134. Will Rachel Reeves’ New Found Optimism Bring Growth?

0:11Hello and welcome to The Rest is Money with me Steph McGovern. with me Robert Pestons slightly on the road today because it's been a big day hasn't it Steph? It has yes so this is Rachel Reeves and her big growth plant you were there you heard it didn't you it was at Siemens go and tell us what the atmosphere was like and kind of what she said did it resonate? I'm just going to actually set the scene a bit because one of the things I was rather struck by I don't know if you've been to this Siemens plant I have yes but it's really impressive they are actually one of the biggest manufacturers of those amazing magnets that go into those MRI machines that tell us, you know, whether something dodgy is happening inside us, absolutely central to all sort of modern healthcare.

0:58And we have in the UK, German company, but in the UK, you know, this is, you know, one of their most important plants and it ships the high tech bit of the scanner over to Germany where they sort of bolt it together and they're about to expand with a huge new even more higher tech sort of version of what of this plant just down the road and it sort of reminded me that whenever we're sort of gloomy about our manufacturing prowess actually you just gotta look around because there are great success stories around the place of which this is this is one and i thought it was frankly in a country where we need a bit more optimism it was a good it was a unusually for government because often they find backdrops that are sort of you know frankly pointless this was a good backdrop for manufacturers make the best backdrops because as you say there are some cracking manufacturers in the uk which are incredibly high tech and fascinating to see in action and it's where all the you know that they're great at productivity as well so they they often are yeah that's why yeah that's why i love visiting them but yeah so go on then so what was it like there so the backdrop was great.

2:07What was the atmosphere like? So the atmosphere, look, I said to her, because I did an interview for my show, the Peston show on ITV, you know, I started by saying, you know, you've become, having essentially been at Eeyore for months and months, you're now the most cheerful person in Britain. So I asked her, you know, sort of initially, you know, when are all these bold investment plans going to actually make people feel better off? But to answer your question, she's doing a pretty good job of no longer looking as though, you know, she feels the sky is going to fall on her head. You know, she's doing a pretty good job of essentially showing confidence in Britain's future.

2:45She's not quite in the same league as Donald Trump when it comes to sort of making Britain great again. But she sort of learned that lesson of his inauguration, that what people want to hear, putting to one side the credibility of individual policies, is they just want to hear a bit of belief in our prospects. And she managed to do that okay. And to be clear, for me, there's at least one thing that she announced before, and we talked about this on one of our very recent podcasts. One of the things that she's doing that I do think is a very good idea is this effective merger between the cities of Oxford and Cambridge, the universities, the knowledge businesses, basically speeding up the improvement of transport links, rail, roads, allowing much more building, allowing the creation of a new train station that could be the centre of a new town close by.

3:41There's a ton of research to support this, but it is just common sense. We have in these two great places, homes of two of the world's absolutely top-rate universities. We have some thriving high-tech businesses, life science businesses, cutting edge. Let's be clear, we still have this problem in this country of giving those sorts of businesses the financial support they need to go from being small, but fast-going businesses into world leaders. This issue of scale-up finance, as you definitely didn't address today, and we might again come back to that if you want to a bit later in the program.

4:23But the fundamental point is this will create both plenty of new jobs, plenty of new homes. And that for me is a very good thing. So that was the one thing that she announced today. Look, I'm obviously slightly talking about my own book or books because I've written about the importance of this Oxford-Cambridge supercluster in the last book. So obviously I'm going to be agreeing with it. But I am relieved that she is showing the requisite ambition here. Yeah. And like you say, you know, she talked about how it's 66 miles between Oxford and Cambridge, but yet it takes like over two and a half hours to go on a train between those two cities.

5:01And yes, I totally hear you. And I think you're right. You have said this for ages about how important that corridor is. But, you know, again, like it's a hundred miles roughly between Manchester and Newcastle. It takes over three hours on a train to get between those two. You have to change trains. You go on a service with no signal. And again, Manchester and Newcastle of both cities with brilliant universities in them doing awesome stuff. And there's great businesses in both those cities as well. And it just feels like, you know, I am all for or us doing both, to be honest. Why can't we do both if we're going to do one?

