118. Global Mayhem: Is The UK A Safe Bet?

0:11Hello and welcome to The Rest Is Money with me Steph McGovern. I'm with me Robert Peston, how are you? We've both got colds haven't we? But like the rest of the population, everyone is just coughing at the moment Are you doing that thing of travelling round and just basically covering your face wherever you go? Yeah, I'm doing a lot of that and I just have this annoying thing with this one which is it always wakes me up at two in the morning and then I have an hour when I cough and then I go back to sleep, it's very annoying I'm really glad I don't have to sleep with you Anyway

0:42I need to have rough for words Yeah, right. I think what's worth starting with is just looking at what is going on across Europe and well across the world at the moment, because there is so much happening, isn't there? We're seeing both the French and German governments basically implode. You know, France in particular at the minute, you know, they've got this vote of no confidence, haven't they, today? And we should point out that, you know, we are recording this before the crucial moment in the National Assembly in France. But what we can talk about is the financial mess that the country is in.

1:19And, you know, there are actually remarkable similarities with the mess that the UK has found itself in. Big black holes. And, you know, the mess that this government inherited. And I mean, the numbers are actually in the case of France, actually worse than Britain in terms of public finances, debt to GDP ratio, well over 100%. I think something like 110 % ours is more or less 100%. I mean, you know, these are big levels of national debt. deficit over 6 % in France, which is a very, very, very significant deficit outside of a period of economic shock. And so we had Michel Barnier, listeners will remember Barnier as being the EU commissioner who negotiated Brexit with the UK during the May and Johnson years.

2:22Many people, you know, feel that he slightly legged over the UK. We got a terrible deal, many people would say. Macron, seeing his negotiating skills, appointed him as Prime Minister of France. And he took ages to do that, didn't he? Because he had this really tricky situation. Oh my God, do you remember that it just went on and on and on where there didn't seem to be any government at all after that extraordinarily risky election that Macron as president called. Barnier comes in, puts together what looks very much like an austerity budget, big spending cuts, big tax rises. 60 billion euros worth of tax increases, isn't it, that you're suggesting?

2:58Well, 40 billion of spending cuts and 20 billion in tax increases. So the whole package is 60 billion. So in fact, the tax increase is not as big as the tax increases that Rachel Reeves has forced through in the UK. But what it shows, it shows, I mean, there's just so many interesting lessons and aspects of all of this. But basically, Parliament in France split between the Rassemblement National, that's the far right party led, well, Marine Le Pen is sort of the most famous of their prominent people, but it's actually led by Jordan Bardella, who's this sort of TikTok, sort of new generation, younger far right politician.

3:42Then we've got the far left, which is actually the biggest bloc. And anyway, basically, they hate Barnier's austerity package. He tried to force it through using extraordinary measures so that they wouldn't be a vote. They've now called a vote of no confidence in him and there's an absolute crisis. So what are the things that are important here to focus on? One is, and I think maybe this persuaded me to know that I have maybe possibly underestimated one significant relative advantage that the UK has. This is not a party political point, but government here looks stable. I mean, let's be absolutely clear.

4:22You know, Labour has a very big majority. It's impossible for that Labour government to be toppled. toppled. And that, in the eyes of, for example, international investors, means that if you're thinking of putting money anywhere, you could at least see what you get with the UK. You know that whether you think their policies are optimal, but you can absolutely be clear about if you're putting money in the UK, what you're going to get for the next few years, because we don't have the kind of political turmoil that we're seeing currently in France. And that is a relative economic advantage that the UK will have, at least till the next election.

5:02There's direct evidence of that in the sense of France's borrowing costs have shot up, haven't they? And, you know, there was a point last week where they'd risen above Greece for the first time in terms of their bond deals, which is fascinating, isn't it, to get to that level where they're deemed as unfinancially stable as Greece. Well, to be absolutely clear, I think that's a bit, I would now say that's a slightly unfair thing to say about, But only because I completely understand why you say that, because obviously the 2012 EU Eurozone financial crisis was all centered on the reckless behavior of the then Greek government massive deficits again.

