Has Chancellor Rachel Reeves abandoned growth?

0:13This is Political Coancy with Ed Balls and George Osborne.

0:26so it is the morning after the budget day before and we are remote this morning seems just a few hours that we were recording our budget hot take which uh dropped on the afternoon of the budget yesterday uh for us this morning as you know george it's a time where as the chancellor you find out how your budget is actually landing. And I think sometimes the media interviews reflect that. And Rachel Reeves' bravura performance yesterday in the Commons, but the newspapers, especially The Sun, The Males, The Telegraph, were pretty damning of the budget. Lots of benefit street and skivers versus strivers type headlines back to the old George Osborne language of 10 years ago in the papers this morning.

1:12There was something I actually noted yesterday. I said to you that I thought there was a lot of I and my in Rachel Reeves's budget performance. And that's partly because she's making a very personal appeal to Labour MPs, back me, I am the one who's going to stave off the market pressures. And so I went back to Hansard and I did a search on I and my. And in their last ever budgets, Jeremy Hunt used I or my 154 times. Gordon Brown in his last ever budget, not 154, but 114 times. I also checked out your last ever budget. Have a guess. How many times do you think you used I or my in your last budget?

1:54I can't believe I did it at all. I'm so modest and retiring. Well, so the answer is 139 times. So you were midway between Gordon Brown and Jeremy Hunt. That compares to Rachel Reeves in her first budget last year, 170 times. Yeah. And in yesterday's budget, 191 times. So much, much more evoking of her personal commitment and importance than even you. Can I ask you a question? Haven't you got something better to do with your time? Well, I know, but I think having said it on the podcast yesterday, on our hot take, I thought I should check. I was right. There we are. We're going to start. Look, we did our hot take yesterday on the budget.

2:36And so we're going to start by looking at where the OBR is the morning after one of the big budget leaks of the last 50 years. Yes. And then we're going to have a look at the budget, but not the immediate aftermath of the budget or go into all the different budget measures, because we've done that and lots of other people have done it since. But we're going to look at the kind of overall narrative now from this government on the domestic front on its economic policy. and where does this budget leave the government if you're thinking ahead two or three years time it's not exactly clear that's what number 10 and number 11 were doing when they put this budget together but we're going to do it for them if they haven't done it and try and kind of cast forward on some of the big issues on growth on welfare spending cost of living to where this leaves the government towards the end of this parliament and then of course it's not only the UK budget, which has been dominating the world's newspaper headlines.

3:34There are actually other things happening elsewhere, including, by the way, a terrible tragedy, the building fires in Hong Kong, which are kind of awful, and the death toll there is rising very fast indeed. But of course, the other big political event of the last week, global political event, has been what's happening in Ukraine, or in negotiations between America, Ukraine, the Russians, and also Europe, the Coalition of the Willing around whether there is a Trump peace deal. He was asking to have a peace deal agreed by Thanksgiving, which is today. And he's now saying that the deal will come when it comes or take as long as it takes, and which I think is probably a reflection of how difficult it's going to be to actually get this deal agreed.

4:12We're going to look at what's been happening in the Ukraine, Russia and American relation, and how Europe is and should be using its leverage in those negotiations. We're going to talk about that third. But we're going to start with the OBR. and as I said, massive leak, hugely embarrassing for the Office of Budget Responsibility, I think would have been very destabilising for the government if they'd had any big new surprise measures in the budget, which was, of course, the way in which things used to be done, given the whole thing was already out in the public domain. It had all basically been leaked.

4:44There was nothing new, particularly in what the government was saying in that OBR document, just the OBR's analysis of what it actually meant and what the costs and impact was going to be. The head of the OBR, Richard Hughes, did a press conference yesterday afternoon. He's also been on the media this morning. This was him being grilled on what actually happened. I think, as far as we know, there was a test upload which went wrong. This is Richard Hughes answering questions. Have you offered to resign? And if not, why not? The document was unintentionally uploaded onto our website too early. We've initiated an investigation into how and why it happened.

5:20That investigation will report to our oversight board, to the Treasury and to the Treasury Committee, and I will abide by the recommendations. So if they say you should resign, you'll go, will you? I will abide by the recommendations, and I always serve. Do you know how it happened? We're launching an investigation. I'm not going to prevent this conclusion. Yeah, I mean, look, it was a disaster for the OBR and its reputation yesterday, but I think the way that Richard Hughes has responded has been actually quite exemplary of how a public servant should admit to a mistake. Like, you know, he's completely fessed up to it.

5:53He says he's personally mortified. He says he's let people down. So he's not trying to kind of blame anyone else. He's taken personal responsibility. He's launched an investigation. Someone who actually, I was very junior and used to work for about 30 years ago, Sarah Hogg is going to conduct the investigation. You know, she used to run John Major's Downing Street when I was doing the photocopying there. So she's going to conduct an investigation with another guy I know, Kieran Martin, who did a lot of important things in the Cameron government around cybersecurity. And he says his answer to whether he's going to resign is, I'll wait for the report.

6:30I mean, it's interesting. Rachel Reeves could have forced his resignation in the last 24 hours, I think. It's obviously, from her point of view, unbelievably irritating. Particularly, I can just imagine that last 45 minutes before you're about to give the budget. By that point, you're sitting in Prime Minister's questions. So you're not, you know, you're not in sort of direct contact with your officials. You know, you're gearing yourself up for this big performance. And then the message would have come through that somehow the OVR has put the budget up online effectively. And you'd be thinking, what am I going to say at the top of the budget?

7:02Should I acknowledge it? And I think if she had afterwards, when she sat down, made it clear, she had no confidence in him, I think he probably would have had to resign. But as it was, actually, I was listening to her interviews this morning, you know, she wasn't doing that. If anything, she leans quite heavily on various OBR forecasts. You know, the OBR, despite yesterday's fiasco, emerges from this budget as important as ever as the kind of arbiter of how we interpret budgets and, you know, how we talk about the prospects for the British economy and British politics. I think that's right. And the reality is that compared to expectations, the Office of Budget Responsibility ended up being very kind to the government in their forecast yesterday.

