Could the UK spiral into a ‘debt doom loop’?

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2:03This is Political Coancy with Ed Balls and George Osborne.

2:17George Osborne: Welcome to Political Currency. It looks like we've got another edition of Test Match Special because the other day I was at Lord's and looking at you, Ed, I think that's the oval behind you. Are you there at the cricket?

2:31Ed Balls: I am. A huge thanks to Surrey Cricket Club and John Surtees for sorting me out A bit like you a couple of weeks ago at Lourdes, I'm at the Oval for the first day. Slightly concerned, I have to say, that it's very overcast and cloudy and England have just won the toss. They're going to bowl. But there's a slight danger that there's only going to be one hour of cricket today before it rains. And I'm going to spend that one hour in the room of the commercial director chatting with you. By the time I get out of here, it'll all be over. So I'm hoping it won't turn out that way. But yeah, it's the deciding test, England versus India, all very exciting.

3:10Ed Balls: And, you know, we've discussed in the past how India have been a very strong test side for years. And, you know, yeah, the Australians did well recently. And yeah, the South Africans did well really recently. And England have done well in this test series. But, you know, India still have a tough team to beat. So I'm hoping to see a bit of cricket before the day is done.

3:28George Osborne: You know what happened earlier this week? We had a dinner to celebrate my daughter's graduation from university at a Chinese restaurant. And my dad got in a lift to go up to this restaurant. And he got in the lift and Ben Stokes was in the lift. It completely made my dad's day as well as his granddaughter's graduation.

3:48Ed Balls: Ben Stokes, who unfortunately, I don't know whether he overdid it at that night out. I think it's more likely that he's injured his shoulder, but he's actually not playing today. He's getting himself fit again for the Australian Asher series in the autumn. So Ollie Pope is the captain today. Congratulations, though, are also due to you as well as to your daughter. Payday for George Osborne, the Times reports this morning, as Robey Warshaw sold for£146 million, it says to the US investment bank Evercore, a cash and share deal. So it says here a windfall for partners. Anyway, so I don't know whether you are going to be celebrating that today.

4:25George Osborne: Well, I'm celebrating the fact that it's a great deal for the firm I work for, and it's a great partner, Evercore. But the key thing is, you will be glad to know, that I can carry on doing this podcast. And that's part of the arrangement. But I do have one bit of bad news for you, which is that Wes Streeting was in the studio earlier this week, pre-recording something we're going to put out in August when we're away. and he nicked your mug. My political currency mug? Yeah. Well, I say nicked it. I gave it to him.

5:03Ed Balls: Well, I nicked it. I mean, surely, surely, surely we can get more mugs. I mean, I don't think I've ever drunk anything. Oh, no, I've used it while we were recording the show. You mean that mug? Yeah. He can't have that. Well, it's too late now. You have to go and ask the Secretary of State for the mug back. Well, look, anyway, given that there's no mugs here, I have got an England-Wales 2019 cricket bat, and I have got a very fancy pink cricket ball, but no mugs. So there we are. You're scooping up the merch while you're at the Oval. Given the challenges West Street is facing with the doctors and now the nurses who are potentially balloting for strike action over pay, I'm happy for him to have a mug.

5:49Ed Balls: I don't know if it will be much compensation for what's going to be a tough and important few months for the Health Secretary West Street. Anyway, shall we get on with our podcast? Because, you know, I'm keen to get out and see some cricket before lunch unless it rains.

6:03George Osborne: Right. Yes. Well, we are going to talk about something we discussed on the show last week, but obviously a lot has happened since. And that is Keir Starmer's announcement that the UK may well, in the next couple of months, formally acknowledge the Palestinian state. Formal recognition after an emergency cabinet meeting this week. And we're going to discuss that announcement, what its implications are internationally for the situation in Gaza, but also some of the domestic politics behind it, and whether Donald Trump had any role in it at all, given that he saw Keir Starmer up in Turnberry this week.

6:42Ed Balls: And then last week we were talking at the end of the parliamentary session about the state of the main parties and their leaders. But we've had the latest economic forecast from the IMF in the last couple of days. Looking forward to what is going to be a hugely important autumn for the Chancellor with her budget coming up. We're going to ask, what is the state of play for Rachel Reeves, but also for her opposite number, Mel Stride? How will they be feeling going into August, looking forward to the party conferences and then the budget to come this autumn. And then finally, we're going to look at the new hire in Downing Street, actually something we also talked about last week,

7:22George Osborne: that we thought that there might be changes in number 10. Well, they've hired a new communications chief, David Dinsmore, former editor of The Sun, you and I both know and interacted with. And we're going to discuss not just what David might bring to the role, but what do prime ministers need from their comms chief and how have different comms chiefs over the time done that job. So lots to look forward to. But let's start with the big kind of foreign policy issue, I think the big domestic issue of the last seven days. And that was Keir Starmer's announcement that the UK, subject to certain conditions, would in September, when all the world leaders gather at the United Nations for the United Nations General Assembly Week, formally recognized the Palestinian state.

8:13George Osborne: It's something that, you know, Conservative and Labour prime ministers have always said they might do as part of a peace process. But Kirsten has got ahead of that, changed the line of the government. This is the announcement from our prime minister. So today, as part of this process towards peace, I can confirm the UK will recognize the state of Palestine by the United Nations General Assembly in September unless the Israeli government takes substantive steps to end the appalling situation in Gaza, agree to a ceasefire, and commit to a long-term sustainable peace, reviving the prospect of a two-state solution.

8:59And this includes allowing the UN to restart the supply of aid and making clear that there will be no annexations in the West Bank. So is this the big historic moment that I think Keir Starmer was trying to present it as?

9:14George Osborne: Or was this something that was inevitable and doesn't really change the situation on the ground in Gaza, or indeed for Israel and the Palestinians?

9:25Ed Balls: I think it's significant and a bigger step than maybe we were expecting a week ago when we discussed it on the podcast. As you said, it's been talked about for decades that this would happen at some point in the future. And lots of prime ministers and foreign secretaries from in more recent years, William Hague or David Cameron, but back into the Blair Brown years as well, have talked about when they might do this. but it's the first time a prime minister has said it will happen with a date. And it's not just Britain alone. It responds to President Macron saying France will do this. And it was immediately followed by Mark Carney, the Canadian prime minister, saying that Canada will follow suit.

