Can the UK-France deal solve the migrant crisis?

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2:10This is Political Coancy with Ed Balls and George Osborne.

2:24So we are live, live but remote, and I'm at home. George, though, has got a, I mean, I don't know what this is. Is this Provence? Is it a Greek island? Is it Bruton? Where are you? That's the nursery end at Lourdes you're looking at. You're the cricket? Yes. I think you're going to miss the first ball. I am going to miss the first ball. I'm talking to you rather than watching England open against India. and um i want to thank first of all the ecb english cricket board who've provided me with a room in their offices to do this podcast so this is test match special uh i'm waiting for the cake later you know you're gonna i'm going tomorrow but not in the ecb box oh i'm i'm i'm having a picnic under a tree right they did actually say they'd invited you the ecb did they yeah well i I am on the school's cricket task force for the ECB, but I was already going, so I've been with them before.

3:20But look, enjoy the cricket. And also, this week, you can... I mean, I'm not sure whether it's disappointment or relief. We read in The Guardian from the paperback chapter of Tom Baldwin's biography of Keir Starmer that you were in the final two to become the British ambassador to the United States It's just pipped by Peter Mandelson. That was quite a revelation. And I guess, you know, my first reaction was, how would you fit it in? I would have to give up almost everything. Maybe not the podcast. I tell you, you know, I never read the word of this, but it's appeared in Tom's book. I was honestly very flattered to be asked.

4:11and it was a kind of mixture of, as you say, disappointment and relief when the chief of staff told me that Peter Manilson was getting, and I should say, I think Peter Manilson is doing a very good job. So as a British citizen, I think we're well served by our Washington embassy at the moment. I think we can take from this that George Osborne is standing up the Pippa Carrera, Tom Baldwin story from earlier in the week. I have to say, though, I thought the way that it came out in the Guardian was slightly odd. The spin, I'm not sure where it came from. We were talking about Tom Baldwin as a potential Machiavelli last week.

4:49Who knows? But I thought the way it came out was quite strange because it was a little bit dismissive. I read this and thought, you know, George Osborne, former chancellor, mate of J.D. Vance, right in there with the Americans. Very experienced. I mean, you know, I think you, Peter Mandelson, what a brilliant choice. But actually, the way it was spun in The Guardian was, you know, well, this was, you know, promoted by Starmer aides. And he had to sort of, you know, say, no, I'm having Peter Mandelson. And it felt as though there was some internal battles going on and that you were rather inadvertently being caught up in that.

5:27So I thought that was a bit unfair. Oh, that's nice of you to say. yeah the Guardian story was a little bit one-sided about what I might bring to the job but that's up to them to account I don't know who these Downing Street aides are who were getting it in the neck from Pippa and Tom but I mean I would have thought persuading you to do it was an achievement rather than a negative Well that's nice of you to say Anyway Peter would enjoy the house in Washington even more than I would so I'm very happy for him. As we both know in politics you always have to think you know what's the story what's the source what's the motive what's the real underlying and you know it was only a few months ago it was being written that Keir Starmer and Morgan McSweeney were at odds on abolishing the two child cap and I thought that's kind of an odd story to appear and I read this one thought this is another odd story to appear so I'm not quite sure what's going on but I'm reading the runes.

6:28Anyway, there we are. We should get on to bigger business. We're going to start. I was at the state banquet a couple of days ago. Emmanuel Macron has been in the UK on the first French state visit for 17 years, I think. And today, big discussions in Downing Street, the formal summit, talking about defence in particular around migration and managing the channel crossings, the small boats, the French and British cooperation on tackling that illegal migration. And we're going to talk about that first. We don't know that a deal is going to be done over the course of today, but I think the newspapers are pretty confident it is.

7:11So we're going to assume something's happening and talk about that first. Yeah, that's right. And then we are going to talk about tax, because we've had a report from the OBR this week saying that there are daunting risks to the fiscal position of the UK. and Prime Minister Starmer and Chancellor Reeves have been under pressure to explain how they're going to fill the hole caused by those welfare U-turns. So we're going to look at what the government might do to fill the hole and which taxes it might be considering if it's considering putting up taxes at all. And then finally we're going to talk about small political parties and whether they can work and break through in Britain and America.

7:53This comes after the news last Thursday that a new political party is, I'm going to say being formed, but I'm not totally sure it is, led jointly by Zahra Sultana, the former Labour MP, and Jeremy Corbyn, the former Labour leader, or are they really joint leaders? Who knows? I think there's a little bit of confusion, a bit of United Front of Jericho versus Jericho's United Front going on. No, it's the People's Front of Judea and the Judean People's Front. You've got to get your Monty Python reference is right. I was never actually a massive Monty Python fan. I didn't feel as though I should sort of pinch their line.

8:32I was giving it an alternative version, but you are right. And we've also got the new Elon Musk party, the America party. What is going on? Do they work? What kind of impact will they have? We're going to talk about that last. But we're going to start with the French visits. And as I said, summit happening today, important discussions around the economy and defence. But this migration conversation, I would say, certainly in British political terms, but I would say in wider European political terms, the most significant. Yeah, this is what President Macron said about migration when he spoke to both houses of parliament on Tuesday.