7:50There was this expectation that they were going to downgrade growth, which they did, past growth and therefore future growth. But they also upgraded the tax richness of growth in such a way that you didn't have the big hit to the government's fiscal position from the OBR assumption changes, which many people feared. I have to say, look, if Richard Hughes has made a personal terrible mistake, then fine. But if not, and there's some poor civil servant who made a mistake with an uplaid error, then hopefully they'll learn and move on. But, you know, it would be a disaster for the OBR and for, I think, for the Treasury to lose Richard Hughes because he's highly skilled.

8:25Didn't he used to work with him? I mean, he was a Treasury official, wasn't he? I think he, we did an event talking about how ministerial private offices work last week. But I think you said that Richard Hughes had actually been this kind of civil servant assigned to the Gordon Brown special advisor office at one point. That's right. In fact, he was the number two. And the number one was James Bowler, who is now the permanent secretary to the Treasury. So it was clearly a good office to go and work in. But he then went off to work for the IMF. He is hugely respected in this whole world of fiscal transparency and process and how to do things the right way.

9:00So I don't believe that the Treasury or Rachel Reeves will want to lose Richard Hughes, and they shouldn't want to, and I'm sure that they won't want to. And we talked about this a few months ago. There was a question at one point as to whether or not the Treasury was going to demand the OBR only does one forecast a year. And I think that's now gone away. There will be two forecasts from the OBR a year, as has always been the case, as is in law and is best international practice. what she said in the budget yesterday was that they're not going to do two assessments of whether or not the government is meeting its fiscal rules a year i guess the obr will still do its fiscal forecast i mean everyone will know when they add i mean everyone will be able to see whether they're off their fiscal rules or not even if the obr doesn't officially say so look i think she just wants to say she wants to have one budget a year and the fact she's increased her margin is um is more significant i would say that you know if anything what the treasury select committee will want to look at is the whole way in which information has come out around the budget.

9:57We talked about that last week. And there was a slightly odd moment in the OBR document yesterday where they say that they did not change their forecasts after the end of October. And that preceded the Chancellor's statement on Breakfast Television, where she raised the prospect of the income tax rise of breaking the manifesto. There were some briefings to Bloomberg in the Financial Times that the reason why there was then another U-turn and they dropped that was because the OBR's forecast changed after the Chancellor's press conference. What was very clear from the OBR document was there was no change in the OBR forecast.

10:30So that was an incorrect explanation for what actually happened. I mean, just on that, Ed, isn't it? I mean, just because I think that's such an important point you make. The whole kind of pre-budget narrative was the OBR is going to massively downgrade the forecasts. In other words, there's going to be a huge, great black hole. And how on earth is Rachel Reeves going to fit it? And that has dominated the British political discussion for months. And as part of that discussion is, as a result, they're going to have to break their manifesto promise on income tax rates and put up income tax for the first time since the 1970s.

11:04And this isn't all speculation. Ray Schreves gives a public speech in Downing Street laying the ground for that. And it's kind of clearly briefed by the Treasury that that's what it's all about. And then there's a leak that says, actually, they're not going to go ahead. And it feels like the leak comes from, actually, from the civil service, not from, it's not, you know, the political spin doctors are all very surprised by it. And if anything, they were actually, I think, going to wait till budget day to reveal they weren't putting out king-to-tax rates. I'm not sure it would have been a very good idea, but it might have caused quite a market reaction.

11:38But the explanation, as you said, the explanation they gave, oh, well, actually, we've got a better OBR forecast. But what we Downing Street speech. So the whole thing remains a bit bizarre. Like, why did they march the silver over and up the hill on the income tax rate rise and then march them down again? Anyway, it's... And you're right, the OBR has done them a big favour. Maybe it will kind of ease the general pressure on the left of British politics on the OBR, which has been mounting over the course of this year. I hope so. Look, the thing which changed after the Chancellor's press conference wasn't the OBR forecast, because they didn't change the forecast other than to reflect new government measures.

12:24The thing which changed was that botched briefing against West Streeting, which hugely heightened the political pressure on Keir Starmer and Number 10, alongside not just Lucy Powell, the deputy leader, and other backbench MPs, but West Streeting himself, making it clear in public they thought shifting from the manifesto on taxation was a mistake. And I have a feeling it was a political decision that they didn't want to go down that road, even if it would be popular with the markets rather than anything to do with the OBR. Just to end on this section, because as we said yesterday on our hot take, this is not the first time there's been a budget leak.

13:03And we'll come to your leak in a moment. But first of all, I did some digging on the Ken Clark leak. Because if you remember 1996 budget, I think which is hilarious about this one, is that the budget leaks, people believe, from the printers to the Mirror. The Mirror journalist gets it, goes to the editor of the Mirror, Piers Morgan, who says, we can't leave the budget. You have to return it to the Treasury, give it back to the Chancellor, to Chancellor Ken Clarke. And so the Daily Mirror turned down the scoop of a lifetime to report the whole budget on Budget Morning by instead returning this massive pile of documents, which were done, I think, in person by the journalists to the Treasury or to the Number 10 press office.

13:44But when the news came out that the budget had leaked... I think they forced the government minister to kind of humiliatingly receive the kind of leaked budget documents, didn't they? It was all on camera. That is where it ended up. But the news that this had happened before it had been decided that Piers Morgan was going to act in such a statesman-like, I mean, a typically statesman-like way, the news comes out and comes into the Treasury. This is in a world before mobile telephones. Ken Clarke, the night before the budget, has actually gone out for a curry. This, by the way, is I think courtesy of Phil Winnowen, known in the Treasury as Spreadsheet Phil, who was, when we were in the Treasury, in charge of the budget, but at the time was working, I think, in Ken Clark's private office.

14:30They'd gone to the India Club on the Strand, which is an old kind of canteen curry house, Ken Clark and his private office. And it's a place on the second floor, which you can only get into by ringing an intercom bell downstairs. But there's no mobile phones. They can't get to on the phone. So they have to send a delegation of Treasury officials from the private office or the budget office up to the strand to go to the India Club in order to deliver the news to the Chancellor that the budget has been leaked to the Daily Mirror. But the only way to kind of get in is to press an intercom on the door.