5:43It just feels like that is just going to pull more skills and more talent to the South. And great, again, if you're creating new towns and stuff and new homes, then hopefully that will make it more affordable for people and things. But you're draining away these other big cities with also incredible businesses and universities and talent. And that's what my beef about this is, is you're right, that's an obvious thing to do. But please, just like, let's not neglect all these other places that sometimes beat these universities when you look at how they rank them and how they rate them and what's going on there.

6:20So I want to pick up on what you say, because you're absolutely right. The thing that most concerns me about this announcement, which I nonetheless think is a good thing, is I think there is a risk that we are going back to the sort of Thatcherite, Blairite consensus of the late 80s and then the 90s and the early years of the century. What do I mean by that? In that epoch, the view of the Treasury, the view of chancellors and prime ministers was, let us reinforce the competitive success of essentially industries in the South. So let's look at Thatcher, the way that she, through the entire way of her government behind the development of Canary Wharf, so financial services, the city and geographically slightly beyond the city, Canary Wharf, the incredible success of the city of London gets reinforced.

7:13And, you know, we talked before about how actually to an extent they were too reckless and the boom became bust. But the philosophy behind that was that all this growth and all the tax revenues that came from the city of London could be used effectively to subsidize public services in the parts of the country, which, you know, had to a large extent actually been really damaged by Thatcherism. where all the manufacturing industries and the mining and the rest of the northeast and the northwest and the North Midlands would be damaged by Thatcherism. And so the consensus was, OK, what we'll do is we know that these are depressed parts of the country, but we will simply take the surplus profits from the south and essentially give them as handouts to the northeast and the northwest.

8:02And unsurprisingly, people who live where you currently live take the view, no, we don't want to live on handouts. We don't want handouts. No, you don't want handers. No, you definitely – We want our own. We want to grow ourselves. You want to grow yourselves. You want to have – you know, you want to be – you know, you want to have your own thriving industries. You want to have good quality jobs. And, you know, the problem with that approach, which, you know, you could argue we're seeing again in, you know, essentially a tonne of money going into the Oxford-Cambridge corridor, the supercluster, is we are reverting to a model which says we're going to be relying on the generosity of wealthy southerners to bail out, you know, the ailing northeast and northwest.

8:49Now, I did put this to Rachel Reeves. And, you know, she insists that that's not the case, that, you know, they are investing, for example, in, you know, East-West Westrail, Transpennine, but we already knew about that. And, you know, yes, she's backing Old Trafford development. You know, you pay your money, it takes your choice, A, whether you think one of the world's richest football clubs should be paying for all the development there itself or whether it actually needs public money. I said how much public money is going in. She couldn't actually answer the question. She said only Annie Burnham knows that, but plenty public money is going to go in.

9:27But to your point, I am concerned. I mean, she admitted, I said, you know, what you're doing here is actually you are making worse the wealth gap between north and south and she said in response you probably heard yes that would be true if they weren't also investing in the north but you know i think your point which i agree with is well they're not doing enough in the north and also the north is not just one homogenous lump like it is pretty big and manchester to me is not the north you know and also just on the old trafford development great but old trafford is pretty much Salford. Salford, I used to live there.

10:04I lived there for five years. I was one of the gang that moved with the BBC when the BBC invested there. And it has transformed that whole area. Media City is like a thriving, creative hub. There's loads of kind of national and international shows made there. There's lots of offshoot businesses around it. It's literally across the water from Old Trafford. You can regularly walk across it. There has been a lot of development there. And again, I'm not telling Andy Burnham and his gang not to do it. Of course, you want to increase the prosperity in your region. But I just think nationally, from a national government perspective, is that where it needs more development?

10:43Again, you know, Manchester United is a very rich club. And let's be clear, it's co-owned by the richest person in the UK, Jim Ratcliffe, a multi, multi, multi, multi, multi billionaire. Does he really need subsidies from a taxpayer? Yeah, of course. He's the owner of Ineos, which is a massive petrochemicals business that has its fingers in many pies now. And what I heard today was there's massive projects happening in the south and a kind of a couple of projects in the north. Can I stop you for a second? I've got to stop you for a second because you did say something that possibly will have caused some of our listeners to be choking on whatever they happen to be drinking or eating.