9:09Indeed, in this unstable world, hope for a better life elsewhere is legitimate, but cannot allow our country's rules for taking in people to be flattered, criminal networks to cynically exploit the hopes of so many individuals with solid respect for human life. France and the United Kingdom have a shared responsibility to address irregular migration with humanity, solidarity and firmness. I think if you look at what the Starmer government is trying to achieve, it's trying to get the British economy growing. It's trying to ensure that Europe is properly defended. And it's trying to deal with the migration crisis and the small boat crossings, which are massively up again this year.

9:57And in all three of those challenges that Starmer faces, the French are really important. You know, they're very important players, of course, in the European Union and any kind of trade deal. Of course, we've already struck a trade deal with the EU, but you could go further on that and that will help the economy. The French military is really the only other European military of anything like the size and capability of the British. And so, you know, defense in Europe is critical as an Anglo-French conversation. But on the small boat crisis, I mean, you know, self-evidently, these boats are coming from France.

10:32and it's become, I think, a kind of growing challenge for the Starmer government. I think there's been a lot of sympathy for the situation that was inherited and I think there's been actually quite a lot of patience among the British public saying, okay, it's a new government, you try and sort it out. But the patience is beginning to wear thin and therefore this deal with the French is absolutely mission critical for the government. and, you know, obviously an absolute key priority for this summit. That's right. The talk is that it will be, as well as the enhanced action from the French going into their waters to tackle boats, which they've not been allowed to do legally, and that is now changing, more than that, a bilateral returns agreement between Britain and France.

11:26The speculation, and our recording will be done and we'll be in the edit when the final details are announced. But the speculation is that 50 people a week in this one-in, one-out deal. So these would be asylum seekers in France who have not crossed in small boats, but are applying for asylum and want to come to the UK for a particular family reason, being allowed to come to the UK in return for people who've come illegally on the boats, being sent back to France. 50 a week is, I mean, is it a big number or a small number? Obviously, it's much smaller than the number of migrants who are coming.

12:09But this is the first time this government is putting in place what they believe will be a deterrence to people coming in the small boats. And compared to the Rwanda scheme, where you were talking about a couple of hundred a year, if you can get 50 a week in the pilot and then go higher than that, that starts to become, who knows, a meaningful number? Will it be a deterrent? I think the challenge with this issue is that for most of the public, they just go, well, hold on, we're an island. Why can't we just stop these boats coming? And isn't France supposed to be our ally? Why can't they just stop the boats being launched?

12:45But all recent governments have struggled with this issue. And of course, there was an earlier version of it, which I remember when I was in office, which was people coming on the Eurostar and coming in the back of lorries through the Eurotunnel. Now, that was dealt with. And of course, while we were in the EU, we had this huge advantage, which was we could, under something called the Dublin Convention, return the asylum seeker to the country in which they first entered the EU. And the truth is, in Britain's case, it's very rarely Britain is the first country. They all have arrived in Italy or Greece or something like that.

13:17so um having left the eu to try and create that that bit of the deterrence and there are other things you can do security smashing the gangs you know getting the french police to stop the boats being launched and so on but this thing which is if you make it here you're going to be sent home has always been a kind of key prize once we'd left the eu and the rwanda scheme was the tory attempt to do it because they couldn't get any agreement with France. So I think it is a, you know, we'll see if it actually happens today, but it is a real achievement of the government to have got France to agree to this.

13:54And it's caused France a lot of pressure, both internally, as I understand it, there's some French politics going on here. It's like, why are we taking people from Britain? And some of the other European countries have openly complained to France about it. But I think it'll be a real achievement. And I, you know, from what I can see, you would know more than I do about it, but I won't press you. I mean, Yvette Cooper, your partner and the Home Secretary, has been pushing on this since she was in opposition and going out to France and trying to get them to agree. And it is a look, we'll see if it really works as a deterrent.

14:28But it's the biggest step forward we've taken since leaving the EU to try and get back some control and cooperation on the border. I think it's also a really interesting decision by President Macron to champion this. And I think it's a real tribute to him. And I think it draws out some of the conversation we had last week. Because for Britain outside the EU, doing a deal with France, it's kind of an obvious thing to do. For a member of the European Union, in which collective is so important in trade, on your borders, negotiating as a group with the outside world, for France to be having a bilateral conversation with Britain, and for that to be something which is being enabled, or at least not blocked by the European Commission and by other member states.

15:24It's clearly a bit of pushback from other member states because they worry what will this mean for their borders and for people who might have been leaving their country to go to France on the way to Britain. But it seems as though I think there's probably quite a lot of discussion still to be had within the European Union. But Macron has decided he wants to do this. And I think he wants to do that because there'll be other things he wants from Britain and from Keir Starmer, in particular around defence and security and the Ukraine. But more than that, he does not want to be the French president who leaves office seeing the centre ground of European politics broadly defined, disintegrating, seeing in France a shift to the right.

16:06But in Britain, because of the failure of centre governments to manage the migration issue, a shift over to a reformed prime minister. And so I think partly because of his legacy, but also, as we said last week, partly because he'll have an eye on, could he make that comeback for a third term after a period out of office, which he has to do under the Constitution? He doesn't want to come back and find the centre ground of British politics having been decimated by the failure to tackle these issues. And so there is a long term question for him as to whether it's in his interest. But there is a legacy question for him about what he needs to do to make sure that a sensible approach to managing migration and managing globalisation is not supplanted by forces from the more populist left and right.

