128. Will Starmer Stop Musk's Meddling?

0:10Hello and welcome to The Rest is Money with me Robert Peston and me Steph McGovern. How are you Robert? Yeah, I'm all right. I mean, I managed to get a little bit of time off over Christmas. I was relieved, despite, you know, all the criticism we made of Liz Truss's mini budget, that she still sent me a Christmas card. Did she? Yeah, it's a very sweet one of her having snowballs thrown at her by her daughters. Very good. I got a letter from Hillary Clinton. How cool is that? She sent me a letter, like, just to say thanks for interviewing her and that she really enjoyed it. Like, I'm absolutely buzzing.

0:47It's all on this, like, Hillary Rodham Clinton noted paper with her signature. Like, you know, when you're a girl growing up... You're now officially, I mean, I never thought that I would say this to you, but I'm afraid you are now officially a member of the global metropolitan elite and you spent your entire life trying to persuade the world you're not. Oh, yeah, I know, exactly. Working glass last from Borough. Shattered as an image. Hey, listen, I want to talk to you about, because I'm obsessed with Elon Musk at the minute and how much he's kind of, well, dicking about and just causing absolute chaos.

1:23But in the UK, it's really scary what he's saying and doing, isn't it? So, you know, you've been talking to Kiyos Stam, haven't you, in terms of whether he's going to stand up to Musk. But what's your take on everything and what do you think needs to happen? Well, I mean, you're obsessed with Musk. Musk is totally obsessed with the United Kingdom. I mean, it's absolutely extraordinary how much he has been commenting on X in really negative ways about Starmer. Recently also about somebody who regards himself as very close to Trump, Nigel Farage. Musk saying Farage is not fit to lead the Reform Party.

2:03That was an interesting moment. He was raging. particularly since reform was desperate to get all those tens of millions of pounds of donations from the ex-owner i mean that's one of the things that i mean before we move on to the you know the significance of all of this it is sort of amazing to me i mean you know that he's got the time i mean he tweets so often right you know obviously famously the world's wealthiest man worth$400 billion personally, absolutely astonishingly wealthy, but controls all these different highly complex businesses, whether it's SpaceX, whether it's Tesla, whether it's SpaceX itself, whether it's that business we've talked about which puts chips into people's brains to help people with paralysis, whether it's his extraordinary network of communication satellites.

2:59He's got the three supercomputers that he's developed over the last few months. We are talking about a man whose business interests are off the charts, enormous, complex, underpinning much of the new digital infrastructure of the world. And he has time to write really abusive things, for example, about the Home Office Minister, Jess Phillips. at the same time as doing the kind of engineering that allows the equivalent of a skyscraper, that giant rocket, to be caught in a pair of chopsticks. He is like something out of science fiction. You can't really believe he's real. How do you think Keir Starmer feels about all this?

3:44Because obviously, you know, Elon Musk is calling for him to be imprisoned. And as you say, he's attacking his ministers. How do you think Keir's feeling about it? Well, Keir Starmer's position has definitely changed. You'll remember I went to Rio with the prime minister for the G20 meeting of world leaders. And there I asked him on camera why he wasn't directly responding to Elon Musk's criticisms of the time. And, you know, at the time, Musk was, you know, I thought these were pretty extreme criticisms. They now look tame. He was basically saying the UK become a police state. You know, he was raging about the fact that those people who'd been on the streets rioting over the summer had been put in prison.

4:31He regarded a lot of this as a sort of an attack on freedom of expression. And he also was broadly saying nobody in their right minds would invest in the UK. on camera I said to Starmer you know this man had I think at the time around 200 million followers he's now got 211 million followers I said you know when he's got such a loud voice you can't ignore this respond defend yourself defend Britain and Starmer totally refused to criticize Musk back then this was only a few weeks ago now I went to Epsom to a hospital in Epsom where Keir Starmer was there to unveil some new policies to get waiting lists down in the health service.

