179. The Ugly Side of Trump’s Big Beautiful Bill

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1:30Hello and welcome to The Rest Is Money with me, Robert Peston. Now, I'm just going to chat to you without Steph for a minute or two, because since she and I recorded this episode, there's been what you might describe as a little spat between the President of the United States and the world's richest man, Elon Musk. Now, in the podcast that you're about to hear, we look at the sort of what you might call the underlying economic markets tension between the two of them. and everything that we talk about is highly relevant to an understanding of the aspects of their disagreement that aren't to do with personalities and ambition.

2:28I think in a later podcast, we will come back and examine in more detail perhaps the implications for business of that row. but what I just wanted to sort of make clear is if we don't refer to it in the coming podcast that's simply because it hadn't absolutely exploded in the extraordinary way that it subsequently did but nonetheless what we have to say still feels highly relevant.

3:08Hello and welcome to The Rest is Money with me, Robert Paston. And me, Steph McGovern. And also in the room, Big Beautiful Bill. Could you imagine if you're called Bill at the moment and you keep hearing Trump going on about Big Beautiful Bill? I imagine bars across America are literally... There'll be merch. There'll be merch, won't there? There'll be hats, Big Beautiful Bill. But what about your Big Beautiful book before we get on to that? All I see on blooming social media is you holding out copies. You were on the production line, wasn't it? What was that about? Yeah, so, well, you know I love a factory because obviously I started my life working in one and then with breakfast I visited them all the time.

3:44But you're shaming all of us. I've never done that. Yeah, it's so cool. And I feel shamed. I don't have any bleeding books and nobody's ever invited people to the production line. How did that come out? Because I asked if I could go and see it being printed. It's really cool, you know, to watch the process. I went to, there's like, there's two big players in the book printing market in the UK. One's called Clare's and one's called CPI. CPI is the one I went to. And they have something like hundreds of thousands of books, You know, they're printing every day and hardback, paperback, all different sizes.

4:11They have bits where they spray the edge in and all sorts. And is it robots? No, it's not, actually. There's a lot of automation. So there's a lot of the line is, you know, where the edges, where the hardback cover gets glued on and all of that. That's all by machines. There's people putting them in the machines and then checking them. But there's also like the way they spray paint some of the edges. There's literally people spraying them. When you see those nice decorative edges on the pages, not on the bind. So that's still a skilled job, basically. Yeah, that's actually quite a new job as well.

4:47It's the spring of... Because I don't mean the side of the book that you would... has the name on. I mean the other side, which is the edge of the pages. So there's this big fashion now, and it comes from the romanticcy genre, which you and I are not in. I look at... Listeners, you may want to switch off now. I'm not a Romantic fan. Yeah. But there are a lot of people who are, and they love buying these books with these beautiful, it looks like art, sprayed edges. So it's like a hand-sprayed thing that they do. Anyway, I went to see it being printed. It's not out yet. It's out on the 3rd of July, but it's called Deadline, and it's a thriller.

5:24And I'm going to try and get it in as much as I can over the next few weeks, because... That's such a surprise. Robert's got one called The Crash as well. It's not as good. Oh, stop it. I'm joking, I'm joking. But yeah, no, that, but it was, do you know what was interesting as well? They were talking to me about cyber attacks because they'd had a terrible cyber attack happen to them in the factory and it had basically stopped production for weeks because they'd managed to hack in a fishing exercise and managed to get in and basically they had to then close down all the machines while they worked out at which point, you know, how it got in and how to solve it.

6:02and it's... Can I just, because it's suddenly this sort of nightmare thing just flashed in my mind when you told me that, we're not going to talk about this today, but did you see that HMRC, the tax man, was hacked and handed out... 47 million? To crooks. I mean, what? The tax man got conned into handing over taxpayers' money. Oh my God. They pretended, what was it, to be like 10 ,000 different people or something and then that's how they managed to convince them to give them... money. I mean, I literally I just wanted to cry. But the thing I would say is that these hackers are very sophisticated because, you know, I've interviewed plenty of people who've been personally hacked or given away money to criminals, fraudsters and actually they're really sophisticated Oh my God, the sophistication is off the charts, you know, whether it's basically, you know, using AI technology to mimic people's voices, you know it's terrifying.

7:02how sophisticated they are when they try and get in. But even so, I thought Agent Marcy was a fortress. I mean, why isn't it a fortress? I know, I know. Well, right, should we go back to Big Beautiful Bill? Let's go back to Big Beautiful. Yeah, so this is, I mean, I'm sure. I'm not going to get that image out of my head now of this burly man in a bar. I mean, anyway, yeah, go on. Big Beautiful Bill. If you're called Bill, let us know how you feel about it. So, yeah, so this is this plan, isn't it, to slash taxes, you know, reduce spending on things like the Medicaid, this government healthcare scheme for lower income and disabled Americans.