16:58And he's decided to seize that. And I think it's a brave thing for him to do. Yeah, I think it's so interesting to watch how France and the French presidency has shifted its view of Britain being outside of the EU in the period in which Macron has been president. So he was elected after Brexit to the Elysee. And I think the French were the toughest in the Brexit negotiations. And they set the tone. Of course, it was Michel Barnier, a French commissioner, who was leading the negotiations. And, you know, they were like, once you're out, you're out and you don't get to pick and choose and you can't have.

17:35And I think the British negotiators were blindsided, frankly, or not the negotiators, because people like Ollie Robbins, I think, did know exactly what they were doing. But the British politicians at the time were sort of blindsided. Oh, well, we assumed, you know, the French would come and the other Europeans would come begging to Britain for our cooperation on things. That's not the case. They were very hard line. and you were out and you're out and that was the hard the other half of the hard brexit the first half being provided by uh the johnson government but now yes you're quite right you see macron talks he's he's created almost single-handedly this concept of the wider european political community that the eu is only one part of that community and the relations that countries can have can operate on many levels and at different levels of depth there's the euro membership, there's EU membership, but you can also be part of this wider community.

18:27And I think you're right. I think he sees himself as the champion of the sort of center ground of politics. And also, quite controversially on this state visit, he has talked about that Europe, not the EU, Europe needs to be a counterpoint to China and the US. and he described them in roughly equal terms as almost imperial powers that Europe had to resist. So I think it's fascinating. There's another surprising person in this whole relationship, and that is the king, isn't it? We're so unused to talking about the monarch in our country playing any kind of small p political role. But I think King Charles has been important.

19:12We should listen to his words at the state banquet that you were at because he was taking a twist on the old Entente Cordiale, which was the Anglo-French alliance at the beginning of the 20th century. And this is what he said. Ainsi avec espoir et fierté, je célèbre ici et avec vous un partenariat véritablement modern, Antoine Le Dupé. Therefore, as we dine here in this ancient place, redolent with our shared history, allow me to propose a toast to France and to our new Entente. An Entente not only past and present, but for the future, and no longer just called Ja, but now Emica. I think you're totally right that he's played a blinder, and it obviously really matters to Mackerel.

20:09And as you say, this is an unusual but not unprecedented role for the monarch to play. Back in 1843, when Queen Victoria... When you say unprecedented, back in 1843. Back in 1843, Queen Victoria went out to France to visit Louis-Philippe the King. That was the first visit of a British monarch to France since the period of Henry VIII. Oh, the field of the cloth of gold, of course. That was Henry VIII. And the first time that phrase, Entente Cordiale, was used, it was a personal thing between her and the king, which then, in the beginning of the 20th century, became more of a government-blessed kind of agreement.

20:55And King Charles saying, you know, not just Cordiale, but Amakal, And I think it's kind of cool to see the way in which he, in a non-partisan, non-political way, has gone out of his way to use his position to support the agenda of the government of the day. And that's clearly what's happening with the Trump visit later in the year and with this visit of President Macron. But in a way with kind of great skill and subtlety and historical awareness. So I think you're totally right. I think it's been excellent. And of course, the other person who's been a big player in making this possible for Macron and Starmer, as well as King Charles, is, you know, the chair of the British Museum, George Osborne.

21:46You have also been facilitating a deepening relationship with important meetings this week. Yeah, well, we were very fortunate at the British Museum to host both President Macron and Keir Starmer and their spouses. I greeted them on the steps and was somewhat surprised. The president got out of the car and gave me a huge hug, which was not what I was necessarily expecting, but very French and very welcome. And of course, what we're doing is, you know, we are receiving the Bayer tapestry from France. This has been talked about for years as a potential loan, but it's made to happen. Interestingly, Emmanuel Macron said in his speech at the British Museum that the King had himself also played a key role in encouraging the president to make it happen.

22:33And the DCMS team of Chris Bryant and Lisa Nandy have helped get it over the line too. And we're sending Sutton Hu and the Louis Chessman over to France. It's going to be a massive show at the British Museum. You know, it's really, it's of all the things I've done at the British Museum, this is the one that so many people have noticed, messaged me, friends of mine, members of my family. There's a kind of excitement about this coming. And it's a really, you know, it's what's called a summit deliverable. It's really easy to understand. Here's this famous thing, the most famous item in British history, and it's coming to Britain and it's coming from the French.

23:13So I think to the Sherpas of the summit, congratulations in putting this into the mix. Look, what we all want to know is this year, France. Next year, Greece. I mean, if you can do an exchange with the French for the Bayer Travesty and Sutton Who, why can't you do it with the Elgin Marbles? Well, I think the key word there is exchange, which we're very up to, very up for. This being a kind of model where we lend our great treasures and we receive in return treasures from other countries. And so in the case of the Greeks, obviously, their history is very different. And I'm not pretending there's a sort of direct comparison between the Bayer Tapestry and the Elgin Marbles or the Parthen sculptures.

24:00But I think, you know, having these mutual partnerships, rather than it simply being a kind of hand back our stuff call, is the way to go. And it's something that we're talking to the Greeks about at the moment. It's going to be a massive logistical challenge for you, though, because it's going to be huge. The public response to this, I'm sure people are saying, I think I heard you say on the Today programme, it could be bigger than Tutankhamen, which I remember in the 1970s when people from all across the country flocked to see that exhibition. I was at the state banquet on Tuesday and I was chatting with the person you have chosen to do the big revamp of your galleries at the British Museum.