5:18But he did have a prepared statement about Elon Musk, which for the first time was very seriously critical of the kind of things that Musk was saying. He defended Jess Phillips and he warned that the kind of things that Musk was saying was putting her safety at risk. He said that the kind of things that he was calling for, in particular, an inquiry, another inquiry into this. I mean, let's be absolutely no illusion. The child sexual exploitation by gangs is one of the worst scandals that this country has experienced. I mean, in our history, it's appalling the kind of things that took place. But there has been a whole series of both local and a very important national inquiry.

6:11You know, one of the things that I think is a real issue is that up to now, the recommendations of that national inquiry, which would make younger people safer, have not been implemented. And so, you know, Starmer's position, which I think is credible, is that the priority is to implement those safeguarding measures. I would say they're still not being ambitious enough, the government, in implementing those safeguarding measures rather than delaying all of that with another national inquiry, which is not to say we yet know all the truth about all of this. And maybe there will come time for another national inquiry.

6:50But the kind of things that Musk was saying that, you know, in some way, Starmer and senior politicians here were turning a blind eye to child sexual abuse. I mean, that is a slur that I don't believe Starmer could have ignored. And I completely understand why belatedly he has now stood up and tried to both defend himself and his ministers. Now, as I say, separate from all of that, nobody should minimise the appalling things that happen to vulnerable young people. And nobody should in any sense, I think, you know, take the view that as yet everything that's been done to protect them has been done in this country because patently that is not right.

7:33Yeah. And then on the kind of bigger picture then of like Musk doing this, Musk getting involved, you know, obviously the European countries will be worried as well because he's, you know, got this live stream event, hasn't he, with the German far right leader, Alice Vidal. And what is going to stop Elon Musk from completely getting involved in everything? Because that's what we're seeing at the moment. This plays into a much wider problem, particularly for Europe, which is we now have a president in America who patently wants fewer regulations, fewer controls on what is said on social media, particularly by people on the libertarian right and by people who many would describe as the far right.

8:31I mean, it is remarkable to me that we've seen Meta and Mark Zuckerberg move from a position a few years ago where he instituted fact checking because, you know, he was saying publicly it was really important that Facebook should get it right to a position where he's now saying, oh, no, I believe in freedom of speech and we've got to get rid of all the fact checkers. and, you know, we're just going to have to regard it as just one of the costs of free speech, that there will be stuff out on, you know, his incredibly important platforms, Instagram and the rest, which will be factually incorrect and tendentious.

9:11And some would say dangerous, but he's just saying, you know, that's the price of freedom. Now, for Europe, where we have a different culture, where broadly, I would argue, The majority of people still think that there is such a concept of verifiable, objective truth in many areas and where we should, you know, we have a culture of basically saying if somebody is putting out toxic stuff that is a lie, you know, there should be rules to prevent that. There is a massive challenge from America at the moment that is moving in a direction which is basically saying, no, society just has to cope with these toxic lies.

9:56So this is a massive mess. Yeah, it is. And I'm sure we'll be talking about it for, well, probably many, I was going to say months, but it'll be years at this rate, won't it? All the meddling. Right. So we've done the chaos that's being sown by Musk, which we're going to come back to. How do you see the economy at the start of this year? It's really interesting because obviously we joke about my sign business, but obviously it is a genuine business that employs people and is one that's expanding. And also I've got a fitness business, which is due to open. Well, it was due to open this month, but for various reasons to do the cancel, it's still not open, but that's another moan.

10:34But the thing that's really interesting is just doing all the sums of costs last year compared to this year. And you'll have seen yourself, Robert, there was some really interesting research out from the Centre for Retail Research, which obviously is an independent body looking at what's happening in the retail sector. And there was some quite scary statistics out in terms of how many shops we saw close last year. So it was over 13 ,000 store closures. You know, some of the big names like Carpet Right Home Base Body Shop. But also, it was smaller business that accounted for the majority of these.

11:09So they were like eight out of 10 of last year's closures were smaller businesses. And they're expected to be even more this year. 17 ,349 is what they reckon it's going to be this year. Over 14 ,000 of them are going to be independent smaller businesses. So can I just ask you there, if you go back over, let's say, I don't know, five, 10 years, is the trend of these retailers, I mean, obviously the level of closures sounds high, but is the trend up? Yes, it is. It is up. It's really scarily on the way up. And I think that's what is worrying me, because if you look at how much the costs have changed.

