210. Can The Government Save The UK Car Industry From The Cyber Attack On JLR?

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1:21Hello and welcome to The Rest Is Money with me, Steph McGovern. And with me, Robert Perston. Now, we've got an absolute tonne of stuff to get through. I'm going to be looking later in the programme at the 30 billion black hole that the Chancellor faces for her budget. The 30 billion she's going to have to raise in taxes. is why there's that black hole and who's to blame. You've been digging into this very significant, apparent AI investment in the North East, haven't you? Yeah, there's a lot of excitement in the North East after Trump's visit, this tech deal that's been agreed between the US and the UK.

1:59So I want to talk about that and what the realities are when it comes to us becoming an AI superpower, which is what the boss of Microsoft said about us recently. So yeah, I want to talk about that. But first of all, I want to start by examining the catastrophe of the cyber attack on Jaguar Land Rover. This is the worst cyber attack in my estimate on any British company to date. There's been no production at Jaguar Land Rover since the end of August. Their systems have been absolutely decimated. It's had huge knock-ons for their suppliers. Tens of thousands of jobs in manufacturing and added value manufacturing.

2:48These are high quality jobs at risk. So this is a major problem. I mean, yeah. And just to put it in context, do you remember we did quite a lot of talking about the cyber attack at Marks and Spencers and how that really impacted the supply chain? You know, there were empty shelves, the cost was in the millions. This is much bigger than that, isn't it? It is. I mean, we've already seen in data about how businesses are feeling about the outlook that this is having an economically significant negative impact. The so-called PMIs, which measure underlying economic conditions, the PMI for manufacturing has fallen.

3:35And a significant element of that fall is to do with the real blow to manufacturing in the automotive industry as a result of this attack on JLR. and as I say not just at JLR which obviously puts the cars together and designs them but also among really important suppliers particularly in the Midlands. Just to give you a figure on what this is costing it's estimated that JLR alone losing£50 million a week in cost because of this attack from this stoppage so and you know that's just them and as you rightly say there's a huge supply chain behind them who are being impacted by this too. I mean, I was struck by a letter that Zahra Sultana, who used to be a Labour MP and is currently struggling to create a new party with Jeremy Corbyn.

4:30But, you know, she is still an MP and she pointed out that in her constituency, there is a business called Evtech. And I mean, you know, she points out that Evtech Automotive, an important supplier to JLO, it's had no sales revenue, no payments received from JLR, severely compromised cash flow, and has been left with the majority of its workforce sent home until further notice. And this is just one supplier among many. And just, I suppose, to give you a sense of the scale, JLR last year made profits of£2.5 billion before tax. It's a big business in UK terms. Given that it is intrinsically very profitable, the government, I think is struggling with the idea that JLR itself should be bailed out.

5:33You know, there's got to be an element of caveat emptor when it comes to putting in place protections against these kinds of cyber attacks. But there's obviously a different issue about how to help the other victims. right now look it may be that the government will feel under pressure at some point to provide support directly to jlr but in the first instance it is the thousands and thousands and thousands of high-skilled jobs that the suppliers um yeah the government has to think about so in terms of numbers of people we're talking about here so jlr itself directly employs about 30 000 people But then in the supply chain, it's 100 ,000 people who are working in the supply chain for Jaguar Land Rover.

6:26And then on top of that, you've got about another 60 ,000 people who rely on the spending of these workers. So this is like it extends way beyond just one plant, one company, one business being saved. This is about thousands of jobs, hundreds of thousands. And the worry, obviously, is were these employees sent home for an extended period? Were they sacked? And some of them who will be on short term contracts obviously face the risk of that. Skills can be lost. Vital skills and capacity can be lost forever. And, you know, this is an unusual part of, you know, Britain's manufacturing economy, which is world class and world leading.

