Rachel Reeves

0:00The David Rubenstein podcast is sponsored by Wells Fargo. We're building communities for families, Hudson Yards, Phase 2. We'll have over 4 ,000 new housing units. 625 will be affordable. Wells Fargo has a very strong focus on affordable housing. We're also rebuilding the Fulton and Elliott Chelsea houses and building affordable housing at Willett's Point. Discover how Wells Fargo is helping Related and other clients reach The Next Horizon at Bloomberg.com slash The Next Horizon. In the long history of the British government, only one woman has served as Chancellor of the Exchequer, in effect, the Secretary of the Treasury of the British government.

0:40That woman is Rachel Reeves. I had a chance at Davos recently to sit down with Rachel Reeves and talk about her role as Chancellor of the Exchequer and the British economy. In your position, Chancellor of the Exchequer, you're the equivalent of the United States of the Secretary of Treasury, but also the head of the Office of Management and Budget. Do you not prepare the budget for the government? I do. I do also prepare the budget. We have an independent forecaster who provides the forecast and costs the policies that we put forward. But what is in the budget is my choice, the policies that I put forward.

1:15And we have an annual budget. I delivered the last of my budgets in November last year. And in England, do you have to balance the budget or you can borrow money? You can borrow money, but we're reducing that. I don't think that it is good fiscal or economic policy to just constantly borrow, especially to pay for day-to-day spending. And for the last few years, like many countries, including the US, we've been running a budget deficit of around 5 % of GDP. We are now bringing that down steadily. It will be just over 4%, I think, this year, then falling to about 3.5%. We've got the fastest rate of fiscal consolidation going on in the UK of any country in the G7.

1:54Our debt burden as a share of GDP is not too far off 100%. I want to bring that down. I also want to bring down the cost of servicing that debt, because at the moment, one in£10 of everything government spends is actually on debt interest. And so reducing government borrowing costs, which we managed to achieve last year, and reducing the debt burden as a share of GDP are two important priorities for me. In the budget you've proposed, you propose a tax increase. Is that very popular to do? And will you get it approved because you control the parliament? We do have a big majority in parliament. When I became chancellor, I inherited a bit of a mess, a bit of a mess fiscally and in terms of economic performance and the cost of living.

2:42And the previous government had made a number of spending commitments without saying where the money was going to come from. And what is called the reserve, which is set aside for emergencies, had been spent three or four times over just three months into the financial year. I had to put that right. That required a number of adjustments, both on spending and indeed on tax. When you come in as a business leader and you're taking on a business that has not been working well, that is not living within its means, does not have a clear plan, you have to sort it out and I had to fix that mess now I'm being able to pursue my plans my plans for growth and to ease the cost of living challenges but that did require quite a big repair job to put the public finances on a solid footing again.

3:28As we look in this calendar year do you think the UK will grow at two or three percent or so what kind of projections are you for GDP growth? Real GDP growth expected to be around one and a half percent obviously nominal that would be around three and a half percent a year. I want growth to be faster than that. Last year, I think we'll come out as the second fastest growing economy in the G7 when all the numbers are totted up. But none of the economies in the G7 are growing as fast as we could, as fast as I think our potential is. And that's why as a government, growth is our number one priority for Prime Minister Keir Starmer and myself.

4:09And our industrial strategy, backing sectors like AI and tech, clean energy, life sciences and our defence sectors focus on stability to bring down interest rates and inflation, investment both public and private in infrastructure, including ambitious plans for Oxford and Cambridge and also in the north of England. And then deregulation, reforming our planning system to make it easier to get things done in Britain. And I think we'll start seeing the benefits of that payoff this year. Now, many wealthy people who are not British by birth, who've moved to England in recent years, maybe to avoid their local country's taxes, have found that recently the non-DOM taxes have increased dramatically in the UK and they have left the UK.

5:04Has that been a problem, having wealthy people leave the UK, or it's not a big problem? We want Britain to be a magnet for wealth and talent, entrepreneurs from around the world. We did have quite an anachronistic system that if your father was born abroad, you could claim a non-domicile for tax purpose in the UK. That wasn't fair. It's not a rule that any other country has. And so the previous government and now this government have got rid of that. We also made some changes around trusts and inheritance tax, although in the budget just in November, we relaxed some of those rules so that for a flat fee, you could take trusts out of your inheritance tax.

