117. How Much Did Brexit Cost The UK?

0:11Hello and welcome to The Rest is Money with me Steph McGovern and with me Robert Peston. So before we kick off with our questions, I've had a really interesting week because I've been at this event up in the northeast at Newcastle University. And I want to tell you about this because I think it's a really interesting thing that's come from devolution. And it's basically the five unis in the region. So we're talking Sunderland, Northumbria, Newcastle, Teesside and Durham, who have always been kind of very competitive against each other, whether it's fighting for research funding or for students or whatever else.

0:45are coming together to form what they're calling the Universities for North East England and are working with the two combined authorities in the region now. So, you know, the North East Combined Authority and the Tees Valley one, which is about, I don't know, represents about three million people in the area in that region. I can just ask you on that because it's interesting. So Tees Valley is a Tory, Ben Houcher. And is the other one... Labour. Yeah, it's Kim McGuinness. Oh, it's Kim. Okay, right. So that's also quite interesting if they're working across party lines. Yeah, it is. It's really fascinating.

1:17And the whole emphasis of this is, is that because there is a problem with young people or anyone in the area going to universities, it's something like 12 % participation at unis in higher education compared to like a national average of 30 odd percent. There's that element of they want to get more people into higher education. They want to do that through working with further education colleges, which is obviously my big thing around maybe it's degree apprenticeships and that type of thing. But also it's about their community impact. And it sounds really exciting in terms of what it could do from the region.

1:50So what proportion of people in the region go to university? 12%, yeah. My goodness. Yeah, yeah, it's the lowest. Because that is, you know, that's the sort of third or actually in terms of, I think if you looked at London and the Southeast, it's nearer 50%. Yeah, it is exactly. That was the exact statistic that was given by one of the vice chancellors of one of the unis. So why on earth is there that difference? Yeah, well, it's about the, one of the things they were talking about was A, it's cost. So it's the, you know, the potential debt that will be taken on. It's B, the feeling that it's not right for them.

2:22So the vice chancellor of Newcastle Uni, Chris Day, was telling me that they spend a lot of time in schools and colleges where a lot of them are saying we're not clever enough to go. So there's this perception that they're not clever enough. obviously I will hardly disagree with that because I think everyone has got skills and it's just about making sure they see what they are and how they can use them in that kind of setting. So yeah it's that basically it's just the feeling that it's not the place for them and it's expensive. Because you know part of the national debate at the moment is that too many people go to university rather than doing vocational training and acquiring more practical skills.

3:01I think it's quite hard to make that case about people in the northeast you i think you'd probably argue that actually in the northeast quite a lot of people would benefit actually from going in the other direction and getting in getting a university education or or do you disagree i disagree that it should be two separate things that's my beef here like when the unis asked me to help them launch this event i was a bit like my bag is more about vocational training and then i I thought, hang on a minute, these two, you know, ways of learning should come together. It should be university. So what do they say about that?

3:36Well, exactly. So I said that to them and they were like, no, that is why we're now working with FE colleges too and businesses to work out what are the needs of the area? How can we not just get people to come here, but then stay in the area afterwards? And then how do we get, you know, increase that participation rate? And it's about working more together on all of it, collaborating on all of it so that the FE and HE are not seen as two distinct things. And it's not just, it's either an academic route or a practical route. It's actually, it's both because that's what the world of work is, isn't it?

4:07You don't go in and then go, I'm just a theory person. I mean, there's some jobs. And are they working with employers as well? Yeah, yeah. So, and that's where the combined authority come into it as well because of devolution. they're obviously got their own pot of money now to be able to look at ways to work with schools on this or work with businesses on this and so there's a really interesting if it comes off obviously this is just the announcement of what they're going to do but take for example um the Darlington Economic Campus so this is the kind of offshoot of like the treasury the ONS it's got various it's like a multi-government department and when the government was saying they wanted to move it to you know outside of London have like this, these kind of offshoot offices.