7:17And we don't have enough high value manufacturing that is world class and world leading. So there's an enormous amount at stake. I was struck by remarks made by the chair of the House of Commons Business and Industry Committee, Liam Byrne, Labour MP. he was arguing that what ought to happen here is that the government should take off the shelf some of the supports that it used during covid so furlough schemes paying some of these employees to stay on this is the government the taxpayer um essentially paying the wages of these employees while they're not working. Loads of various sorts to these companies to cover their missing cash flows.

8:08Now, my understanding is that the government is not going down that route, partly because it doesn't want to have a situation where, you know, these people stop working for a period because it i mean as i understand it talking to sources in in government they are worried that even temporary uh cessation of work means these people's skills they might not be lost but they you know won't be quite as sharp as they were when they get back to work and one of the problems is we don't actually 100 know when they're going to get back to work juggie willandrover as oh yeah as we're speaking has said that definitely systems not going to be back in place until next month.

8:54But it doesn't sound as though they're even confident that the systems will be back and running by next month and that they'll be able to resume production. So the thing that the government, as I understand, is looking at, does seem to me, I'd be interested to know what you think, but this does seem to me quite smart, is that the government would take the view that this is production that has been delayed rather than lost permanently. I mean, if you take the view that the underlying demand for Jaguar Land Rover's automobiles is still going to be there when they start making again, then with any luck, this is not permanently lost output.

9:35Now, Jaguar Land Rover itself doesn't have working systems, even if it wanted to, to place orders. So what the government, I think, may well end up doing is to make an assessment of the parts that Jaguar Land Rover would need as and when it starts manufacturing again. And it will then the government will then place the orders themselves by the parts from the suppliers and then expect Jaguar Land Rover when it's operating again to then repurchase all of that stuff from the government. so the government would get its money back. And this does sound quite creative to me. There is one quite major problem here, which is because we live in a lean manufacturing world where parts are not warehoused or stockpiled anywhere.

10:36The thing that's slightly worrying the government at the moment is it's going to buy all this stuff, but it doesn't actually know where to put it. Yeah, well, I think just a couple of things for me on it. The government's going to take a hit no matter what, isn't it? So whether that's the furlough scheme, which you suggest is probably not going to happen, people are going to end up needing welfare, aren't they? So if they lose their jobs or if they're struggling for money, they're going to either cost the government in terms of furlough or welfare or loans or, as you say, buying these products.

11:08And you're right, when we had the pandemic happen, we lost a lot of skills in the construction sector because people then thought about what else they want to do with their lives um i disagree that you can't go back into a job if you've been off for a while from it and still be as skilled because that would mean every woman who's ever had a baby and take a maternity leave uh to think think that they couldn't go back and be as skilled as they were the furlough though i think is again that would stop that that probably would help to keep them in the sector though because hopefully you You know, some are going to think, oh, sack it, this is a good point to think about doing something else.

11:45But there'll also be a lot of people who think, right, you know, we know we're going to get our job back. At least we've got some money to keep us going for now. But it's better to get them back into the workplace. Of course it is. Of course it is. I mean, because at the moment they're sitting at home anyway. But I mean, surely this idea of the government basically being the purchaser of last resort, buying the parts, that's a good idea, isn't it? Yeah, totally. But the problem is you're then relying on people who would normally buy their Jaguar Land Rover cars still wanting to buy them, but waiting for them for longer.

