Has Andy Burnham gone too far on Israel?

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2:15George Osborne: This is Political Currency with Ed Balls and George Osborne.

2:27Ed Balls: so we are in the studio in shoreditch a week on for that fabulous trip to the british museum to see the bayou tapestry we were pretty much the first people in there not quite today program beat us you know i've got to say for those people who heard our conversation last week on audio if you go to youtube the actual film of seeing the tapestry our videographer louis did an utterly brilliant job of mixing our conversation with the pictures of the tapestry i found it really really um emotional trip i mean i love going yeah well you know we saw it then essentially

3:08George Osborne: in the room by ourselves which is not how basically anyone else is going to see the tapestry because since we recorded that episode we've had like the big opening reception and we've had some of these sort of breakfasts today is the day when members of the public are coming in but on all these occasions today's the first day yeah yeah the first public about 50 minutes ago the first member of the public went through first of a million um and but in the events we did including a big day for members of the staff at the museum and their families. What we found is that, you know, people really want to spend a lot of time in the tapestry and take a look because you're so close to it.

3:49George Osborne: I'm this I don't think this is an exaggeration. You can you know, someone could pull me up on it. There is no one I have spoken to who has seen it, who has not been, you know, overwhelmed and kind of surprised on the ups. everyone has said wow it is so much bigger and better than I thought it was ever going to be.

4:08Ed Balls: I also loved speaking to Michael Lewis the curator. Brilliant conversation. He's so knowledgeable. He also came in his Norwich shirt and Norwich did beat Sheffield United at Bramall Lane 2-1. He was a bit pessimistic wasn't he? He was but we won 2-1. And I was playing the drums at the York Rise Street Fair Saturday afternoon while my brother, who was in the crowd, was signalling to me. It was packed. It was a big crowd.

4:37George Osborne: Your grouse, by the way, for those who don't know, is a sort of labourish, middle-class, upper-middle-class enclave in North London. It's a very she-she place to live. That's right. This is not your regular street party.

4:47Ed Balls: I think within 100 yards live Keir Starmer, Richard Hermer and Ed Miliband, one of whom is still in the cabinet. But my brother was signalling the goals. And the funny thing is that we are playing the Water Rats again this Christmas. And my sister, who is coming down with a group of her friends to see us play in the evening, has managed to book in to see the Bay Area Tapestry in the afternoon. So, I mean...

5:16George Osborne: The two hottest tickets in London. That is absolutely... The two impossible to get tickets. I say impossible to get. If you haven't got a ticket yet to the Bay Area Tapestry, on the 21st of October, we are releasing hundreds of thousands more tickets. So there will be a big opportunity. We have not sold anything like even half the tickets yet. So there are going to be lots of opportunities for people to see it.

5:34Ed Balls: And you'll be able to get tickets for the Century Stand of the Water Rats this autumn. Have we got the same website?

5:40George Osborne: Did your website crash?

5:41Ed Balls: Our website crashes regularly, but that's for different. But I don't think it's millions of subscribers. And it may be, I mean, at the York Rise, we had a little tribute to Dolly Parton, Jolene. And maybe we should have a little listen.

6:16Ed Balls: And I reckon we'll do some Dolly Parton in December.

6:21George Osborne: Well, thank God Robert Peston's still around for those who missed the voice of Dolly Parton.

6:26Ed Balls: As I said to you last week, it's memorable.

6:28George Osborne: It's certainly memorable. And I'm glad you chose my favourite Dolly Parton song rather than yours. I did. Now, listen, we've got a lot to talk about today. I mean, first of all, we're going to turn to Andy Burnham's foreign policy agenda. We've spoken a lot about his domestic agenda in the last few weeks. But this was the week I feel like foreign policy came centre stage with the big announcement on the government's approach to settlers in occupied Palestine. So we're going to talk about that. But also, what does that mean for the sort of broader foreign policy of the government? What about the relationship with Trump?

7:02George Osborne: Trump said some difficult things about the Falkland Islands. It's going to be Foreign Affairs Week when it comes to British politics.

7:09Ed Balls: Then we're going to go to John Healy's first speech, big speech as Chancellor on Monday, where he set out his agenda for the budget in seven weeks time. But of course, foreign economic policy is going to frame economic outcomes and his budget choices. And we'll have a look at what's also happening in that wider global economic context and whether that's making things easier or harder for the new chancellor.

7:35George Osborne: There's a clue there. I think it's going to be harder. Then, of course, there's the big win by the AFD in Saxony-Anhalt. AFD is the far-right German party. Saxony-Anhalt is a relatively small German state, but they did a really, they had a big, big victory there. We're going to talk about the implications of that for German politics, European politics, and the spillover here, because this has also been the week when we've seen those very unpleasant scenes in towns like Portsmouth with protests against immigrants. So lots to talk about and a big impact and a reminder that we are connected, as the Bayer Tapestry reminds us, to the events in Europe.

8:13Ed Balls: But we're going to start with foreign policy. Keir Starmer was taunted by the Conservatives and the right-wing press over the last couple of years for being never-here Keir, that he was more comfortable on the global stage and travelling around in planes than talking about the domestic agenda. Andy Burnham from the beginning before he took over saying he's going to be a much more domestic prime minister he wanted his foreign secretary to bear more of the the load on foreign policy of course that's very hard thing for any prime minister actually to do when you are a small country in a big global world but so far compared to Keir Starmer Donald Trump has not been causing Andy Burnham, the grief and complexity that it did for Keir Starmer.

9:01Ed Balls: That may change in the, look, it may change over the course of the day. You never know what Donald Trump is going to do. And the issue of the EU renegotiation, Andy Burnham has been dialing back the rhetoric and dampening expectations compared to a year ago where he sounded like he wanted to rejoin the European Union. That's certainly not been centre stage so far from Andy Burnham. Although he is blaming Brexit for slower growth in the UK. But this week on Israel, and as you said, economic sanctions, trade restrictions, challenging the legality of what is happening in the West Bank. but also with strong rhetoric from Ed Miliband, the Foreign Secretary.

9:46Ed Balls: It feels as though Andy Burnham decided to be more front foot and risk-taking in Britain's approach to the Middle East. This was Andy Burnham in Prime Minister's Questions on Wednesday explaining to Kemming Badenock what this was all about. Britain has to stand for something. Britain has to show leadership. Britain has to stand for fairness against injustice. where people are being bullied out of their homes, intimidated. We will always stand with the underdog and take what action we can to support them. That, Mr Speaker, is leadership on the world stage. Britain being true to what it's always been about.

