224. Would Ousting Starmer Risk Economic Meltdown?

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1:39people in the street don't give a shit

1:52hello and welcome to the rest is money with me steph mcgovern and with me ron pester great to see you steph yes i am back thanks for manning the fort for me i know you've done a brilliant job i've been listening in and what a time to be back because i mean we've got to start haven't we with the chaos in the leadership of the Labour Party. You know, government, again, we're talking about possible takeovers by other members of the party wanting to oust Starmer. You know, there's West Street in, has denied he intends to challenge Starmer. But what is going on? This is mad, isn't it? Yeah, look, the underlying problems are that, you know, Keir Starmer's own rating has plummeted in the polls, The rating of the Labour Party is plummeting in the polls.

2:39In many polls, the Greens are now more popular than Labour. So there is a lot of unhappiness on the Labour benches with the leadership. We're recording Wednesday morning, and I think we probably need to broaden it out into a general discussion, because I suspect in the course of this day, quite a lot will happen. But last night was it was either a comedy or a tragedy, depending on your point of view. But it was one of the most extraordinary sort of dramas of a sort of political sort that I've witnessed. And extraordinary in the sense that none of it really had to happen. What basically happened was Downing Street officials briefing journalists that the prime minister would resist any challenge to his leadership.

3:30he would fight it and the bit that I want to focus on is one of their arguments was if the Prime Minister is ousted if Rachel Reeves is ousted government bond prices guilt prices will collapse the interest rate paid by the government and indeed actually probably by the rest of us as well would rise significantly and that was the reason they were saying why there mustn't be a challenge. And in particular, they were focusing on the threat from West Streeting the health secretary. I mean, the reason it was extraordinary is, yes, it's true that MPs, ministers say to me, they think there is a risk of a challenge to his leadership, but they say it hinges on what happens in the May elections.

4:19Now, we have got this enormously important budget coming at the end of November, November the 26th. But very few people have said to me they think there'd be a challenge immediately after the budget, even though this is going to be a big and potentially very unpopular budget. And I know we'll talk a bit more about that later in the program. So this just felt like Downing Street fighting a sort of, it's like Don Quickset, it's like a sort of tilting at windmills, fighting a slightly non-existent battle. and in the process of that, doing the opposite of what they thought that they would be doing, which is in a very loud way, and this is the bit of it that was really extraordinary, is they were telling everybody, including the country's creditors and investors in the UK, that this is an unstable government.

5:11They were saying that they themselves believe that there is likely to be a leadership coup, And that is the opposite of what they should be doing. What they should be doing is basically saying to the world, this is a prime minister with a very big majority and it's a stable government and we'll get the debt down. It's no surprise to me, and I actually warned this would happen, that actually this morning, I mean, gilt prices haven't fallen that much, but they have fallen a bit. The yield, which is the implicit interest rate that the government pays for its borrowing, has gone up. And it's sort of worse than it seems because overnight, US government bond prices rose.

5:49And normally, when American bond prices rise, that allows British bond prices to rise. And the fact that they've fallen shows that this is all about investors' unhappiness with political instability in the UK with the instability of Starmer's government. So overnight, just to make this clear to people, it's got a bit cheaper for the American government to borrow money and more expensive for the British government to borrow money. And that is partly because, for the UK in particular, because of this uncertainty, which is a huge problem. We've talked about it before as being a cancer in the economy.

6:29If you've got uncertainty, it stops people making decisions about what to do with their money. When it comes to businesses investing, they hold off because they want to see what's going to happen and what the potential tax implications are. Or they try and predict what might happen and then make decisions which are the detriment to the economy to avoid taxing, possible tax increases. But it just means chaos fundamentally. And that's not good. The cancer of the uncertainty around the budget has been going on for some time. But this is about something much more basic. It is that the UK has debt that has been rising too fast and a quantum of debt that is approaching 100 % of our national income.

7:12And there are concerns across the world about the ability of the developed countries to service their big debts. And the big thing that people were expecting from the budget was that the chancellor would take steps to begin to get the debt under control to reduce borrowing. and if you have a government that's not stable, if there's a risk of a chancellor and a prime minister falling, that at that point investors say, oh, Britain is a bit like France, it's not governable and we don't have confidence in their ability to manage the debt and at that point they will not invest in UK government debt and the price of that debt falls and as you say, the interest rate paid by the government, which ultimately means the burden on taxpayers, gets worse.