10:11Ed Balls: So it is a shift. Is it a shift which is reflecting an optimistic view about what might happen in Israel and the possibility of negotiation around a two-state solution, I would say absolutely not. It's a reflection of the fact that it feels as though those things are terribly stuck and that there is no prospect in the short term of Israel, as you said, driving forward either the ceasefire or progress towards a two-state solution. You just have to listen to the first reaction from Benjamin Netanyahu, the Israeli prime minister, who posted, Starmer rewards Hamas's monstrous terrorism, punishes its victim, a jihadist state on Israel's border.

10:57Ed Balls: Today will threaten Britain tomorrow. Appeasement towards jihadist terrorists always fails. It will fail you too. It will not happen. On that basis, it doesn't feel very likely that Keir Starmer's conditions are going to be met. And therefore it does feel as though the Palestinian state is going to be recognised by the UK in September. I think it's quite complicated what they've done. He obviously wanted to give the opportunity from a foreign policy point of view for Israel to respond, to set a forward date. but the is that right or was he just trying to i mean i mean wasn't he just trying to find a more sort of elegant link from the position of a week ago to the position of today so rather than just say we're recognizing state of palestine he he sort of sets out a path which i completely agree with you is it's you know it's it's a path that it seems incredibly unlikely britain won't now follow I'm not sure, though, whether it feels that elegant.

11:56Ed Balls: I mean, I don't think he will be surprised by the Netanyahu reaction. But today you've got on the front page of The Times senior lawyers in the House of Lords saying that this is illegal. Because if you look at the conditions which you would need in order to recognise a Palestinian state, including clarity of borders and stability of the government, those things don't exist. Also today, the freed British hostage, Emily Damari, strongly critical of what Keir Starmer's done, saying this shouldn't have happened until the hostages were released by Hamas, which is not one of Keir Starmer's conditions.

12:33Ed Balls: And there is an issue, which is it looks like the conditions depend upon action by the Israelis, not actions from Hamas. Although, of course, de facto, one of the conditions for a two-state solution is that Hamas has to be out of the way. It's very clearly the British government's position that they will not negotiate with Hamas. Hamas cannot be part of the future in terms of the governing of this Palestinian state, although that's not quite accorded the status of a condition. So is it elegant or is it messy? I think that what Keir Starmer is wanting to do is portray it as something which might have leverage over Israel, that it is a kind of foreign policy move.

13:13Ed Balls: And, you know, to the extent it has any impact, that's a good thing. And of course, he wants to aspire to do that. But the reality is that in domestic political terms, he couldn't afford to be pushed into this position by what was an increasingly anxious and pressing parliamentary Labour Party and cabinet as well. many cabinet voices asking him to do this. And he sort of jumped ahead of that pressure. He's done so in a way which avoids it being a U-turn, because I think it's slightly more decisive than people were expecting. But it's not that clean. I'm not sure it's that elegant. It's definitely going to cause him a lot of international difficulties in the coming weeks.

13:55Ed Balls: On the other hand, I think he will conclude that the domestic political difficulties of not doing it would have been considerably worse.

14:03George Osborne: Yeah, I mean, I think he had to get from point A to point B, primarily for domestic reasons. I mean, I don't doubt that Keir Starmer himself was appalled, as many people have been with the pictures that have emerged from Gaza. And I think the kind of Israeli effort to say, you know, oh, it's all propaganda, and it's all Hamas's fault has not really washed, or that, But, you know, that starving kid anyway had some other medical problems. I mean, all of that, you know, they own the, you know, they've they sent the army and they set up this distribution system and therefore they are owning the problem.

14:38George Osborne: And, you know, they're not even persuading Donald Trump, who, you know, said in the press conference he did with Keir Starmer that there's obviously starvation. So, you know, I think no doubt Keir Starmer himself is motivated by what he's seen, but he's also under enormous domestic pressure. there's no way he could have held out against a move to recognize the Palestinian state he had 130 Labour MPs and a third of his cabinet you know banging on the door including West Street

15:05Ed Balls: the health secretary doing it in public in parliament facing a very challenging seat clearly though he had a problem as well which he had the visit of Donald Trump the private visit which we also previewed last week Donald Trump arriving in Scotland Keir Starmer had to go and endure an excruciating hour and a half press conference and then kind of other press moments and a plane flight, two different golf courses, both essentially promoting Donald Trump's private commercial interests. Don't you think that he will think, and we talked about this last week, he will think, Keir Starmer, that Donald Trump could have torpedoed what he wanted to do, what he must have decided by that point he was going to do on the recognition of the Palestinian state.

15:49Ed Balls: and the initial comment from President Trump, you know, we didn't really talk about it, it's not a matter for me to get involved in. I think without that, Keir Starmer would have found it very difficult to do what he did on Tuesday. And so maybe he's thinking that all of that sort of pain he's gone through in recent months has given him some leverage. There was a positive impact of all that, at least on the way in which Britain can position itself on this Middle East issue.

16:19George Osborne: Yeah, I mean, he certainly escaped the fate that I've just seen our friend Mark Carney has endured, which is so Carney followed, as you said, Keir Starmer and Emmanuel Macron. And whereas Trump tried to avoid actually having a row with Stalin, he was asked once the announcement was made and he was traveling on Air Force One back to the US, what did he think of the Stalin announcement? He said, oh, well, we didn't really discuss it and I don't really support it and I wouldn't be backing Hamas. But, you know, it's up to them what they say. When Mark Carney says it, he's just posted Donald Trump on Truth Social.

16:59George Osborne: Ah, now this is going to risk the US-Canada trade deal.

17:04Ed Balls: Has that just happened in the last hour?

17:07George Osborne: Yeah, it's just happened now. And while we were recording the podcast. And, you know, certainly what Starmel will not want, having worked so hard over recent months to secure a trade deal for the UK that now actually looks, relatively speaking, better than the trade deals that others have secured. And what the European Union won't want, because Ursula von der Leyen also had to make the kind of pilgrimage to Trump's golf course to get an EU trade deal, is that Donald Trump now starts to tie the trade deals into this issue of Palestinian recognition. I mean, I think it sort of begs this question, does this matter on the ground in the real world?