5:43But Mithritakis, the current Greek prime minister, is one of the most admired political leaders in Europe at the moment. I mean, he has led, you know, what many would say is the country and certainly economically a very sensible way for the last few years. So it's not remotely surprising given the relative economic stability of Greece. It's no surprise that France's borrowing costs would be higher than Greece's. One of the things that is actually quite striking, again, if you go back to the financial crisis, Portugal was an absolute basket case 14 years ago. So Portugal's borrowing costs are lower than France.

6:20And the way you measure these things, it's all relative to the benchmark debt interest rate. And the benchmark for the eurozone is what the Germans, the biggest economy in the eurozone, it's what the Germans have to pay to borrow is the benchmark. And the thing that is striking is that France is now paying more to borrow relative to what Germany pays to borrow than at any point since 2012, since the eurozone was in this terrible financial crisis. And, you know, that is a genuine worry. And it's not that I have the sort of views that I had 2010 to 12 where the crisis was such that there were genuine reasons to fear that the eurozone was going to collapse because it took really quite a long time for the German government to come to the rescue.

7:14of the eurozone. I don't think what we're looking at is that level of Armageddon in the eurozone. But Europe is growing really slowly. France in a crisis of this sort. It's still a big economy. You know, it's more or less the same size as the British economy. You know, the French economy will now be at best in the doldrums. And, you know, there's a genuine risk, I would say, now of, you know, recession in France, given the scale of the problems they're going through. that's bad for us because it just means global you know it contributes the global economy is slowing down we've got all the trump risks which we've talked about china has been by its standards relatively sluggish and it's got big structural problems so france getting into this kind of a mess is bad for global growth and bad for any prime minister in this case kia starmer who is praying that his government will be bailed out by a resumption in growth well actually the headwinds from the rest of the world are serious and negative.

8:13Yeah, and also, you know, you mentioned Germany. They're having their own problems, aren't they? Because their government's collapsed. You know, the German Chancellor sacked his finance minister because of a disagreement over how to fix their money problems because Scholz, the Chancellor, wanted to take on more debt and boost spending. Lindner, the finance minister, disagreed and he wanted to increase tax and have spending cuts and that type of thing. And this three-way coalition there has fallen apart as well. So there's just this sense of no one can agree about how to get growth. You could say that, you know, like you say, things are better here because we've got that stable government.

8:50But it is interesting now how the biggest economies in Europe and in the world in some respects are in a mess over how to grow themselves. Well, everybody, let's be clear, in positions of power knows what to do. They just find it very difficult, given their weakness politically, to enforce it. So let's look at the Eurozone in the EU for a second. The former governor of the European Central Bank, Mario Draghi, who was also recently prime minister of Italy, he came up with a really sensible plan to restore Europe's competitiveness. And, you know, it was all to do with lots of investment in, you know, whether it's renewable energy, whether it's big investments in the industries that are transforming the world, digital AI and all the rest of it.

9:43It was a perfectly sensible plan to, as I say, restore the competitiveness of the EU. The problem is we don't have strong governments in Europe able to adopt those measures. I sent you a message, I don't know if you saw it, about one aspect. He sent this, listeners, at midnight last night. That's when this message arrived. And yeah, it is interesting. I had actually seen it, thank God. But yeah, go on, tell us. This is really interesting stats in terms of how... I mean, I just thought this was... We spend quite a lot of time talking about the lack of international competitiveness relative to the US of the UK.

10:27and there's again a bit of a shocking report actually on Bloomberg I read this morning about the extent to which the shrinkage of the London Stock Exchange and companies delisting is actually accelerating at the moment and this is a real problem actually you need a thriving stock market to underpin a successful economy because it's one of the ways that companies can raise money but anyway I'm going to read that was the worst London stock market exodus in 14 years isn't it that was what the Bloomberg report was this morning. And we've been banging on and on and on and on about how serious it is that the London Stock Exchange is shrinking and that companies valued on the London Stock Exchange are undervalued relative to in other markets.

11:09And this is just a report which indicates that it's not getting any better. In fact, it's getting worse. But now I'm going to read you this aspect of Draghi's analysis, which almost makes me want to cry because it just shows the difference in the dynamism of the US economy and Europe. What it said is that there are only 13 EU-based firms that are younger than 50 years old with a market capitalization that is greater than $10 billion, right? So 13 youngish, I wouldn't say younger than 50 is that young, but youngish firms whose market value is greater than$10 billion and their combined market value, put them all together, is$400 billion.

