Cost of living, tariffs and household appliance insurance

0:00Very good morning. Welcome to Business Live with me, Darren McCaffrey, on this Monday morning. I'm going to start with the cost of living crisis because economists have suggested it is over for millions across the country. But many may find that hard to believe. Prices are still up despite inflation coming down considerably in recent years. Well, our economics and data editor Ed Conway has been taking a look at why so many of us are still feeling the squeeze.

0:27Ed Conway:Is the cost of living crisis over? Does somebody feel that way, does it? Even though economists tell us that inflation is dropping down again. Part of the reason for that is there's a lot going on beneath the surface. And I want to show you a few of those things, starting with inflation. And this is the chart. There's inflation, but it's not maybe the inflation chart that you typically tend to see. Because rather than looking at the annual change in prices, which is what inflation economists tend to mean by inflation, this is looking at the level of the price of goods. So the basket of goods and services we buy on a daily basis, this is how that's changed over time.

1:03Ed Conway:And when economists look at inflation, when they talk about inflation, when the Bank of England talks about inflation, they're generally referring to the change over the past year. And you can see the difference between that and that. Well, that amounts to about 3.4%, the latest numbers. But when you and I go to the supermarket, we're typically not just thinking back at what's happened to prices in the last year. You're kind of thinking about what's happened to them in recent memory. And if you look back in recent memory, say the last four years, it's up by 25%. So partly it's this perceptual thing.

1:34Ed Conway:Annual inflation may be going down, but actual inflation that we experience, that's still really high. But partly it's because there's a lot of other things going on as well. That's showing you inflation, but you've also got earnings. They're changing over the same period as well. You've got taxes going up as well. How does it all fit together? Well, let me just give you a kind of sense of this. And what this is showing you is imagining in the future, you've got about 10 % increases over the next few years, which is what the OBR thinks is likely, for all different spectrum, parts of the income spectrum.

2:07Ed Conway:So through from the poorest through to the richest, look at what happens when you take into account inflation. So that's 10 % up in nominal terms. but you've got to address the fact that inflation digs into there. Assume that inflation is basically hitting everyone equally, which of course it doesn't in practice, I'll show you that in a sec, but even if you assume that, those bars go down from 10 % to 2.5%, but on top of that you've got tax increases as well, so higher national insurance, you've got the fact that those tax thresholds are frozen as well, take that into account and look at these bars.

2:39Ed Conway:So for the poorest it's basically, you're seeing your real take-home pay frozen, flatlining, £50 ,000 because you've got these different tax thresholds that kind of kicks in unequally. That's kind of basically flatlining as well. But that's not everything. On top of that, you've got to take into account higher council tax. And then when you put that into the equation as well, look, those on£50 ,000 actually seeing it falling in terms of their real take-home pay. Similar thing, even greater for those on£13 ,000 when council tax is taken into account. So that shows you that inflation is only one part of this story.

3:13Ed Conway:What we're feeling and what we're feeling in our pockets is a very different story. That is only one part. That's actually more complex than that. If you look, for instance, that last one just broke it down by income brackets, but you can break it down even further. You can look at people's different circumstances. What about the difference between pensioners? What about the difference between people who own properties and not? That's looking at the overall increase in that period, real household disposable income. But now, after housing costs, which are pretty expensive, per person, including pensioners, it's going up.

3:48Ed Conway:So it looks like it's better. But why is that? It's partly because a lot of people who own their home outright, particularly pensioners, don't have to pay as much in housing costs. For those who are not pensioners, particularly people who are private renting, particularly people who are paying mortgages, actually over that same period, you're seeing the amount of take-home pay going down. So again, it depends on your circumstances. It might be that you are seeing your take-home pay go down, partly because of inflation, partly because of taxes, partly because of other factors as well. And I said a moment ago, everyone's experience of inflation is actually kind of different.

4:21Ed Conway:That's true. This is showing you the proportion of your kind of inflation, of your spending that goes on different essential items. So stuff like food and drink, clothing, footwear, childcare, household bills. And for low to middle income households, look at how high those layers are. And now compare it to higher income households, which is over there. You see the issue here. So for lower income households, you're spending more of your average spending on essentials, which is not the case for higher income households. And that's changed. It's evolved over the years. So another way of showing basically the same thing.