17:45George Osborne: I think people who say it doesn't will say, well, who cares what Keir Starmer thinks or Emmanuel Macron? Benjamin Netanyahu is not going to pay any attention. It's all about what the US thinks. And the US, of course, has a veto at the UN, so it can't happen without the US's support. I think all of that is true up to a point. But it also is true, if it doesn't matter, why does someone like Benjamin Netanyahu react so vehemently? Why is Donald Trump threatening the Canadian trade deal? It is a strategic deterioration in Israel's position. And I say, and I say this as someone who is a friend of Israel, big supporter of Israel through my political career.

18:25George Osborne: You know, you read the story of that British hostage's captivity in The Times today. and it's heart-rending what she went through and the two Berman brothers who were taken hostage with her are still being kept hostage. But in Israel, the Netanyahu government has allowed, through its treatment of this aid distribution system in Gaza, itself to get into this position where key Western allies of it have made these unilateral decisions on Palestinian recognition, have not tied it in to much conditionality or any conditionality on the Palestinian side. And I just think that is, you know, these are diplomatic missteps by Israel brought about by these, you know, a misunderstanding in Gaza that these what they must think of as sort of tactical advances in Gaza outweigh any kind of global reaction or any costs they're going to pay on places like the UN.

19:28George Osborne: And I just think that's a mistake. You know, Israel cannot solely depend on itself for its own security. It takes place within a kind of broader environment. And, you know, Israel will want the big Gulf Arab states like Saudi Arabia coming in to help them secure the peace and help them provide a less violent future for Palestine. And that's just made more and more difficult by steps like this.

19:55Ed Balls: It's a mistake. I think it's a tragedy. I mean, if you are a strong supporter of Israel, then you don't want to see Israel isolated. And there is a danger that that is the road we're now on. and it will also lead to rising anti-Semitism attacks on the community here in the UK where there's kind of fear and I think great worry and so you know I feel very fearful and I wish that the you know the Netanyahu coalition was taking a different approach to this and maybe international pressure will have an impact maybe American pressure will have an impact I was thinking that Keir Starmer had got away with this because Donald Trump was taking a softer line.

20:48Ed Balls: It feels as though now he's, I mean, maybe in a typically unpredictable way, taking a tougher line on Canada than he was taking on the UK just a couple of days before. We should maybe just end with a reminder. I mean, have you seen anything like it in modern politics? these rolling rambling press conferences i mean kia starmer looked like a trapped hostage before before you even get to the press conference this is the american president in britain he's in britain welcoming the british prime minister as if like he's the host and the prime minister is the guest to his golf club i mean it is baffling we put together a little medley of um choice moments from that press extravaganza.

21:36By the way, your first lady, I would say first lady, she's a respected person all over the United States. I don't know what he's doing, but she's very respected. As respected as him. I don't want to say more. I'll get myself in trouble. But she's very, she's a great woman. The people are screaming for the food in there. They're 35, 40 yards away, and they won't let them because they have lines that are set up. And whether they're set up by Hamas or whoever, but they're very strict lines, so we have to get rid of those lines. But we're going to be getting some good, strong food. We can save a lot of people.

22:16I mean, some of those kids are, that's real starvation stuff. I see it. And you can't fake that. I'm not a fan of your mayor. I think he's done a terrible job. The mayor of London. But the nasty person. I think he's a friend of mine. No, I think he's done a terrible job. Well, I like Nigel. Nigel, as you know, is a friend of mine. Nigel's done very well. For years, I wouldn't talk to Jeffrey Epstein. I wouldn't talk because he did something that was inappropriate. He hired help. And I said, don't ever do that again. He stole people that work for me. I said, don't ever do that again. He did it again.

22:59And I threw him out of the place. persona non grata. I threw him out and that was it. I'm glad I did, if you want to know the truth. And by the way, I never went to the island and Bill Clinton went there supposedly 28 times.

23:15Ed Balls: Goodness me. It starts with the president's comments on Victoria Starmer, the wife of the prime minister, and then meanders through the first lady of Britain. I'm not sure she's ever been called that before. And then meanders through his comments on um i don't know sadiq khan nigel farage jeffrey epstein i mean you know there were so many moments we could have chosen it's um good to speak i guess though if it was excruciating for kia starmer it was equally excruciating for the president of the european commission ursula von der leyen who was there the day before and actually ended up um with a trade deal um markedly worse than the trade deal the UK's negotiated, which then led to her being slammed by European leaders across the continent for what looks like a capitulation in the face of US pressure.

24:07So, goodness me.

24:09Ed Balls: Anyway. Well, we should definitely talk about that European trade deal, the broader state of the global economy and the impact that is having on Britain. Let's turn to the challenges facing

24:20George Osborne: Rachel Reeves and indeed her opposite number, Mel Stride, as they look to this summer. And we'll do that next.

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26:09Ed Balls: So the IMF has published its latest economic forecast this week and they have upgraded global growth. global growth of 3 % this year, up from 2.8%, 3.1 % next year, up from 3%. Basically, because I think they were expecting tariffs to be higher as a result of the Donald Trump negotiations with countries around the world. They were expecting an effective tariff on imports to the US of 24%. They've now downgraded that to 17%. I mean, it's still a big rise in tariffs. It's still going to depress growth around the world, but not as much as was previously thought. And therefore, the UK is now expected to be the third fastest growing economy this year and next after America and Canada, with, again, a very small upgrade in growth.

27:01Ed Balls: Growth this year expected to be 1.2%, up from 1.1 % in the last forecast. And next year, unchanged at 1.4%. Still pretty dismal growth rates. But a little bit of good news. The Donald Trump negotiations have not ended up with the scale of trade war that some feared a few months ago. Yeah.

27:23George Osborne: I mean, it's still, as you say, pretty dismal growth, but it's flat rather than a global recession, which people were speculating might be happening because of the trade wars. And that's because Trump is concluding these deals, although he might reopen the Canadian negotiations, as we just discussed. And the European Union deal, you know, it is worse than the one that the UK got. And I think it's a tribute to the UK negotiators who I was told by them at the time, you know, the EU were like, well, why did you sign up to that? That was a mistake. But in fact, the EU would happily have taken the British trade deal this week.

28:04Of course, you know, it does sort of beg the question if Britain had still been in the EU. We always focus on what it's meant for Britain leaving the EU. But we don't focus so much on what it means for the EU that Britain left. But Britain actually could have given the EU a stronger negotiating hand in its conversations with Washington if we'd still been a member.