15:10And the maitre d 'Rea answers it and he's told that this is Treasury officials and they need to speak urgently to the Chancellor of the Exchequer. And Ken Clarke is heard to shout back from the table where he's having his curry with the private office. Tell them if they're here for a curry, they're welcome to come up. If it's anything else, they can all bugger off. So Ken Clarke basically told them, unless they'd come for a curry, he wasn't interested, even though they'd come to report his budget had been leaked. And I don't know what that tells you about the Ken Clarke approach to budget making.

15:43Very relaxed is the answer. I think probably... I did not go out to a restaurant on the eve of my budgets. I was much more nerdy. I was in the Treasury trying to finalize the speech and look at the documents as they came back from the printers. The leak that happened when I was Chancellor was in 2013 when we were following a practice that I think had started under Alistair Darling, which was that you gave the evening standard in advance the budget so that they could immediately print it and copies could be available across London. And someone in the Evening Standards digital team, basically a bit like the OBR yesterday, sort of put it up online early.

16:24While I was speaking, I actually had no idea, you know, it happened because I was on my feet delivering the budget. And I think you and Ed Miliband started sort of shouting and saying, it's all online, it's all up online. And the speaker or the deputy speaker, because it's budget day, intervened. I sat down and then someone whispered to me in that kind of second you got when you sat down waiting for order to be restored in the chamber, like it's all leaked to the evening standard. And I remember getting to my feet and I had a completely sort of surreal experience, which I think you would understand, but like lots of people wouldn't really, which is I was sort of trying to read out the budget speech, which is just a kind of mechanical read the words in front of me.

17:05Whilst at the same time thinking, what am I going to do if the deputy speaker kind of suspends the session or you, Ed Balls, or Ed Miliband, someone gets up and does a kind of point of order in the middle of the budget speech, how am I going to respond to this? But I'm also reading the budget out live, and I'm sort of trying to think of both things, and it didn't happen, but it was the closest I came. I mean, I remember having a kind of absolutely sort of white sort of fear that it was going to, you know, this sort of, oh, my God, you know, what am I going to say? And then we had an inquiry, and the long and short of it was we didn't give it to the Evening Standard again, which obviously wasn't great when I subsequently became the editor of the Evening Standard.

17:47But it's like a bad man, and there would have definitely been a moment yesterday when they would have thought, kind of 12.15, just before Roach Reuss stood up, oh my God, what's happened? But you had an investigation, and you found out who made the mistake, and it was probably inadvertent. The idea that you or the Parliament Secretary to the Treasury would resign because of that mistake. I mean, this wouldn't make sense, would it? Yeah, well, it did lead to a change in the way we briefed the budget, actually, thereafter. But listen, let's get on. This is all interesting and actually has real-world consequences because of the reputation of the OBR, which has been under scrutiny this year from both left and right.

18:29But actually, I think the way Rich Dews handled himself this morning probably strengthens his position. but let's turn to the budget next um we'll not go through all the individual measures because we did that in our hot take but we're going to look ahead to where does this leave the british economy and british politics in the next couple of years ahead and we'll be back after this

18:58welcome back we said yesterday and you know we weren't the only people to observe this of course that the increase in income tax caused by freezing the thresholds is a breach of the manifesto. The Labour manifesto said they wouldn't put up taxes on working people. And the kind of interpretation was that Labour spin doctors and the chancellors put on it was, oh, no, no, we're only talking about income tax rates. But that doesn't really stack up because in last year's budget speech, you know, she actually went out of her way to say that a freeze in income tax thresholds was an increase in tax on working people.

19:32I think, and we discussed this yesterday, we don't have to go over it again, that the problem with sort of pretending you haven't broken that manifesto commitment is you end up being very defensive and everyone, and you do what, you know, people always complain politicians do, which is you look ridiculous, you're not properly answering the question, but it would be much easier just to say, I thought it was the right thing to do. It's a tough decision. I'm asking working people to pay more, but for reasons of fairness or reasons of fiscal responsibility or whatever, you know, reason she wants to give, I've done this.

20:03And if you don't have that kind of full-fronted approach, you end up sounding pretty defensive. And although, you know, I would say from her point of view, the budget has landed pretty well with the parliamentary party, and she'll be happy with the kind of reaction on the left, if not the right. But it does mean in the interviews this morning, she ended up sounding pretty defensive. And this was her response to Nick Robinson when And he confronted her on this question on the Today programme this morning. So far, you haven't apologised for the fact that you repeatedly promised to do something and you've done the opposite.

20:35Would you like to take the opportunity to now apologise? Well, I believe that they were the fair and the necessary choices. That's not the question. The question is, could you have known that you would have to put up taxes? Every day on this programme in the general election, the Institute of Fiscal Studies said these numbers don't add up. The Resolution Foundation said these numbers don't add up. Every economy interview said the numbers didn't add up. You insisted they did. You insisted that working people would not have to pay more tax. They now are. Why won't you apologise? Nick, I have to operate within the forecasts that I'm presented with.

21:14Of course, I could have made different decisions, but I believe those were the right decisions so that we can reduce NHS waiting lists And so that yesterday I was able to announce a package of measures to lift kids out of poverty and also to get the cost of living down for families. So I believe that they are the fair and the necessary choices. And I stand by them. Well, let's turn to some of those choices. A quite interruptee, Nick Robinson. And I'm not sure Rachel Reeves needs to apologise necessarily. but she should just, I think, be clear that this was said and the world has changed and she's done something different and she should just be kind of clear and open about that.

21:56It's not her fault the world's changed, but giving the impression, which she's been doing all morning, that she hasn't broken the manifesto, even though she has had to raise taxes on working people, that is actually just kind of quite jarring. And as we said yesterday in our hot take, Kemi Badenock has seized on this. We had her on Good Morning Britain this morning and we're grilling her because, of course, the Conservatives were the government which froze tax allowances for some years. But very political budget from Rachel Reeves, very political response from Kemi Badenock in the House yesterday.

22:29And she was on the front foot this morning. You were very personal and effective against Rachel Reeves. Rachel Reeves did a far more political and attacking, party-attacking budget speech than I can remember. It's a very different tone. Is that just the nature of British politics today in the House of Commons? Do you like the tone where she's personal against you and then you fight back and tell her she's incompetent and she should go? Is that a good way to do politics? Well, I think it is just politics being rough and tumble. I mean, I remember you and George Osborne ripping chunks out of each other quite a bit.