4:51The people in the combined authority were telling me they really didn't know anything about what was in the Northeast. They were like, you don't really have any universities anywhere near Darlington though, do you? And they're like, yes, we do. Durham's like half an hour away. Teesside's really close. And so it's about changing that perception. And actually, if you, that example of the, the deck to Darlington Economic Campus, it's the employees of thousand people, 800 of them are from the local area. So So that's 800 people from the area who are now contributing to policy decisions. So, for example, if a big business is thinking about locating in the area, they've now got essentially one door to loads of resources in terms of the innovation and research that's happening at the universities, as well as that link with the schools and employers and the combined authority, which has got to be a good thing.

5:42It's got to be a good thing. what would be a measure of whether it's working what do they want to achieve that's what i asked them as well i was like come on then well how do you what's the kind of tangible metric you're going to use and they said well that's really difficult because obviously they want to contribute more to economic growth and so that's one way of looking at it the economic growth in the area but i guess the tangible thing will be participation so getting that 12 percent rate up And they weren't great on answering the metrics because they say, how do you work out what's regional economic growth and what's national and what's international?

6:17Because the businesses and the universities work on an international scale, even more so than they do on a national level. Because a lot of the big employers are there, people like Nissan and other big businesses that are international ones. So, yeah, I don't know on that front other than, for example, they want to increase the participation rate and improve living standards for people in the North East where it is really tough at the minute. As you say, an important initiative. Now, we've got some questions, haven't we? So, shall we go on to those? Yeah. So, we've got one from Nathan Hayes who says he runs a bar and restaurant in the West Country and he's been listening avidly to our podcast.

6:54Thank you very much, Nathan. I'd like to know why a simple increase in corporation tax wouldn't have been a fairer tool to raise tax than an increase in national insurance on businesses. And it's a good point, this, isn't it? Because essentially an increase in national insurance contributions from employers targets companies who employ more people rather than companies who are making more profit. I think that's the point Nathan's trying to make here, isn't it? It is a tax on employment, as you say. It's one of the reasons why what Rachel Reeves did in the budget has upset so many large employers.

7:31I'm afraid, Nathan, the simple answer to why this has happened is politics, mate. I mean, the government got itself into a mess in opposition by saying that there were certain taxes it wouldn't increase. One of those was corporation tax. The reason they made that commitment is that they believed that this would be seen as somehow anti-business. They wanted to be seen as pro-business. And that's why they made this commitment not to put up corporation tax. that now looks, some would say, absolutely bonkers in the sense that it might well have been cleaner and less controversial to put up corporation tax, fairer in Nathan's sense.

8:20Yes, perception, isn't it? That's what's really interesting about this. It's like that would be perceived as anti-business. And they were thinking the national insurance contributions wouldn't be, I guess. So it's just about how we perceive these different taxes. Yeah. I mean, look, the other side of all of this, though, is that the government does have to be very careful about what money it takes directly from businesses. I was struck. There's a bloke called John Kingman, who is currently chairman of Legal & General, one of the more important investors, fund managers. He used to be the second permanent secretary at the Treasury in charge of growth.

9:06He wrote the very interesting piece published by Sam Friedman, the former special advisor on his sub stack. And one of the things he's worried about is that international investors currently don't perceive a particularly compelling growth strategy in the UK. And that for all the government's rhetoric, that there are all these investors putting money in, he doesn't think there is enough international confidence in the UK and therefore not enough money is being invested in the UK. And this is something that I'm also deeply concerned about, we've talked about a lot. He pointed out that when George Osborne had this policy of progressively cutting the rate of corporation tax, it did make the UK look a very competitive place for businesses to set up shop.

9:59And it definitely encouraged inward investment. But of course, the last government, Rishi Sunak, reversed that. We used to have a corporation tax rate of, I think it was 19%. It's now back at 25%. Now by international standards, that's not massively high, but 19 % was massively low. And it looked like a sort of statement to the world's businesses that this was an attractive place to set up shop. So, you know, I definitely take the view that too many businesses pay too little tax, particularly those digital multinationals. and there are too many international businesses that pay fast and loose with tax regimes all over the world and don't make the kind of contribution in terms of taxes that we would expect from them for public services.