28:21Ed Balls: So rather than seeing this as a Brexit dividend, you're seeing it as an EU Brexit deficit. Yeah, I think the EU is suffering from the loss of Britain in things like its approach to financial regulation and its relationships with the United States and indeed security issues. But just coming back to the kind of domestic situation, I mean, if you're Rachel Reeves, I think, you know, you had a very bad time a few weeks ago with the U-turn on the disability benefits that was imposed on you.

28:55George Osborne: And she was under a huge amount of pressure. I guess, you know, things have been a little bit calmer going into the summer. but it's all about to kick off isn't it in the autumn because still with this sort of disappointing growth you know with the numbers that we've seen on the public finances and borrowing with the GDP numbers in the UK these are not the forecasts but the actual GDP or the first estimates of GDP for April and May both negative so we're on the cusp potentially you know of a negative quarter and a recession. You know, all of these things still mean she's got an incredibly difficult job at the time of the budget.

29:34George Osborne: And it's pretty clear she can't squeeze spending anymore. And she set the envelope for that. So, you know, this big issue remains, are taxes going to go up? And that can only hit what is already very kind of weak consumer and business sentiment about the UK at the moment.

29:51Ed Balls: That's right. I think it's important to kind of stand back and look at this in a broader context before i do i mean just to say rachel reeves that her ratings have been hit very hard she's now more unpopular in the latest ipsos polling than keir starmer jeremy corbyn kemi bade not but she's doing a tour around the country she's doing visits she's getting out there she's trying to get things back on on on track and that'd be a good thing for her to do but if you just kind of as i said stand back and think about you know the brown years the Osborne years and where we are. In the Brown years, we hadn't had the global pandemic, the financial crisis when he was Chancellor.

30:29Ed Balls: And we had high interest rates relative to today, but a low level of national debt relative to today and actually quite strong economic growth. I mean, growth rates more than double the growth rates the IMF have just said that the UK is going to have in the next couple of years. If you then move forward to your period, you had higher debt, big rise in the national debt because of the global financial crisis. You had slower growth. Global growth was much slower everywhere after the financial crisis. But you had an unusual period of very low interest rates globally compared to the past, which meant servicing that debt was easier.

31:09Ed Balls: Jump forward to 2025. Rachel Reeves has now had not just a global financial crisis, but also the pandemic and as a consequence much higher levels of national debt than we've seen really since the immediate aftermath of the second world war she's got growth rates which are much lower than we saw in the 80s and the 90s and the 2000s but she's also compared to your period seeing this big jump up in interest rates and that is such a terribly difficult combination If you've got high debt, high interest rates, but low growth, very hard to kind of get out of that sort of trap. And the danger is if the underlying real interest rate is the same or higher than your growth rate, then your fiscal situation just gets worse.

31:58Ed Balls: And so this is independent of any decision she made in the last year. This is a structurally very difficult position for the British economy. me. And as you say, going into this autumn budget, I mean, people are debating whether the fiscal gap to meet her fiscal rules is 20 or 25 or 30 billion pounds a year. Some people are saying more than that. Whatever it is, it's a big fiscal gap. Hard to see how you could possibly do that, close that by cutting public spending. Hard to see how you could possibly close that by increasing borrowing welfare reform is now not going to deliver cuts this year so the question is going to be about what decision she makes on tax and you know i think going into this um this summer i think i think the question in my mind is how much is the the treasury preparing the ground how much does is rachel reeve softening us up for very difficult tax decisions to to come and So far, I'm not really seeing that.

32:59Ed Balls: There's been a debate about wealth taxes, and then that's now been dismissed. But what is the way through this on tax? And to what extent is the Treasury starting a public conversation about these massive challenges? And so far, I don't see it.

33:16George Osborne: Yeah, I mean, this week, Ray Dalio, who's a legendary Wall Street investor, set up a very successful firm called Bridgewater. And he said the UK is in a debt doom loop. And he singled out the UK as being particularly vulnerable to this, even among other countries in, for example, Western Europe who are in a difficult situation. And it's the high debt, it's the high cost of servicing that debt, it's the low growth, as you say. And that then begs a question, what can this economy afford? And because it's a Labour government and because they said they wanted to end austerity and because they've had these rebellions on their attempts to cut back some of the public expenditure bills on things like disability benefits and winter fuel payments, they're not really confronting the question that I think I would have asked the country to confront at a time like this, which is we're just not as rich as we were.

34:11We're not growing as much as we are. The cost of servicing our debts is becoming a bigger and bigger issue for us. Investor confidence is weak. The bond market, which lends us this money, is asking searching questions. You know, we can't afford the state that we've got at the moment.

34:31George Osborne: And she can't at the moment. She's not engaging in that question. So then you have to go, well, what can we do to afford the state we've got if the economy is not going to be growing in the way that we want? Debt interest is taking more and more of that money. We're going to have to raise taxes. But the problem with the raising of taxes, and I agree she's not really laying the ground for it. And it's not, by the way, just the pre-election promises. It's the promise she made at the CBI last autumn, which we played a clip of on this podcast, when she was chancellor saying, I'm not coming back for more taxes.

35:05George Osborne: but there is no other, what is the other kind of exit door from this situation? But it's incredibly hard to see where she would get the money from in those taxes, or the raising of taxes wouldn't contribute to this malaise about the UK. I'll give you two voices that have spoken out recently, very, very different voices. The first is the chairman and chief executive of Goldman Sachs, David Solomon. And, you know, he says if you create a tax policy or incentives that push people away, then you harm your economy. And he is talking to the fact that there has been an exodus of entrepreneurial and wealthy people from the UK, international people from Britain because of things like the changes to the non-dom regime that happened, you know, to be fair, under the Conservatives, but added to under Labour.

35:55George Osborne: But then you've even had Gary Neville, the footballer and big Keir Starmer supporter before the election, who did that party election broadcast kind of walking with Keir in the Lake District, coming out and saying, well, you know, this big rise in national insurance has certainly hit employment. I wouldn't have done that. So, you know, I think it's all very well for sort of people on the center left to say, OK, well, she's got to raise taxes. but that is you know you then do get into this doom loop where you raise taxes sentiment is hit businesses don't want to invest your economy you know continues therefore to underperform and i think she has to be very very careful um uh and and has to you know in the end we're going to have to confront this question of how much the country can afford i just heard the news today we've got the biggest civil service for 20 years and it's gone up a third since Brexit.