8:06And that's why this chaos in government is especially damaging, because this whole budget from Rachel Reeves's point of view, was all about trying to prove to the world that she would take the tough decisions to get the debt under control, the borrowing under control. Now, there's also, there's a massive opportunity here. And one of the things I've been doing in the last couple of weeks is talking to big investors about how they see the UK right now it is absolutely the case that among Labour MPs the prospect of breaking the manifesto and putting up income tax is about as appealing as a bucket of gold sick but actually if you talk to investors they were encouraged by the fact that she would take such a politically difficult decision and what they said to me was If she can prove that she is capable of taking these tough decisions and she's managing the borrowing, we will invest in the UK in size.

9:04And you could have expected, absent this political chaos, the price of government debt to rise very sharply and for interest rates to come down, which would have been an amazing sort of dividend, not only for the government, but for all of us. So this political chaos is also squandering a potentially huge opportunity. That point, though, about opportunity is my big beef with this entire running of the economy since the Labour Party took over. It just feels so negative. So, you know, yes, it would be better for businesses potentially if there's an increase in income tax, because then business are not going to take the hit again like they did this time last year when, you know, we suddenly had these 40 billion tax increases and a big chunk of them were the ones that businesses had to face in the form of the national insurance increase and things like that.

9:56But if you increase income tax, if the money was used then for investment that could then lead to growth and higher wages, then you'd be like, yes, this is really good. I'm happy to pay more tax if things are going to improve, but she's going to use it to fill a hole. And that is just going take spending power out of the economy because your people will be paying more tax and have less disposable income. And it's not with a sense of any positivity coming from it. And similarly, you know, I was listening to Rachel Reeves talking this week about priorities, NHS waiting lists, the cost of living and national debt.

10:36It is so negative. None of it is about opportunity and growth. It's just about sorting out negative stuff. And I think she's looking at it the wrong way. So for a start, I don't think people really care about the country's debt, only markets do. In terms of the NHS, it's not about waiting lists unless you're on one, it's about access to public health more generally. And when it comes to the cost of living, I think it's less about how much things cost and more about how much money you've got coming in. So, you know, take a country like Norway, the cost of living there is higher than the UK, but they earn more and their services are better.

11:13We've talked in the past about them having the world's biggest sovereign wealth fund. And that's because they negotiated better terms for the revenue from the oil field and everything else from oil revenues. And it's just, I think she's looking at it really defensively rather than proactively. Mohamed El-Aryan said it to you, you can't just have a budget with this narrow fiscal policy to make the numbers add up. There's got to be an economic plan. The government need to look at the impact of the fiscal decisions they and keep talking about growth. Jim O 'Neill said it. This is a get real moment.

11:45He said it to you as well. And it feels like they are so negative. And this is where your Farage comes in and spins it on its head and talks about the positive things that can come in. So I just feel like if you're a business and we've talked before about my retail business, it feels miserable. That's the wrong approach. There's a lot there. Because I haven't been on for a while. Robert I needed to ram to sauce no no no and everything you said was worth hearing uh and I think there are a lot of points I just want to pick up on there I mean look the big point you make which is this budget will fail and actually you know Starmer and Reeves will fail if alongside these very big tax rises 30 to 35 billion pounds there isn't a compelling uh plan and indeed a story about how we get richer, about growth.

12:42You're absolutely right. They've been absolutely hopeless at doing that up to now. And as yet, I'm not confident that she will be able to give this compelling narrative, one that will give businesses and individuals much more confidence. Because, you know, businesses have capital to invest, or the British people, the savings of British people are at very, very high levels by historic standards. And what British people need is confidence to start spending some of those savings and get the economy moving. So you're absolutely right that she has to not just do the defensive stuff about we've got to manage the debt.

13:26Although I have to say, let's be absolutely clear. You say the British people don't care about debt. they would care about debt if the price of government bonds collapsed and at that point interest rates not only for the government because there would be knock-ons to all of us you know if at that point the interest rates that all of us paid went through the roof so she does have to know but i just want to challenge that a minute robert literally i just want to challenge yes that the effect of debt being high people care about but they don't care about national debt in itself. And it's the wrong language to use with people to say, oh, I'm going to bring down national debt.