11:46So, you know, we keep talking about the budget. And if you think about what we saw go up in the budget. So we've talked about the increase in national insurance contributions. We've also talked about minimum wage going up. Now, you could totally argue it's really important wages go up, but minimum wage in particular for a sector like retail is a hard hit because obviously that's what the majority of people are paid. They're on minimum wage and particularly young people where it went up even more. So it was around, I think it was like a 20 % increase for the under 20s. And so that's quite a big jump for businesses.

12:23So I'm not arguing the rights and wrongs of whether it should have gone up. But just if you take the Gootopia, the business that I have, one of the biggest pressures is, yes, the minimum wage. Yes, the national insurance contributions, but also that change in the business rate relief. So if you put all that together, how much are your costs going up this year? Yeah, so let me tell you. So I remember when we were talking to Rachel Reeves about this, she kind of dismissed the business rate relief. So it came in in 2020, obviously post-pandemic, and it's a 75 % discount on your business rates. And it's capped at£110 ,000 per business.

12:58But from April this year, it's going to go down to a 40 % rate relief. Now, she was saying, well, it could have been zero, but that is a big change. So to give you the numbers for me, for one of our units, when we got that 75 % rate relief, so what we're currently paying, is about six and a half grand in business rates. From April, that's going to go to nearly£16 ,000 for business rates. That's for one unit. So in terms of like pots of slime, for want of a better tangible way to think about this, this is about 3 ,000 more pots of slime we need to sell in order to cover just the business rate relief.

13:39And that's not including how much rents go up by. It's not including the minimum wages going up. It's not including national insurance contribution rise. It's not including utilities or all of these other things, these other overheads that a business has. It is quite a jump. And that is one of the things that the Centre for Retail Research is saying is going to be a hard hit for these smaller businesses. And I think it's just been ignored. We've talked loads about the national insurance contributions, but we haven't talked about things like business rates, which are, whenever you talk to independent stores, they're the things that can really cripple them, is that money which they feel is going to nothing that they have to fork out every year.

14:23So I know you could say, well, we need more money in the economy, but it does feel like it's businesses that have already had a really tough time, like retail, hospitality, in the fitness area and that type of thing who got hardest hit in the pandemic because they all just had to completely stop pretty much and they're the ones now we were like being told oh you've got to take the tax burden but it'll be all right eventually even though we're probably not going to grow but hey just suck it up for now and then it'll be all right and I just think that's a very hard tablet to take I mean we we're growing and we're expanding and we've just opened two more units this month in Yorkshire which is great we're finally expanding north and we've got plans for more but the margins and everything are massively reducing so this then becomes a question of is it worth it and like with the fitness business now that was due to opening newcastle in january but we're still in negotiations with the council over the property and again all of our sudden our costs have suddenly gone up again and it just makes it really hard to forecast as a business as well but it's just that you can't underestimate like what is going on from a small business perspective in the current economic environment it's really hard yeah it's why in general business confidence is it's too low and it's been falling um one of the things i've been consistently saying is this government has to make two really important changes one is it's got to translate its commitment to generating higher growth into a growth plan that whether it's investors or businesses are persuaded by it's got to it's got to come up with a comprehensive credible growth plan number one and it's got to find language that sounds positive and optimistic yeah rather than it sort of oh my god it's all you know there's been too much of we inherited a mess it's all the last government's fault things are terrible and the interesting question for me is actually whether anybody at the top of this government actually has that sort of sunny personality that enables them to present a positive case with to use that word again credibility one of the things that blair famously had was an ability particularly in the early years to cheer people up yeah and we haven't seen actually somebody with those skills in this country for some time but you know canes talked about the importance of animal spirits he called it it's really the sort of confidence that we all have and you know what we desperately need is leaders who manage to get our juices going, to make those animal spirits a bit more buoyant.

17:22Yeah, I totally agree with you. And it's interesting because do you remember a couple of podcasts ago and we were talking about how important this year is? And I think I said something about the thing for me, which I'm optimistic about, is that I do think we have a lot of business people in this country, a lot of entrepreneurs who are resilient, who are used to chaos, who are used to uncertainty, and therefore they often find ways to work their way through it. And I got a message from an entrepreneur, a woman who's got a food business. She was telling me all about it. And she was saying that is the key for her.