36:51George Osborne: Well, I mean,

36:52Ed Balls: you know, what are we doing about that? So the doom loop Ray Dalio was talking about is the thing which is absolutely clear she's not going to do, which is if in the end your debt interest payments are rising because growth is low and the taxes aren't coming in and you've got big debt service payments, then you end up borrowing more and your debt GDP ratio rises. That's your doom loop. and I don't think she can afford to go down that road for the reasons he says, which is that you end up in a Liz Truss-style crisis. We had a Liz Truss doom loop and we don't want to have a Rachel Reeves doom loop.

37:27Ed Balls: So then the question becomes, are we going to be bailed out by stronger economic growth? It's not going to happen this year or next year. The IMF forecast is absolutely clear about that. and you know the treasury can't um just hope that something's going to turn up in the next month or two because it's not and i think there is a sense at the moment when you listen to the government's communication that it's like they're not wanting to talk about this big choice that you're framing because um in the hope that well maybe we'll be bailed out of this or maybe we are going to have stronger growth that isn't going to happen is there any prospect of this labour government look of course they should make savings where they can and maybe there are too many civil servants in some departments but they are not going to solve a 20 to 30 billion pound fiscal gap with cuts in public spending or welfare spending in a way which will meet that fiscal test in the next three months.

38:21Ed Balls: So the only thing which is going to happen is tax rises unless they're going to fall into the the debt borrowing trap. There isn't another way out of it between now and the budget as far as I not one the markets will believe in because non-credible public spending numbers aren't going to work for them either and that's where you get to the question of narrative and framing and preparing the ground is the government saying on tax here is a process which is going to show us where we can tackle avoidance and abuse and things which might throw up some more revenue for the future is the government saying here are the three massively difficult and controversial decisions we have to make on growth right now to to to show people we're serious is the government saying to business and to the wider public given what's happening with trump and defense and war and the state of our economy and growth these are the decisions on tax we're going to have to make together and here is the prize which can come for that i don't see any of that framing happening but i think they can't blame trump can they if well at the same time saying that their trade deal with Trump is one of the big achievements of the government.

39:33Ed Balls: I mean, isn't that a challenge for them? Completely. Look, but the big achievement of the government is not to have a trade deal as bad as Europe's or Japan's. But the idea is good news for Britain. I mean, what has happened is a big tax rise for American consumers, which is going to hit British exports. And in terms of our service exports, there's nothing in this American trade deal to give us any boost to growth there is nothing going to happen which improves our growth prospects for that trade deal the only point is it could have been worse but the status quo is not good it is bad so i just feel as though going into the conferences and into the budget you have to to make a strategic decision about your communication your framing and then go after it and you know i think you're clear that you would say the country can't afford where we are and therefore we are going to make big, difficult decisions.

40:29Ed Balls: I don't know whether the cuts happen in defence. I don't think that's what you'd want. The health service, well, I think all the pressure is in the opposite direction. In education, really. Where else is it going to happen? Well, I would go welfare. Okay, but... But I can see why that's, you know, that's where she wanted to be. I mean, that's, by the way, she wanted this message, which is we're making savings in welfare, but she's been pushed off it but even then even then the welfare savings were five billion a year and the gap is four to five times that but that's gone so what is now the strategy for communication through to the the autumn and um the pension age is speculated on isn't it i mean they've they've

41:10George Osborne: launched a new review of that and although that doesn't bring immediate savings pension age is going up to 66, 67. I think the fact that does bring kind of credibility to international investors that you're dealing with your longer term costs and lots of other Western countries haven't been as bold on that. We've had one of our regular listeners has sent us in a suggestion of what she might do. Here's a question from Mel Stride, the shadow chancellor who sent this into of the show. Hi, Ed and George, friend of the show, Mel Stride here. I wanted to ask you a bit of a techie point about the options Rachel Reeves might be thinking about for the autumn.

41:49The government has said that they aren't going to change their fiscal rules. But as you know, there is also a wider set of requirements called the fiscal framework. That includes, for example, a rule which says that the government can miss its main fiscal target by 0.5 % of GDP once the third year of the forecast becomes the target year. Bringing that flexibility forwards in the autumn could be worth£15 billion or so of extra headroom, allowing even more borrowing. If the Chancellor did make that change, would this not be a clear breach of faith, given the commitment she's made? And how do you think the bond markets might react?

42:32Ed Balls: I think it is smart of Mel Strite to be sending us this question and calling this out at the moment. He thinks there is something here which might happen, a ruse, which will allow her to borrow more. He's trying to call it out in advance. I have to say, I think it is very hard for Rachel Reeves to do this. If I might say it's exactly the kind of thing that George Osborne would have done in 2011 or 2012, whether it was Swiss tax avoidance or student loans, a way of sort of a bit of sleight of hand. You were very good at that, but it was a different time politically. specifically Rachel Reeves has already changed her fiscal rules last autumn to give her more room for borrowing on capital she said the fiscal rules are cast iron and a change which now happened in a sleight of hand way to allow her to borrow more while saying she's consistent with her fiscal rules I think that is very hard for her to do now I thought it was possible to do that at the beginning of the year in an international move on defence you could imagine it happening on an international move around climate change but for it to happen now driven by the uk and this chancellor to allow more short-term borrowing but that absolutely opens up your redaglio critique so um good call mel i think it's um i think it's very hard for that to have happened even before you sent us your voicemail well i think you know look it is you know it is part of the framework she wouldn't be breaking the framework but she would be um breaking the rules she committed to uh i in the end you know i remember our friend nick mcpherson um the permanent secretary at the treasury when i was a chancellor for most of the time i was chancellor and he would say like these fiscal

44:09George Osborne: rules i'm not i'm not myself particularly wedded to them and uh and what matt what you know markets care about what people who lend money to britain care about is are you actually taking concrete steps. And that's why things like the defeat or the U-turn in the House of Commons on welfare cuts is so damaging. So I think you could possibly get away with this. Say, look, it's consistent with my fiscal framework, but to reassure investors that Britain is going to live within its means, I am taking these steps, which might include, if you're a Labour chancellor, a big tax rise. Or indeed, there was a Tory chancellor, Rishi Sunak, who increased national insurance.

44:46George Osborne: So you can raise taxes, and or you can bring in further expenditure cuts or welfare cuts or things like I mentioned on the pension age. So if you had something kind of concrete in policy terms alongside it, you might be able to get away with it. But it's hard. And the trouble is, this is not, as we've discussed before, it's not an exact science. There's not someone who tells you this is what the bond market's going to do. If everyone knew what the bond market was going to do tomorrow, they'd be billionaires because there's a lot of people who spend their time trying to guess what the bond market is going to do tomorrow.