23:06I think you've just forgotten. But I think in budget speeches, normally chancellors spoke more for the country rather than in a party way. Well, I was quite surprised at the tone of her speech. I think that a lot of people were not expecting me to come back as forcefully. I went into that chamber actually feeling sorry for her that this woman's job is tough. She's clearly had a rough time. And then she started going, Tories this and Tories that. So you changed your speech to make it more full? Well, I delivered it. There was a lot of ad-libbing, you know, talking about even the dogs laughing at the Chancellor and there's the Prime Minister of Management.

23:40You hardened things up when she was tough and you were tough back. Because I represent a lot of the people, all the people sitting behind me, but a lot of people out there in the country. And I've been getting emails from people saying, make sure you give her a kicking. I thought that's a bit too far. She had a good day yesterday, Kemi Badenock. As you said, because we talked about the immediate landing of the budget yesterday and what was in it, and hopefully people will have heard or go back and listen to our hot take, there is a broader question which is about the narrative and political strategy of the Treasury and this government looking forward to not just next year's May elections but the general election to come because you have to plan ahead.

24:17And both of us have said consistently over the last year and more not just to worry about manifesto commitments, which we said we worried they would not be able to deliver. But also, is there an effective narrative coming from the Treasury and Number 10 about economic policy and wider economic and social policy? And a test in both of our minds, having urged that for weeks and weeks, was, is this a test that Rachel Reeves was passing in yesterday's budget? Do you know, I think there's a thing about political narratives, which is, certainly I used to have this as a kind of rule, which is if everyone can say this, if anyone can say this, it's not really going to cut through and it's not going to kind of be distinctive.

25:02And yesterday's budget narrative, i.e. the thing that Rachel Reyes would have wanted reported, the thing that she says at the top of the speech in the peroration was that this was a budget for a fairer, stronger, and more secure Britain. Now that's perfectly fine. We all want a fairer, stronger, more secure Britain. And that's the point, really. It's not remotely distinctive as a slogan. Any chancellor could say it. And as a result, Kemi Badenoch's characterization of the budget, which was much more colorful, which is, this is a budget for Benefit Street, Benefit Street being a TV show back in the 2000s, kind of caught the headline writers because it was more snappy and obviously more kind of edgy.

25:42It's not just about slogans, you know, what those slogans sit on top of are overall narratives about your government, which have to, in some sense, be, they're not sort of partisan. And I thought, as we discussed yesterday, I didn't see why in a budget speech, you have to be all about the Conservatives, this, that, and the other. You know, you can kind of rise above it as the Chancellor on Budget Day and still deliver a very effective kind of attack on your opponents without spelling it out in such an obvious way. But, you know, the slogan needs to sit upon an overall story about what you're doing with the British economy.

26:14And there's just a continuing model about what is the domestic objective of this government and the economic objective of the government. At the beginning of the parliament, after their election, Rachel Reeves and Keir Starmer said, you know, growth is the mission. And you could have fleshed out kind of comprehensive centre-left answer to Britain's economic malaise. And then in the speech which we talked about in Downing Street that she gave a couple of weeks ago, which was explicitly billed as a budget scene setter. You know, she talked about that the priorities of the government were the NHS cost a living and getting deficit debt.

26:48And then you get to the budget itself. You know, we've discussed the OBR forecast, not creating such a big black hole. So she kind of puts up taxes by about 1 % of GDP in order to put up welfare and public spending by about 1 % of GDP. But there's not an overall explanation why she, you know, there's not really a kind of central budget narrative that explains that. And if you don't have that overall narrative, it's very hard as a government to take all the kind of thousands of decisions that are in a budget and also the kind of day-to-day things that happen in the world and things that are way beyond your control and all the announcements that come out of government departments and members of the cabinet and put it into a kind of a story and a thing that the public can get a hold of and your own party can get a hold of.

27:30And by the way, the civil service can get a hold of so that they know what this government is expecting them to deliver. I think one of the criticisms of Keir Starmer is that he changes his message too often and that people feel that sometimes it lurches around. It's quite focus group driven. And this is what we think we should be saying at the moment. This is what the focus groups are telling us we are kind of weak on. And, you know, it is the case if you're kind of fighting a local election campaign and then the next local election campaign, you can change your language from campaign to campaign.

28:01But when it comes to the economy, I think it's different. there you need a message and a story which you can stick to which can show that you're consistent over time has a diagnosis explains why we are where we are and why we have to make difficult decisions is robust to bumps along the way but one which in two three four years time which you know by the way is when you can have to fight a general election is one which people will say well you know they had a story and they had a plan they had policies to deliver it and they stuck to it and that makes sense and I understand it and I'd rather stick with it and I'd rather that carries on.

28:36I think that is the test when it comes to an economic and a budget message. Perhaps we just kind of look at the different elements. I mean, first of all, because you raised it first on growth. Rachel Reeves and the government a year ago were talking growth, growth, growth, the growth plan, the growth mission. It all depends upon growth. And clearly they gambled a year ago that growth was going to be stronger this year and that was going to ease the pressures on them on the fiscal side, and that's not worked out. The reality is the Office of Budget Responsibility upgraded growth for this year, but has downgraded it for the years to come, year after year.

29:08And the numbers on exports and investment also reflect that. As we said yesterday, though, there was almost no policy for growth in this budget. There was almost no mention of the growth plan. There was nothing about regional growth. There was a little bit about infrastructure. I didn't really see anything about research and development and innovation. I didn't see anything about incentives and using the tax system to support the growth agenda. It was as though they decided that because they were downgrading growth, maybe they shouldn't talk so much about growth. But to me, that doesn't make any sense.

29:40The reason why things are so challenging for Britain is because we haven't grown. They need a diagnosis of why that hasn't happened. It's not enough just to say it was the Tories' fault because the Tories aren't in power anymore. So they have to have a deeper diagnosis. then you have to show in an unfolding way of the next one, two, three years, you are enacting a growth plan in detail, in policy terms, so that if you get better growth, which is, of course, what you need and want in the next two or three years, you can say the growth plan is working. Don't throw it all away. On that part of the narrative, I just didn't see any evidence in this budget that they have a growth story to tell.