10:26Ed Balls: That is what the British government, British people expect of us. And that is what this government will do.

10:32George Osborne: It's very interesting, the intervention on Israel this week, because we didn't really know what Andy Burnham thought about foreign affairs much. I mean, he's been around in British politics for a long time. He's been in the cabinet. He's been the mayor of Greater Manchester. But none of his portfolios have had a foreign policy element. And so this is the first time he's taken a decision that has, I would say, proved very controversial. He'll say, and I heard Ed Miliband saying it on the radio yesterday, well, hold on. You know, we also met with President Zelensky and he went to Ukraine. That's true, but that's continuity with not just Keir Starmer, but also the conservative governments before and welcome as it is, therefore not particularly revealing.

11:19George Osborne: I thought what was interesting about the intervention here on Israel-Gaza is to what degree it is motivated by a kind of genuine foreign policy calculation that this is the right move now to help Britain push for something that all British governments in recent years have said, which is an end to illegal settlements, the preservation of a two-state option in practice on the ground. and encouraging the parties to work towards that two-state. Or to what degree it is all domestic. It is all aimed at what we've talked about on this podcast since Burnham got elected, which is essentially shoring up the left in British politics.

12:03George Osborne: And there's been no more animating foreign policy issue on the left in British politics than Gaza and relations between Israel and Palestine in recent years. So I mean, I have quite a lot of sympathy with the desire, we can come on and talk about this, to exert some influence on the situation, try and stop these illegal settlements. David Cameron, as Foreign Secretary, sanctioned illegal settlers and started sanctioning members of the Israeli cabinet. But I couldn't help but think the way that Ed Milliman did it was quite performative. You know, they did this in a way and it was clearly coordinated with Andy Burnham.

12:46George Osborne: You heard his passion in his voice there with a domestic audience in mind, not just an international audience or just not not just an audience in the Middle East. I mean, in the end, don't you agree with me? There's a lot of domestic politics here.

12:59Ed Balls: I think there'll be very many people in the Parliamentary Labour Party relieved to have a Prime Minister who thinks about how what he says on the international stage is going to impact to a domestic audience. And clearly, from within parts of the Jewish community, there is a critique of Ed Miliband and Andy Burnham that this is all about trying to get into a better position for the Hobart and St Pancras by-election, where Zach Polanski is going to be the candidate. And earlier in the year, Gaza and Palestine was one of the reasons why Labour lost a by-election to the Greens. But I think you have to kind of stand back a little bit and say, how much of this is really a new, different political approach from Andy Burnham and Ed Miliband, and how much of this is actually, despite their rhetoric, as you were suggesting, more continuous?

13:52Ed Balls: I mean, the fact is Keir Starmer a year ago was building an international coalition to recognise the state of Palestine without the Americans, strongly with the French. That is what has been carried on. And Ed Miliband has seen the fruition of that. It was Keir Starmer who was strengthening sanctions against individuals in Israel. I think there was a tension with Keir Starmer about whether or not he was willing to extend that to the sanctions to companies and groups who are engaging in the E1 expansion of settlements.

14:27George Osborne: E1 is the name of the housing scheme in East Jerusalem, which people say if it goes ahead, we'll make in practice a two state solution in the future impossible.

14:36Ed Balls: Exactly. And that was in the mind of David Lammy, Yvette, Keir Starmer over the course of the last year. There is a debate about how you make the trade sanctions work. But the reality is that this package was ready to go before the summer. But there was a transition and Andy Burnham and Ed Miliband were taking over as foreign secretary. And, you know, I think Ed Miliband has wanted to hint at continuity, but also wants to say Keir Salma wouldn't have done this. The truth was, this was happening. And I think it goes back to something we've said in this podcast over the last year. That what Netanyahu has done in Israel has been so divisive and made it so much harder for the rest of the world.

15:24Ed Balls: Even Donald Trump has massively dialed back his rhetoric and support for what is happening with Netanyahu. It has been a go for bust strategy, which I think has caused huge worry and concern within the Jewish community here in the UK and around the world. And is what Ed Miliband and Andy Burnham have done in the last few weeks, which, as I said, was the plan. Is it simply a domestic political play or is there calculation with the French and the Canadians and many other countries around the world that actually this is a way to put pressure on Netanyahu at a very sensitive time for him with the election coming?

16:01Ed Balls: look it's definitely a gamble and there is definitely domestic politics in it but i think if you just reduce it to domestic politics and you ignore the international coalition don't you slightly underplay the importance of this moment globally in foreign policy terms i just think

16:17George Osborne: there's a big difference um between you know in foreign policy you know particularly for a country like the uk uh which is not the biggest it's not the smallest but certainly not the biggest You know, how you say things is also very important because this is not you don't have many direct instruments. And although, yes, we've sanctioned illegal settlements or products from illegal settlements, I don't think anyone thinks that's going to stop illegal settlement building tomorrow. So, you know, diplomacy is all about the language you use. I think you're absolutely right that there was a kind of continuum here of ratcheting up pressure on illegal settlements, sanctioning individuals, which I said, in fact, started under the SUNAT government.

16:59George Osborne: The steps that Keir Starmer said, including that big, big moment when the UK switched its position to recognising a Palestinian state. Quite hard to think of a future, for example, Conservative government reversing that now. So that's all true. And you can totally take it that what you're saying that, you know, this package is all being worked up. That's all true. But, you know, that clip we just had from Andy Burnham. And we could have played a clip from Ed Miliband where he talks about settler terrorists and ethnic cleansing. You know, they have ramped up the rhetoric. The way it's being presented, I imagine...

17:38Ed Balls: It's very un-Starma-like.

17:39George Osborne: Right. Keir Starmer or Rishi Sunak or David Cameron would have said, you know, the UN makes clear international terms are legal. Israel's a great friend of ours. We are appalled by what happened that Hamas did. This is a necessary step we're working on. Now, to be fair to Ed Miliband and others, he did talk about Hamas terrorism, but he did it kind of after rather than before. And the language is very, very, I would say almost populist. It's very emotional. There's emotion in Andy Burnham's voice there. he's aligning it to values rather than just this is a necessary piece of diplomacy. And I think that does have consequences.