17:56She's like, she kind of cheered when she heard me say that because she's like, yeah, we do. Entrepreneurs, no matter what the politics, no matter what's going on, we'll just have to crack on and we'll still have to work our way through it. So that's what I'm optimistic about. And you're right, we need that confidence. We need that talking of times are tough, but, you know, we're a country that's got this incredible legacy and heritage. And I've just been voicing. It's going to be the centenary of the steam train, the railways, the Stockton and Darlington Railway, where, of course, you know, the kind of, why are you laughing, Robert?

18:29You're laughing at me. The future of this country is not artificial intelligence. It's steam. No, but my point being is I've been reading all about it and doing all these voiceovers for various things that are happening. But the legacy of this country, like we created the modern railway, like we've done amazing things. So why are we so bloody negative? Like we need to think about that. We've got the people now in our schools, in our colleges and universities who are going to pull us through this. They're going to, it's not the flipping fuddy-duddy, sorry to everyone who sold it, people are whinging on about fiscal rules and monetary policy and everything else.

19:12It's the people now coming through are going to invent this stuff and get us through all these problems. Totally right. I'm very positive about the resources of this country. And, you know, actually, despite the fact that I do spend quite a lot of time on this podcast spelling out the risks we face, I am genuinely always a glass half full person and I'm particularly excited by the concept of Steph, the tank engine. Right. OK, we're going to have a quick break and then shall we take some listener questions? Because we haven't done that for a little while, have we? So let's do some listener questions after the break.

19:48Welcome back to The Rest Is Money with me, Robert Paston. And me, Steph McGovern. So why don't you pick a question? Yeah, I like this question that's come from Jasmine or Brian, which is, in your opinion, what's the most misunderstood concept in economics today? That's a really good question, isn't it? Because I guess there's two senses to this. There's lots of economics that's not understood, but there's also some key things that are completely misunderstood. and you know I suppose we people like you and I are constantly trying to explain it to help people understand it but there are misunderstandings what's the thing for you that you think people misunderstand?

20:28Look I think that's that distinction you made between not understood and misunderstood is a tricky one I am going to talk about GDP gross domestic product partly because it's both not misunderstood very widely and also quite widely even by people who should know what they're talking about it is also misunderstood i remember when you and i were both at the bbc you know now looking sort of you know i mean i joined the bbc in 2006 so we're getting over almost 20 years ago one of the first things that i was told when i got there was that they had done research on what viewers understood about economic and business concepts and pretty much nobody among the millions of people who watch the bbc or listen to bbc almost nobody knew what gdp was so every month when we talked about the gdp figures whether it was on television or radio we couldn't just say gdp we had to give a short summary which then took you know you know if you've got a news bulletin you've only got three minutes but quite a lot of the news bulletin every month was trying to tell people what the hell gdp was and why they should care about it and you know i used to come up and let's be absolutely clear the paraphrase i always used is also the kind of thing that's not exactly intuitive for people because i would say gdp or national income right as though somehow the idea that a country has an income makes sense to people.

22:07It doesn't really. None of this stuff is intuitive. But so let's just talk about what GDP is. And this is one of the things that I think people will find very confusing, is there are literally three different ways that economists measure it. There is what's called the production way of measuring it. There is the income approach and there is the spending or expenditure approach. Now, one of the things that will, I guess, make sense to people, I don't know whether it's one of those things that intuitively makes sense to people, but the value of production will always equal income, will always equal what we spend, right?

22:56That's why there are these three different ways of measuring it. Now, the production approach basically looks at the value of output. That's the value that every business produces in the country. It subtracts from that the so-called intermediate costs so that you're not double counting. So if you've got a business that is supplying a part. And then at the end of it, it sells that part to another business. And that business obviously then charges to get back the cost of everything. If you include the value of the intermediate with the final value, you're actually inflating the value of production, if you see what I mean.