10:47But I am saying that where you set the corporation tax rate is tricky because we do need mobile businesses. And when I mean mobile, I mean businesses that have a choice about where they can set up. You both want international businesses to invest here. You also don't want British success stories to decide the tax rate is too high. And they're going to move to a country where the tax rate is a lot lower. I mean, as we know, the Republic of Ireland has built a very strong economy on the basis of basically charging companies very little in the way of tax. And it is, you know, living stands in the Republic of Ireland are now higher than they are in the UK.

11:25I was reading somewhere that it's a kind of estimate for how much it costs us in terms of investment when the corporation tax rate goes up. So it says for every one percentage point that corporation tax goes up by, the inward foreign direct investment goes down by two and a half percent. So that's an estimate of it. But it's interesting. I think you should always take those numbers with a pinch of salt. But the underlying logic is plainly there. I was really interested by what the boss of McVitie's was saying. You know, the CEO of that big global snack company, Plardis. They own like McVitie's and Jacob's and Godiva chocolates and all sorts.

12:03All that bad stuff. Yeah, all this stuff I enjoy. We all eat and we shouldn't eat. But anyway, yeah. Have you ever done the Jacob's Cracker test, by the way, to see how many crackers you can eat without a drink? Do you know what? I've managed to live quite a number of years without feeling like it. I was compelled to do that. Have you done it? On telly in the Jacob's Cracker factory, yeah. Oh my God. And how foodish did you look? Very. How many did you manage? Only three, because it's really difficult. It's horrible. More importantly, the CEO of the company that makes them, Salman, he was saying that they've been a company who've invested quite heavily in the UK.

12:34He was saying since 2014, they've invested something like£2 billion. But now, the case for investing in the UK is much weaker than it was a decade ago. And actually, because of things like the budget and the change in corporation tax, It isn't a place that businesses like his want to invest in. I mean, he also had a pop at the chancellor about he thinks the food and drink sector have been overlooked and they're a big contributor to the UK economy. But, you know, the focus has been on green and energy and everything else. So he had a pop about that. But it is interesting that point when you've got business leaders like that saying they don't think the UK is a good place to invest anymore.

13:12how much that is then going to influence other people and other business leaders who are going to go, well, if they're saying that, probably isn't a good place. I mean, I think this goes to the heart of what I would argue is one of the, I'd say, quite serious errors that the government has made. We talked about this with the head of the TUC, Paul Nowak. There are lots of good arguments for, for example, improving workers' rights. And there are lots of good arguments for forcing companies to pay those on the lowest pay more money. I mean, national minimum wage going up is very hard to argue against at a time when people are struggling to pay their bills.

13:57But we have a government that says it wants to increase the growth rate. And one of the reasons why international investors are feeling so wary about putting money into the UK at the moment is they see the cost going up, but they don't yet have the confidence that the government is taking the steps that they would want to see to get the growth rate up. And it is that sequencing which worries me. It seems to be perfectly reasonable to take steps to make sure that employed people take home more money. But actually, it's going to be self-defeating. In the end, there are going to be fewer people in work and wages are actually going to be depressed if they continue to drag their feet on many of the measures that are needed to get much more investment into the UK.

14:44And that's a whole variety of stuff, including government investment, which they've announced big plans in the round in terms of the numbers, but we still haven't got the detail of which projects are going ahead and when. We haven't yet got, frankly, a lot of the detail in terms of planning reform. There's so much that they have promised to do to encourage investor confidence that is work in progress. I wonder if Paul might be right, though, with the businesses are always going to moan. So it doesn't necessarily, you know, his argument was that, yeah, they'll say all this, but they'll still be here and they'll still employ people.

15:19And they will, but I'm not talking about them. I'm talking about those individuals who control trillions of dollars and they can place their money anywhere in the world. And we want their money to come here. And they won't come here unless and until they get the confidence that there is a really strong investment case. And I'm not sure that the government has made that strong investment case yet. I wonder if any of them will base it on when you sound less like Eeyore and more like Winnie the Pooh. That could be a metric for this, couldn't it? It's like when Robert Peston starts sounding more cheerful, that is when we know the UK is the place to invest.