7:44And what did they all call it? He didn't call it big, beautiful bill. What did he call it? Yeah, Musk called it a disgusting abomination. So their friendship has clearly fallen to the wayside, which we were all expecting anyway. And also, obviously, like it happens in the UK, there's been a lot of analysis of these numbers. and actually the kind of budget office, the fiscal watchdog over there, reckon it's going to add$2.4 trillion to the US debt in the next 10 years. 2.4 trillion is one of those numbers where when you think about it, your brain explodes. Obviously, he's got it through Congress, hasn't he?

8:19And we're now waiting to see whether he's going to get it through Senate. You've been talking to people about this, haven't you, about getting it through the Senate? Yeah, so look, you know, investors have been increasingly anxious about the way that this is expanding an already large American deficit. And as we've talked many times on this programme, you know, it is no longer, you know, the talk of madness to analyse whether there will at some point be a genuinely huge fiscal crisis for America and therefore for the world, whether at some point its debts will get to a level where, you know, an American government will struggle to repay.

8:56That's a sensible conversation to be having. Investors on the whole don't like the extent to which Trump is planning to borrow, as you say,$2.4 trillion more against a backdrop where the American deficit was already running at 6-7 % of national income, which is already, by most measures, a lot of deficit-financed tax giveaways and spending. And so what have we seen? We've seen this remarkable thing of US long term interest rates rising as investors have decided they're less interested in lending effectively the government long term. So the yield on long bonds, long long government bonds, 30 year borrowing by the government yield has risen significantly.

9:48Normally, when interest rates rise, the dollar rises, but the dollar has also been falling. And so all round, what you've been seeing is mostly one of the observed is overseas investors deciding they don't want to invest in America. And in some cases, actually dumping assets, including shares. And in other cases, just saying that, you know, they've got money to invest. They're going to invest it elsewhere. And we'll come back to that in a minute. I was talking to a number of sophisticated investors today, and they say that they do think that this big increase in American borrowing is now discounted, taken account of, in the price of US debt.

10:34But the one thing that is not being discounted and therefore, if it were to happen, would lead to further falls in the dollar, further falls in the prices of US Treasuries, US government borrowing. And that is this so-called revenge tax. Yeah, this is fascinating. Which is an extraordinary clause in Big Beautiful Bill or the Big Beautiful Bill. And it's an extraordinary clause. It's a clause in Section 899, and it's called the Enforcement of Remedies Against Unfair Foreign Taxes Provision. Now, we all assumed because this would give to the president the ability to impose a punishment tax on American assets held by either foreign governments to impose a 20 percent levy on interest, income and in some cases capital gains.

11:38we all assume because Donald Trump loves having these powers to punish foreign states, that this must be a Trump initiative. But it is slightly odd that he never talks about it, right? And actually when I talk to my sort of American sources, nobody's quite sure how it got into the bill, but it's in the bill. Right. And these people have also done surveys of senators and they're just not sure because this bill will only become law when the Senate passes it. And they're not sure whether or not ultimately this clause will be taken out. And that's why it's not massively affecting prices at the moment.

12:19But there is a really big risk, I'm told, that it will be kept in. If it is kept in, I have to say, I think there will be yet another shock to the value of American assets across the board, from shares to bonds, even to US property. because if you're a foreign investor, right, you're just going to think, why do I want to take the risk, the whim of the president? He's going to decide to punish me. So can I understand, make sure I understand this properly. So I'm an investor and I'm based in the UK and I'm British and I decide to invest in American assets. I've bought a load of, you know, whatever, Nvidia shares, whatever, Alphabet, whatever.

13:04And then Trump goes, hang on a minute, I'm not happy with the UK. So anyone who's British is now going to face a 20 % tax. So it's not quite anyone. And I think there is actually an exemption for pension funds, for example. But if you are the Bank of England and the Bank of England would, for example, be a buyer of US government debt. Yeah. Right. So they've got treasury bonds. The Bank of England would be punished in those circumstances. If you... So China. So if you're China and you've got, you know, 800 billion treasuries. And we know that Trump hates pretty much everything that China does in terms of...

13:43So to be clear, this bill is about what they call discriminatory taxes. Now, I have to tell you, it is inconceivable that Trump does not believe that China, you know, is sort of fair to American businesses. And I'm absolutely certain if Trump wanted to prove that there were discriminatory taxes in China against foreign businesses, including American businesses, he would find that pretty easy to do. So, yeah, the risk is that Trump would impose this tax on U.S. government bonds, for example, held by the Chinese state. You'll also find, I am sure, that various state entities, because there are big state sovereign, effectively sovereign wealth funds in China, they will hold US shares.