18:23George Osborne: Definitely. Definitely. I mean, and it has consequences domestically because, yes, it probably does help take the pressure off Labour from people who feel they've not spoken up on Gaza and atrocities or were

18:36Ed Balls: or it will cause deep anxiety and upset in parts of the Jewish community who will and the chief rabbi voiced those views.

18:42George Osborne: But don't you think, I mean, look, you and I are both, I would say, strong supporters of both the Jewish community. And, you know, I certainly speak for myself, but Israel, you know, you're co-chair of the Holocaust Memorial Committee. I mean, I have to say, I was not entirely sure it was wise of the chief rabbi to sort of come out in the way he did. And I think it's quite important for the Jewish community in Britain, which I absolutely am connected, to be clear about two things. One is it cannot be Israel right or wrong. Whatever an Israeli government does must be defended, even if you don't agree with it.

19:24George Osborne: And I feel it's sort of spilt in. There are many British Jewish people who are very concerned about illegal settlements and think it's wrong or think it's stupid for the long term security of Israel. and the antagonism of Israel around the world. And, you know, it's quite important. And it's equally, I think, important for the Jewish community not to become too partisan to put all of its eggs in the conservative basket. That was never the case in the past. You know, in fact, historically, actually, the links between the labor body and the Jewish community were stronger. So I just am a bit nervous that for all the ramping up of the rhetoric, and you're right, there will be elements of the Jewish community who feel more insecure as a result of the language used.

20:06George Osborne: But don't kind of fall into the, don't play the game necessarily. If I was a representative of the Jewish community here, I would say politics is politics. We are not, you know, everything that Netanyahu government does is not something we necessarily support. It's really important.

20:22Ed Balls: Which is why, as we've said before, what Netanyahu has been doing over the last year is so dangerous, not just for Israel and its standing in the world, but for the Jewish community here in the UK as well. Ed Milimand was very clear, his support for the state of Israel and a two-state solution. He was also very clear, we interviewed him on Good Morning Britain on Tuesday, that to equate being Jewish with therefore always defending everything the Israeli government does is anti-Semitic. And that is, you are right about that. And he has a track record. I mean, I remember sitting in the Labour conference for his first leader speech in 2010 and being taken aback by the language he used about Gaza at that time.

21:12Ed Balls: And so Ed has been here for a long time. And let's be honest, this is a cynical thing to say. He wanted to be chancellor. Who knows? He may get another chance. We're going to discuss the economy in a moment. In the meantime, if he's going to be foreign secretary, he's making his mark. And look at the front page cover of the New Statesman this week, Ed Miliband, the new approach. I mean, he didn't have to do it quite in that way. He could have made more of the continuity argument. Maybe that doesn't suit his political purposes. He could have decided to play this a little bit longer and got to fruition after the Israeli elections.

21:53Ed Balls: But I think the calculation that he and the government is making, governments plural are making, is that actually this is a better way to influence what happens in Israel. I thought the most significant thing was that Donald Trump has not jumped in to criticise Britain or Canada, with whom he's in a big row, or France or all these other countries. Donald Trump's got his big rally in Texas, looking forward to the midterm elections and rallying the Republican cause. he obviously decided that for his own domestic political purposes in American politics at the

22:32George Osborne: moment that that is not where he wants to be well because the Gaza issue has been hugely motivating in in the domestic politics of the United States and indeed other countries like France and Canada that signed up to so I'm not saying that other countries also don't have domestic considerations when they approach this issue um I mean look by the by the way I say that about Donald Trump as

22:55Ed Balls: I said earlier, it could change this afternoon. Andy Burnham had his first conversation with Donald Trump, I think, on Monday. And, you know, there's not been the kind of bust-ups that Keir Starmer and others have had to deal with. Although there was a little bit of Trumpian kind of grit in the oyster, in particular around the Falklands and the Argentinian President Millais making a new claim. I mean, it now seems with the support of the Israelis, Part of their retaliation to British sanctions is to say, well, maybe they're, I mean, I'm not sure whether Israeli recognition of the Falklands is going to change the course of history either.

23:34Ed Balls: But this is Donald Trump musing on the Falklands. I was there when they had the first war. That was a long time ago. And I watched it so carefully. And you comported yourselves very well. You took it back pretty strongly. But it's a long way away. That's a big trip. It's a long way. So your country's not doing well. Don't forget, you get a big percentage of your oil from the Strait of Hormuz. And you weren't there to help me. Your country was not there to help me. We didn't need help. But I did ask NATO and I asked your former leader for water. And you send a couple of ships. He said, we don't have any.

24:20And it was pretty sad, the whole thing.

24:22George Osborne: So it's obviously you can you can treat all that very lightly, which is, oh, that's Trump poking poking us over the Falkland Islands. But it's a reminder of a couple of things. First of all, the United States is absolutely critical to our security. And in a world in which Argentina were to make some kind of advance to all the Falklands and they were supported by the United States, there would be no rerun of the Falklands War. I mean, crucially at the time, the United States sort of stayed out of it. But actually, Caspar Weinberg and Ronald Reagan did a huge amount to support Margaret Thatcher behind the scenes.

25:03George Osborne: There's a real world consequence to being on the wrong side of your superpower ally. Look at Canada and the kind of issues, which maybe in a future episode we should come back to, that Carney is dealing with there, Mark Carney. Let's just imagine Trump turned his eye on us with tariffs, as he's threatened to do in Keir Starmer and his team, you know, diffused all that and appeared to have landed a much sort of better trade deal. But, you know, that would completely torpedo John Healy's budget and growth plans if the United States suddenly ramped up the tariffs on Britain. And you have no idea whether that's about to happen due to the nature of the sort of Trump presidency.

25:40George Osborne: So, you know, if you, if you, the moment, okay, Andy Burnham's had his phone call with Donald Trump, maybe a couple of phone calls. They haven't had a meeting yet. If I was Burnham, I'm not sure I'd be rushing. Most new British prime ministers, one of the things they want to do in their first few months is get to Washington and sit in the Oval Office. That's what you do if you're on a new British prime minister. How quick is my visit to?

26:04Ed Balls: He can't take a letter from the king inviting Donald Trump to another state visit, can he? Right. I mean, maybe he can.