14:04People in the street don't give a shit. They're like, I want my debt to come down. I want to earn money. And so I know you're right. But in terms of how she communicates this with people, it's the wrong aims. Yes, talk to the markets about debt, talk internally in the treasury about debt. But when you're talking to the public, talk to them about how you're going to change their lives, why national debt matters. People don't necessarily care or understand, they just care about what's going on in their lives. And at the minute, there's nothing to suggest it's going to get better, only things might get a little bit less worse, which is not how you want to live your life.

14:39No, and I agree with you that they do need to go from what you might call the big economics to messages that do relate to people's lives. But in terms of, you know, the bigger economics, Rachel Reeves did say something at that very surreal press conference she had a couple of weeks ago, you know, where she talked about the fact that she was going to have to put up taxes very significantly because of the Office for Budget Responsibilities downgrading of our productivity and growth prospects. I felt the most important thing that she said is that she compared and contrasted how she was tackling the debt and borrowing problem with how George Osborne tackled the debt and borrowing problem that he inherited in 2010 when he was chancellor.

15:34One of the things he did that I have consistently said was very damaging to the UK was he cut investment very significantly because it was an easy thing to cut because people don't notice quite so quickly if roads aren't being built on the same timetable or schools aren't being extended or new schools being built on the same timetable. So it's a politically easier thing to cut than day-to-day public spending. But it has very long-term damaging impacts. In the long term, it makes us poorer. The thing that she said was, she did when she was told about this big hole she's got in the public finances, she was clear that she could have done of the Osborne thing, which politically might well have been less controversial, which is to cut investment.

16:22But she has rightly taken the view, even if not all of her investment decisions, in my view, are quite the right ones, that it's far better to invest for the long term to improve the basic infrastructure of this country, because that is the better route to long-term growth and long-term prosperity. it's far better to preserve that and take some short-term pain in terms of tax rises and i think she is i think she's right about that but although economically it makes sense as you say it's not an easy message to sell politically and and she's got to somehow turn this into something that people that then connects with people's lives all people want is to feel better off or to think that down the line things are going to be better off and that's not what we're getting i need to ask you on that you said because this is the bit where i also was a bit confused by what you were saying she you know she made a big she's making a big play of saying she's going to tackle the cost of living but you said that sounded negative but surely actually it is clear one of the reasons why reform for example are doing so well is precisely because people are so concerned about the cost of living and don't think that this government is doing enough to help with it.

17:39Yes, but so my point there is, of course, people want to spend less on bills. Of course they do. I'm just saying the messaging around it when she talks about cost of living, it's trying to reduce a negative rather than talk about jobs and investment and growth because people understand that things go up in price. We all love a moan about how much a chocolate Freddo has gone up since we were a kid. And there's very tangible things people use, how much people are paying for a pint of milk, how much energy has gone up by. People know things go up. They can accept prices going up if at the same time they feel like their wages are going up, their income's going to go up, their pension's going to go up.

18:24And so for me, it's the communication of those things. Yes, if you say to someone, we're going to bring your energy prices down, but she doesn't really have control of that. That's a global market that she has no control of it, but she does have control of it. You see, the Tories and reform would say she does have some control over elements of it because, of course, they are both committed. Like windfall tax and things like that. No, no, no. I mean, obviously, there is an issue around the windfall tax on the oil companies, but they are committed. to removing the elements on our bills that pay for the green transition, the various green-related levies that all of us pay.

19:07I think there will probably be something in this budget which doesn't completely back away from the subsidies for the green transition, but I suspect there will be something in this budget that does bring bills down a bit because the political pressure from the Tories and reform over this issue of the subsidies that we all pay through our bills for the green transition is something that is definitely resonating with people. And I know the government is worried about that. I'm really obsessed with the latest deprivation figures that have come out. So this is where an analysis is done of the neighbourhoods across the whole of England.

19:46There's something like 33 ,755 neighbourhoods in England. And so this analysis is done to look at which of those are the most deprived and they kind of rank them. And if you look at the statistics, it is really brutal. So they don't do these figures every year. They do them about every five or six years. The last time they did them was in 2019. The Northeast, once again, 21.5 % of neighbourhoods in the Northeast are highly deprived. Including, of course, where you come from, where Middlesbrough is an area of some of the worst deprivation in the UK. Middlesbrough is one of the areas with the highest proportion of deprived neighbourhoods.