12:17So if you need a car and you normally buy a Jaguar, you're not going to go, oh, well, we'll wait another year. You might go, right, this is a point to try an Audi or this is a point to try BMW or whatever it is. You're kind of assuming that people are going to wait as well. and you're right about the the lean production stuff you know having work that's where i started my life in in a factory and the whole the everything was about this just in time lean production you do not want things sitting on a production line because you haven't got space for it waiting for the next bit it's it is all you know we pride ourselves on our productivity and plants like car manufacturers you know someone like jaguar land rover you you i know you've been to the plant i've been to the plants before they're incredibly slick operations you've got like a thousand cars a day being produced across these plants they're in my body i mean this vast space and you see these cars gradually getting another bit bolted on and then another and a lot of it's automated it's a very impressive operation and time is key so that you know that can really kill a sector time um particularly manufacturing so you're right these are all but i think fundamentally the government's going to take a hit and you're and it is good that they're being more creative about it and maybe they buy stuff off the supply chain and then where they put it or here's another idea what about in the time these people are being furloughed we do training for them in AI because eventually you know some of their jobs are probably going to be replaced by automation or AI so what about giving them some reskilling what about you know using the further education sector at this point to provide skills in other areas and in that time we prepare them for the next bit of their lives i mean some of them might not want to do that i appreciate it but that could be another idea have a go at something else while while we wait for jaguar land rover to get sorted it's patently the case not only that british businesses don't have adequate defenses against these kinds of cyber attacks and you know it's now a matter i would say of national emergency for every business to reassess what kind of protections it has but we also don't have an adequate insurance scheme right so as you probably know there is an insurance scheme that is government backed for straightforward terrorist attacks on buildings it's called pool re um and it is a it's largely private sector funded but there is a sort of there's a part of the insurance that gets a government guarantee.

14:54And there's inadequate, when I talk to businesses, they can't get proper insurance protection against this kind of cyber attack. And that's a huge flaw and a huge vulnerability for British businesses. So I would say as a matter of urgency, the government needs to get involved in trying to create an insurance scheme, which would be partly funded by the private sector, largely funded by the private sector, but with the so-called tail risk picked up by the government, you know, because, you know, we can't be in a situation where so many important jobs are at risk and that essentially bad actors can destroy, you know, an important sector of the economy and jobs.

15:37So, you know, partly we've got to put in place better technological protections against these risks, but partly there's got to be a better insurance scheme. So I suppose just one final point. You may have heard the Chancellor in a recent interview, actually with my ITV colleague, Joel Hills, talking about how Russia was very much involved in these attacks. That was picked up as her saying that Russia was behind the attack on JLR. Just to be clear, I've talked to again, so very well placed sources on this. They don't know that this is Russia in this case. They don't even, I mean, they assume because it was so deadly that there's probably a state involved in it, some kind of enemy of the UK, but they don't even know that.

16:22They don't know for sure that this is not actually just a bunch of crooks with no state help at all. So at the moment, we don't know that it's Russia, and we don't know if there's any state involvement in this attack. Yeah, because like the M &S one, that wasn't connected to a state, was it? It was this hacking group that basically blackmail people and doing it to lots of different companies. So, and you're right, it's scary to think they have that power and there isn't the insurance to fight against it. Now, let's move on. You've got, I hope, a bit of more optimistic news or am I wrong? Yes. So there's a lot of excitement in the North East after Trump visited because there's been a lot of fuss made about how Britain and particularly the Northeast are going to become this AI superpower.

17:15So you've had like the boss of NVIDIA talking about it, Microsoft, OpenAI, all talking about this big deal they want to do. And off the back of it, there's now lots of, I guess, optimism around the jobs that could be created and also the investment that could come into the area now I've been looking at this because obviously it could be a huge deal for the area where I live and we've got the the Secretary of State for Science and Technology up here at the minute kind of pushing all of this or Liz Kendall I mean it was Peter Kyle but as you know got replaced in that reshuffle and there's two elements that I want to talk about here because I'd be really interested as well to know what you think on whether this is going to work or not so what big part of it for the north is it becoming an ai growth zone so they're going to create in a in a business park not just not far from where i am now cobalt business park they're going to create there this ai growth zone um and this is going to be connected to this massive data center that i've talked to you before that's being built in blithe so blackstone announced a year ago they were investing 10 billion to create a data centre on the site of a former power station that's been closed since 2000.

18:33It was going to be a car battery plant that got the kibosh and then it got announced last year it's going to be this AI data centre creating 4 ,000 jobs. So that's one part of this excitement is we're now going to have this growth zone where hopefully businesses will then cluster connected to AI and that you know the Chancellor of Newcastle University has come out and talked about how excited they are about this. I was talking to the mayor, the North East mayor, Kim McGuinness, about it. She said already they're getting loads of inquiries from firms who now want to establish themselves in the North East as part of this kind of clustering effect.