26:10George Osborne: Right. So if I was the Burnham team, and of course, on foreign policy, the Burnham team is very similar to the Starmer team. He's got Jonathan Powell as his national security advisor. The economic negotiations with the United States are being coordinated by Varun Chantra. And Mike Ellum. And Mike Ellum, the civil servant who we both work with. So it's actually the same team. But if I was Andy Burnham, I'd be like, I'm not sure I actually want to go to Washington anytime soon. Just to put on everyone's foreign policy radar, talking about meetings in Washington, there's a really important meeting coming up in the next couple of weeks.

26:45President Xi is going to Washington for a bilateral summit.

26:50George Osborne: It's not yet on the kind of radar, but for all sorts of things, not just Ukraine and the Middle East and Iran, but also, you know, regulation of artificial intelligence, which we should come back to on this show. And it's been in the news a lot recently with concerns about its safety. you know that summit is really obviously much more important than any bilateral or phone call between the British Prime Minister and the American President.

27:14Ed Balls: So just to end this section Andy Burnham on foreign policy what is the issue which he should be most nervous about in particular thinking about that bilateral relationship with the Americans? Is it the Chagos deal which

27:35George Osborne: isn't that kind of dead in the water now?

27:37Ed Balls: Yeah, but the government still says that they want to do that deal. Is it a trade?

27:43George Osborne: Chagos has become much more important to the US since the beginning of the Iran campaign because the Iranian drones have made the operating of the Middle Eastern US bases very, very hard. And as a result, a lot of US operations are coming out of the base at Chagos. So the politics of Chagos and the importance of Chagos in the United States is vastly more important than it was even a year ago.

28:06Ed Balls: But how does that?

28:08George Osborne: Like they would absolutely not allow that deal to go ahead with Mauritius.

28:12Ed Balls: So Chagos is one flashpoint. Trade and trade retaliation. I think if I was Andy Burnham, John Healy, dealing with Donald Trump, especially given the NATO summit in the summer. We talked about it last week. the 3 % commitment on defence. I mean, that has the potential to be a flashpoint for the American relationship. And Kevin Bednock was on it again in PMQs this week. I think Andy Burnham rather misspoke when he said he wouldn't sacrifice defence for social security. I'm not sure that was quite what he was meaning to say, but it's kind of ammunition for Kevin Bednock, isn't it?

28:49George Osborne: Yeah, we'll come back to that. I think Kevin Bednock's strongest line of attack on Labour, both before the change of Prime Minister and afterwards has been the welfare party. Welfare is definitely, in my view, Labour's biggest domestic vulnerability. Maybe alongside tax rises. And we'll come on to that.

29:07Ed Balls: And what Andy Bodham did was he brought defence and welfare together, gave the impression he was making a choice. That is the thing which she'll jump on.

29:18George Osborne: Yeah, national security, as you say, not at the price of social security, which Number 10 then rode back on after. Of course he did.

29:24Ed Balls: because that's not what he it's the nature of Andy Burnham and PMQs I think every week he's partly his communication style and his more relaxed demeanor also means that it seems every PMQs there'll be a mop-up operation afterwards yeah yeah I think the um if you would be there's

29:40George Osborne: a good question you ask what are the what does Andy Burnham need to avoid on the foreign policy front the you know the trade sanctions from the United States must you know very very risky for the UK at this moment still. I guess he's like Keir Starmer. The last thing he needs is for the US to request the use of US bases in Britain for British bases for some future military operation. I mean, that was the thing that Starmer was presented with. And, you know, it reminds me of the conversation we had about Tony Blair's letter or essay in advance of the Burnham-Brenum which is it's all very well not to be there for the United States, right, and to try and distance yourself.

30:23George Osborne: But when you really need the United States, they won't be there for you. And the Falklands banter, if you can put it politely like that, is just a kind of reminder how still integrated our security is with the U.S. and whoever is the president of the U.S. But, of course, what happens to the American and the global economy

30:42Ed Balls: and how that impacts upon the British economy is probably going to have the biggest bearing on Andy Burnham's political fortunes. And we're going to turn after the break to John Healy's speech on the economy and the global economic context that's coming up next.

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32:53George Osborne: Welcome back. The budget is just over a month away now, the 28th of October, and John Healy was using a speech this week to build the narrative in advance of that budget. We were pretty critical, I think, on this podcast of the Starmer government and the Treasury under the previous administration for not sort of building narratives around what it was trying to do. So anyway, they're trying to do that. He gave the speech. This is a clip from the speech. And I dedicate myself to this mission as Chancellor to make Great Britain growth Britain again. with more investment, more innovation and more jobs.

33:34And let me be clear. I recognise that the cost of business, that's energy bills, regulation burdens, planning constraints, labour costs have grown since Covid and I want to draw the line. And whether it is the cost of business or the cost of living,

33:52George Osborne: the only way we deal with these in the long term is growth. So if you listen to Andy Burnham on the economy, he says that Britain has gone down a dead end for the last 40 years, that the neoliberal experiment under not just conservative but new Labour governments has been a disaster, that we need to completely change direction. And this is the most radical change in direction that Britain has seen at any point in my lifetime. if you listen to john healy that clip we just played i would say there is no chancellor including myself in the last 30 years who would not have said exactly that so conservative labor chancellors would have all said that and this you know prioritizing growth that's what they all say so there's nothing in that language about fairness or public control or the kind of stuff andy burnham was saying i mean wouldn't you agree this has been a big theme there's a kind of is it

34:51Ed Balls: continuity starmer or radical change burnham i think uh the speech was um you know pre-briefed with this rhetoric but afterwards it didn't get a lot of coverage and to the extent it did um the question was was it in any way different to um anything that rachel reed's could have said in the last two years. And there's a particular moment where John Healy says the economy's turning the corner. And independent of, I know that you and I would have immediately thought, you're hostage to fortune. You've always got to be careful about that kind of language. And which direction are we turning? Exactly.

35:27Ed Balls: But actually, Keir Starmer, Rachel Reeves, Jeremy Hunt, Rishi Sunak have all said in the last five years, the economy's turned a corner. That's why we've come back to where we are. It's because we've gone round in a circle. Or a square, I should say. There was that FT interview where John Healy said, continuity government with a change of leader. It's an interview. It could have been a phrase. Once you do your big set piece speech in which the whole speech essentially smacks of continuity. I mean, this is a choice. Clearly, tactically, he's decided that he's not going to follow Andy Burnham down the radical change route.