5:51So we have listened to feedback from wealthy individuals who perhaps want to make Britain their home or have already made Britain their home. We've also introduced a very generous scheme for people coming to the UK wanting to bring foreign income and gains to the UK. Previously, they were taxed at normal rates of income tax. We have reduced that to try and encourage people to bring not just themselves and their talent, but their wealth to the UK. Britain is an open trading economy, and we have to be, to be successful, open to business, open to investment, open to trade, and open to talent. Now, the world has seen enormous amounts of growth in the technology space, particularly AI, and you've mentioned quantum is also coming along.

6:38But as you look back over the last couple of years, if you grow up in the UK or the EU, you don't really rely to get through the day on European-built technologies. The technologies that are often the ones that people use are built in the United States. Why do you think that the entrepreneurs in the UK and the EU haven't yet built technologies that the whole world says we need that technology? We need to have Facebook or our Google product or something like that. Is there any inherent reason you think it is or just been bad luck for the last X number of years? I think that's a really good challenge.

7:16and your amazing tech companies like Google and Facebook and Apple, etc. We don't have one of those in the UK or indeed in Europe. We're very good at adopting new technologies in the UK and that spurs productivity growth, which is beginning to pick up now in the UK. But we've also got some really exciting businesses on the frontier of new technologies like quantum and digital processing. So I think there are some exciting opportunities. And one of the things that we want to do with Oxford, Cambridge is to create a big link between those two universities. they're 60 or 70 miles apart but there's no direct train link between them there are some great towns and cities on that route between those two cities we want to bring them together and create you know our version a british version of silicon valley in the uk where we can really capture the creativity and the imagination of british founders and help them grow their businesses here one of the challenges we've had in the uk so we've got loads of startups But as they scale up, they drift towards America.

8:21The reforms we're making, particularly pension reforms to unlock long term patient capital, to back venture capital, to back private equity in the UK. That is really exciting. We'll keep more of those businesses here. We put in a load of tax incentives as well in the budget to back founders and entrepreneurs. And we're increasing the tax incentives to stay listed in the UK. So we're doing some exciting things. I do think that that will reap evidence, too. Now, in the United States, there's been a well-publicized feud between the president of the United States and the chairman of the Federal Reserve Board.

8:56And in effect, the president is saying I should have more influence on what interest rates are. Would it ever occur to the chancellor of the exchequer to tell the head of the Bank of England lower interest rates or you just don't do that in this country? No, since 1997, naturally, the previous Labour Chancellor, Gordon Brown, granted operational independence to the Bank of England. It's Parliament that sets the inflation target. That's 2 % for the UK. And then the bank have the tools of interest rates to meet that target. target. Now, you know, I've worked at the Bank of England, and I have huge respect for that institution, and believe that the way that we have good policymaking is to take the politics out of interest rate decisions.

9:41And I think that serves the UK economy well. We set fiscal policy as a government, and then the Bank of England set monetary policy. And I think that operational independence for central banks is one of the things that preserves stability and gives confidence to people to invest. Our sponsor, Wells Fargo, recently spoke to Jeff T. Blau, CEO of Related Companies, about his firm's development of affordable housing across New York City, including at Hudson Yards, the Fulton and Elliott Chelsea Houses, and Willits Point. Related started in affordable housing. Today, we're one of the largest owners of affordable housing in the United States.

10:18Wells Fargo became a partner with us in working with the New York City Housing Authority speaking to the city, to the state, to really help us make this happen. Discover how Wells Fargo is helping Related and other clients reach The Next Horizon at Bloomberg.com slash The Next Horizon. Now, 10 former chancellors of the exchequer became prime minister, including Winston Churchill, among others. So have you ever thought about the possibility that you might follow in their path and be the first woman to be chancellor of the exchequer and then prime minister? I know that politicians often say I don't want to do that job, but I really don't want to do that job.

10:55The job that I've always wanted to do in politics is to be chancellor of the exchequer. Before I became an MP, I worked in banking and financial services and started my career as an economist at the Bank of England. And for me, being chancellor is my absolute dream job. And it's the only job I want in politics. Let's talk a bit about your background. Where did you grow up? I grew up in Lewisham in southeast London. My mum and dad were primary school teachers. I went to my local state school. And it was when I was at school that I got involved in in politics. And the reason being, when I was at secondary school, our sixth form, you know, where we did our, you know, our final exams, was a couple of prefabricated huts in the playground, which was basically freezing cold in the winter or baking hot in the summer.

11:46Our school library was turned into a classroom because there were more students than there was space and there were never enough textbooks to go around. And I felt very strongly that the governments that we had then in the 1980s and 1990s in the UK, conservative governments, didn't care very much about schools like mine, the community in which I grew up, and I wanted to do something about it. And at the time, the leader of the Labour Party, the opposition party at the time was Tony Blair. And I heard him say that his three priorities were education, education, education. And that really resonated with me because I believe that talent is equally distributed, but opportunity isn't.