19:08The other big part of it, which is connected to the US and to Trump and to NVIDIA and OpenAI is this Stargate UK. So this is a partnership between nvidia open ai and a british company called nscale and what they want to do is build ai infrastructure in the uk so that we have our own computability now looking at this that sounds great you know building the supercomputer building these data centers and if you look at the companies behind it so we know all about open ai and everything they're doing with chat gpt and leading the way on how we use artificial intelligence. NVIDIA, of course, is the big successful trillion dollar company, which is...

19:53I mean, NVIDIA, biggest company in the world. I mean, multi-trillion dollar. Yeah, exactly. So, got a lot of power and a lot of money. So, they are investing 500 million into this Stargate UK. and nscale this british company which was set up about 21 months ago by an australian guy listed in the uk um they say that they build ai data centers powered by renewable energy that's how they sell themselves and you know sounds like a really exciting business getting all this money and happy days it's british and all of that but interestingly they haven't yet opened an ai data center so they and and i've got questions about the funding so they've helped expand one in norway but as yet they haven't built one from scratch now i'm not saying they can't because the whole point of a startup you know and supporting these businesses is because you don't necessarily have to prove you've done it before in order to be able to do it well but my question on all of this is they're getting 500 million from nvidia but they're going to need billions in order to deliver on these data centers and they're going to need to buy loads of nvidia chips by the way which is another interesting point to the story because nvidia are doing this really interesting thing at the minute of putting loads of money into the companies which essentially are going to buy all these chips from them worth a lot more than the money they're putting in in the first place.

21:29I mean, NVIDIA are making an absolutely massive investment in OpenAI, as you know. Yeah,$100 billion into OpenAI to take, you know, this significant stake in them. So there's a question about where is N-Scale going to get this money from in order to then deliver on these data centres? What I worry about is what we've seen also just up the road in Sunderland is where they, you know, you'll remember I talked about this on the podcast about a year ago, this excitement around Crownworks Studios. So these huge, huge, huge TV studios, which could make massive films and TV production backed by Fullwell, which is the production company owned by James Corden, amongst other people.

22:13And they have this private equity investment in order to be able to deliver it. that got pulled and now it's in a really precarious position where nobody knows what's happening and again I hate to be the pessimist on this but without that additional private investment my worry is how is this going to actually be delivered and also you know this is before we talk about the energy the cheap energy that's going to be needed to run these data centers the water that's going to be needed for cooling and things like that all the skills that are needed now they're talking to for example Kim McGinnis they're saying 5 ,000 jobs created here but then what are those jobs because a lot of them are they not going to be to begin with they're going to be construction and we need the skills there and you know we're also planning to build 1.5 million homes in this parliament so there's a lot of work to be done on getting the construction skills gap filled and again I'm not saying we can't do it but where's the plans around that.

23:14That's what I want to see. So you're saying is 20 billion is a cost, but we don't know where the money's coming from. Is that what you're saying? The government is saying overall, this partnership could generate more than 5 ,000 jobs and generate up to 30 billion in private investment. So when you hear any minister say it could generate up to 30 billion in investment, what that means to your listener is they haven't got the money yet. Exactly. And 10 billion, yes, coming from Blackstone, they've committed to that. I'm genuinely shocked here because you spend your life accusing me of being a bit Eeyore-ish and pessimistic.

23:49This is you. This is you. You're bringing me down, which you're not supposed to do. You're supposed to be the one who says, my God, this is an incredibly exciting investment. Because, and the reason why, and this links to Farage, actually, the reason why I feel pessimistic about it is because I want to see where the money's coming from and then I'll get more excited about it. And the commitment to driving skills and things, I still can't see like a proper plan there. We keep being told skills are coming and a plan for skills. I don't think we're there yet on that. And you know what, the people behind all of this are quite a few people I know well and like, like Kim McGuinness, the North East Mayor, who's doing amazing things for the area, or Jackie Smith, who's the skills minister.