36:07Ed Balls: And he wants it in tone, in language, to be about continuity. And I guess the calculation is that given the fiscal challenges, the state of the world economy, the squeezing of his fiscal margin, the budget coming up, he wants to reassure financial markets and the wider world that things aren't changing. I mean, he's talked about wanting a boring budget, although as we pointed out last week, the danger is even if he wants a boring budget, he may not be able to do a boring budget if the fiscal situation has deteriorated. But you're right, this speech could have been delivered by Rachel Reeves or Jeremy Hunt.

36:47Ed Balls: And there wasn't really an attempt to shift from that. It's not just rhetoric. It's also kind of pattern of language and explanation. conversation and you look anybody's listened to our podcast in the last two years will know i'm going to say i think this is a mistake you know i i i i worry about this because what i'm always wanting a chancellor to do is to tell us you know why things haven't gone well to motivate what you're going to do about it you know what is it about the british economy since 2008 and almost 20 years which meant that our productivity growth has been so much slower because unless you have a diagnosis for that growth problem, it's very hard to credibly show how you're going to turn it round.

37:34Ed Balls: And in the speech, John Healy says that we've underinvested as a country. Well, that's true, but we've done that for 50 years. It doesn't explain the last 15 years. And he says in the speech that our big cities outside London have fallen behind. And that's true. And that's a very important source of upside growth. But it doesn't explain why the London economy has grown so poorly in the last 15 years. And that is the thing that I was hoping for. And in this speech, we didn't see. I'm going to be a broken record here. I've talked a lot in the last couple of years about markets and dynamism and competition and entry.

38:17Ed Balls: And the fact that our economies have been so sluggish in the last 10 years, 20 years after the financial crisis. and I would have wanted him to break from the Rachel Reeves backpedalling on competition policy and go for fairness with flexibility and dynamism, be much more for the entrepreneur, for opening up markets, for bringing in the new ideas and the new investment. And in this speech, he didn't choose to do that. He made a choice for continuity. He decided to be dull.

38:45George Osborne: But did he decide to be dull? Or is that, you know, isn't that just... I'm going to try to find a way of putting this politely because I like John. I mean, his style is, I'm not flashy. I just get on with it. He was never a kind of rabble rouser at the conference or in his previous portfolios either. I mean, he looks and sounds like a safe pair of hands, isn't he? I mean, that's what he's designed to do. And there's one sign... But does that mean that a safe pair of hands, rhetorically,

39:14Ed Balls: and style terms, can't also say some big change, radical things? that he could have done.

39:21George Osborne: But even your competition policy, I know you'd make an argument that it's fundamentally a progressive thing to do that supports the interests of the lowest paid in society. But it's also, I wouldn't say it's a kind of classically left-wing radical. It's not an end to neoliberalism. It's not, you know, Margaret Thatcher was all for competition and set up competition authorities and so on. Burnham is promising something different. Andy Burnham is saying we need much more public ownership and public control. Here's John Healy saying, I'm going to ease the regulatory burdens, the planning constraints.

39:55George Osborne: I think he gives a pretty clear signal for people who are looking for budget clues that he's not going to raid business because he actually says labor costs have gone up. Brackets. I'm not going to do the national insurance rise that Rachel Reeves did on employers. And, you know, the cost of business has gone up. So that's not all kind of – that's not getting ready for get ready for the controlling – commanding the controlling heights of industry again from the state. I mean it's quite – they're not aligned at all on the language on the economy.

40:28Ed Balls: So point one on fiscal continuity is very reassuring. Fine.

40:36George Osborne: Although he doesn't have many options, does he?

40:38Ed Balls: Point two, on what is the growth diagnostic, not diagnostic, they didn't really do it. On the Andy Burnham agenda about public control, it wasn't really there in the speech. And then there's also the big choices we face, you know, the defence of our country, the reform of social care, an education system which works for all.

41:02George Osborne: They're all being knocked into next year, right?

41:05Ed Balls: I guess it's a boring budget based upon a manifesto which boxes him in entirely on tax. I mean, he's neither making the argument for a tax rise or not for a tax rise. He's just saying, I'm not going to say anything and it's going to be boring.

41:17George Osborne: But also, why? But isn't that big a question? Why would your first budget as chancellor? Why would your first budget, if you're a prime minister presiding over that budget, be boring? I mean, why would you want it to be boring? I mean, isn't that a clue to the moment to turn to the international economic situation, which is exceptionally difficult for the UK and other countries. And that's the elevated bond yields. You know, the cost of borrowing is high, which as we've discussed, I won't repeat myself from last week. But, you know, going on the cost of living and saying you're going to cut VAT on your electricity bill and make it easier to buy a school uniform.

41:56George Osborne: That gets blown out of the water when borrowing costs are at a 20 year high. and there's a lot going on in the world which basically the uk is entirely a passive recipient of i mean we discussed didn't we last week that whether britain had a kind of enduring premium because of concern about inflation in the uk economy that mean but that's not a new feature of it's re-emerged in britain maybe over the last five years um but what's driving the global economy is not really anything to do with what's going on in Britain. It's the international situation, what's happening in Iran, the price of oil being$100, and the movements of the US Treasury and the US administration.

42:45Ed Balls: I think you're right. And the most significant moment of the week was actually Andrew Bailey at the Treasury Select Committee. It was on the front page of the Financial Times on Wednesday morning. Bailey warns of upside inflation risks as debt costs pile pressure on Healy. And it was quite chilling what Andrew Bailey said to the Select Committee. The risks, I'm afraid, are on the upside. And we made this point very clearly in the report. I think most of us actually had it in our individual paragraphs. It certainly did. And that's really the risks coming from energy prices. Because there's really two parts to this discussion that has already revealed this.

43:19There's the question of where are energy prices going. Hugely uncertain. And then there's this question about the second round effects and the transmission of those prices into underlying inflation, which, as you can see, there are different views on. But I'm afraid on the first one, the risks are on the upside.

43:36Ed Balls: And going back to the first question, we're seeing that. You don't ever want, as a Chancellor, to have the Governor of the Bank of England going to Parliament telling people the risks are on the upside when it comes to inflation and oil prices. There was a brilliant chart. He actually referred to it in his evidence, but it was in Bloomberg this week. It's called the crack spread surge, the crack spread surge. And this is the spread, which is between.

44:01George Osborne: Sounds like a warning about a drug. Exactly.