12:01Now, if you go to America, right, and we should be clear about this, the EU economy as a whole is bigger, even though the American economy is the world's biggest economy as an individual nation. Put all the nations of the EU together, okay, they have a bigger GDP than America. But, so$400 billion for these young companies, that's their value. In America, the comparable US cohort, so companies that are younger than 50 years old, their combined market value is$30 trillion. So$30 trillion versus$400 billion. These younger US companies are 70 times more valuable than their European counterparts. It's the magic seven, though, doesn't it?

12:56The ones we talk about all the time. But the fact that it includes the Magnificent Seven actually just tells you all you need to know because these are the institutions, right, that are transforming the global economy from, you know, NVIDIA through to Google through to, you know, I mean, you know, and, you know, OpenAI not in the Magnificent Seven but growing at an extraordinary rate of knots because of chat GPT. The lack of competitiveness in Europe is really extraordinary and very worrying. And actually, there is, of course, one amazing company in Europe that shows what can be achieved. Because, again, we've talked in the past about Novo Nordisk, the creator of semaglutide, which has these various…

13:42The fat jabs, the slimming jabs. Yeah, whether it's, you know, a Zempic or Wegovi, these world-changing, you know, treatments. Everyone's on them now. It's mad. It is incredible. We will see whether in the end, in terms of weight loss and heart disease and all the rest, these are the miracles that everybody thinks they are. But at the moment, everybody thinks it's a miracle. And as I say, I saw some new economic analysis of the benefit to Denmark. And basically, the Danish economy is growing at something like 3 % a year. I'm told that without Novo Nordisk, it would be flatlining. Yeah, it's mad, isn't it?

14:21how much it's country you have a market leader of that sort the benefits that you know accrue just on that right i was looking at my um stocks and shares yesterday because i've got quite a bit in the magnificent seven do you know what returns i'm getting at the minute 65 how mad is that is 65 returns that is not sustainable though is it like i'm like god do i pull my money out soon because this is like that is not sustainable they're not going to carry on growing at that level So that's quite a good moment to go for a break. Yeah, on my financial demise.

14:58Hello and welcome back to The Rest is Money with me, Steph McGovern. And with me, Robert Peston. Now, I want to talk to you about Mandelson because you did a really interesting piece for ITV about this. And I, you know, obviously Peter Mandelson was an MP for a long time in my local area in Teesside. He was the Hartlepool MP. He's had a really fascinating career. People are now talking about whether he's going to be the UK ambassador of the US. But it's really interesting. This company founded this Global Council. And you've been doing a bit of work on this, this lobbying company. Do you want to tell us about what you found?

15:30Yeah. So he is in the frame to be our person in Washington. He is very close to Keir Starmer's chief of staff, Morgan McSweeney. I mean, I was slightly intrigued when I first learned that he was in the frame for this job. And let's be absolutely clear, the decision to appoint him hasn't been made. I'm told it may be a little bit of time yet before he, you know, the decision is made. The reason I was slightly intrigued that he was in the frame at all is simply because the current ambassador, a woman called Karen Pierce, has one quite important advantage, many would say, which is the people around Trump really like her.

16:17She's done a pretty good job of getting in there. And given that there is definitely going to be when he becomes in January president, it's going to be a bumpy ride for a while. I mean, there was this sort of I thought it was a sort of almost sort of Boris Johnson levels of cake ism, a speech that Keir Starmer gave earlier this week. The Prime Minister always gives a speech at the Law Bears Banquet. It's always about foreign policy. And it's supposed to be a really big moment when a Prime Minister sets out his vision of Britain in the world. And as I say, I was, I suppose, given that he's a new Prime Minister, I was a bit disappointed in it because foreign policy is about having to make choices, just is.

17:05Right. And he had this ridiculous line that, you know, he was going to be amazing friends with America and amazing friends with Europe. And it was mad that anybody should think he should choose between them. Well, you know, I sort of get that it's not easy to choose. But if you want a trade deal, right, there's politics there. OK, you can't sit on the fence. You know, the truth is that at some point he will have to make up his mind whether better trade terms with the EU are more important to him than avoiding tariffs with the US or, you know, even potentially in the very long term, some kind of trade deal with the US.