4:59Ed Conway:So from poorest fifth to the richest fifth, showing just how much of that total spending goes on essentials. That was in 2006. Look at these bars. They have gone up over the years. So particularly, look over here, the poorest fifth in the last year or so, that bar has gone above the 50 % point. So now you're spending more than a fifth of your spending on essentials because the price of those essentials has gone up and it's not equal across the income spectrum. So all of this stuff feeds in. It all feeds in. And it's worth just saying, when it comes to the nature of inflation and just how things have changed, inflation has become less equal as well.

5:40Ed Conway:What this is showing you is from 2007 to 2019, how has inflation impacted from the poorest through to the richest? And the thing to note about this is that line is relatively flat. So it's been a kind of equal experience, or at least there was an equal experience up until 2019 in terms of how inflation affected people overall. But now look at the last few years and that line is very different, isn't it? So it's higher for those in lower income deciles, so lower earners, and it's lower for richer, for bigger earners. You can see if those who are poorer have had to face higher inflation in recent years, which wasn't the case before.

6:23Ed Conway:And of course it depends on the kinds of things you're spending money on, but look dig into the kinds of things that we do spend money on And there's certain things that you can't really avoid that are going up quite a lot like power like electricity So this is showing you the UK and how it compares to kind of other developed economies in terms of our electricity costs And look red line is the UK. I'm going to bring it on there And just look how striking that is we used to be kind of middle of the pack for a lot of recent years and in the last year the UK has gone up to be the highest cost domestic kind of power nation around the world.

6:56Ed Conway:So that's electricity. Worth saying, a lot of focus on that recently, when it comes to food actually this is a comparatively cheap country. It may not feel like a lot of the time but actually same thing again we're comparing the UK with other G7 nations and actually the UK is cheaper than the average of other G7 nations so we pay much more for power but not much less but less certainly when it comes to food. Of course those aren't the only essentials. There are other essentials that you need to think about. One that we're going to be talking about quite a lot in the next few months is water and this is showing you just how much extra water bills are going to dig into people's earnings through again from the richest through to the poorest.

7:38Ed Conway:Those red bars are showing you just the cash amount that's going to come out of your bill or kind of go on top of your bill in the coming years. But of course, cash doesn't tell you the full story. You need to look at it as a percentage of what you're actually spending. And if you look at it that way, the line here, it's very different. The richest, of course, spend in terms of the proportionate increase, spending the least, whereas it's poorer families who are going to be paying more as a share of their income when it comes to these extra water bills. So you can see how it all tots up. And the overall picture that we're left with, it's quite striking.

8:12Ed Conway:Take it all into account, okay, and this is showing you who's getting better off, worse off in the coming years, different household groups. And here's something quite striking. Look, pensioners are seeing their real household disposable income going up, or at least projected to go up in the coming years. For children, it's going down. And again, we can break it down even further. Social renters, those who own outright, working age, owning with a mortgage, going up gradually, and children and indeed also private renters seeing their amount of real household disposable income going down over that period, underlining that for many people, yes, the cost of living crisis is still very real, and it's going to feel real for quite some time.

8:57Ed Conway there. Well, one thing that might have a big impact, of course, on cost of living is tariffs and trade, And today, EU foreign ministers are meeting in Brussels after Donald Trump threatened the bloc with 30 percent tariffs to come in from the beginning of August. The US president also said he would impose tariffs on Mexico in a deepening of his trade war with America's closest trading partners. Well, I'd like to say we can speak to a professor of international economics, Richard Baldwin. Richard, very good morning to you. What is President Trump up to here? Well, what President Trump is doing is, in fact, although it doesn't sound like it from the media spin, he's been backing off.

9:37So if you think what he did just recently, he announced in April, by July 9th, there should be deals with everybody or else they were going to get the April tariffs. And then in the meantime, for example, with the EU, in May, he announced that the EU would get 50 percent unless they did the deal by June 1st. A few days later, he said, well, we'll move the deadline back to July 9th. And just recently, he moved the deadline from July 9th to August 1st. So although it looks like he's being very aggressive, he's actually chickening out, not imposing what he said he would do when the deadline passed.

10:13Moreover, now he said that the EU's tariff is only 30 percent rather than 50 percent. So do we think this is all bluster then? I mean, I think that most countries in the world have figured out that he is blustering because they're not signing these trade deals. They realize that Trump really cares about his base. The U.S. economy is softening. Inflation is going up. The tariffs are already leading to higher prices at retail outlets. And so they're thinking that maybe he won't go ahead and give the U.S. economy a gut punch by raising a whole bunch of tariffs. And he didn't do it in July 9th. He probably won't do it on August 1st.