44:05Ed Balls: But it's actually the difference between the price of crude oil, which, as you said, gone to$100 a barrel now, and the price of the actual price people pay at the pump, whether that's gasoline prices or diesel prices. And that spread, actual prices over crude prices has risen hugely over the course of this year. If you are now going to a petrol station in Britain and you are buying diesel or petrol, you are paying the equivalent not of$100 a barrel, but$370 a barrel at the pump. And the reason is because what's happening in the Middle East and the Straits of Hormuz is so damaging.

44:47George Osborne: You're not calling it the Straits of Trump?

44:50Ed Balls: I'm not calling it the Straits of Trump.

44:52George Osborne: For those who missed this, he wants to rename the Straits of Hormuz the Straits of Trump.

44:57Ed Balls: That's the reality of a hit to retail energy price, which then hits growth around the world. But it also hits inflation. So, you know, we have today the ECB is meeting, expectation of a rate rise. Next week, the US Federal Reserve meeting. it all will come down to what happens to the big inflation number this week on i think producer prices and then retail consumer inflation on friday but this is the u.s inflation report but if u.s inflation is high kevin walsh has now made it very clear kevin walsh who in the summer looked like he wasn't in favor of ford guidance but now has realized actually it's an important tool in his armory he made it very clear at jackson hole if inflation is strong rates are going up and so So that is a very, very...

45:39George Osborne: Yeah, he said if underlying inflation isn't coming down, rates are going up.

45:44Ed Balls: So for John Healy, higher energy prices, high US interest rates, higher inflation, including for the Bank of England, expectation of potential rate rises here in the UK. This is very uncomfortable. And at the moment, I mean, on the other side of the ledger is equity prices still buoyed up by kind of AI investment and AI stocks. although I know you're off to California next week. There's also quite a lot of worry in the AI world about what's actually going on with the, particularly the latest Anthropica model and GPT and what they could do to the world. So you sort of slightly worry about, I mean, we should talk about that next week because you'll be there.

46:25Ed Balls: But it's, I mean, this is a fragile global environment.

46:28George Osborne: It's not just energy prices that are driving up the cost of borrowing. It's also government borrowing, government deficits, not just in the UK, in the US and elsewhere. And also the private investment going into AI. I mean, the huge demand for capital investment, the sums of money these companies are spending on things like data centers is equivalent to what countries spend on things. So there's a big demand for borrowing. And it's worth noting also that the US Treasury, Scott Besson, the Treasury Secretary, who I think most people would say fairly, You know, it's quite hard to be get anyone to be neutral in the Trump administration.

47:10George Osborne: But I think Scott Besson has handled himself pretty well as Treasury Secretary.

47:14Ed Balls: Although the last few weeks have been a bit rocky.

47:16George Osborne: So that's why I was coming to that. For those who don't know, Scott Besson in a previous life was a very successful hedge fund trader. And he was, you know, he used to bet on where currencies are going and where bond markets are going. Well, now he very explicitly said quite a remarkable statement. I am the house. He said this in last week. Now, for people who don't know what that means, the house in a casino is the casino. And he's saying, if you are betting that I won't step in to control the costs of U.S. borrowing, in other words, to stop U.S. treasury yields going up, you are betting against the casino.

47:57George Osborne: And it's a way of saying, I've got infinitely more resources than you have. I know more things than you do. He said, I have asymmetric information. And he did something like this a bit a couple of months ago with the Japanese yen, the value of the yen. And he intervened, interestingly, selling euros, much to the chagrin of the Europeans, in order to prop up the Japanese currency. but saying I am the house it's quite a statement to the market isn't it it's quite a statement but

48:29Ed Balls: that was a few days ago and then we had the pictures of him last night now just just to explain where we are the midterms yeah very important midterms in American politics coming up in a few weeks time I mean both Donald Trump and the Democrats seem to be making their chances of winning harder through some of their political positioning at the at the moment. But, you know, the economy is going to be central to these midterms. Donald Trump down in Texas doing this big rally, which I referred to earlier. And then we should just play this. Unfortunately, you can't see this if you're listening to the audio.

49:07Ed Balls: But there's a point at which it cuts to the House, Treasury Secretary Scott Bessent, as this is being announced. And you wondered to yourself, did he know Donald Trump was going to say this? How is he going to find the money to pay for this. And how's he feeling about being at this speech? This is Donald Trump telling his supporters how he is going to win these midterm elections. But because of our tremendous strength and success economically, I will issue a dividend to every adult citizen in the United States of America for$5 ,000.

50:02Very much like a successful company will do a cash distribution to its shareholders, or like last year when I gave our great members of the military, 1776. Remember?

50:19Ed Balls: Scott Besson's face. I mean, he's clapping, but he looks... Peaky, peaky.

50:25George Osborne: Yeah. So$5 ,000 to 270 million Americans is just over... I think it's like one and a quarter trillion dollars. Right. It's quite a giveaway, isn't it? Liz Truss and Quasi Quante must be sitting there going like, that's so unfair. But, you know, he does have the advantage of having the world's reserve currency.

50:44Ed Balls: I know, but I think if the House starts paying out like that...

50:47George Osborne: Wow. Do you know, when I heard that this morning, there were sort of two parts of my brain. The kind of economic, you know, ex-fiscal austerity chancellor going, how on earth can they afford that? And surely that's going to undo everything they're saying on bond yields in the market. And at the same time, I did think, but you've got to admire the clarity of it. And there's Andy Burnham, you know, messing around with the cost of a school uniform. And there's Donald Trump saying$5 ,000 if you vote Republican in November. Because it's conditional. He says, you know, you only get the money if the Republicans control both the House of Representatives and the Senate.

51:27George Osborne: And, you know, he does it. Forget about the kind of whether the sums that up for a second. The kind of clarity of the offer is quite striking.

51:39Ed Balls: That is true. I mean, it's a bit of a test for that sort of kind of, what's it called? MMT theory of economics. You don't have to worry about inflation and deficits. You can just spend it because governments can just print it. And at the same time as Kevin Walsh is saying, if inflation goes up a bit, I might have to raise interest rates. I mean, small open economies get found out very fast when their fiscal authorities behave like this. But even large economies can get into trouble as well. And I've, you know, I don't think.

52:13George Osborne: Oh, you're going to bet against the House.