23:47So you have to deduct that intermediate cost in that measure. Then And I think the income approach always seems to me to be the one that makes most sense to people, which is you're adding up what we're all paid to the profits of companies. But it also includes things like rents and interest on our savings. And then finally, there is the so-called expenditure approach. And that is the value of everything that we spend on goods and services in an economy. And you also have to make an adjustment there for net trade. Right. So that you have to essentially also make an adjustment for the balance between exports and imports.

24:38Right. Those are the three different ways of measuring, as I say, expenditure, production and income. Now, these are not exact sciences. And one of the things you'll have noticed is that the Office for National Statistics spends years revising the numbers that it's put out, because over time it requires more data about all of these different categories. And it then years later says, oh, I'm really sorry. We said that the economy was worth X a few years ago. We've now discovered it was either rather a lot bigger or rather a lot smaller. Yeah, that's the thing I was going to say. The thing that I always used to get asked about this is, why has it changed?

25:19Why is it now two years ago, we didn't grow when we were saying, and it is very hard to get your head around. And also because it is a number, which doesn't mean anything on a local level, lots of people don't get it because it doesn't really mean anything to anyone other than the economists and the government. They want to be able to say this is how much our economy is growing. It's quite esoteric. Then there are lots of other really important aspects to all of this that are important. So one of the things that I think is widely misunderstood, and that is probably the media's fault, is why do we talk about GDP?

25:55Why does it matter? it's because all those incomes that we earn or all the amount that we spend all of that for example determines tax revenues that the government can generate so it's a measure of you know what we can afford to spend on vital public services schools and hospitals it gives you a sense of you know if gdp is rising then there's going to be more tax revenue available and you know we can have better schools and hospitals, all of that is important. Obviously, if the economy is growing, then in theory, it should mean that wages should be going up. But this is one of the areas where it's misunderstood.

26:38If the numbers of people living in a country are rising faster than GDP, one of the reasons why people are concerned about the level of immigration is if the number of people coming into a country is rising faster than GDP, then, of course, living standards, wages won't rise. You need GDP to rise faster than the population for wages and living standards to rise. And that's why we focus on this really important concept of productivity, because productivity tells you whether the output of people is rising. And that determines how much that person can afford to be paid. But, you know, if you have a situation, which we have had, actually, unfortunately, over the last 15, 16 years of GDP divided by the number of people stagnating, and that has been the picture, right?

27:35We've had very sluggish growth in GDP over those periods, but we've also had rising numbers of people in this country. GDP per head has been falling. And so it isn't just the overall level that you need to look at. You need to look at GDP per capita. And then there's one final distinction that I want to introduce here, which is there is nominal GDP and there is real GDP. So when ITV or the BBC report GDP figures, they tend to focus on real GDP. That is GDP adjusted for inflation. That is the most important measure you would argue, because, again, that tells you in better terms whether the economy is actually growing in a way that should be able to improve our living standards.

28:32But nominal GDP also matters, particularly when you have got a government with high debts. Right. And this is why historically you would argue that governments have stupidly in the past turned a bit of a blind eye to inflation. Right. Because one of the things that inflation does is it increases the pounds that are generated in an economy and the pounds that the government collects. But what it doesn't do, inflation, is it doesn't increase the pound value, the nominal value of the government's debts. Right. So inflation, weirdly, is good. Certainly a modest amount of inflation is good for reducing the debt burden.

29:35Right. So long as a government isn't punished by investors pushing up interest rates. Right. But one of the things that I remember being really concerned about after the financial crisis of 2007, 8, when we looked as though we were going into a deflationary spiral is when prices are falling, the real value of the government's debt rises and you get into a really appalling cycle. of the burden of a government's debt becoming less and less affordable. So as I say, nominal GDP is not unimportant, certainly in the short term, in helping you to understand whether or not a government is in a position to essentially generate sufficient tax revenues to service its debts.

30:35Please, can we go and have a cup of tea now? a cup of tea that's not rising in price too fast yeah thank you for the questions though that's probably all we've got time for now but do send them into us our social media pages or email us restismoney at gmail.com but yeah no it's interesting that misunderstood economics if anyone wants us to explain anything maybe you think or you've misunderstood or not understood let us know and we'd be happy to do that as you can see it gets robert's juices going right that's it from us bye-bye all the best bye-bye