30:18I mean, I agree with that. There is a kind of centre-left growth narrative out there. I mean, I know in the end, you know, his administration was kind of discredited and the way he left office wasn't brilliant. But Joe Biden did have kind of Bidenomics, which was the early part of the Biden administration was, we're going to increase public expenditure and state involvement in green subsidies, in infrastructure development, in support for childcare and the like. The Democrats did develop that plan. And if you look at the Labour opposition in the last couple of years of the Labour opposition, when Rachel Reeves first became Shadow Chancellor, there was a lot of talk of a Green Deal and an energy transformation.

30:57That's not in the budget speech. And I'll give you just sort of two examples of where I think the kind of growth narrative is a bit confused. She made an important change, which you can argue the merits of, but anyway, she made it last year to the definition of net debt in our economy so that it now includes an assessment of the value of the assets that you're buying or you're spending money on. I think it's called per sniffle now, which is not the most attractive word, but that actually gives the Treasury a lot of firepower to start intervening, if it wants to, in things like the water industry.

31:32And I was expecting in the budget there'd be a load of those things, which don't necessarily get the headlines, but they are a kind of coherent centre-left. We believe there's a big role for the state in supporting the private sector. Anyway, that wasn't there. And then I'll give you another example on saving an investment. The Chancellor's given speeches at the mansion house two years in a row saying we want to invest in britain we want getting people saving in britain we want british savers to invest in britain and indeed one of the measures in the budget which was reducing the cash isa limit was sort of designed so that it pushes savers who still want to make use of the 20 000 pound overall isa limit to go into stocks and shares rather than cash it's actually a perfectly good kind of policy reason for doing that although it was a bit odd that they excluded pensioners from it.

32:19And yet in the same budget, she also increases tax on savings. The rate of income tax applied to savings increases. So it's a bit kind of contradictory. It's like you're doing one thing and then you're doing another and your overall message about, I want to boost saving and investment in the UK gets muddled. And, you know, I still think there's a, it's not solely the responsibility of the chancellor by any means. Number 10 needs to do this in the business department and the, you know, science department and so on. But they need to come up with, you know, out there in the world, there are centre-left governments with more convincing growth narratives.

32:53I'm not saying you have to go for the kind of right-wing deregulate cut tax. I mean, it would be more my instinct. But nevertheless, you could go for more of an investment thing and you could do more, you know, as I did on kind of northern powerhouse type stuff and regional, you know, mayors and so on. It was lacking and it's an odd thing not to have in your second budget speech of the parliament. I fear that this is more of an analytic problem than that. It's not just that there's not enough oomph. Although, by the way, I think you're totally right. One of the things which frustrates me is that they could be going so much harder on innovation and local transport to back the non-London cities and city regions of the UK and to back the mayors.

33:33And a tourist tax is fine, but that is not really a regional growth agenda. I think that the analytic problem is this. actually if you look and i've talked about this before so i'll just say this very quickly because i've done harvard king's work on this if you look at the biden experience actually the thing which made a massive difference out of the pandemic was a very dynamic and flexible labor market with loads of churn which turned out to be productivity enhancing and turned out to be good for lower wage workers and this government is worried about talking about flexibility and dynamism in the labour market.

34:07If anything, their regulatory approach is in the opposite direction when it comes to the labour market. And if you think about product markets and competition policy, which I would say should be being tougher in order to back the entrant, the new company, the rhetoric has been about trying to make the competition authorities more business-friendly to large companies, which is the opposite of the direction to go in when it comes to business dynamism and entry. So I just wonder whether they've actually worked out what model they actually want. And if they're not quite sure, maybe let's not talk about it.

34:40If it was me, I would be talking about fairness and flexibility and dynamism together. And there's things you can do to make the labour market fairer in terms of outcomes. If they contradict or conflict with flexibility and dynamism, then I think the experience from America, that takes you away from the productivity growth agenda. I think they need to confront that and have that open debate about their growth policy. You can make the same point about public spending. As you said, The three priorities that the Chancellor set out a few weeks ago were reducing NHS waiting times, cutting debt and improving the cost of living.

35:10As it happens, debt is higher in this forecast period than it was at the time of the March budget. And as it happens, cost of living growth looks like it's going to be weaker. But on the NHS, there was almost nothing about public services in this budget speech. The argument was growth for public services. Well, that was not the emphasis of the language and the strategy here. There wasn't a big public services story. And then when you dig into the numbers, we talked a little bit about this yesterday. There's a bit of a ticking time bomb about what they're going to do about special educational needs expenditure, where there's like a£5 billion gap in the last year of the parliament, which the OBR says they're going to have to fill.

35:47And if they filled it within the education budget, that would mean real terms cuts into pupil funding. There's kind of other spending gaps, the defence expenditure. how are they going to finance getting to three and a half percent of GDP when they aren't factored in but if you actually look at these numbers part of the reason why they meet the fiscal rules in the fourth and the fifth year outside the spending review period is because you suddenly have very tight budgets for current and capital spending a big fall in growth in public spending in the latter years and once you take out health spending and when you take out you know defense spending on that trajectory for the other public service departments.

36:24I mean, these are going to be bigger real-term cuts. So there is a ticking time bomb there on the public spending side, which they need to meet their fiscal rules. And maybe they're figuring to themselves, in that case, it's better not to talk about it. But surely this Labour growth agenda ought to be about improving our public services. I'm just surprised there wasn't more language on that in the budget. I think it is a bit odd that there wasn't a big section on the NHS. I mean, that is what Labour chancellors in the past have done, and actually some Tory chancellors as well. And if you set it up as one of the three priorities for the budget, and then not really talk about it, that is very odd.

37:00This is supposed to be the second budget of the Parliament. This is when you're building your big story for the Parliament, and you're laying the groundwork for your election in a few years time, and you're making the changes that you came into public life to make. You know, it was an odd absence. We should move to that third area, welfare, because, you know, if we're saying the economic narrative and strategy for the parliament, the story should be tough decisions, including on tax, in order to transform the National Health Service, you would think that's what you'd be saying in terms in your budget, your big moment of the year.