52:15Ed Balls: Our post-war assumptions about the stability and solidity of American, the American economy and American debt. I mean, let's just say they're being tested.

52:26George Osborne: I think Scott Besson started off his life as a trader for George Soros, who did bet against the House on Black Wednesday and won a huge amount of money because the House collapsed. So, you know, doesn't always work out that way. But different position, I think, if you're the U.S. Treasury Secretary than being the British Chancellor. But these aren't the only important elections. And we had a very, very important election in Germany this week in Saxony-Anhalt. and we're going to turn to that and the success of the AFD, the right-wing party there, after this.

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54:44George Osborne: so last weekend there was a there was an election in germany that sent a shockwave across europe and it's to some degrees a bit surprising because the election was in saxony anhalt it's a very small region of germany uh less than two million voters in out of a german voting population of around 60 million. It's also Germany's poorest province. It's also part of former East Germany, where, you know, as we know, the far right have been doing well in recent years. So why was it such a shock? Well, because the AFD, the far right party, won 43.8 % of the vote and the Christian Democrats got 15%. That's the kind of equivalent of the British Conservatives.

55:28George Osborne: And the SPD, the equivalent of the british labor party got eight percent of the vote so in other words they absolutely dominated the election result did vastly better than they've done in any other previous regional election they are just shy of getting the overall majority and it's not clear yet whether they'll actually form the government there there's been a policy in germany from the other parties of not in any way allowing them into government so they've never they've never been governing anywhere but they are on the threshold of governing because they only need just four people to switch sides or support them in the regional parliament there.

56:04George Osborne: It's very interesting. When President Macron was here, the Bay of Tapestry, he was talking in advance about how important this election was as he was being shown around the museum. Take a listen to Ulrich Siegmund. He's the regional AFD leader around Saxony. And if you're confused, this is being dubbed by a female voice in English. That's why you're about to hear this. It's the best results that the party has achieved in Saxony-Anhalt since 1990. And this is a mandate to govern, very clearly. But, as we underlined yesterday, we have to stay true to ourselves. We don't want to bend over backwards.

56:46George Osborne: We don't want to be like those who were punished severely in Saxony-Anhalt. Alice Weidel said it absolutely rightly yesterday. The CDU has 17%. How much clearer can the situation get?

57:00Ed Balls: It is a catastrophe, isn't it, for the CDU, for German Chancellor Mertz. I mean, disastrous result, pretty much their worst result ever in one of these state elections. And this is for a leader who came in saying he was going to control immigration and see off the far right. and the danger is the AFD may see him off. There's this particular phrase in German politics, I don't know how to pronounce this properly, but I'm going to say Brandmauer, which means firewall, which is an agreement across all the other main parties not to cooperate with the AFD. And when you have a coalition-based PR politics, that's quite a decision, but it's been stuck to in German politics for a very long time.

57:51Ed Balls: But as you say, if the AFD are just short of the majority, what is more motivating for the AFD vote when they have clearly won the poll to be told their voters by the rest of the German political establishment, we're not going to cooperate with you. and that therefore they're kept out of government. They move on to their next challenge with the federal elections being in their underlying goal. On the other hand, what do you do if you're Mertz? I mean, if you put into question that firewall, I mean, it's hugely divisive within his party, within the SPD it would be as well. And so...

58:35George Osborne: Well, it's a bit like when Kemi Badenoch told you on your summer interview with her that there was no way the Tories would ever do a deal with reform. Well, let's see after the election if there's a hung parliament, reform of the largest party.

58:49Ed Balls: But, you know, we don't have a history of regular coalitions and but nor do we have a.

58:56George Osborne: They don't have a ready supply of nicked legs to help form those coalitions.

59:01Ed Balls: the thing the thing i feel is though you know if you look at the um the mertz response i mean he has to become uh kind of even though he's a sort of slightly gray older sober you know a um very much a um a safe pair of hands style politician he has to become to become angry and impassioned and we've seen this before over the last couple of years of particular moments when keir starmer would suddenly become very angry and impassioned about the populist threat. Think about his speech to the Labour Party conference a year ago. And I'm afraid when the sober politician starts to behave like that, you think to yourself, they know they're in trouble.

59:47Ed Balls: And I wonder whether there'll be other German politicians within the CDU looking over at the experience of Labour over the course of the summer, the removal of Keir Starmer for the northern more popular regional leader and think we could do with a bit of that.

1:00:08George Osborne: Someone said to me recently, and I guess I hadn't thought of it in these terms, just think of the shocks that Germany has gone through in the last three or four years. Much bigger in fact even than the shocks that Britain has experienced. So for a start, you know, the whole kind of industrial success of Germany in the last at least 20 years has been built on cheap Russian energy. And that got cut off with the invasion of Ukraine. Second, its single most successful export market was China. You know, it was the country selling to China, not the other way around. Not China selling to it. You know, it was selling its cars, its industrial products.

1:00:47George Osborne: And, you know, that has been ruptured as well. And now you've got the reverse happening. You've got like cheap Chinese electric cars coming the way. And then the foundations of its security since the Second World War has been the American alliance. It's not needed to have a very strong army or spend much on defense because it's had the Americans there holding its back. And that's gone as well with the Trump administration. So it's had these unbelievable shocks to the sort of post-war German economy or post-1990 German economy and security settlement.

1:01:21Ed Balls: But can I throw another one in, which is, you know, we talk about the challenges for the conservatives of the Boris wave, which happened during their time in government. You know, Boris Johnson is less public than he was one or two years ago. And I don't think that is unrelated to the way that Boris wave language has become cemented.

1:01:42George Osborne: And I was talking to someone about him the other day and who worked with him. And he says what Boris now says in private is no one told me no one saw them. I never saw the numbers. I had no idea we were doing this with immigration. I have to say it's quite a credible defense coming from Boris Johnson.