17:46although I don't honestly believe that Trump is in the business of doing trade deals with any country, including the UK. But the reality is that trade deals require you to make a decision about who you're politically closer to. The idea that that doesn't involve that kind of prioritization is so naive. But there's something even more fundamental. I got really quite exercised about this on ITV's News at 10 the other night. There's something even more fundamental at the moment, which is everybody around Starmer, his intelligence advisors, his foreign policy advisors, will be telling him that Donald Trump plans to do a quick and dirty and some would say, you know, tawdry peace deal with Putin, which would allow Putin to hang on to the land that he's illegally captured from Ukraine.

18:42And Putin will also insist, and the fear is that Trump will capitulate, on effectively Ukraine disarming. Now, this would be an absolute catastrophe for the whole of Europe, including the UK. It would almost certainly lead to a refugee crisis. Quite a lot of Ukrainians will try and leave the Russian occupied territory. It's also a massive threat to the security of other European nations. And, you know, the fear if you live in the Baltics is that, you know, Putin's next invasion will be in the Baltics. And Europe, in those circumstances, has to club together to try and prevent such a sellout of Kiev.

19:29Now, that will require Starmer to choose Europe over Washington. He will just have to do that. So this idea that, you know, you can have your cake and eat it and be incredibly friendly with both is just for the birds. So that said, against that backdrop, to have somebody in Washington in the shape of Karen Pierce, who is on reasonable terms, seems to me to be not a bad thing. So I don't know whether the penny is dropping. But to go back to where we started, within government, there are those who definitely want Mandelson to be the ambassador at some point, which is why I then looked at, because I thought, actually, if you're an ambassador, what your business interests are will actually have an impact, particularly when it comes to things like trade talks and stuff.

20:15So I looked at what his business interests are. Yes. So this is Global Council, isn't it? The firm that he co-founded, which he's kind of stepped back from the board of, but he's still like a... Well, he's still got me founded it and he's called president of it. He set it up with a bloke called Benway Prosser, who was a special advisor during the Blair years in government. New Labour is now an old phenomenon, although many would say that the current government has quite a lot of influence of those New Labour years. And it was sort of the quintessential, you know, New Labour business consultancy firm, along with obviously in the old days, all of Tony Blair's business interests in that respect.

20:56But anyway, the thing that I was really interested in was who Global Council is working for. And these are the ones that they've had to register or declare as being clients with. So as part of the kind of lobbying act, they have to declare who they're working with, don't they? Yes. So there's this extraordinary organisation called the Office of the Registrar of Consultant Lobbyists. Right. And this was set up by David Cameron in 2014 after. I mean, there have been so many scandals about, you know, sort of secret lobbying. I mean, I do remember back to the again, back to the early days of new Labour, a former Labour advisor I was very fond of who died tragically of Covid.

21:44of it, Derek Draper, you know, was married to my ITV colleague, Kate Garraway. He got sucked into some sort of lobbying scandal donkeys years ago. Anyway, great. I mean, wonderful bloke. Anyway, under this 2014 law, if you are a consultant, this is such a weird law. If you are a consultancy and you are lobbying the top civil servant in a department, the permanent secretary or a minister, then you have to register who you are representing. Yeah. Right. Now, this is such a weird rule because actually, if you are a company, you know, you and I are setting up, you know, McGovern, Peston, Inc. Well, actually, no, let's take a proper example.

22:35Slime, right? Obviously, the regulations around... The safety of slime. The safety of slime are appalling and they need reforming. You're being really held back in your slime business by government regulation. If I'm a consultant lobbyist and you come to me and you say, Robert, please lobby the slime minister to get the rules changed. I guess this would be the business minister in your case. So you come to me and you say, please lobby Jonathan Reynolds or the permanent secretary at the Department of Business to get the slime regulations changed. and I agree and you pay me a bit of money, then I have to register that I'm doing that for you.