12:26But education can give everybody the opportunities that they deserve to fulfill their potential. And so that's why I got involved in politics and why I got involved in the Labour Party. And did you go to college? I was the third person at my school to go to Oxford University. It wasn't a traditional route for people from my school to go to university at all, let alone to a university like Oxford. But I remember two years before I applied to go to Oxford, my head teacher at school giving an assembly and said today two girls from our school are in Oxford doing an interview to go to the university there and we should all keep our fingers crossed for them all day because it would be an amazing achievement for our school and I thought wow I've never thought about something like that but I'm one of the top performing girls in my year perhaps in a couple of years time that might be something I could do and it just so deceived in my mind that that was a possibility for someone like me and for a girl from the school like I was at.

13:32And so two years later, I did put in my application and I got a place to read philosophy, politics and economics at Oxford University. Later, I went on to do a master's degree in economics at the London School of Economics. So I've been very blessed to have a very good education from some of the best universities and colleges in the UK. So after you got that education, did you sort of take a job at the Bank of England? Is that what you did? Yes, yeah. My macroeconomics tutor at Oxford, he said that the Bank of England was a finishing school for economists. And I thought, yeah, that sounds like what I would like to do.

14:08And so I had an offer from an investment bank and I had an offer from the Bank of England. And I chose the Bank of England because I wanted to be a proper economist. And also, I've always strongly believed in public service. And so working for the Bank of England was a great job for me as my first job after university. And how long were you there? I was there for just under six years. In fact, actually, whilst I was there as well, I had a brief secondment to Washington, where I worked at the British Embassy as the second economic secretary. And that was in 2002, 2003. So, again, a time of huge volatility in the world.

14:47not long after 9-11 when the UK and US went to war in Iraq. And so it was a fascinating time to be in Washington. And I was reporting back to the UK Treasury and to the bank and liaising with the US economic team as well. So after you finished that tour of duty, you ultimately decided to run for parliament? Yes, I went and worked in the private sector for a bit. I worked for Halifax Bank of Scotland, which is now part of Lloyd's Banking Group. I worked in retail banking, which is what took me to Leeds, where I'm now a member of Parliament. Did you win the first time you ran? No, no, no. It was the third time, actually, that I ran.

15:31I ran in what is traditionally a safe conservative seat in the south of England, in Bromley, which is close to where I grew up. But then I got this job up in Yorkshire, moved up there, a safer seat became available. And I stood there. Okay, so after you ran the first time, you didn't win. And the second time you didn't win, you didn't say maybe politics is not for me? No, but the first time I stood, it was sort of like, it was like, for me, it was the first time I had done anything publicly political. Yeah, I'd always been along to my local branch meetings of my party. I'd gone along to Labour Party conference, but I'd never had a sort of public platform for my politics and I thought well I'll give it a go I'll see what it's like and see if it's something that I would like to do in the in the longer term so I was very I was young when I first stood for parliament I think I was about 26 and then the following year sadly the MP I stood against he died suddenly and so there was a by election and so I stood again for my party but it was 2010 that I first got elected to parliament So it was 250 years ago that my country issued a Declaration of Independence and said to your country, we're breaking away.

16:48Do you think if the British government had said, look, forget the taxes we're imposing, let's be friends, the UK would still be part of the United States or the US would be still part of UK? And would that make the world a better place or are you happy with what happened? I'm not going to go back 250 years and try and rewrite that period of history. But I am really proud of the strong ties, the cultural ties, the family ties, the business ties, the military and intelligence ties between our country. There's no greater partnership in the world than that between the UK and the US. And that's been true under different prime ministers, different presidents.

17:30We've got a very strong relationship between my Prime Minister, Keir Starmer, and your President, Donald Trump. I think that serves both of our countries well. It doesn't mean we're always going to agree on everything. And that's the thing about the closest of friends. You don't always have to agree on everything. You can exchange views. And that is a healthy thing to do. But recognizing that, you know, what binds us together is so much stronger. Now, in the United States, we often have a thing called C-SPAN. And on C-SPAN, we often show the prime minister's, I guess, the debates or... Prime minister's questions.