11:24You said, for me, Manchester isn't the north. Yeah, it isn't. It's the Midlands. Because it's, like I say, it's 100 miles south of where I am and across country as well. But it's like, right, when they moved the BBC to Manchester, I remember BBC management saying, oh, you must be so chuffed you're going home. And I was like, no, I'm not. It takes me longer to get from Manchester to Middlesbrough, Newcastle. than it does from London to Newcastle. So it's no help for me whatsoever for it to move to Manchester. And again, I think that was the right decision. I'm totally not saying that shouldn't have happened and it shouldn't have gone there.

12:06But it's just this view that, oh, that's the North ticked off then. And it's actually very diverse and not the same needs in those places. So that is kind of what I mean. I mean, you know, we get quite territorial in the North, don't we? and we're like, we're either all together. You know, I have to say, I never found myself, I never thought I'd find myself in, you know, defending the northern credentials of Mancunians. And if you're listening, Mancunians, and you want to send us, shall we say constructive letters, but maybe send them to Steph. And on that note, now I've declared Manchester has not been in the north.

12:41Shall we have a quick break?

12:46Welcome back to The Rest is Money with me, Steph McGovern. And with me, Robert Beston. So the third runway at Heathrow, we talked about this the other day. And when Rachel Reeves announced it today, she said she quoted Frontier Economics saying that a third runway could increase potential GDP by 0.43 % by 2050. I mean, that is a long time off, by the way. But she said over half, 60 % of that boost would go to areas outside of London and the southeast. and then she gave examples of scotch whiskey and scottish salmon like okay so those products need to be thrown down or somehow you know travel down from scotland to then go out of heathrow wouldn't it be better to increase the capacity and the flights directly from scotland to places where these products are sold so yes okay i can say at the margins it helps capacity but it was mad that she announced Scottish examples that are going to do well from a Heathrow capacity when it's literally the other end of the country.

13:55Look, for me, I said that I think that the Oxford Cambridge Corridor supercluster is a really good idea. If I'm honest, I felt the whole Heathrow thing, the third runway associated development felt to me, there's a phrase very fashionable at the moment, which is the word performative. It's not like performative economics, gesture economics. What do I mean by that? I actually think this is more about trying to send a message to the world of investors that this is a government that is prepared to take tough decisions, not worry too much about climate change constraints. It's a government that's saying we've noticed that Donald Trump is in power and that he seems to be setting the agenda where he's downgrading the whole green agenda.

14:44But do I actually think, possibly even within our lifetimes, we're going to see this third runway? Well, I might bet 50p on it if I can still find a 50p piece. You don't see themselves in these days. But anyway, I might bet 50p on it. But, you know, I'm certainly not going to bet anything very significant. And I'll tell you why. I mean, you know, in the interview, I said, tell us when it's going to be there. 10 years, 15 years, 20 years. She wouldn't answer. Right. She said that was up to Heathrow. The only thing that they're actually committed to, and I would say only loosely committed to, is on the one hand, they want Heathrow to present a proposal for the runway by the summer.

15:30and then they are saying that they hope to give formal planning permission, development permission by the end of the parliament. Now, development permission is a million miles from shovels in the ground and the thing actually starting. And the other thing which is quite striking about it, which again, I suspect Rachel Reeves likes, because she thinks it plays well with investors and businesses, is that this is an announcement which lots on the left of the party and even those not so far on the left of the party, like the mayor of London, Sadiq Khan. And hey, it's Sadiq Khan has said today that he will use all the tools in his toolkit to try and block this thing because he thinks it's bad for air quality, bad for the environment.

16:09And look, truthfully, you get any serious economist to run the numbers on what a third runway would mean for the reduction of carbon emissions. And basically, as I understand it, if they manage, which they wouldn't do, frankly, within the course of between now and 2030, if they manage to build a third runway between now and then, and we got all the enormous numbers of more planes landing at Heathrow, that, believe it or not, would wipe out all the CO2 reductions from the government's, let's I mean some would say unrealistic target of making all energy generation in this country green you know give or take a tiny margin by 2030 so even if they hit this target of making all power production green by 2030 that would be wiped out by a third runway and so from all points of view you would argue this is I mean it should say an interesting an interesting announcement Yeah.

