldn't get the cuts to welfare and winter fuel through that he wanted. And as a result, you know, taxes are going to go up to fund the whole, even if actually the productivity downgrade will be a larger component of the whole. I think the real...

1:01:55Ed Balls: Are you saying that's a story which the Marx is going to tell, or that you're going to tell, or that the Treasury is going to tell?

1:02:01George Osborne: No, I think it's the story that the government is, you know, through the absence of other stories, telling. That's what people see the budget now in the context of.

1:02:10Ed Balls: But that's not a good story for Rachel Reeves to tell about her budget.

1:02:13George Osborne: No, no, totally agree. And, you know, basically the judgment at the beginning of the parliament, which was we don't need to create a lot of headroom, we don't need to build up a war chest, which is what, you know, other chancellors such as myself and Gordon Brown did, turns out to have been a big mistake because it exposes you to quite small changes and things like productivity growth forecasts and what the hell is going on in the global economy. And then it blows your fiscal rules, of course. And the fiscal rules are now anchoring the credibility of the Labour leadership and the anchoring the credibility of the government in the bond market.

1:02:48George Osborne: But I mean, I'm quite sympathetic to Carolyn Fairburn's argument, which is if you're going to do it, if you're going to have to raise taxes, bite the bullet on your promises, do something substantial rather than a load of smaller things like on business and enterprise and capital taxes, which are simply just going to make the country less economically productive and add to your problems. I mean, you can do a bit of, you know, continuing Rishi Sunak's freezes of income tax rates, reversing some of the very recent Tory changes on pension taxation. You know, there are definitely sort of sums of money you can find that way, but I don't think they're going to be enough.

1:03:28And if they're not enough, maybe the time has come.

1:03:31George Osborne: If you're going to break one of the manifesto promises, you probably, and you can't deliver the spending cards, which I think is what a Tory government would be doing, then it's probably now, because of the bond market, the tax promise you need to break rather than the fiscal rule promise you need to break, the borrowing rule you need to break?

1:03:47Ed Balls: Well, the budget's not happening until the end of November. So, you know, there's going to be two more months, more than, of this speculation. And in the absence of a really clear story and narrative, that's a long time for other people to fill that vacuum with narratives of their own. So I would say for the conference, it's imperative for Keir Starman and Rachel Reeves to be preparing the ground for the budget in the way that the moment they haven't really begun to do. We're going to be talking about this a lot in the coming weeks. And that's all for Political Currency for this week. We'll be back on Monday for Ex-Minister's Questions.

1:04:29Ed Balls: Don't forget, you can hear earlier and ad-free if you become a member of our kitchen cabinet and you can find the link to subscribe in our show notes.

1:04:35George Osborne: And of course, you can watch us on YouTube, as many people are increasingly doing so. just search for Political Currency on YouTube and you will see us here in my hotel bedroom in Bavaria and you in your house in North London.

1:04:48Ed Balls: We will see you next week. See you then.

1:04:58George Osborne: Thanks for listening to Political Currency. This has been a Persephoneca production.

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