14:31Right. So again, there is a risk that there will be a tax imposed by him on those. In our case, just to be absolutely clear, we know that there is a risk to the UK here because we know that Trump, because he said it, hates the digital services tax. He thinks it discriminates against American businesses. And this is that tax, isn't it? That 2 % tax on revenues of companies with search engines, social media services and online marketplaces who essentially make money from UK users. So it's that tax. It raises about 800 million a year on average. So he hates that, doesn't he? And that's what he could leverage against us in order to then whack this revenge tax on us.

15:16Yeah, I mean, that is completely correct. And again, it's slightly unclear which non-state investors would be hurt. But it looks, as I say, I think there are exemptions for pension funds and charitable organisations. But I think pretty much any other investor would be at risk. You know, British investor in the case that the tax was imposed on Britain would be at risk of being punished. I mean, you've got a few Nvidia shares. I have, yeah. You've talked about it on the programme. It's unclear whether individuals, again, or whether it would only be essentially institutional investors. But the broader point is this.

15:58Anything which says to overseas lenders and investors that they could face at the whim of a capricious president attacks on their American assets, they're just going to say, why would I bother to invest in America pretty much at all faced with that uncertainty? and so as I say just the simple bottom line is if this revenge tax clause stays in the big beautiful bill I mean no doubt that we will see another significant market shock both you know share prices and bond prices in America will fall and the dollar will fall yeah because and as we've said before on the show you know a trillion US treasuries a trillion dollars worth are owned by Japan 800 billions owned by the Chinese they could just say we want our money back if you're going to Well, we're certainly not going to roll it over as of when the money's due for repayment.

16:48Yeah, and like you've mentioned before about all the refinancing, it's something like$8 trillion of debt needs refinancing in the coming year. And, you know, that's a third, almost a third of America's debt that needs refinancing. And as you say, you know, this could cause, and we're seeing it start to cause, people looking at moving their money out of American assets. Like I was with quite a few asset managers and investment firms yesterday, one of which being Blackstone, who are, you know, one of the world's largest investment firms. They've got something like$1.1 trillion of managed assets.

17:21And, you know, they're all talking about shifting away from the US and that money coming to Europe, which hits that point you made several times about how maybe this is the reset we need for the rest of the world. And I do think that is rational because even if we're not getting our growth rate up in the UK and Europe as fast as we should, and we just need to, and we will talk about this later in the programme, just the imperative of recharging our economy. Nonetheless, we do look stable and predictable. And to any investor, stable and predictable compared to the sort of chaos in America, that's attractive.

17:54And what is also stable and predictable is the fact that we need to go to a break now. So we will be back in a couple of minutes.

18:05Welcome back to The Rest is Money with me, Steph McGovern. And with me, Robert Peston. So one of the things we wanted to focus on straight away is you made the spot on point that America's chaos is to an extent Europe's dividend, that money is coming to Europe because it looks so stable. However, slightly depressingly, there have been a number of events in the last literally couple of days, as we record, with investors actually turning away from the UK. So this fintech leader, Wise, we don't have that many tech leaders on the London Stock Exchange. it has decided to go for another listing. It's going to list in America and that listing in America will be its primary, its lead listing.

18:53So this is, I'm afraid to say, another thumbs down for the London Stock Exchange. We've got a company called Cobalt, which is a mining company that we thought was going to list in London. It's now got on hold and gone away, which is worrying. And then there is this very controversial Chinese company, Shein. Yeah, Shein, the fast fashion chain, yeah. Which, you know, look, lots of ethical investors have sort of been critical of the London Stock Exchange in the UK for wanting Cheyenne to list here. But it would have been, you know, a really big market listing for the London Stock Exchange. I'm told from people close to it that there's now a very good chance that it's going to list in Hong Kong.

19:32Yeah, and it's depressing. Cobalt Holdings is a company you're talking about. And cobalt, as I'm sure you know, is a key ingredient in making batteries. and there's this lad who set it up called Jake Greenberg. So he set up this business to help people invest in cobalt and he'd previously done this for uranium and then sold it for a load of money in 2018. And so what he was trying to do was list on the stock exchange in order to raise money to buy cobalt from the mining giant Glencore and he was hoping to raise about$230 million by listing in the UK. But now, as you rightly say, they're not going to do that in the UK.

20:11They're looking at potentially raising this money privately in order to do it. But all in all, this was what looked like a really good deal, a really good sign for our stock exchange, which has just fallen by the wayside once again, you know, joining, as you say, these other companies like Wise, which has put in its primary listing in New York. You've got Flutter, who owns Paddy Power, also left Ferguson, the plumbing supplier, We are Ashsted, which is a construction equipment rental company. These are all big players who were in the FTSE 100 and in the last five years have chosen to list elsewhere.