24:44Lena Gottmay, is that how you pronounce her name? The Lebanese Paris-based architect. I remember you saying to me how amazing it was when you went over to visit her studio as part of the competition. and I said to her, how are you going to cope with this enormous challenge? And she said to me, well, she said, Ed, British Museum, she said, it's a big place, we'll fit it in, which I thought showed a fabulously can-do attitude. I thought she was really impressive, but, you know, quite non-plus. We can fit that in. Yes, well, we can fit it in, and I think we're going to have to, want to open at night to let the crowds in.

25:19I think it's going to be huge, and it's going to be a real moment. And by the way, isn't she cool? The architect, she's very impressive. I sat next to her husband and then talked to her afterwards. And they were both great and very, very excited and very much looking forward to being in Britain. Come on, let's, did you chat to Mick Jagger, Elton John? Well, tell us about your kind of your first state banquet. Well, you were right. I mean, I don't think we got out until 20 past 12, didn't get home till about quarter to two. So it went very late. And we had a, you know, after the dinner, this musical performance by Welsh Symphony Orchestra, which was beautiful.

25:59It was clockwork in its organisation. I'd forgotten how good the palace are to having lots of people to move you on and tell you what to do and where to go. but it was actually classy this may seem a small thing the table decorations, the flowers on the tables in this amazing great hall were so beautiful and it was but by far the most moving thing was the speeches from the king and from Macquarie and you felt in this great banqueting room in Windsor which of course was the place where the fire was the terrible fire what was that, 35 years ago although originally built by William the Conqueror of course well there were many references to to that i had my normal um enjoyable chat with the the king and queen on the way in um where you know where we always talk about um queen camilla's a big strictly fan and um and you know and and king charles and i have have come across each other in very many roles well at least i mean i think for him two roles and me very many odd roles and so we always smile about that but like you i was hugged by President Macron, who said, we must get together.

27:08We used to know each other very well when we were advisors to French finance ministers 10 and 20 and 25 years ago. And when he was in France, he said, you must pop round. I mean, you know, whether... Yeah, the Elise. Well, I ring the doorbell of the French president's day I was in town. But I also spoke to Elton John, to whom I said, you know, because Elton came and played at the funeral of Derek Draper, the Labour advisor, and it was so generous of him. And I said to him, everybody was so moved by that. So thank you, Elton. And he was pleased to hear that. But it was quite a cool occasion. I was actually very pleased to be there.

27:44So thank you, George, for your tips. And nobody in white tie jumped on the table. I mean, it wasn't like that. No. So there are other parties. Anyway, we're not going to go there. We're not going to go there. We are going to turn to the more serious question of how are we going to pay for all of this? as a country, the state banquets, but more importantly, the public services that we all depend on. And we're going to turn to the big, big question on tax, which is now facing Rachel Reeves and Keir Starmer after the U-turns on welfare last week. And that's coming up next.

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30:12welcome back so the office of budget responsibility this week publish the thing it publishes every year which is its report into the long-term fiscal challenges facing the country so the does this assessment of budget time and when there's a another fiscal statement like the spring statement but they also do this uh annual report on long-term sustainability of the public finances. And they have warned this week that Britain faces daunting risks on the fiscal front. It notes that Britain now has one of the highest budget deficits in the world. It's the fifth highest amongst the advanced countries in the world.

30:51In fact, France is ahead of it, but really that's the only country we would compare ourselves to who has a higher budget deficit. It says that pension funds, interestingly, are selling down gilts as they switch from defined benefits to fine contribution schemes. That's all quite technical, but it basically means there's less of a market for British government debt than there used to be. And it notes that our capacity for future shocks, what I used to describe as fixing the roof when the sun was shining, all of that is much diminished. And I guess that's put pressure, hasn't it, on the government to come up with some answers of how they're going to restore some sort of fiscal credibility at the moment.

31:30That fiscal credibility eroded by the u-turns on welfare and the fact that keir starmer can't at the moment quite understandably because it's not budget time answer the questions coming not just from the opposition but from the media and others about okay well if you're not going to cut spending and you can't deliver changes to welfare through parliament despite your majority presumably you're going to have to put up tax and so tax has come back center stage hasn't it into the british political debate. That is right and it's partly finding that extra five six and a half billion pounds to close the gap from the lost revenue from the winter allowance not being abolished and then the welfare reforms being ditched but the truth is the fiscal gap this autumn is substantially bigger than that and it has been obvious for a much longer time than that that there was a fiscal gap to fill.

32:29I think you're making a very good point. It's a bit of a red herring, isn't it, to just focus on the cost of the U-turns. I mean, I think they illustrate the point you're making, which is there's a much bigger fiscal challenge, which is it's very likely that because of slower economic growth and higher interest rates on government debt, they're quite off track on their fiscal rules as a government. And so everyone's focusing on the welfare U-turns, But it speaks to a broader problem, which was evident even before those U-turns. That's right. There's been two changes in the line coming out of the Treasury and the government over the last seven days.

33:09One is clearly a softening up on tax rises to come. I mean, don't forget, this is what Rachel Reeve said after her autumn budget to the CBI conference, the business conference last autumn. When I became Chancellor of the Exchequer, I faced a massive hole in the public finances. And we saw what happened in the last parliament when a government lost control of the public finances. And it was ordinary businesses and families with higher borrowing costs and with that premium for instability who paid the price. I'm not going to be that sort of chancellor. I faced a problem and I faced into it. And we have now drawn a line under the fiction peddled by the previous government.