10:55So a lot of countries are slow walking these negotiations. And that's what the EU has just decided to do. Last night, they announced that they wouldn't retaliate against his threats and they would wait until they actually see what happens. But if if there was the imposition of this 30 percent tariff, we're hearing from the EU trade commissioner today saying that effectively that would mean that transatlantic trade would almost be impossible. i.e., as we always say about tariffs, they would hit both sides pretty hard if we ever ended up in a world where 30 % was imposed. That's absolutely right.

11:31So the usual logic is that the US tariffs hurt EU exporters. But you also have to remember that it hurts US exporters into the EU. That's the standard logic. But it hurts US consumers because a 30 % tariff is like a 30 % sales tax. and will lead to maybe not the full 30 percent going through quite a lot. And Europe is actually the largest source of imports for the United States, bigger than China. So that 30 percent would actually have a big effect in the U.S. Now, clearly, it's going to be a war of pain. So if U.S. puts up 30 and EU puts up matching tariffs, it's going to be hurting both exporters.

12:15And then it's a question of waiting game. Who can wait it out longer? And Richard, talk to me about this kind of weapon, if you like, that the EU has or potentially might use. It's called ACI. It's called the trade bazooka. It's all about services. If it gets to a stage and the EU is not suggesting it's going to use it, but just talk us through what that would mean. Sure. So this has so far been a trade war, almost all about manufactured goods. But because the EU was having troubles with China before, for instance, when they were trying to coerce Lithuania to do something, they adopted a law which allows them to retaliate on a much broader range of things.

12:58The traditional is only manufactured goods. But with this law, this anti-coercion law, they're allowed to go after pretty much anything, including services. And the important part between the EU and the U.S. is the U.S. runs a large trade surplus with Europe in services. Moreover, lots of U.S. digital companies earn a lot of profits in Europe, which are not taxed in proportion to what they could. So that's the bazooka. If you really wanted to play hardball, they could go after U.S. services and they could go after U.S. digital firms. Okay. It's probably a bad idea because you want to keep this trade war a little limited.

13:38Of course. But they have that bazooka. Well, just very finally on that, Richard, briefly, you're sounding quite optimistic. You think in the end there will be some type of deal. Oh, yeah. I mean, by the way, trade agreements always look like they're about to break down right before they get signed. That's the way, even without Donald Trump, it looks like that. It's just not as public as before. So I'm quite assured that the EU and the US will come to a deal. And in fact, what was shocking the news last week was that the EU thought they were getting close to a deal. And all of a sudden, Donald Trump announces on social media that he's doing X, Y and Z against the European unions.

14:17And that was not taken very well. It didn't seem like a very gentlemanly way to conduct a negotiation. Well, we don't often have optimism on this show, so we welcome it. Richard, appreciate your time. Thank you very much indeed, Richard Baldwin. there. My pleasure. Now, household appliances like ovens, dishwashers and washing machines can be expensive to replace or repair, but domestic and general partners with manufacturers and retailers to offer repairs on more than 20 million appliances across the UK, Europe and the United States. And the firm is seeing strong growth with year on year revenue up 6 % to£1.2 billion.

14:51Well, to like say, we can speak to Matthew Cromack, who is chief executive of Domestic and general. Very good morning to you, Matthew. So talk us through what is spurring on this growth in terms of revenues for you guys. Well, it's great to be on there. And I think, first of all, I'd say that this year marks over 20 years of growth we've had from this business. So we're delighted to see it continue to grow. But what we have is a model, a subscription model with our UK consumers, for example, which is low monthly outlay, cancel at any time. People like repairing their appliances at home. And so we see high usage.

15:35There are no fees, no hidden fees, high usage. And so people are retaining their policies. So that helps us grow. People retain, even in tough climates. What's also helped us grow is launching into the US in 2021. We've had a stellar year in the US. We doubled the number of customers we had. and we're growing month on month and up to nearly 300 ,000 customers now. Yeah, and this is fascinating, Matthew, because I mean, I was told that essentially we don't really fix anything anymore. We kind of get rid of it, if you like, that things have become very disposable. But that's not always the case, clearly.

16:12No, people actually, our experience is our customers actually really like repairing what they have in the home. And we do that about 2 million times a year in the UK. So we're in British homes about 6 ,000 to 7 ,000 times a day repairing stuff during the week. And what we hear from people is that they don't really want just to swap out and get a new one. Very often these things are fitted into kitchens or sometimes they even have names for the machines. So it really is something that people want to see repaired. And, of course, it's better for the environment. It's actually better for the customer and it's better for us.