15:58I'm sort of quite interested in what you just said. I agree with you. I've got to temper the Eeyore side of things. And of course, you know, I'm a great believer in this country. But I'm interested that you would hand over a lot of money to Winnie the Pooh. I'm not sure necessarily he would be the best steward of your cash. Piglet might be better, actually. Piglet is the person to give your money to. He's definitely the shrewdest. The shrewdest in the wood. Right. Shall we have a quick break?

16:28Welcome back to The Rest Is Money with me, Robert Peston. And me, Steph McGovern. Now, we have a question from Google who are making AI work for everyone across the UK. Just to put it in context, they're sponsoring this part of the show. And that's because they've released a really interesting document on how AI should be adopted. So in this research, they say AI-powered innovation could create over£400 billion in terms of economic value for the UK by 2030. But an AI agenda is needed. So they put together these recommendations around it for government to take on board, for businesses, for all of us really.

17:08And it's to do with investing in infrastructure and innovation, having a workforce strategy, and then making sure everyone has access to it and is able to actually use it in their lives and work as well. So, Robert, what do you reckon? You've seen these recommendations. Which one stands out to you the most? It's an interesting paper. One of the things that it points out is that if AI is rolled out appropriately in the UK, there are enormous potential benefits. We talk about them in this program the whole time, improvements in productivity. We have a low growth economy. Productivity is flatlined.

17:44Living standards are flatlined. Artificial intelligence does offer the potential to get us growing again and getting productivity growing again and living standards growing again. but there's an enormous amount of important regulation that you would need to put around that to pull that off. One of the things that I was struck by was they recommend that the UK set up what they call a National Artificial Intelligence Research Cloud. Actually, one of the things that's been massively troubling me in recent months is how little hardware we have in the UK that would be the underpinning of a really ambitious AI strategy.

18:31Now, one of the advantages, if we had a government that was prepared to invest in creating this AI research cloud, is it would have processing superpower. It would be a hub for collaboration between developers, small businesses, the government. This would be on a sort of mega UK scale, bringing together all of those parties that need to collaborate if we are going as a nation to own some of the more important developments. Yeah, I think you won't be surprised to hear that the thing I'm most interested in, in terms of the recommendations made by Google, is the skills service that they're recommending.

19:17So they're saying you should have a national skills service, which basically allows everyone to learn how to use it, because that's key to this. I think, you know, we talk a lot about reskilling and what happens when people's jobs disappear because of AI. What do they do next? And so it's key that these people know how to use AI so that they can move into different jobs and have that kind of lifelong learning. I keep banging on about, you know, I see now with my five year old how much she already uses AI. And yet her computer classes in school, she's currently learning how to use a mouse. Like I'm not being funny.

19:52I have not used a mouse for at least five years. And yet at home, you know, it's like on a different level. So I think that that needs to come together so that, and I'm not blaming the school, by the way, they're doing what the curriculum is showing them. But, you know, I think that needs, that's a great recommendation to have that. I completely agree with you. And again, I've been, obviously, because, you know, I'm obsessed with all this stuff. I've been looking at skills training around the world. Okay. We talked in an earlier episode about the skills training they do in the UAE. But basically, you go around the world, we are so far behind in this.

20:27Finland has an amazing training scheme. Singapore, South Korea, Canada, right? They are all massively investing in the AI skills of their people. And we are so far behind. Yeah, yeah, totally. And I don't want to say, just be very clear, none of us are wearing rose-tinted spectacles about this. AI is a great opportunity, but it's coming. We're not going to be able to stop it. And the key challenge for any government is how do you harness it for the public good? What we need to do is harness it for the public interest. Yeah, I agree. That's it for this special segment brought to you by Google, who are making AI work for everyone across the UK.

21:07Right, we're going to get straight into another question. Alistair MacDonald has asked, how much money are we losing each year by not being in the single market? I mean, this is something everyone wants to know the answer to, But I guess getting an exact figure on this is near on impossible. Well, there are lots of estimates out there. To be clear, we are talking about tens of billions of pounds of economic output per annum. And there are two causes. One is the cost of doing business with the EU has gone up. And that obviously has a negative impact on trade. But probably the more important impact is that when you leave, and this has almost never happened in history, to be frank, but when you voluntarily choose to leave a huge frictionless market, you know, as we did when we left the European single market, businesses access to uh customers whether they're consumers or other businesses shrinks dramatically um and on that basis they invest less uh you know and they are less ambitious and so there are the what you might call the short term just the moment it happens costs of the cost for businesses going up.