33:53We've put our public finances back on a firm footing. And we've now set the budgets for public services for the duration of this parliament. Public services now need to live within their means because I'm really clear, I'm not coming back with more borrowing or more taxes. I'm not coming back with more borrowing and more taxes. Wow. I mean, that sentence, which I think we highlighted back then, and I think you said at the time was quite hostage to fortune, is looking a very serious hostage to fortune today, right? Well, it's very clear the messaging from the Treasury this week is that there are going to be tax rises to come in the autumn.

34:33They're not going to be able to do a lot more borrowing given the fiscal rules. If anything, they need to increase their room for manoeuvre, their safety margin in the fiscal rules. They're not going to make more welfare savings, as we said last week. They've set the public spending plans, which are already eye-wateringly tight across public services. Very hard to see how they keep on track on their fiscal commitments without more tax rises. The second line, though, coming out was this is all the consequences of backbench MPs voting down the welfare bill and that therefore it will be their fault if taxes have to go up.

35:07And I'm afraid that as a line is not going to work because it's been clear for some months because of growth, because of debt interest. And nobody can blame backbenchers for the welfare, the winter fuel payments U-turn. But to the extent that the government set off on a path to deliver savings, which they couldn't deliver politically, I think they have to take responsibility for that rather than blaming others. And I think this is the first point to say in terms of where we are now. And this goes back to conversations we were having before the election and after. There were a range of different ways in which the government could prepare the ground for big and difficult decisions, which have been, I think, inevitable since before the election, because growth was disappointing, and they couldn't have confidence growth was going to accelerate this year and next.

36:03But also, as the OBR says, because of the scale of that pandemic shock, and the failure of the last government to do enough to get a grip of the fiscal position compared to other countries to get debt on a downward path. The reality is national debt has been rising since the pandemic rather than falling. It was possible to say at the time of the election and all straight after, there is a 10-year challenge in our public finances. The government could have got the OBR to publish this fiscal risks and sustainability document alongside its budget statements or its emergency statement last July. And what they chose to do instead was talk about an immediate in-the-year 22 billion black hole, which they said they could fix.

36:49They never prepared the ground for the degree of the squeeze on the public finances, which was coming over the years ahead rather than just one year. They could have opened the books and said, there is a huge problem in our public services, which is going to require us to be honest with you about the scale of what needs to be done on taxation. They could have used the Trump presidency and the tariff shock and the big downgrades to global growth to say, look, we suddenly have greater pressures on our defence spending, but the economy is going to slow this in a year because of the tariff shock. And therefore, we need now to reconsider our fiscal position.

37:31But having used none of those opportunities, they're now in a position where in July, looking forward to the budget, the framing is that they're going to have to raise taxes to sort out a fiscal gap, not caused by long-term growth or failure to make big long-term fiscal decisions by the previous governor or Donald Trump, but because of their U-turns. And that is a bad place for them to be. They don't want to be telling the public, it's our U-turns which require your taxes to go up. It so frustrates me that they have the opportunity to prepare the ground and they didn't take it. They did act at the time of the budget, but not in sufficient scale, I'm afraid.

38:14And then giving the impression that it was all done when it wasn't. So the first thing is the framing for this is very problematic. And then I'll say this as well. As we've said many times, they've also boxed themselves in so hard on what they've said they're not going to do. Very hard to see what the solution to this is going to be now. Isn't it also the case that the money that was raised from the very big tax rises in the budget, the national insurance rise on business, was spent and spent up front on the health service, up front on big pay settlements for the doctors, which was supposed to end the very debilitating doctor strikes under the Tory governments.

39:00And now we've got the BMA saying that they're not called junior doctors anymore, but the resident doctors are going to go on strike, demanding another massive pay rise of almost 30%. So I also think they took a difficult decision to raise taxes. but they didn't use that to say, we are going to use that to pay down the debt, reduce the deficit. Now, I know that sounds a bit like George Osborne in 2010, but it also sounds a bit, that's what Gordon Brown did in 97, 98, 99. I think the first task for that Labour government, I'm telling you, you were there, but as I sort of interpret it from the other side, was to make sure that the first Labour government in 18 years was undoubtedly trusted with the public finances and the economy.

39:51And that was a very important key message upon which you could subsequently build the Blair message and the Brown message of the renewal of public services. But that came a bit later. And I think here the money's basically been blown, right? And they've got this challenge. And I would say the other sort of observation, I don't know what you thought about this. When I was in the Treasury, I was very conscious of the risks of a fiscal crisis. It was happening in Greece and Ireland and other countries, and I used to get the guilt rates every night in my red box. But I was never in this situation where the markets are moving all the time on announcements from the British government.

40:32So, you know, we discussed last week with Rachel Reeves in the House Commons when she cried. You know, that had a big impact on guilt rates. This week, the OBR report sent the pound down. You know, Britain is absolutely on the edge of, you know, market credibility. and political announcements or political events that would never have troubled markets a few years ago are now causing quite serious fluctuations. And so I think if you're sitting in the Treasury, I think I can understand the frustration sometimes expressed towards Labour-backed ventures, which is you have no idea what a tinderbox we're sitting on at the moment.