16:46So we try and fix to the point where we can't, and then we'll give somebody a new machine, and that obviously comes at no cost, and we try and get that done as quickly as possible. And I like the sense that people might have nicknames for the washing machine or the fridge. I'm sure people do. Just in terms of the people who co-ord and fix these things, just talk us through that, because we've focused a lot in recent times about employment, about the lack of skills in this country. I assume that the people who will go and fix things like domestic appliances are highly skilled. Have you struggled to attract and retain staff?

17:24How is that working out in terms of employment? Yes. So, well, first of all, we've got our employees in-house at the company. We'll talk about that in a second. But all the engineers that we use form part of a network and they might work for the manufacturers who we partner with, companies like Whirlpool, or they might work for independent networks. And so by giving a consistent flow of work into those networks and into those companies, we keep those individuals pretty busy. We keep those structured contracts. Those are people employed directly by manufacturers, by local companies. And we've been supporting and working with them literally for decades, Darren.

18:04So we have a long track record working with those people. We're obviously we work with manufacturers to attract people in. But the fact that there's a steady flow of work, that it's good work, it's skilled work, makes that a more attractive career. From our perspective, we hire skills into the business basically either through our head office, like the one here in Wimbledon, for marketing, technology, data, and people on the telephones. We're still hiring today and hiring aggressively. But they're two different things, really. Good stuff. OK, Matthew, appreciate your time this morning there, live from South London, Chief Executive of Domestic and General.

18:47Welcome back. Now, Jaguar Land Rover is exploring ways to update its range of vehicles after partnering with the biomaterial firm Uncaged, which is producing a sustainable alternative to leather. Joining me now is Stephanie Dance, Chief Executive and founder of Uncaged Innovations, and Mike Schmid, who is Managing Director at In Motion Ventures. Very good morning to you both. Stephanie, I suppose the first question is, how do you make sustainable leather and what does it look like?

19:14Ed Conway:Absolutely. Uncaged Innovations is the world's first biomaterial company to create a sustainable leather alternative from grains. The magic of leather is that it's made of collagen, which is a protein that binds together at a molecular level to create strength and flexibility. We invented a way to do that with plant proteins. Our technology turns agricultural byproducts into a durable and luxurious material. And in comparison to animal leather, our material emits 95 % less greenhouse gases, uses 89 % less water and 71 % less energy, and it's biodegradable. And Mike, you know, clearly, obviously, the innovation is fascinating.

19:51And if it's environmentally good, that is good. But what Land Rover and Jaguar customers want is quality. How do you ensure that it is good as the old-fashioned leather, if you like? That's a fantastic point, Darren. I think the whole point is that our customers and customers of other luxury brands are saying exactly the same thing, that they want lots of choice in terms of the materials that they use and the way in which they can individualise the product that they have, but they don't want to make a choice in terms of the sustainable or luxury credentials. They want both. and we've been set up as a venture capital arm of JLR to really investigate these types of emerging and disruptive technologies and the announcement today of the pilot project that we are commencing with Uncaged is exactly that.

20:43It's to really get to the point of scale, which is what a lot of alternative material companies have really struggled with. However, we think that Stephanie and the team at Uncaged are really on to something here and again, a fantastic announcement. And Stephanie, I assume that technology is key to all of this. I mean, that's what is the game changer here, if you like.

21:04Ed Conway:Absolutely. And, you know, InMotion Ventures, early investment in Uncaged really enabled JLR to become the first OEM to announce a collaboration with Uncaged. It's a rare opportunity for a startup to deliver a sustainable material across a full brand lineup. Jaguar, Range Rover, Defender, Discovery, Most biomaterial partnerships are niche and small, but because we're so far along with our technology, we have a rare opportunity to do a multi-brand pilot. Mike, just very finally and briefly, if you can, what's driving this, no pun intended? Is it about costs or is this what consumers want? Don't consumers just want a good car and they're not really concerned about how sustainable it is?

21:45Absolutely not. I think all customers now are really focusing on the sustainability credentials. we've just heard from your previous piece about domestic in general. Customers want their products to last longer and they want to ensure that those sustainable credentials are there. But they also want to know that the brands that they are buying into are really at the cutting edge of technology and delivering those exceptional products, services and experiences that they would expect. Okay, Stephanie and Mike, we really appreciate your time this morning here on Business Live. Live from New York and Grantham, what a combination.

22:18Thank you very much. Thank you. Thanks for listening to the Sky News Business Podcast. Make sure you follow the feed to get every episode as it lands. And there's more analysis and news on the Sky News app.