22:32And then there are the dynamic, very painful long-term implications or costs, which are just that when you've, I'll choose my words carefully, when you engage in that kind of self-harm to your economy, it essentially means that you are less ambitious in terms of your plans. And that is a dynamically negative effect. Do you remember, I think it was earlier this year, Sadiq Khan had commissioned some work on this hadn't he by cambridge econometrics and um they worked out using modeling and statistics from all of the kind of big organizations various bits of data they tried to model what the money loss was and they reckon by january this year um they said it cost the uk 140 billion pounds so far and they reckon that could go up to over 300 billion by 2035 and they talked about, as you've just said, exports and imports being down by about a third to the EU now.

23:32So there have been people trying to put a monetary figure on this. But I guess, as you point out, that is not like you can't work it out every year because there's so many other impacts that are long-term and short-term costs. So yeah, I mean, it is really difficult to work out. But I think the clear thing here is, from what both of us are saying, it's definitely a loss, isn't it? and not again. It was always going to be a loss. And one of the things that I got wrong, frankly, back in 2016, when we were in the midst of the campaign for whether we should stay in the EU or leave, is because the economics was literally open and shut, that for at least 20 years, at least 20 years, we were going to be significantly poorer as a nation.

24:22I assumed that the economics would determine the outcome. And the thing that I got wrong was just the many millions of people who basically said, all right, being in the EU may have made the UK richer, but it hasn't made me richer. And there were just too many people who said, even if we stay in the EU, the benefits of staying in the EU aren't going to flow to me, and I'm just going to punish all those politicians, whether it's Tony Blair in the prior period or David Cameron, who was then Prime Minister. You know, night after night on ITV, I said, if we leave the EU, we're going to be poorer. I also said, by the way, there may be other reasons why you want to leave the EU.

25:02Some people, immigration was a massive issue. But again, that hasn't exactly turned out the way people expected. I mean, a lot of people voted for Brexit because they thought the numbers of people coming to the UK to work would fall. The numbers of people coming to work from abroad in the UK has risen. Massively since we left the EU. So, you know, in so many respects, what people voted for has not been delivered. I think, though, people in their normal lives do not give a jot about GDP or, you know, what's happening in that macroeconomic picture. That's the point I'm making. Yeah, yeah, exactly.

25:34The economy got bigger, they got poorer. Yes, exactly. So when people were voting, they were thinking about what matters to them. And it was the fact that they, rightly or wrongly, were seeing their services decline and are being told that they are going to get better. So there was a lot of, well, there was a lot of bullshit, basically, wasn't there around the time? But I also think if we're doing like the kind of, I got things wrong, you know, you were saying what you got wrong. I think I was working at the BBC at the time as a reporter. And I feel guilty because I was part of the, this has got to be impartial coverage, which meant we were giving equal weighting to both sides of the argument, which is not how it should have been.

26:15You know, when we, I was looking at every sector. Being impartial is telling people the truth. The BBC didn't tell people the truth because it gave equal weight to what argument was nonsense and what argument was true. So I on national telly every day with, you know, with millions of viewers was presenting arguments of, right, the fishing industry, the energy sector, the whatever. We've got to give both sides equal weight in when they weren't equally weighted. So if we were talking about the fishing industry, we would have someone on to say, you know, someone who's representative of all the fishing community as one strong voice.

26:51But they were sat next to someone who was like perhaps one person who thought the other way. And they were given that equal billing on the sofa because we had to give both. I was told regularly you've got to give both sides of the argument. Yeah, this was nuts. It was totally nuts. Yeah, so that's got a big part to play in it as well. It's like I remember when the BBC had climate deniers or climate change deniers on the basis that they had to give that side of the argument, even though all the science said most of that was nonsense. Yeah, so impartiality is, it's not binary, is it? And that's the point is they go away.