41:17But it's the job of the Prime Minister and the Chancellor and the Treasury to explain that and for people to understand those pressures. And you are right. I think the fiscal pressure and the instability is much greater than in 1997. And Britain has higher long-term interest rates than most other countries, but every country has been affected by this instability. And compared to 1997, growth in the economy is clearly stronger. And that made the fiscal challenge easier. and growth is weaker and weaker for reasons outside of this Treasury's control. So it's not they don't have rightful reasons to feel that it's hard, but their job is to go out there and explain in a careful and staged way as to why they're doing what they're doing.

42:10And if it looks like it's kind of political fighting, whether it's with your own backbenches or with the Tories, and it's kind of you know i do think that they um that they have they've allowed themselves to look too political and not treasury enough over the last year in some of their communications fundamentally though they were boxed in by pledges they made on tax which were always risky it's become clear that the underlying position is much harder for them and the explanation for why you would need to move off your tax pledges if that's what they have to do in the end that the world has changed, or there were bigger global challenges, or the underlying inheritance on public services was worse than they thought.

42:56Those are all better explanations for that shift than we've been defeated by our own backbenchers and we're having to do U-turns. So come on, turning to tax, you know, there's an article in today's Financial Times by Mohamed El-Aryan, you know, very noted economist and I think president of Cambridge College, saying they've got to go to VAT or income tax on national insurance because those are the big, big taxes. And yet Keir Starmer explicitly ruled that out when questioned by Kemi Badenoch in the House of Commons. She said he's not going to break the big tax promises. But if he doesn't do that, what are his options?

43:34Because I was looking at the Angela Rayner memo. This was the memo that Angela Rayner sent to Rachel Reeves about where she could raise more taxes earlier this year. And I have to say, you know, I'm not in favor of tax rises. I'd be constraining spending at the moment more and cutting welfare. But if you're looking at tax, this is a pretty plausible list that would be put in front of a chancellor. So she's got raise the bank surcharge to 5%, remove IHT, inheritance tax relief on AIM shares, remove the dividend allowance, freeze the additional rate income tax threshold, uh you know uh reverse the sort of reinstate the pensions lifetime allowance which that's something i did and then jeremy hunt got rid of and that saves money reverse the changes to high income child benefit that was a again a sunat government change a tax cut you could reverse i mean i won't go through all but there's like a lot of ideas here which if you put it together you probably could come up with quite a large sum the problem is it's going to send another big message around the world to your growth point which is uk is not in favor of kind of wealth creators it's not in favor of high earners um let alone the wealth tax which neil kinnock has uh thrown into the mix and which the government is not knocking down and you know for those who just to explain briefly wealth taxes you know if you are uh it's basically an annual charge on your total wealth the value of your houses, the value of your shares and your pensions and stuff.

45:05And never really been made to work in any Western democracy, but often talked about. And you get versions of it when you get property taxes in some US states. But come on, where would you go? Which taxes would you put up? Well, you'd be unsurprised if I say I wouldn't have started from here. And I would have had a different strategy, which was about preparing the ground for the public to see that we all have to make a contribution to sorting out something which is in all our interests for the long term, including better public services. And I've always been worried that if you rule out all the big tax rises, it's very hard then to find by scrambling around looking for a bit here and a bit there.

45:52I mean, there are always reasons why the Treasury should have a back pocket of some tax things you can do, which get you a billion here and a billion there. But when you're talking about, you know, people are talking about 20, 25, 30 billion pounds of tax rises, you can't do that by penal attacks on savings or pensions policy or on wealth taxes without, as you say, doing huge damage to reputation and potentially not getting the revenue in. So I personally think it would have been better to have levelled with people at an earlier stage as a new government coming in. And secondly, they can't afford to be tricksy.

46:30I mean, Kemi Badenok asked Keir Starmer a very straightforward question at PMQs, but her follow up was tougher for him. Mr Speaker, in the manifesto last year, Labour promised not to increase income tax, not to increase national insurance and not to increase VAT. Does the Prime Minister still stand by his promises? Yes.

46:57Mr Speaker, it is rare. It is rare, yes. It is rare that he's able to give a clear answer, but I'm glad that he has done so. She then goes on to ask him, will he rule out not indexing personal allowances when that freeze runs out in a couple of years' time, and he then doesn't give a clear answer. said. Mr Speaker, no Prime Minister or Chancellor is going to write a budget in advance. We are absolutely fixed on our fiscal rules. We remain committed to it. We remain committed to our budget, to our manifesto. Now, of course, not indexing the personal allowance is a tax rise on working people. And I think it'd be much better from their point of view to be open and clear about what they're doing and why, rather than trying to look like they are sticking with a manifesto pledge, which is actually now extremely hard for them to meet.

47:55Yeah, but what should they do? And I'll give you a list of what I would do. I think I'd bite the bullet with VAT, right? I personally, I would take it up to 21, 22%. It'd still be lower than many European countries. That's a massive tax rise, but it's one that I think the economy can absorb and it gives you the firepower to create some fiscal headroom and by the way potentially more money for public services and then you could do you could absolutely reinstate uh the pension lifetime allowance um limit which i did um you could make some you could freeze the income tax thresholds yes it's a big big stealth tax on people it's a big income tax rise but rishi sunak did it year after year after year so it's quite hard for the tories to oppose that so you know you do a few of those things and you've got some money but i did alongside an enterprise tax cut to send a message to entrepreneurs and the like that britain's over business and i would right now rule out this wealth tax it is really dangerous to get speculation going that you're going to be introducing a wealth tax in britain which frankly is in my view completely impractical and uh to introduce anyway and the more you do it then like neil kinnock suggested i mean you remember the famous front page of the sun on 1992 election day which was well the last person in britain turned out the lights if neil kinnock's elected i mean really if we introduce a wealth tax i mean that is absolutely curtains to britain's reputation as a place for enterprise and you know a place where successful wealthy individuals might want to come so you need to rule that out right now because if you allow months of speculation to go people will start moving because I think we don't know when this thing might be introduced.