17:17Hey, listen, I don't, you know, I'm not one for being a negative ninny. And I think I have definitely sounded like that in this. And, you know, it's, we often slag off politicians for not looking long term at things and for being short term, missed in a view to being voted in again. And of course, like a lot of these projects we've talked about, as you just mentioned, the third run where he threw and everything else is probably not going to be done by the next election. election you know and we've got to kind of applaud the government for looking at this more long term and not just looking for vote winners but the problem is why does it it's the fact that all of these things are going to take so long like the fact it takes can take 10 years to build a runway what it's it's and yet you've said it a million times how quickly have we seen elon musk build these massive AI centres or, you know, send a rocket off to space and things.

18:11And yet we take decades to build a flipping bit of tarmac with a few buildings around it, you know, to do the logistics. And look, you know, if you've ever been on a bullet train in Japan or even, frankly, high-speed rail in France, you realise how behind the times our infrastructure is. And the point about, of course, I mean, we talk all the time about China. I mean, the speed. And again, I've been on their high speed trains. They are incredibly impressive, their high speed trains. And they built them in some cases, you know, over a year or two compared to we haven't even got goodness any days when we're going to see HS2.

18:51But other countries, admittedly not constrained by, in the case of China, democratic politics, managed to get these things off the ground remarkably quickly, which sort of brings me on to another sort of missing piece today. You know, we should give the government credit in terms of its rhetoric. It is, you know, there's been a whole series of announcements over the past few days about how they are going to speed up planning, how they're going to remove some of the more absurd environmental constraints. You know, the need, for example, for HS2 to build this, you know, 100 million tunnel to protect bats.

19:26You know, they are taking steps to speed up some elements of development. And we are apparently going to get what Keir Starmer claims will be, you know, arguably, from his point of view, the most important piece of legislation of this parliament, which is all about ripping up planning constraints. But a friend of this program, Jim O 'Neill, I thought he wrote a sort of snap reaction in the FT tonight to what she announced. And I thought what he said on one point was absolutely on the money. So he quoted a frontier and economics assessment, which is something you've just, I think, referred to of the benefits of Heathrow.

20:02And what he says is, actually, if you really want to get investment into the UK, you've really got to do two things. Not only have you got to speed up things like planning, but you have to create an institution. And as it happens, the government has promised one. It's called the National Infrastructure and Service Transformation Authority, which... Snappy. Exactly. NISTA is, I think, how we're going to have to refer to it if more than you and me take an interest in it. But anyway, the point about it is to rank investment projects according to the economic benefits that they are going to deliver.

20:45And that has twin benefits. One is it gives confidence to taxpayers their money is not going to be thrown away. But equally, since all of these projects are allegedly going to involve big sums of private sector money, it shows the private sector that you have a government that's being professional, that's not being secretive. And he thinks that it will massively speed up the flow of really important funds to the UK to essentially rebuild the UK. And great. I'd love that to happen. I'd say it's about rigorous analysis, but then transparency with their analysis. It may sound techie, but I've got a lot of time for Jim, and I'm sure that he is right, that the more that the government shows that it understands essentially what the private sector needs, the more that the private sector will overcome its tremendous at the moment skepticism about whether this government is about more than talk.

21:45Yeah. And also in Jim's piece in the FT on this, he's pretty optimistic, isn't he? He lists the projects. And just to my point earlier about the North being a side salad, he literally says in the article, you know, we've got the Oxcam project, support for a third runaway at Heathrow, as well as a number of schemes in the North of England. And it's that again, you know, that highlights that point. And great if it brings in all this money and then investment and that gets divided out across the nation. Brilliant. But the optics here don't feel great for anyone north of Manchester. And I know there's a bit of Yorkshire stuff in there, Transpennine, but it still feels like sticking plasters rather than like things that are going to make a huge difference.