24:34But I think there's a lot of groundwork to be done yet before I can get excited about it. If this does come off, which I really hope it does, there is also the ripple effect here, which is really significant. So, for example, Hartlepool, just up the road, there's an agreement that's been made with Centrica, obviously one of our largest energy suppliers, to pair up with a firm in the States called X-Energy to develop these advanced modular reactors in Hartlepool. So I was talking about where's the power going to come from from all of this. they reckon that could create up to two and a half thousand jobs because these reactors are going to be built next to Hartlepool Power Station, which is obviously is nearing the end of its life.

25:13So there is excitement to be had around the potential here. I just want to see the money. Share us the money. Now, very briefly, because we need to get on to Reeves' black hole in a second, but just very briefly, you were saying this takes you on to Farage. What did you mean by that? Because what I am seeing here at the moment in the North East, and across the North, and I know people are telling me they're seeing it everywhere, is people are really unhappy and feel a great sense of injustice and the need to fight back. And, you know, we're seeing the flags, particularly here where I live, are in the most deprived parts of the city and the area across Durham, across Newcastle.

25:57There's a real sense from what people are saying to me, and people are really angry that they want their lives to feel a bit better, you know, whether it's taxi drivers who are always the mouthy ones, but, you know, taxi drivers, but also small business owners and bus drivers and NHS workers. Everyone keeps talking to me about how terrible the country is, how hard their lives are, how things don't feel like they're improving. And I think that's why I really want these big investment projects to work so people do genuinely feel like their lives are getting better because the tension is really palpable at the moment.

26:33Like, I know this sounds really dramatic, but from what I'm seeing, it feels like we're on the verge of some type of civil war between people. And what Farage has done so well is give really clear messaging about why their lives are terrible, whether it's right or wrong. It's irrelevant. It's the fact that he's just doing this really clear messaging which plays to people's unease and he's talking about how he can make it better for them. So when he throws out these figures, like he reckons he can save the economy over£200 billion by stopping anyone using the welfare system that isn't a UK citizen, that's really clear messaging, like that flipping bus in Brexit, which I can understand why people here are like, right, well, let's give them a chance because so far things have not improved.

27:25And just to be clear, even though pretty much all the experts say there is no substance to the numbers that Faraj and his colleagues are throwing out in terms of welfare savings from ending indefinite rights or severely restricting those who have indefinite leave to remain in the UK. do you think that round your way people pick up the scepticism that the savings will turn out to be real or do they just hear Nigel Farage and think I want a bit of that Nigel Farage is louder and clearer he's really good at delivering a very simple message and therefore and because you know the people I'm talking about are not stupid they're not they're just they're you know like I was with my friends last night we were talking about all of our families now wearing like Union Jack pin badges and and you know flags up outside the houses and we were saying what is that all about and it is the clear messaging of our lives have not got any better Farage is saying he can make them better no one has yet has stood up and said it feels like to them no one stood up and said that's wrong his numbers are wrong in any clear understandable defensible way that feels like you can go all right okay so what is it then what so if you are saying Farage is wrong what is it that is right and what is going to make my life better and it needs not to be incremental little changes it needs to be big and bold and that's what Farage is doing he's going right reset total reset rather than oh we're going to do a bit of thinging here and a little bit of this here so it and i'm not saying either is wrong or right but that's what's making the difference to how people think about their lives look we've got to come back to this because it's a huge subject but i'm just going to put one very quick question to you i was talking to a very very senior member of the government only a couple of days ago and this person was saying they understand that when they make their criticisms of farage it's not particularly cutting through at the moment but they do believe that when it comes to a general election which is still three and a half years away.

29:39At that point, voters will invest in trying to understand whether his sums add up, for example. I mean, I said to this minister, I'm not 100 % sure you're right. I think there is such an appetite for change among many people that actually they are simply taking the view that many of them took during Brexit, which is, OK, there are risks, but I'm prepared to take the risk. and they are so mistrustful of so-called experts that actually the normal political arguments that a Labour or a Tory might make, would typically make against a reform and a farage, may well not cut through. Do you think this is new politics where traditional analytical demolition of a set of policies just doesn't work?