49:40I hear what you're saying on VAT. The big rises in VAT in our history came the beginning of the Thatcher government in 79 and then from you in 2010. Harder for Labour to do because, I mean, it's not deeply regressive VAT because of the exemptions on food and children's clothing, but it is a little bit regressive. It slightly depends what you're spending the money on. But I think the bigger point you're saying is you have to be open about breaking your manifesto commitment because a rise in vat is a break in the manifesto commitment if it was me i would instead i think not do vat i would do employees national insurance and i would also do a penny on corporation tax or 2p and at the same time do a enterprise capital gains tax style cut for people growing their businesses and And I think then you can do...

50:32We agree. It's so interesting. We agree on that. We've got very different places on the political spectrum. You're on the left, I'm on the right. And we both agree you do need to do some kind of enterprise tax cut to send a message. The signal is so important. And I think they've ruled out raising corporation tax, but you could do TP on corporation tax if you were doing something on the enterprise side. There is other money that you could then get. As you said, you could go back and look at the lifetime limit. You can look at different ways in which you kind of tighten the system. And you want the Treasury, in a creative way, to be coming up with those ideas which can get you a billion here or a billion there.

51:08But they are not going to solve this fiscal challenge simply by a billion here or a billion there. It needs something big. And if you're not going to do income tax, which I don't think either party will do, I don't see how you get out of this now without VAT or employees national insurance alongside the employer national insurance. The big point I'm making, which is what I mean when I say I wouldn't start from here, I think that it's much better to be open and level with people and ask everybody to make a contribution because we need to have strong public finances and to invest in public services and I would say to bring child poverty down as well.

51:44But you can't do that while sticking with manifesto commitments, which box you in too hard. So I think to be open about that, and the reason I played that PMQ's clip is because I think that is just the wrong place to be politically for Keir Starmer and Rachel Reeves now. They've got to open up about what's happened, blaming their backbenchers, or trying to say that they're sticking to the letter of a manifesto commitment they're actually breaking, is the wrong strategy. and you know in 2001-2 we raised national insurance and won the argument around the health service you can do it it's not the case that you have to raise taxes only either in a crisis or in a subverted way it is possible to do it in an open way and it's not too late but it's much harder than it would have been if they'd done this last year well there we go you've had some unsolicited advice from ed and me about where you might want to raise taxes uh if you're listening treasury officials and ed says you've got to get the comms better but that's okay because you've i read you've just hired helen bauer who i know very well uh used to be the government spokesman when david cabron was prime minister to do a review of your comms so uh get the policy right and the comms right and things are going to be plain sailing or maybe not anyway we are going to turn finally to the fly in the ointment of course of all of this which is the rise of these smaller third parties i say smaller of course they can become much bigger we've already got nigel farage and reform in the uk but elon musk has said he's going to launch a new party in the united states and let's turn to that next

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55:36So reform, a new British political party of the last few years, people now speculating, could they displace the Conservative Party and become the main opposition party in Britain? And I use that phrase, displace the main Conservative Party, advisedly, I think, because in our political system, it's always been very hard for new small parties to come in and break through. The SDP tried in the early 80s to essentially supplant Labour, and they didn't succeed. The Liberals have had moments when they've had more representation. They were in government with you. But fundamentally, since they were displaced by Labour at the beginning of the 20th century, they've never looked like they could win a majority.

56:26Greens fight very hard to get any representation. In the last election, reform got a bigger share of the vote than the Liberal Democrats, but just won a handful of seats compared to the scores the Liberal Democrats won. And there is a reason why small parties have always found it hard, which is if you have a first past the post system, like we do, as opposed to proportional representation, like in other countries, and also you have single member constituencies, so only one person gets elected in each constituency, the combination of first past the post, and also tactical voting with people thinking, who shall I vote for to make sure that the wrong guys don't win, makes it very hard for small parties to break through.

57:11Interestingly, I never knew this. I don't know whether you know this, George, but I actually learned this this week. There was actually a law for this. There's a law called Duverger's Law. And Duverger is named after Maurice Duverger, who was a French political scientist, went on actually to be a communist member of the European Parliament. And he came up with this law in political science, which is that in political systems with single member districts and first-past-the-post systems like the US and Britain, only two powerful political parties tend to control power. Very hard for small parties to break through.

57:50And I guess the question is, does Duverge's law, which, as I said, describes something I think we've always known, but I never knew there was a law for it. Does it still hold? Is it still hard for small parties to break through? Well, I think I didn't know about Duverger's law. You didn't know? Okay, there we are. No, I mean... Phew, thank God for that. That's the great thing about this podcast. You know, you're always learning new things. I mean, surely the point is in Britain that either the new entrant party is going to supplant one of the existing two parties. So the SDB was trying to supplant Labour and actually got quite close in the 1983 election.