45:22And so I think you would, as you say,

45:27George Osborne: be running quite a risk. And that for the Labour government would be fatal. I mean, if you're looking at all the things that are kind of politically fatal for Labour, the biggest would be a bond market crisis, a kind of Liz Truss moment. and as for Mel Stride we should perhaps just pause and you know as Shadow Chans he kept his job in the reshuffle that Kimi Badenock had a couple of weeks ago I should say by the way someone from the Tory High Command messaged me after our discussion on the Badenock reshuffle and said you should have also paid attention to the you know the important changes at Conservative Central Office and we will note those maybe come back in the autumn when we look at the Tory party conference to what's going on in the kind of Tory campaigning machine.

46:12George Osborne: But in terms of Mel Stride, you know, what I feel, I think he's doing a good job. He's a reassuring individual. He's, you know, the challenge for a shadowed chance we've both done that job is, could you see this person, you know, in charge of the nation's finances? I think you could see Mel Stride in charge of the nation's finances. I think that kind of his big move, which is to say, never again, Liz Truss, that speech he gave, which we discussed, you know, was exactly what the Conservatives need to do and is sort of equivalent to some of the manoeuvres that we tried to make when we were in opposition.

46:51George Osborne: But he hasn't really been backed up enough by everyone else, including the Tory leader. I mean, Kemi Bader-Ock is definitely talking about the economy much more, but she hasn't taken risks, and I don't think it's such a big risk, frankly, to say Liz Truss never again. And that would set her up, by the way, and set Mel Stride up, if there were to be a bond market crisis this autumn, to say, well, we warned about this and we have said never again on our watch. So I think he's doing a good job. He just doesn't have quite the support he needs from the shadow first lord of the Treasury.

47:26Ed Balls: that may be right although look it's just such a hard job at this stage in a parliament to be to be shadow chancellor i was looking i mentioned the ipsos polling about rachel reeves um people know who she is and they're definitely hearing from her a lot whatever they may think and recent polling on um which of the following members of the opposition do you remember seeing reading or hearing something about in the past couple of weeks and it was robert jenrick 18 13%, Priti Patel 13%, Melstride 9%, none of these 49%, Andrew Griffith was down at 4%. Hard to kind of break through if you're the shadow chancellor.

48:04Ed Balls: The temptation is to go after something really easy on tax or spending. The temptation is to say that these tax rises from the government are a terrible betrayal and immediately you're into the, so are you going to reverse them and if you don't reverse them then your attack doesn't really kind of hit home and if you are going to reverse them you've suddenly left yourself hugely exposed at the beginning of a parliament not easy to get off those tax and spending commitments what you need is some kind of intellectual structural diagnosis which is not simply about the particular level of interest rates taxation or spending which allows you to say that we get it and understand it and And they don't.

48:46Ed Balls: And I think if it was me, I think I would be going more on the nature of the enterprise economy. Do they really understand what makes business work, what makes investment work, what makes entrepreneurs take risks, venture capitalists invest in Britain? I would be looking at something which was more thematic, but they don't get the economy in the way in which we do. I feel as though, look, I thought Mel Stride's speech about Liz Truss was a good speech, but I feel as though the Tories have tried lots of different economic messages in the last few months without really landing on one. And the simple, easy one to land on would almost certainly be the wrong one to land on.

49:25Ed Balls: So structurally, very tough thing for him. But he needs to work out what his underlying critique is and to be able to stick with that for the next couple of years. He doesn't want to be writing a shadow budget in 2025. five no i think that's right and you know the question where's your growth plan is the one you want to be asking the labor government at the moment i mean i i think those kind of numbers about you know who who has heard from the shadow cabinet always a bit misleading i remember um when i was working for william haig they used to run these polls and no and they used to put into the polling like you know who is a member of the shadow cabinet you know is it liam fox or you know know is it um you know andrew lansley or whatever happens to be um or they would then put in or is it pit the younger or benjamin disraeli or they put in these figures from history and the public would go yeah i think pit the younger's in the shadow cabinet so you know you can play these games i think it's more important i mean look obviously the shadow chancellor has to first of all from their own point of view survive a parliament and that's quite hard there's usually several shadow chancellors in a parliament.

50:35But, you know, so staying on the horse is quite important and trying to be there at the end. But it's more important, ultimately, what people think

50:44George Osborne: as you get close to an election. This is particularly due to the party leader, actually. And you are laying the groundwork now. You're saying the right things about the economy. And I think for an opposition, any opposition, you've got to start with a big reassurance message. Do You understand why we were kicked out, because by definition, you're an opposition because someone's kicked you out, usually on very economic reasons. And you're going to fix that. And, you know, and it's not going to happen again. I mean, so I would be if I was him, I'd be kind of pushing ahead on his stability message, on his bond market message, on his no Liz Truss again message.

51:21No. And, you know, and Rachel Reeves is risking that message.

51:25Ed Balls: what we can absolutely guarantee is that Mel Stride the Shadow Chancellor Rachel Reeves the Chancellor will be hoping to go on holiday in August but they will have hanging over them the conference speeches they will make at the end of September and the budgets they will give or respond to a couple of months after and anytime they're feeling a bit relaxed on a beach in the middle of August suddenly they'll think what am I going to say in my conference speech what is going to be my core message how am i going to prepare the ground for this or that and in august as a chancellor or shadow chancellor there is no escape and uh but of course in the end what comes what it also comes down to is whether the message is well communicated and we've had some some news in the last few days about further changes in the communications team in number 10 downing street And we thought we'd end by talking about the comms operation in Downing Street, what makes it work, the challenges of driving good comms in government, and whether the new permanent secretary for communications is going to make the difference.

52:33Ed Balls: And we'll do that after the break.

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54:16George Osborne: So we've just had the news that David Dinsmore, who was the editor of the Sun newspaper in those key years, from my point of view anyway, of 2013, 2014, 2015, and has been since then working as an executive in the bigger parent company, News International, has become the new permanent secretary for communications for the government. and we did speculate that there would be changes at number 10, and there'd been a bit of sort of newspaper speculation about this role, although I don't think Dinsmore himself was identified as a candidate in advance. I know David pretty well. He's a very smart guy.