20:46But why would you list it? I mean, the thing that is depressing about this is why would Wise want to move its primary listing to America when America is in chaos for just the reasons we've been talking about? So this failure of the London Stock Exchange and maybe the whole UK to really shore up the confidence of important companies and important investors really worries me. I mean, we had a sort of similar, slightly different example of a huge investor turning its back on a massive UK investor. We talked about the crisis at Thames Water, our biggest water company, 15 million customers, mind-boggling amounts of debt.

21:31There is a really serious risk of this company collapsing into a special form of administration, which would actually in practice more or less mean that it's nationalized by a government that definitely doesn't want to nationalize it and definitely doesn't want to have these liabilities on the public sector book. KKR, arguably the most famous private equity investor in the world, one of the original really giant private equity investors, was in exclusive talks with Thames Water. Its so-called infrastructure team was absolutely convinced he could not only turn it round, but also, you know, make good money out of this.

22:08One of KKR's founders, Henry Kravis, very, very well known investor, then has this conversation with Keir Starmer's lead city financial advisor, a bloke called Varun Chandra, works in Downing Street. And then after that conversation, Henry Kravis and KKR back away. And as I understand it, the reason they back away is because of, quote, the political risk. They're worried that they don't understand, they don't think that the regulatory structure is predictable enough for them to be able to be absolutely confident what their returns will end up being. And certainly the regulation of the water industry is in a state of flux at the moment.

22:51But there's something else, which is they are deeply worried. And actually, for this, I have some sympathy that they're worried that if they make big profits, the entire political establishment will then pile on them for making big profits out of water, even if they were to succeed in turning it around. So they just think this is radioactive and they back away. And actually, this sort of goes in a way to a big dilemma for any government. It happens to be a Labour government at the moment, which is, you know, how do you persuade investors that this is an economy where you're not going to be slaughtered as somehow a bad person if you make profits?

23:33Yes, you're allowed to make money and that's OK as long as you pay people properly and, you know, pay taxes and everything. So obviously, spending reviews coming up, and as ever, there's bits and bobs which have already been coming out of it. You know that I am really bothered about infrastructure and, you know, I was miffed at the start of the year when all we heard Rachel Reeves talk about really was like Heathrow expansion and the development of this corridor between Oxford and Cambridge. So I can ask you, what did you think? She's announced£15 billion of transport investments in the North and Midlands.

24:05Tell me what your view is of that. Yeah, I was, I mean, I feel like it's good to get anything at the moment, isn't it? So this is a talk of a Liverpool and Manchester new railway line. I think that's really important. Money for West Yorkshire in terms of a transport system there and in South Yorkshire as well. What about your neck of the woods? Are you getting anything? Yeah, they're extending the metro, which the metro is very, it's a really good little system in that it kind of links up key bits of Newcastle and they want to extend that. And it is, I know a lot of people who use that to commute.

24:39And it is nowhere near as slick or as fast or as frequent as the London Underground. It's probably never going to be. But again, like it feels, yes, so I'm pleased that there's some out of London, out of the South East, Oxford, Cambridge, all that area, that, you know, that there's plans for other areas, including the Midlands as well and Manchester, as we've said. But it does feel like little projects and we're creaking to a halt on our railway system in this country. So, yeah, is it enough? I don't know. But what do you think about what you've heard? So I think the way we have to think of the announcement of the spending review is really that there are two very distinct elements of it.

25:27There is the investment and then there is the day-to-day spending. And the two stories are completely different, right? Partly as a result of the way that Rachel Reeves changed the fiscal rules back at the last budget in the autumn. She created space, more ability for her to borrow for investment, particularly in infrastructure. This is 113 billion she's got, isn't it? And that means that if you are Ed Miliband in charge of energy and climate change, if you are a capital heavy department, right, like, as I say, energy, like transport, right? So transport, the settlement for transport will, I think, again, look for the reasons you've just been saying will look pretty good because, you know, in the end, transport is mostly about building stuff.

26:24But if you are in a department like the Home Office and you're in charge of the police, right, you know, police is mostly about paying salaries. And so because of her obsession with the fiscal rules and she's got these two rules, one is about getting the debt down and one is about balancing day to day spending with taxation. Yeah. Not borrowing for day to day spending. The settlement, we already know the amount of money available for day-to-day spending between 26 and 29, right, is only allowed to rise by 1.2 % every year, which is a small real terms inflation adjusted increase. But given that they've already made commitments to significantly increase funding of the health service, right?

27:18We don't know the precise number for those years for the health service. We'll find that out. But it'll be way more than 1.2%. You know, they've already made a commitment to increase the spending on defense. It's going up from 2.3 % to 2.5 % of our national income. They've committed to that, obviously funded by cuts in overseas development. But they've also said they're going to get it up to 3 % within the next parliament. So defence is taking a bigger share of the cake. Once you have essentially given increases to those two very big departments, there's nothing left for anybody else. And depending on how generous she turns out to be for health, actually other departments could face real cuts, real cuts.