23:19But weirdly, if you just decide yourself to lobby the minister or lobby the permanent secretary, nobody will ever know. So if I'm sat next to someone at a dinner who happens to be in the business sector. Or you just decide to do it on your own back. You don't want to use a consultant. So secret lobbying can still go on. And more to the point, even as a consultancy, Even, you know, even as a consultancy, if I lobby a special advisor, for example, the special advisors in government are very powerful. Again, you know, I don't have to register that. So nobody would ever know. So there's a lot of secret lobbying that still goes on.

23:53So tell us about who's on this list of the official ones that they have to register. So it's extraordinarily blue chip. I mean, I mean, I'll just literally whiz through the best known of them. So Accenture, you know, one of the worlds, I think might even be the biggest consultancy firm in the world. they are paying global counsel to lobby the government. Anglo-American, huge mining firm, Duolingo. I'm not quite sure why Duolingo are interested in lobbying the government. But anyway, they are apparently. Then we've got the English Premier League, huge pharmaceutical company, GSK, Howden, JP Morgan, fund manager M &G, Nestle, OpenAI.

24:33Yeah, interesting. We've already talked in this program about how powerful OpenAI are as the leading, some would say, generative AI chat GPT firm. Palantir. Now, I mean, Palantir are massive, big data, huge contracts with the NHS, huge contracts with defence. Of course they want to bend the ear of ministers to get more contracts. Pernod Ricard, Santander, huge bank. Sequoia, some of the biggest VC investors based out of Silicon Valley. Shell, Sizewell C. Big bank standard chartered. Here's an interesting one. TikTok, Chinese social media firm that is not without controversy, Vodafone and Water UK.

25:18Now, I wonder what Water UK want to lobby the government about. Anyway, astonishing list. But here was the bit of the research that I did that maybe I am sort of beyond being shocked about the way that sort of lobbying works. But I was still slightly amazed by this, which is if you look on the website of the registrar, it tells you who your clients are for the latest three-month period. And these are the clients that Global Council had from July to September of this year. Remember, the general election is on July the 4th. So this is all lobbying of the Labour government. Now, guess how many clients Global Council had in the preceding six months when the Tories were in power?

26:05Go on. How many? Zero. There are since Labour's come in. And so, although I'm sure that lobbying is based on absolutely brilliant analysis and brilliant research, it's perfectly clear that the clients think that the advantage that Mandelson and Weg Prosser and General Council have is they know the characters in government. And so this is, you know, this appears to be money for who you know as much as what you know. And I think just lots, I don't know, I think people may feel a bit uncomfortable about that. Yeah. I mean, one of the things I'm interested in, though, is that point you made about them, you know, they don't have to declare it on this register if they don't communicate directly with a minister or a permanent secretary, is Shein is one of the companies that they've worked with up until this year.

26:59Of course, Shein is this Chinese fast fashion firm that's looking at listing on the stock exchange here. When we had Jonathan Reynolds on the show, who was now business secretary, he was talking about how he can see a deal where Shein come on board. And they were working with this global council in the run-up to that, which is interesting, isn't it? Because that's quite a controversial one, which hasn't ended up on this list. I mean, look, I should point out that I think at the end of 23, they had seven clients as opposed to 23 they've got now. So they have had other clients in the past, but their proximity to people in the current Labour government or the way that they know people in the current Labour government appears to have been a massive competitive advantage for them.

27:46And just to be clear, this is about what you can do within the rules. There's no suggestion that Global Council is in any sense, you know, breaching the rules. I suppose some people would argue we need different or better rules. On Sheehan, I am told, unless something weird has changed literally in the last day or two, you know, they are going to list in London really very soon. And that's going to be a big deal, isn't it? Pretty controversial. Right. Should we wrap things up then? Yeah. I think it's probably not a bad moment to call it a day. Yeah. Lovely. Excellent. And I'm just in a state of slight shock about how relieved you are that we don't share a bed.

28:28What a brilliant ending. Thank you. And let's get that thought from our heads, shall we? We do have a sort of Morecambe and Wise kind of relationship and therefore the bed that I'm thinking of is... I'm thinking more Bert and Ernie. Maybe we've now created this image for people that we are basically just both in our pyjamas recording the podcast. Yeah. Do you remember Bert and Ernie? I do. Yeah, that's what we are. It's like, goodnight Bert. That is definitely about right. You have to end with goodnight Ernie. I'm going to say it again. Goodnight Bert. Goodnight Ernie.

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