37:33And instead, the message of the budget and the budget speech wasn't about the NHS or public services. It was about increasing welfare spending. Now, we've had an interesting question come in from one of our regular listeners, who's also by the way one of our little currency gold subscribers and this is the health secretary himself wes streeting who maybe one day envisages giving a budget himself or maybe signing off a from next door in number 10 anyway he has sent us in a question and we thought it was it's a very well i think it's a pretty good question uh we thought we'd play it in the main podcast rather than do it on our question show emqs here's wes's question to us hi ed and george this is wes And as Health and Social Care Secretary, I wanted to ask you both about two Osborne legacies that featured in the budget.

38:21Firstly, the decision to expand the soft drinks industry levy, sometimes known as the sugar tax, to milkshakes and milk-based drinks. George, how do you feel about the fact your party now opposes what, I have to say, has been a phenomenally successful public health measure for reducing sugar intake and tackling obesity? And on the two-child limit, look, I know that when you introduced it, George, you felt this was good politics But given the figures show that abolishing it will lift half a million children out of poverty And make this the best parliament on record for tackling child poverty Do you at least acknowledge that this was bad policy when you introduced it?

39:05And Ed, given that the two-child limit has enjoyed quite a lot of public support what's your advice to Labour on winning this argument with the public that it is both morally the right thing to do to lift children out of poverty, but also this is a cost effective thing to do because it's better to invest in children's opportunities now up front than pay a heavy price for social failure down the line. Thanks very much. And obviously, I'm a huge fan of the pod. Wes, thank you. I mean, they're directed principally at me, these questions, but I think there's in some ways the most interesting question is the one directed at you ed about how to sell the abolition of the two chart limit let me just take on you know a bit out of order but just on this extension of the sugar tax i mean i strongly support it this is they're extending the sugar tax to milk-based products because you know you can get in corner shops and supermarkets milkshakes and coffee drinks that are actually very very high in sugar and i very very nearly did include them when I introduced the sugar tax in 2016.

40:04And I just backed off because it was, I just thought, let's try and establish this tax. Let's get people accepting that we're going to be taxing sugary drinks. And milk-based products had all sorts of complications, partly with the farming industry who supported obviously milk production, partly with longstanding public health messages that it was good to drink milk, and partly because of complicated issues around baby formula and so on. And I just thought, let's come back to it once we've established the principle of a sugar tax. And I definitely, if I had had another budget, which I didn't, I would have done it.

40:38So I very much applaud it. And it's one of the policy measures I'm proudest of. On the two-child limit, you know, I don't want to rehearse the argument we had yesterday or indeed in previous podcasts. I think it's perfectly reasonable to say in the benefit system that we should not support lifestyle choices that most of the population can't afford. and most of the population have to think carefully about having additional children beyond two for financial reasons. And it shouldn't be the case that you're kind of just better off on the benefits system. And I think even if you're of a sort of Labour mindset, but I wouldn't presume to speak for Labour politicians, you know, if you want to try and really tackle some of the underlying causes of poverty and deprivation, and money is tight, I think the money could have been better spent actually on things like Sure Start, where Labour MPs have criticised the coalition government for our budget in that space.

41:29And I do think it's going to be hard to sell, you know, because I think that line from Kemi Badenot that we talked about earlier, which is a budget for benefits to be paid for by taxes on working people does hit home. And once people start to realise some individual families are going to get very large increases, relatively speaking, in their budgets as a result of the abolition, that's going to kind of be problematic. Let's take on Wes's question to you Ed, how would you set it? Because you've argued on this programme for at least a year that you would like to see the Labour government do something about the two-child limit.

42:00Gordon Brown was pretty influential behind the scenes in arguing about this. Would you have done it in this way? And how would you, to answer the health secretary's question, how would you sell it to the public, given polls say it's not very popular? Well, I think it is going to be hard to sell. I think this is a huge political challenge. But I also think it was right to act. My answer to Wes is, and I think many people will agree with this characterisation, that in our welfare state in 2025, there are two enormous problems. One enormous problem is we are set to see a huge rise in child poverty, disproportionately people in work who can't make ends meet.

42:40And the Institute for Fiscal Studies say the best way to get child poverty down is to do what Rachel Reaves has done, which is to increase the limit from two children up. The Institute for Fiscal Studies said, get rid of it. As I said yesterday, you could have gone to three or four children. But it's very hard to have an impact in this parliament on child poverty other than by looking at financial support. And that's what they've done. That is one of the big problems. And the other big problem is a huge rise in the welfare bill, which has been rising enormously fast since the pandemic. and that is about people who aren't working and are often young and getting stuck on what could turn out to be a lifetime of support through the welfare system through sickness or incapacity benefit and we all know that this is a massive long-term fiscal problem and it's also disastrous for the life chances of those people and I think the problem is if you address the first child poverty and you don't address the rising welfare bill, then you get into huge communication and policy challenges.

43:46Go back to the beginning of this year. What were we hearing from the Treasury? The priority is to reduce the welfare bill by getting people back to work. And they actually at the time were saying that it was hard to afford to act on child poverty. What we've seen over these last few months is a massive backbench rebellion, the government retreating from welfare reform in terms of tackling the rising worklessness benefit bill and instead the two-child policy. So they've addressed one of the problems, but not the other. If you go back to the Gordon Brown period at the Treasury, and Gordon Brown was the big champion of action on child poverty in the new Labour government, 97 through to the financial crisis, and we had huge reductions in child poverty.

44:31Gordon Brown was also the advocate of welfare reform. In fact, more than Tony Blair, he was the one who championed tough approach to getting young people and single parents and older people who weren't working back into the labour market with a combination of support, but also challenge. It was tough. And if you look back to many of those Gordon Brown budgets, 1990, 2000, 2001, we were acting to reduce child poverty on tax credits, but the headlines would have been, I remember one Christmas in the Daily Mail, hi-ho, hi-ho, it's off to work we go. Brown prioritises work. Brown says it's work, not welfare.

45:09And I think the answer to Wes's question is if you show that you're really serious about getting the welfare bill down or under control through getting people back to work, then you can talk about releasing resources from that to tackle the child poverty problem. The problem was back in the spring, the Treasury went too hard too early on what looks like a short-term cuts agenda that was blown out of the water by a backbench rebellion. When we talked about this back in September, we thought that Pat McFadden and the Treasury were going to revive the welfare reform agenda about work and young people.