18:07Questions. And I've always wondered, does the prime minister really know the answers to all those questions? So prime minister's questions is a big weekly event in our parliament. And every week for half an hour, 35 minutes, the prime minister takes six questions from the leader of the opposition, two questions from the third party, the Liberal Democrats, and then questions from assortment of backbench MPs on both sides. And some of the questions, the Prime Minister will have an idea what the MP is going to ask because it's one of his own MPs. The leader of the opposition and the opposition MPs, no idea.

18:44And so the Prime Minister has to be really well prepared. You can sort of have a guess of what the leader of the opposition is going to go on. We have got a pretty adversarial political setup in the UK. In the House of Commons, you've got the green benches on both sides. You've got a big table in the middle and you are two sword lengths apart from the opposition. We don't have swords with us in Parliament. But the idea is, you know, you spar with words, not with not with physical weapons. And it does get quite heated, the exchanges. In the US, we have an aging population. And without immigration very much now, our population is aging much more than it has in the past.

19:24Does the UK have an aging population issue as well or not? Yes, we do. I don't think it is stark as in some other countries. I think that the immigration policy is a challenge for all Western countries to get that balance right. And in Britain, we are building an immigration system and a visa system that is going to be all about and is all about attracting the best talent into the UK. Because it's not just a numbers game. It's the quality of the workforce that you're bringing into the UK. And we believe if you're attracting the top academics and researchers, the top entrepreneurs, the people who went to the best universities in the world, you're not displacing jobs.

20:13what you're doing is creating more wealth and opportunity. And so, you know, we're doing a number of visa waivers for fee waivers for the top talent in the world to come to the UK. And we want to send out the message loud and clear that Britain wants to be a magnet for the best talent in the world. With respect to the economy here, is it your view that the UK economy is going to grow somewhat like the EU economy? You're not going to outgrow the U.S. We are. We are outperforming. You will. Last year, we outgrew Italy, France and Germany. And I think that will continue to be the same this year. You know, we are an open trading economy with trade deals, with emerging markets around the world.

21:02The best trade deal with the U.S. We've got great innovation going on through our universities and with our entrepreneurs and founders in the U.K. we are a services-based economy but also with amazing advanced manufacturing as well so i think we are set up for success in the uk for foreign investors people who live in the united states or on the continent in europe or in china or asia why should they invest their money in the uk is the growth rate good enough to attract capital are the regulations fair enough and easy enough why should somebody invest in the uk well the uk stock market was one of the best performing stock markets in the world last year.

21:42The FTSE 100 went up by just over 21%. So pretty good returns on your investment. We have got in the UK, four of the top universities in the world with some amazing businesses spinning out of those universities in life sciences, in quantum, in AI, increasingly in the defence sector and dual use technologies. So tons of exciting stuff happening in the UK. We've got some amazing unicorn businesses that have started and are now scaling up in the UK. And we're making it easier for businesses to list and to raise finance in Britain. So this is an exciting time. You think about all of the growth sectors in the economy today.

22:25And those are all areas where Britain has real advantages, real strengths. And so that's why I think that this is going to be Britain's year. And I'm really confident. So what do you do in your spare time? I assume you can't be Chancellor of the Exchequer 24 hours a day, seven days a week. Are you an athlete? Do you collect anything? Do you have any hobbies? What do you do on the outside? Well, I've got two children who are aged 12 and 10, so they keep me pretty busy when I'm not working. And I love spending time with them. I had a wonderful time over Christmas and New Year where I got to indulge in a bit more cooking, which I don't have time for very much with the usual cut and thrust of work and politics.

23:08I'm also a keen runner and try and go running several times a week. And very lucky, very blessed in London to live near the beautiful royal parks in London and so make use of running through those. If you're running in the park, do people come up to you and say lower taxes or anything like that? Has that ever happened? I try and go running quite early in the morning to avoid that sort of thing and keep my head down. And your children call you chancellor or they just call you mom? I mean, mum is about the politest thing they'll call me. They're wonderful children and they absolutely keep me grounded.

23:45They've got very strong views and very strong principles already themselves. I'm incredibly proud of them. Final question is, I've often thought the best titles in the world for a job you can have are Supreme Allied Commander, President of the World Bank, Chief Justice of the United States and Chancellor of the Exchequer. So do your friends call you Rachel? They call you Chancellor, Miss Exchequer. What do your friends call you now that you're Chancellor of the Exchequer? I'm just still Rachel to them. But the other day, I bumped into the head of MI6, our security service. And I was with my 12-year-old.

24:25And I said, you know, this woman is the head of MI6, our security service. and my daughter said that is a much cooler job than my mum's so I was certainly put in my place thanks for listening to hear more of my interviews you can subscribe and download my podcast on Spotify Apple or wherever you listen