30:31Yes, because let's take, for example, what we're about to go on to, which is the budget deficit, about how big Rachel Reeves' black hole is. This time last year, you and I were interviewing Rachel Reeves and she said, yes, I'm bringing in£40 billion worth of tax rises, but this will be the last time I come to you for big tax rises. We're now looking at, from what you found out, £30 billion worth of tax rises a year later. So if you're a voter, if you're trying to decide, how do I figure out whether Farage's numbers add up? not the Labour's haven't been adding up and yes you can say we're going to go on to who's at fault about why the black hole is as big as it is but if you're a voter you just go well hang on a minute they've they said this and then changed their mind and so how do you even think about working out who's right or wrong in all of this when you're told one thing and then another thing happens and you're right that people want to challenge the status quo like they did in Brexit it.

31:33Long before the vote, I kept saying everyone in the North East wants out of the EU because they think that will give them more power. And that's what people want. They want more control over their lives and they want to feel like their life is getting better. And as things stand, it doesn't feel like it is to them. And that is what is going to dictate Farage becoming Prime Minister if Labour do not do something bold and make people feel better. So this seems like a good enough moment just to have a temporary pause. See you again in a minute.

32:08So let me just break down this 30 billion black hole. And it's got three elements. And I should point out at this stage, the 30 billion, we're still two months away from the budget. the 30 billion is the baseline because it does not include the cost of any additional spending that actually this government may want to make um this is just the hole that events largely beyond its control have forced on the government so i'll just give you an example obviously there's an enormous amount of pressure on the government to abolish the two-child limit on universal credit payments this is seen by many experts and most labour mps as the most effective way of reducing particularly child poverty but you know if they do do that and i think there's a very good chance they will do that in the coming months that's three and a half billion on top of the 30 billion.

33:15Now, just to go through the 30 billion, it has three elements. There is five billion pounds from the fact that the interest rate paid by the government is higher than the official forecaster, the Office for Budget Responsibility thought would be the case only a few months ago. That five billion could swing around between now and the budget, because, of course, inflation could rise a bit higher than we expect, and that could lead to the bill on the index-linked element of the government's debts being higher. You could see further falls in the price of government debt, which means that new issues of debt would pay a higher interest rate.

34:02So that£5 billion is where we are now, and it could either get bigger or it could get smaller. There's another five billion. And this you could absolutely blame the government, the chancellor, the prime minister, the former welfare secretary for, which is that they had had inked in five billion of savings from reforms to disability payments. They couldn't get it past their MPs who didn't like the proposals. So that's£5 billion that they've got to find because they're not going to save£5 billion anytime soon from welfare reforms. But the big£20 billion of the£30 billion is because the Office for Budget Responsibility has been reviewing the so-called supply side of the economy, the productive potential of the economy.

34:50It had embedded in its forecast particular assumptions about the future rate of productivity growth. And its review of the supply side of the economy means that it is becoming more pessimistic about the outlook for productivity growth. That is output per unit of capital output per person. It thinks that the UK in the future will be less productive than it thought. that means the economy grows more slowly that means tax revenues are less than they would be and that is why there is this 20 billion hull so what you're saying Robert is that they got their forecast wrong we're not going to be as productive as we thought we were which means there's not going to be as much money coming in and therefore Rachel Reeves has got less of a less tax revenues and therefore her haul has got bigger because of it the important thing to recognize I don't think the Tory party will recognize this or the reform party will recognize this but the economics are when productivity is lower than you expect that is the accumulation of you know poor government policies and indeed poor private sector decision making going back years and years and years And the main driver of the fact that the Office for Budget Responsibility is having to downgrade, and we should be clear about this, it's downgrading to productivity forecasts that other forecasters, including the Bank of England, have been at for some time.