54:56George Osborne: He absolutely knows about communications, so we'll come on and talk about him maybe, but let's just start with, you know, he is being appointed to this job of permanent secretary. That means he's a civil servant, So he's not an explicitly Labour figure. Unlike, for example, James Lyons, who was the political editor of the Mirror, and he is the comms chief in 10 Downing Street. But he's a special advisor. He's allowed to talk about party politics. um is that why so there's that interesting question why have they brought him into this sort of civil service role and is that going to work now the there has been a blurring of the lines over the last 30 years between the kind of political and the government comms and of course you know the spin doctors often become the story and usually when they do that's uh pretty fatal for them.

55:46Here's just to remind us a little medley of all of the more famous comms people who've done that job over the last generation or so. Well, people seem to think that the lobby was the prime minister's lobby, all the press secretary's lobby, all the government's lobby. It wasn't. It was the lobby's lobby. And technically, they invited me to brief them on every occasion. I went there.

56:16I don't care what you're fed up with. You can see what you like. I can tell you my opinion. Don't tell me what I think. I will tell you why I think you're reacting badly. Alistair, you're being... No, I'm not joking. I take full responsibility for employing Andy Coulson. I did so on the basis of undertakings I was given by him about phone hacking and those turn out not to be the case.

56:38George Osborne: Because the party was cheesing more... Is cheese and wine all right? It was a business meeting. I'm joking. This is recorded. This fictional party was a business meeting. And it was not socially distanced. So there you had Bernard Ingham, Margaret Thatcher's spin doctor. Well, I say spin doctor. He was a civil servant. He was not a Conservative Party employee or special advisor. Then you had, of course, Alistair Campbell. Where is he now? I don't know. I don't know what he's up to. but having a good row there with Adam Bolton. And then we had David Cameron doing the kind of hacking gate scandal about Andy Coulson, who remains a good friend of mine.

57:22George Osborne: And then we had Allegra Stratton, who was Boris Johnson's press secretary, special advisor, and that was her doing a kind of mock preparation for what they were going to do, which was televised the lobby briefing. and they were trying out some questions she might get about Partygate. But unfortunately, that all leaked and contributed to Partygate. The great trip down memory lane and a reminder that the person behind the curtain directed the communications quite often finds themselves on the stage. And maybe that will happen to David Dinsmore. Who knows? What do you think of the appointment? Why do you think they've gone for this permanent secretary job rather than putting him straight into number 10 as a Labour special advisor?

58:08Ed Balls: Well, I don't really know if I fully understand what the job is and whether, in fact, this permanent secretary of communications is going to become de facto the comms director in number 10, which all of the four people in those clips were. But my assumption is not that a permanent secretary as a civil servant coordinating the communications effort all across Whitehall is a very different job from driving the Downing Street central government communications effort. And are James Lyons or Steph Peacock, who are doing that job together at the moment for Keir Starmer, are they being displaced by David Dinsmore?

58:53Ed Balls: I don't think so. So I'm not sure if I understand exactly what his role will be. I think the one thing you can also say is that he's a newspaper man. deep experience in newspapers. There have been times in the past where you've had people from newspapers having a big impact, especially in opposition. Think of Alistair Campbell or Andy Coulson, as we just heard. Paul Ovenden, who works for Keir Starmer, ex-Telegraph, great driver of news stories. Once you move into Downing Street and you're running the Downing Street communications effort, I think it is much more complicated than simply being a news hand going after the stories of the day and it's a big transition i think alistair campbell did make that um into into government to play what it becomes a very very different role um requires a range of skills i don't know whether david dismore has those skills at all but i would be surprised if in fact that's the job he's going to do but i aren't there two jobs and i think one of the challenges for david will be can i keep focused on you know one of them rather than being dragged into the second.

59:59So the first job, which I think he is being hired to do, is to sort out the government's overall communication effort. The government employs literally thousands of press officers. Departments will have like 200 press officers. And this is at a time when newspapers and newsrooms, including in television and radio, have gone through quite dramatic reductions in staff

1:00:22George Osborne: and have had to get much better and leaner and more productive. And of course, have now been starting to deploy artificial intelligence to you know ai can increasingly do things like draft a press release for you and i don't think anyone has really got a grip on the overall government communications machinery across all the departments and they're not they're not dealing with you know inquiries from the bbc's political editor every day they're dealing with trade journals and they're trying to put out messages that tell you about you know you've got to renew your car tax license or here's a piece of public health information that's important for you, or this is a way you can better access your benefits.

1:01:01George Osborne: You know, think of all the things government does to kind of speak to people all the time. And I think if, you know, David, having gone through that revolution at News International, one of our big media companies, you know, I think can try and bring discipline, coordination and modernity to the government's communication effort. The problem is, you know, in Downing Street is like everyone goes, well, that's all very interesting, but we've got a crisis today, like because Donald Trump said this, or, you know, we've got to do this U-turn on welfare this afternoon in the House of Commons. David, what do you think about that?

1:01:32And you get

1:01:33George Osborne: sucked into the kind of day-to-day crisis management, which is also a very, very important job. And there, it's not clear to me, you know, whether he will resist that or want to resist that or feel that ultimately you can't have much influence on the first if you're not in the room for the second conversation. If you're not there, because Downing Streets are like courts, aren't they? In the end, are you in the room? Are you there late at night when key decisions are being taken? Because if you're in the business of communication, what you're communicating is critical and you want to be part of that conversation, the substantive conversation about what the policy is at the same time.

1:02:15George Osborne: So I think that's going to be a kind of challenge. And it's not really clear if David's doing the first thing, sorting out the government comms machine, or he's going to be doing the second, which is giving Keir Starmer a more coherent overall political narrative and dealing with the day-to-day firefighting on that.

1:02:29Ed Balls: See, I guess my answer to that is I'm not sure that is quite the right distinction between the two jobs. And in fact, the two jobs that you just described there have to be done in the end by one person from the centre in Downing Street reporting directly to the Prime Minister. not to say that there isn't a permanent secretary role in the cabinet office for the morale and training and leadership of the wider government communications network as you sort of thousands of people and that is what that permanent secretary job has done in the past a bit like the cabinet secretary being the leader of the civil service and very important management job to do maybe David Dinsmore is going to come in and do that job when you move into Downing Street you know what is going on in opposition um it is so much easier and that's partly i think why you can have a newspaper person doing it because first of all um you are really in control of who it is who's going to go out and speak for you um and the message they deliver you've got you've got grip secondly there's loads of kind of um stuff happening in the world but what comes out of the opposition, the information flow is really in your control, and especially if you can get a grip on your shadow cabinet colleagues.