22:30I mean, look, I think the fundamental problem that the government continues to have, despite, I think, a speech that with any luck will make people a bit more optimistic that the government is moving in the right kind of direction to get the growth rate up, is that they refuse to confront the central concern of many businesses, which is that they operate according to double standards. As we've talked about before, there are plenty of good reasons in terms of the welfare of individuals to improve employment protection. But what most employers will say is that the rate at which these new employment protections are coming in is massively increasing their costs.

23:19$25 billion increase on the tax that employers pay for employing people, employers' national insurance, is a massive increase to employers' costs. You've talked about, if you're in the retail business, the incredibly increased burden that flows for reducing the subsidy on business rates. So if you put all of that together, we might all think it's good, but it is anti-growth, right? That discourages investment. And so it seems to me that what is lacking from this government is a sort of, if growth really is the priority that they want it to be, then they have to have a more coherent approach. And at the moment, they're giving with one hand and taking away with another.

24:10And the coherence isn't there. Now, I don't know if you saw this piece in The Times this morning, where apart from reducing planning constraints, the other thing that Keir Starmer has been talking about, and Reggie Reid has been talking about a lot, is encouraging our regulators to become more growth friendly, looking at their rule books, trying to remove rules that may be surplus to requirements to encourage businesses to take more risks. There are a number of issues around this where I don't myself believe that yet they have a coherent approach. So they sack the head of the Competition and Markets Authority.

24:46It's not really clear what it is they think the Competition and Markets Authority should be doing that they think will promote growth. I mean, if they think that, you know, basically ushering in more sales of British companies to foreign companies is going to usher in growth, I can tell you we've been trying that for 30 years and that's definitely not going to work. Selling our crown jewels to foreign companies is definitely not going to work. So I think we just need to know a little bit more about what they've got in mind there. And then if you look at something like the Financial Convict Authority, which is essentially there to protect individuals from being ripped off by finance companies, The Financial Contact Authority actually has produced quite an interesting set of proposals that might spur a bit more innovation in the financial sector.

25:28But it has asked the Chancellor, it seems to be a completely reasonable question, which we haven't yet heard back from the government on, which is, if you want us, the regulator, to take more risks, there will be consumer harm. There will be more scams. Right. And basically what the regulator wants to hear from the government is, you know, when that happens, you know, will you have our backs or will you just give us a good kicking like you normally do when there's a scandal? Because we're just telling you, you want us to take a different kind of approach to encourage innovation and growth. Well, you know, but whatever we do, there will be more cowboys and we can't stop all of that from happening.

26:07So they haven't answered the question, the government, which is, will they allow more consumer harm in the pursuit of growth, which is an absolutely central question. And they're just finally on this. The prime minister said that he regards this attack on rule books and regulations that somehow deter growth as his equivalent of Margaret Thatcher's massive deregulation of financial services in the 1980s and finance in the 1980s, or Tony Blair's embrace of globalization. I mean, I would love that to be true, because if it was true, because both the leadership shown by Thatcher and Blair on those issues did lead, frankly, to more prosperous times from the UK.

26:53It was a bumpy ride, but I just don't believe, I'm afraid, that as yet his approach to deregulation is anywhere near as ambitious as they were being. Well, we should probably wrap things up now, shouldn't we? I mean, we've chewed through quite a lot there and I'm sure there'll be more for us to talk about in our next episodes too. But you have got a show to do as well, haven't you? I've got a show to do. And as you say, tons more to pick up on this because what you and I talk about is both the ideas that are being expressed by Chancellor, Prime Minister to generate growth. and then we've got issues around the execution.

27:37But the ambition to get the growth rate up has got to be the right ambition. Yeah, yeah. And also I would say on top of that, as I see from my businesses and also from the businesses that I work with, is they will always find ways around the problems they get from policy to try and grow. There's always that entrepreneurial innovation going on around the edges too. We're already looking at how we can work with other businesses to lower the business rate costs or share space with other retailers to divide costs. It's like there'll always be people out there trying to still grow. People don't just give in in these times.

28:19They still try and grow so that despite what the government are doing, if it hinders them, they will find ways around it. Totally right. And that's, again, the suitably positive message on which to conclude this episode. So thanks for listening and see you soon. Yeah, bye-bye.