58:28And in the case of reform, they want to supplant the Tories, replace the Tories. in a two-party system with Labour. And then other small parties like the Greens and the new party we should mention, the Jeremy Corbyn party that he's talking about setting up with Zahra Sultana. She was elected as a Labour MP at the last election. You know, what they do is, it's not that they're likely, it's very unlikely this new Corbyn party is going to supplant the Labour party, I would have thought. But it's certainly a bit like reform at the last election. It might split the left vote in the same way the reforms split the right vote and make it harder for Labour MPs to get elected.

59:04I think some of those Labour MPs, you know, they don't want 10 % of their vote suddenly going to the Corbynistas, whatever their new party is called. So that's, you know, the new parties can, they can either supplant or they can frustrate some of the existing parties for getting elected. I mean, I would say generally, I'm going to make a general point. I think it's easier to take over an existing party than to create a new one. So Donald Trump did not create a new party. You know, he didn't try and create like Ross Perot did in the early 90s, a kind of new party in America. He took over the Republican Party.

59:40And the Republican Party of Trump is very different from the Republican Party that he took over initially. And in the case of Corbyn, you know, he was much more successful at taking over the Labour Party, where he was their candidate twice to be prime minister. And in 2017, very nearly one against Theresa May. then he's going to be creating his brand new party and musk is getting absolutely nowhere i imagine with his party i mean he's not even eligible to be president under their constitution because he was born in south africa so i would say the effort required is better directed at capturing the citadel of one of the existing parties and if i was nigel farage i think it's actually easy if he somehow got himself into the conservative party maybe that moment has passed but I think he could have got himself selected as a Conservative MP in recent years.

1:00:28It's been very hard for a Tory leader to say no to him. He would now be on track. He would either be the Tory leader or on track to be the Tory leader. I think that's still easier than getting reform to supplant the Tories. So I would climb the building from the inside rather than the outside, as my general advice. I think that's right. Although there will be people saying to Nigel Farage, you might be about to break the mould in the way the SDP failed to do and actually supplant the Conservative Party. Peter Kellner on his substact was writing last week how previously reform were rather in favour of proportional representation because, you know, Diverge's law says proportional representation is the thing which lets the smaller party in and get representation.

1:01:13But Richard Tice was doing an interview a couple of weeks ago where he's suddenly gone rather cold on PR because he suddenly realised first past the post now may be the thing which can let reform in. Of course, it fundamentally depends upon the nature of tactical voting. It depends upon whether Green and other left votes go to Labour to stop reform. It depends upon whether Conservative voters want to vote reform because they want a party of the right or whether they would vote for other parties to stop reform. And similarly, whether reform voters in seats where the Conservatives are clearly ahead would vote for Conservatives in order to vote for the right party.

1:01:56And I think one of the things which is really up in the air at the moment is whether that kind of tactical voting is actually going to work out. But the nature of our politics is that our parties are coalitions. And if the coalitions come under pressure, then those small third parties from the outside can exert influence. So there's no doubt that the Brexit Party influenced the Conservatives in your time in office to move in the direction of the referendum, even though they weren't winning seats. Well, they were UKIP back then. UKIP back then, of course. They were UKIP back then. No, the Brexit Party was pretty influential on forcing a hard Brexit as well.

1:02:32But it wasn't trying to supplant the Conservative Party. It was trying to influence from the outside. And it might be that people who are voting green at the moment are trying to pull Labour in a green direction or they also have views on foreign policy. On the other hand, if you look at the Jeremy Corbyn, Zahra Sultana party, I mean, these are people who, from the hard left, people who probably don't like the Conservatives, don't like reform, but really hate Labour. And it's not totally clear whether their motive is to pull Labour in one direction or to actually undermine Labour's chance of winning in the hope that you might then see a second coming of Corbyn back into Labour.

1:03:14So it may be their long-term plan is to, as you said, destabilise from the outside so that you can have a second go at an internal takeover. Now, a couple of former Tory cabinet ministers like Jake Berry and Andrew Jones have joined Reform. You're a former Labour cabinet minister. You're not about to join the Sultana-Corbyn party, are you? Just want to get that on the record. They have... Have they approached you? They've not approached me. When you were wearing a white tie at the banquet? They have not approached me. And these days, as a kind of center ground and independent, Ofcom-regulated broadcaster on Good Morning Britain, I mean, I'm not going to be inactive in any political party because I have to interview everybody.

1:03:55But no, George, I've not been approached. And I'm not expecting an approach. Well, I wasn't expecting an approach to be the US ambassador. There you go. You never know. Zahra Sultana, I think we'll take that as a non-denial denial. That is. Now, listen, that's the end. That's the end of our podcast. Are you sure that Musk can't have an influence? Yes. If you think of Ross Perot or Ralph Nader, I mean, they... Well, arguably, Perot let Clinton in and Nader let Bush in. Exactly. But it's possible. But the one thing I'd say about money in American politics is that Trump spent less than Hillary Clinton and less than Kamala Harris, quite a lot less, and he got elected.

1:04:38So I don't buy the rule that it's all about money in American politics and that's what people think Musk is going to bring to the table. Anyway, we will watch this space, won't we? The chance of Musk sticking to it for more than a few months seems to me also pretty, pretty low. I'm not totally sure whether he's quite got the long-term stomach for the political fight, but we will see. That is all for this episode of Political Currency. We're back on Monday with Ex Minister's Questions, EMQs. And you can hear that earlier and you can hear it ad-free if you become a member of our kitchen cabinet or you're a gold subscriber.

1:05:10So we will see you next time. See you soon.

1:05:20Thanks for listening to Political Currency. This has been a Persephoneca production.

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