1:01:57Ed Balls: But Angela Merkel definitely saw the numbers. and that wave of migration, which, you know, in a way from her, she saw this as a very moral, noble thing, but actually, politically, it was catastrophic. And German politics is still dealing with the consequences of that 10 years on. We had a conversation just a few months ago about the Premier of North Rhine-Westphalia, the CDU politician, Hendrik Wüst, who is younger than Mertz, and he is the, you know, he is the Burnham of... Hair sausage. Yeah, he's the Burnham of Germany. We will see. it wouldn't surprise me i mean we had this conversation a few months ago but whether kirstaub would last the year is um is mertz going to last a year i think in german politics it's

1:02:37George Osborne: proved harder than british politics to replace the chancellor midway through but um and mertz is a you know a street fighter when when he gets down to it but um no he they're really on their uppers and also it's worth noting that the you know the german left the spd i mean post-war there were very important SPD governments, you know, has essentially decided to go into sort of semi-permanent coalition with the Christian Democrats, which also neuters it politically. Of course, there are echoes. It's quite interesting. I was also talking to someone last week and they were saying to me, you know, the German AFD is quite a lot more right wing or fascist like than even the Le Pen party let alone reform in Britain.

1:03:22George Osborne: I mean it really is you know for many people beyond the pale but there have definitely been echoes of that politics and the kind of immigration protests and that what they play on is the threats to German young women walking down the streets from these immigrants and you know they've played very strongly on the kind of physical security in Germany as a result of the immigration wave and the kind of jumped on incidents where immigrants have attacked people. I thought there was, you know, there was for anyone who thinks how far are we away from that politics? We'll just look at the protests, if that's a polite way of putting it, in Portsmouth this week.

1:04:08George Osborne: These were masked people complaining about the arrival of immigrants in Portsmouth off those small boats, wasn't it?

1:04:16Ed Balls: That is right. I think it is interesting to look at how the AFD and National Rally in France have evolved over the last five, ten years. I remember going out to interview AFD politicians for the BBC back at the 2018, 2019 and being chilled by their language. But if you saw our clip earlier from Ulrich Sigmund on YouTube, you will have seen somebody wearing a suit and an open neck shirt, looking a bit like a Goldman Sachs banker. And quite a few of these AFD politicians are former financiers and Goldman Sachs operatives. And they've realized what you...

1:04:59George Osborne: The leader of the AFD, he mentioned Ulrich is the local AFD leader. Alice Vidal, who you mentioned, she is an ex-Goldman Sachs banker who is an overtly lesbian and her partner is Sri Lankan born and yet she's the leader of that. I know none of those things should be, you know, in theory aren't contradictions, but often they are in practice, but not in her case.

1:05:26Ed Balls: No, but the point I was going to make was that the AFD policy on migration, repatriation, links to Moscow is more extreme than the kind of migration policies that reform and Zee Youssef have been talking about over the summer and has been dividing the reform party. But what they've realised is you have to become suited and tied. You can't look like you are trying to pander to the sort of black shirt jack poot tendency, which is what we saw last weekend. Whereas on the reform side, they still not learned this lesson. We've been saying for the last year or two, Nigel Farage has to find a way in which he reaches into conservative voters.

1:06:16Ed Balls: But instead, you've got Rupert Lowe from Restore overtly supporting the protesters, including in their masks. You've got other reform MPs in parliament saying that they are legitimate protesters. When you actually look at what these guys are saying, I don't know whether you've seen some of the social media posts from Danny Tomo, who was the former bodyguard of Tommy Robinson, convicted kidnapper. I mean, the language he uses about...

1:06:51George Osborne: He's the local ringleader in Portsmouth.

1:06:54Ed Balls: No, I think he's national, but has been ring-leading all of these protests. He was a guy who made the speech...

1:07:00George Osborne: There was also one in Dover. There were protests in Dover, weren't there?

1:07:02Ed Balls: Tomo was the one who made the speech outside the Daily Mail saying, you know, we give you 48 hours notice. You know, come on, boys. And all these in shorts and black masks, they all parade off together. I mean, you know, they are dropping any pretense that this is even a democracy in terms of their tactics. I mean, it is overtly violent and confrontational. and you end up with reform looking in a mess as to whether or not they're supporting this. I mean, the AFD would never make that mistake.

1:07:36George Osborne: But presumably, you know, as they've moved more to the right, the AFD on their immigration policy, you could see something similar happening in Britain. A kind of party is trying to out-compete themselves on the right of British politics towards ending up with repatriation, i.e. sending people home, And not just people who are here illegally and both reform and the Conservative Party have dipped their toe into that, which is the politics of ice in America.

1:08:05Ed Balls: But you've got Robert Jenrick, who's defected to reform from the Conservatives, former cabinet minister, now kind of talking openly about a woman who is assaulted. I mean, she was a protester. She shouldn't have been protesting, but she's assaulted by kind of reform security and delegates. And he goes on the television and says kind of boo-hoo. I mean, the guys who were throwing the punches are heroes. I mean, he's clearly competing with Zia Yusuf to be the successor to Nigel Farage. But competing in the sort of jackpot tendency, that isn't where he wants to be. I mean, I just don't understand why they still think that's good politics.

1:08:50George Osborne: I mean, where does this leave European security, the deals that John Healy and Andy Burnham would like to strike with the EU on trade? The future of the European Union, let's be honest. All of this. And of course, it doesn't help at all the situation, frankly, that members of the Donald Trump administration are busy saying on social media, you know, well done, AFD. It's actually an out. Well, those people in Portsmouth have got a point.

1:09:14Ed Balls: Look, I'm going to have to pick you up there. It's not just members of the Donald Trump administration. It's the vice president, your mate, J.D. Vance, I'm afraid. What are you doing, J.D.? You've got to have a word.

1:09:25George Osborne: And then my other mate, Kevin Walsh, might put interest rates up and make life more difficult here as well. Yeah.

1:09:32Ed Balls: This is going to be such a fascinating, but I kind of think, worrying autumn. And we're going to be talking about that every week here on Political Covency. That's it for this episode. It's at this point that George scrabbles around to find his script. Do you want to read mine?

1:09:51George Osborne: Yeah. That's right. Yes, make sure you check out our show notes to find out how you can become a Kitchen Cabinet or Gold subscriber. Get your EMQs early. All sorts of other perks.

1:10:01Ed Balls: We'll be back on Monday with Ex Minister's Questions, answering your queries and your ideas. I hope people enjoyed our conversation about Athelstan and Alfred the Great last week.

1:10:12George Osborne: We don't want to put people off you.

1:10:14Ed Balls: Okay. But of course, if you are a subscriber, you can get EMQs early. You can get it on Friday. And send us your questions on social media or email us questions at politicalcurrency.co.uk. We always like a voice note.

1:10:29George Osborne: See you on Monday. See you then.

1:10:38George Osborne: Thanks for listening to Political Currency. This has been a Persephoneca production.

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