1:03:50Ed Balls: And thirdly, what you say is really all you've got, because you're only judged on your words in opposition. When you get into government, first of all, as well as all the cabinet members, you've got enormous numbers of agencies and police forces and hospital chief executives and Bank of England governors and independent agencies. There's huge numbers of message carriers who can all be off doing their own thing every day you've got a massive flow of information the government's continually saying things publishing parliamentary questions freedom of information requests consultation documents here or their huge information flow and thirdly it's not just about what you say it's what happens it's outcomes because in government you say something but the question is did it deliver did it work and you have economic statistics and immigration numbers and all those kind of outcomes and i don't think and i think that is incredibly complicated job to pull it all together to grip the information flows which is what the grid is all about trying to make sure you manage what the government is putting out every day and stopping things going out inadvertently to saying to people you know we're going to decide who is speaking about what today to control your message carriers And I don't think you can do that without the absolute clout of the prime minister at the centre.

1:05:11Ed Balls: But then also communications in this world is about that complex nexus between words and policy and outcomes. And that is, again, something which requires a unified, across government, across Downing Street grip. It's not simply about issuing press releases. If the media operation is saying one thing and the policy people are doing the opposite, that is a catastrophe. That is a it's a massively complicated is really hard and I think it has to be done from Downing Street by somebody big and senior and who can grip all of that. Maybe that's the job David Dinsborough has been given but if so you've got to say that really clearly what you can't do is have him doing a little bit of that job and having massive rows with the people in Downing Street who do think they're doing that job at the moment.

1:06:02Yeah I think no I think that is that is true. I mean, you know, ultimately in a government, you know, if you want to speak with authority about what the government's up to, people have got to believe you have the ear of the prime minister and you're kind of in the crucial meetings. But I do think there's also a big overhaul of the government communication machine job to be done, particularly in the age of social media. In our day, what would you do? You'd speak to the editor of The Sun and maybe the owner of The Sun and the political editor of the BBC. And that would be how you tried to kind of land the message each day.

1:06:33I mean, you should be said about David.

1:06:34George Osborne: I mean, I would just say two things because we should wrap up. But first of all, you know, I had a good relationship with him and he played an absolutely critical role in persuading News International, The Sun, Rupert Murdoch, to support the Union during the Scottish independence referendum. He's Scottish. He took Rupert Murdoch up to Dundee. And amazingly, they went incognito to a nationalist rally and stood at the back of this nationalist rally. and David said to Rupert, are you sure you want to be backing these people? And Rupert said, well, maybe they're not really my kind of people. So he plays, he has an important footnote in British history already, David.

1:07:15But isn't it also kind of amazing,

1:07:18George Osborne: the sort of journey that the Labour Party has been on over the last 10 years, 15 years, that the guy who edited The Sun, who did in Ed Miliband, who backed the Tories in 2015, you know, the News International, which, you know, so many people on the left don't like, and Murdoch, you know, he is the guy that Keir Starmer has had the confidence to bring in. I mean, I think it's a good sign that Keir Starmer is serious about winning and serious about, you know, communicating effectively. But presumably, there are quite a lot of people on the left who can't believe it.

1:07:51Ed Balls: The mayor of Liverpool, Steve Rotherham, was out very quickly on behalf of the people of Liverpool condemning the decision because of that past Hillsborough history. But I think most people in the Labour Party will think that you need to get a grip of your communications and to do it better. And if he's put in charge of it, which I think is a big question, and he delivers, then nobody's going to be worrying too much about that. Two other things I would like to say just about comms, which I think are both relevant to where the government is today. First of all, we've got into this pattern which has happened since you and I were both in the cabinet.

1:08:23Ed Balls: It It started, I think, with Boris Johnson, but then in COVID, where every day the government puts up one minister, often a junior minister, with some story unrelated to the news agenda of the day to go out and do all of the media interviews. I often experience this on Good Morning Britain. And they often come on. We want to talk today about the nurses strike, but you've got somebody who's come on who wants to talk about housing policy. they aren't um it's not possible for them to be on top of the detail of that policy issue they aren't so often cabinet members the difference between having the cabinet member responsible for the story of the day on the media compared to the junior minister on a different policy area is so huge and there are very many junior ministers who do a great job but the reality is it often looks like the government hasn't really got a grip and they're not on message and i would say what you want to do is to have flexibility to put your best performers from the cabinet out on the big story of that day if it's a big story about gaza put up david lammy if it's a big story on the health service put up west streeting or maybe they're number two but you know this hangover from the johnson era which is if we put people up on media who didn't know anything about it and therefore they wouldn't say anything of any interest because nobody would expect them to because they're unbriefed on that subject or they're not knowledgeable on that subject.

1:09:44Ed Balls: It ends up with the government looking like it doesn't quite know what it's talking about. And then that comes to my second point, which is in the end, whatever you do with David Dinsmore or James Lyons or Steph Driver or whatever, if a government has a clear story about its purpose, then its comms will work. And that can be quite tough. I mean, I thought Mike Ellum was a brilliant head of communications for Gordon Brown in the financial crisis when things were very hard, but there was a clear message. Alistair Campbell, Andy Coulson were best when they had a clear message. The government's not got a strong story from the prime minister, a political story at the centre.

1:10:22Ed Balls: No comms operation, no social media strategy, no grid can overcome that. And the idea that you solve your communications effort when you haven't got a strong story by moving the deck chairs in the media office, that doesn't quite get to the heart of your challenge. And that's, I still think, what the government's got to do better.

1:10:43George Osborne: I think one thing we can agree on is that the best way to get your message out is to get a cabinet minister or indeed a junior minister or indeed the prime minister to send a question to us at Political Currency, because then you will make sure the whole world hears it. So we're going to encourage that. That's the end of our show today. And of course, you don't have to be a minister to send in questions and feedback to us. You can do that at questions at politicalcurrency.co.uk. But David, if you're listening, make sure you use this vital channel of communication in the modern age.

1:11:19Ed Balls: That is right. Mel Stride has shown the way. Send in your questions, questions at politicalcurrency.co.uk from the Prime Minister and the Cabinet down. And we will see you next week. See you then.

1:11:38Thanks for listening to Political Currency. This has been a Persephoneca production.

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