45:43What's happened is, though, it's been kicked into the long grass with the Tim's review around disability benefits. Maybe they had no choice to do that. And an Alan Milburn review about sickness and incapacity in young people. There was no action in this budget. And therefore, it looks unbalanced. And it allows you to do benefit street versus hard working families, even though most of the people who will get the child support are actually in work. So the answer to Wes's question is you have to run both in parallel. You can't, as a Labour government, tackle child poverty unless you're also showing people in a tough and credible way you are making sure the people who should work are working and getting people with support and challenge.

46:23And sometimes that means sanctions. And I think the reason why this is a problem now for the government in its communications isn't only, as we said yesterday, that it looks like Rachel Reeves has done something she didn't want to do because backbench MPs forced her to do, but because the policy looks unbalanced. It doesn't look as though they're actually addressing the big welfare challenge, one of the two big welfare challenges, which is this burgeoning welfare bill of people who aren't working. And that's what Wes and other cabinet members need to get back on track on. Yes, thanks for your question, Wes.

46:53I mean, let's wrap up this section on the budget, because obviously we can come back to lots of these issues in the weeks ahead. Just with the sort of final thoughts on kind of where this leaves the government, particularly on, I guess, the overall state of the economy, real household disposable income not rising this point. It's going to be the second worst parliament, we're told this morning by Resolution Foundation and others, for living standards after the last parliament. And if that's any consolation for Labour people saying, well, yeah, that was the Tories, yeah, but they got massively kicked out of office with the worst result for 200 years in an election.

47:27So you've got taxes going to be at a record high as you come into a general election. Did you say spending is going to be tight? There's a little bit of a war chest there that she's built up, but not enough really to address these issues in a meaningful way. We said, didn't we, and lots of people have said, you know, a big kind of immediate challenge for Rachel Reeves and Keir Starmer was getting through this autumn and the budget. I think she's definitely kind of shored up her position with the Parliamentary Labour Party because of this move on the two-child limit. But where does this all leave, you know, the Labour government, Keir Starmer's premiership, and I guess next big moment is May's local elections, isn't it?

48:03The local elections are going to be very challenging. And I think the question between now and May is can the government get to an economic and political narrative which they can stick to, which makes sense of the pressures people feel under and what they're being asked to pay and to contribute. If people feel as though they're contributing to something which will deliver growth and rising living standards, and if they feel it's something which they're going to pay and contribute to, which is going to deliver better public services, and if they see they're paying to something which is going to be a fair welfare state, then you've got a chance of kind of dealing with what's going to be pressure on living standards and rising taxes.

48:40But if people feel that this is because the government's not taking difficult decisions or that there isn't light at the end of the tunnel, then people are going to feel angry and rebellious. And so a budget is a moment to reset and set out a compelling narrative. But if you don't take that opportunity, it doesn't mean that the need for that compelling political and economic narrative to stick to has gone away. And I think once you get into January and February, the pressure is going to be back with people saying, what's this government's direction? Where's this government going? And I don't think that Keir Starmer and Rachel Rees will feel by the time they get to the new year that they've solved the problem.

49:16And I fear they're not going to conclude that this budget has solved the problem as far as the electorate's concerned, even if it's staved off some short-term internal political pressure. Lots to digest in the months ahead. Let's turn now, finally and briefly, to the situation in Ukraine, or more to the point, the situation in the peace talks about Ukraine and what that says about Donald Trump and his relationship with his European allies, including the UK. And we'll talk about that after this.

49:51welcome back now the most important thing that donald trump has been doing this week is not trying to settle the ukraine war but intervening in the movies that hollywood makes uh are you very excited ed that rush hour four is now in production um no you don't know what i'm talking about don't actually but i'm not sure i knew what rush hour three was or two or one Well, the first Rush Hour was a great movie with Jackie Chan and Chris Tucker. And they're about sort of two different, you know, cops from two different cultures solving a kidnapping case. Very successful franchise, made I think almost a billion dollars.

50:28But Rush Hour 4 basically couldn't get made. And Donald Trump has intervened and said, come on, get on with Rush Hour 4. And as a result, Paramount have just announced that it's going into production. and it's all about apparently Donald Trump standing up for the traditional male role models in Hollywood movies like John Voight, Mel Gibson you know they've all got behind him and Sylvester Stallone they're all his like special envoys and is he standing up for traditional male role models when it comes to international foreign policy and defence? well he's certainly not following at least the kind of assumed pattern which is that the United States is going to stand up for its Western allies against Russian aggression in the way he appears to be handling these peace negotiations.

51:16But I think personally it's a bit more complex and subtle than lots of people are making out here in the British media and indeed more broadly in the continental media. We don't have to go through all the kind of details of it because I think probably listeners to this podcast have followed some of it, which is that the American negotiators, there's this guy who was a friend of Donald Trump's I think a New York property developer called Steve Whitcroft, who's the special envoy to Russia. He went to, he's been having conversations with Vladimir Putin. They came up with a 28-point peace plan, essentially, or draft plan, which involves Ukraine ceding big bits of territory to Russia, the de facto recognition of the annexation of Crimea, a limit on the size of Ukraine's army going forward, essentially a prohibition on Ukraine ever joining NATO.

52:06You could call it the Putin wish list, if you like. Yes. There was then a furious response, not just from the Ukrainians. When I say furious, they were a bit more careful. We'll all remember that encounter in the White House that Zelensky had early on in the Trump administration. But they were a bit more careful. I think the European allies, including Keir Starmer, President Macron, who were at this G20 meeting in South Africa, which Donald Trump didn't attend, we discussed that the other day, were again trying to be diplomatic but said, look, a lot of this is unacceptable. There's now been a series of talks in Geneva between the American negotiators.

52:40Interestingly enough, Donald Trump's son-in-law has reappeared onto the stage, Jared Kushner, who was a feature of the first Trump administration. And there appears to be like a new plan agreed with the Ukrainians, which puts in square brackets a lot of the difficult decisions on territory. And I make two observations. The first is, it is exposing just how weak the European allies are in this conversation. They're kind of absolutely an afterthought. I mean, they were invited to a session of the Geneva talks. But, you know, this is all being done by the Americans, directly with the Russians, and with the Ukrainians.

53:17And it speaks to a kind of weakness of European power at the moment, economic power, military power, and heft. And then second, it does speak also to, I think, and this is much more controversial, to the absence of a European and British plan for how to bring the Ukraine conflict to an end. Because I think the kind of current assumption, what you would hear a British Prime Minister or French President saying, and this, by the way, was true of the last British Prime Minister, it's not particular to Keir Starmer, is, you know, we must support Ukraine and defeat Russia on the battlefield. There is no end in sight to this war.

53:53It's deeply attritional and painful. Many, many people are dying every day on the Ukrainian side and indeed on the Russian side. There's no sign of Vladimir Putin kind of losing his will to fight this conflict, which there was maybe 18 months ago, but there isn't anymore. And so what is the European alternative? Plan beats no plan what is a kind of credible european solution to achieving a ceasefire and some kind of lasting peace settlement that provides some guarantee for ukraine's security that donald trump can sign up to and the americans can sign up to because without that it isn't really a guarantee or a real security for ukraine i kind of go along with that characterization and i think it's definitely a wake-up call for Europe.

54:41Although if you think of the trajectory of the last week, I mean, first of all, this plan lands from nowhere. Turns out that J.D. Vance and his guys have been sort of involved in these talks, as well as Vickhoff, and it feels as though the original plan is very Putin-orientated. Actually, what happens is that Marco Rubio, the Secretary of State, gets involved. Others get involved from the White House. The Geneva talks happen. They almost fall apart to begin with it's all quite wobbly but it ends up with trump and zelensky having conversations which i think will have been nudged along by europeans which takes it to a different place takes the idea of of ukraine giving up territory it hasn't even seeded or lost at the moment as opposed to giving up territory which currently russia occupies goes off the table the idea that there couldn't be international forces in Ukraine, which is what the Coalition of the Willing was always about, goes off the table.

55:43The idea that Putin can prevent Ukraine ever becoming a member of NATO or the European Union, which was in the original document, kind of also goes away. I think the reality of where we are at the moment is that, you know, it's not in the public domain, but there is now a Zelensky-Trump understanding, which as far as we can tell, Putin and the Russians don't want to sign up to. And so Putin has gone from a week ago looking like he was strong-arming the Americans into his position, into him being the person who's saying, well, I can't agree to all of that. So things have swung. And I can't tell you whether that's because Putin has played it badly, Zelensky's played it well, the Europeans have had an influence, or actually because the balance of power has shifted within the United States but things have definitely shifted since last weekend but you're right it's a wake-up call for Europe and I think if you are sitting and looking at this what is the disaster for Europe what is the disaster for you know across the whole of the NATO eastern flank the disaster is if Putin as the aggressor makes a whole series of gains and then without any cost, keeps what he has got in an ill-gotten way with a bunch of concessions which look like he has been fated or winning or making advances or coming out on top.

57:02I don't think Europe, I think if they're sensible, I don't think America can afford for Putin to end up in that position, which is partly why things have swung back in the last few days. Maybe now Putin is less keen on signing this deal. There could be a deal. there could be it could be that neither Zelensky or Putin actually wants to sue for peace and therefore this is going to go on from a long period of time but what it does is absolutely challenges the Europeans they can't rely on America staying in Europe if there isn't a deal which Trump likes and that has major repercussions not just for Ukraine but for NATO across its eastern flank and they have to put Putin under pressure and it seems to me that the Europeans have been divided and cautious about putting Putin under pressure.

57:49The American sanctions against Russia are now kicking in. They still can't sort out their act on what they're going to do about those Russian sovereign funds which have been captured or taken from the Russians. They need to put the squeeze on. Yeah, but hold on, Ed, you say that, you know, we've been putting the squeeze on Russia for several years. We've had sanctions, you know, We've sent so much military equipment to Ukraine that our own Western military stocks are depleted. But Europe has been divided in that period. Yes, but... And the sanctions have not been effectively applied. And the Americans are already now coming to the table.

58:23And you need to put more pressure on. And if Putin feels he's under pressure, because Zelensky clearly feels he's under pressure, then you'll get a deal. But if both sides don't feel under pressure, you won't. And Putin can't just win. I agree with that. But I think it's also unrealistic to say that somehow you're going to kick Russia out of the pre-war borders of Ukraine. That is not at the moment going to happen. But I didn't say that. No, but I think you trade, you're saying you can't be seen to win. I think the kind of trade is going to be something around him holding the territory that has been occupied, which is extremely hard for Europe to accept.

59:02But the deal last weekend was he took more territory. No, no, I agree. I totally agree with that. And the deal last weekend was supposedly that... No, you've got the whole of the Donbass region. That Ukraine can't join NATO, and it has to have smaller armed forces, and there cannot be foreign troops in Ukraine. And Putin was imposing that. I mean, that is him winning. By the way, no American president, including Democrats, is going to allow Ukraine into NATO anytime soon, because they are not going to be prepared to send the 101st Airborne to fight Russia if Russia invades Ukraine again. That should be a decision of America and the NATO allies, not a decision of Putin.

59:36Yes, but it's also recognizing the facts on the ground. And I think there's a final sort of interesting observation here that the door is open, even under the kind of original version of this peace proposal, and Russia didn't object to this, to Ukraine joining the European Union. And so you might end up with the European Union becoming the big defense alliance in continental Europe, rather than NATO membership for Ukraine. That is the wake-up call. Absolutely. Absolutely. That is the wake-up call. We will return to all this, of course, because sadly there is no immediate end in sight to this conflict.

1:00:14And we've also done lots on the budget today. But thank you very much for listening. Thanks for listening to our hot take yesterday. We were back on Monday with ex-Minister's Questions. And you can, of course, keep on sending in those questions to questions at politicalcurrency.co.uk and you can watch us on YouTube as well. and you can hear our emqs earlier and ad free if you become a member of our kitchen cabinet or a gold subscriber and all the details of that are in our notes below as a special treat we're also going to be doing a special budget newsletter for subscribers so make sure you sign up to get hold of that you can find the link in the show notes as i said we'll see you next week see you then

1:00:56thanks for listening to political currency this has been a persephonica production USA