20:3655 % of children in Middlesbrough are deprived, highly deprived. And we're not talking about, it's not just about a lack of money. It is, as I was saying, that access to services, resources, employment, crime, health and disability services, the living environment around them. And if you look at the statistics, it is the Northeast is the worst in terms of proportion of neighborhoods that are highly deprived. The next is the Northwest at 20%. The next is Yorkshire and Humber at 18%. It's all the North. Then we go to the Midlands. Guess who's best off? london southwest east of england sure sure look but i do think there is quite an important nuance is not quite the right word for this but the picture is not as straightforwardly as everyone in the north is poor and everybody in the south because one of the things one of the things i was very struck by and it goes to your cost of you know the conversation we're having about the cost living is they did in this assessment of deprivation, they have changed the way that they've assessed it.

21:47And one of the things that they've now included are issues like the cost of housing. Let's be absolutely clear as part of whether you're deprived, what you pay to have a roof over your head and what kind of property you live in is enormously important to the question of whether or not you have a decent life. And one of the things that's very striking is, Although if you just look at, for example, measures of deprivation like employment levels, right, the South does very well when it comes to things like employment levels. However, if you go to East London, and it's absolutely stark in these figures, there are very significant levels of acute poverty and deprivation because of the cost, the incredibly high cost of property in many parts of East London.

22:40And indeed, if you look at child deprivation, because lots of children are living in appalling conditions in East London, incidents of child deprivation are really high in parts of East London. Right. And so I think we do have to accept that, although, of course, you know, if you just do the average, you know, London and the southeast are streets ahead of the rest of the country. But even within London and the southeast, because of this acute housing problem, you know, there are there is genuinely really serious and appalling poverty. Yes. And I absolutely agree with you because you're right. The area which has got the worst deprivation for children is Tower Hamlets by quite some margin.

23:26And you're right. There's a whole housing issue here in the north. There's more availability to housing and the houses are bigger and cheaper and everything else. but it's also about access to services, I think. And yes, God, don't get me wrong. I'm not saying people in Tower Hamlets can solve their problems easily because of the housing issue, but you are closer to more opportunities to leave the area, aren't you? And I'm not saying that's going to be easy in any way and you shouldn't have to leave an area you want to live in. But if you're in the Northeast, you've got to travel a long, long way before you'll get the same access to services and cultural access and everything else.

24:06And I think that's part of the problem here. Just the other thing, Robert, in those deprivation statistics, did you see which is the most deprived neighborhood in England? And it is a part of Clacton called Tendring, which of course is Farage's constituency. It's very interesting that that is the most deprived neighborhood in England and hasn't, you know, nothing's improved there since this was last done in 2019. As you say, significant. Can I ask you a question? Because we ought to go to a break in a minute. But before we go to a break, can I just ask you a question on this issue of poverty and deprivation?

24:41It's now absolutely clear that in the budget, the Chancellor, despite the fact she's got this 30 to 35 billion hole to fill, she is also going to spend money. Right. And so one of the things that she's going to spend money on is abolishing the two child limit on universal credit, which All the experts in this area, whether it's the Resolution Foundation or the Institute for Fiscal Studies or a former prime minister like Gordon Brown, they all say this is the most effective short term way of reducing child poverty, at least to an extent. One of the things, however, that's very striking about this is it is not a particularly popular policy with the public.

25:26A very significant majority of British people do not want the two-child limit on universal credit abolished. So I just wondered if you yourself had views on it. Yeah, it's a really interesting one that because I am a big believer in progress and growth and prosperity coming not from how big benefits are that you could receive, but how much opportunity there is to work and how much help there is around childcare and things like that. So for me, politically, my view is, and there'll be people who will scream at me for this, I think, is about rather than giving money, more money to people with bigger families, is make it easier for people with families to be able to work and good work that pays well.

26:20and therefore you don't need the state in order to subsidize you having a bigger family. And that's kind of always been my view. You know, I grew up at a time when I was at school with girls who'd be like, I can't wait to get pregnant and get a council flat. And that was their ambition because we weren't told enough in the area growing up. I think my school was a bit different, but there wasn't that ambition given to, hey do you want to run a company one day or do you know what it is hard trying to balance having kids and work but actually we're going to really help you because these companies do these things or these businesses do this so for me the incentive should be and the support from the government should be towards helping you have child care and support around that to be able to work and therefore not need to have benefits.

27:17But I appreciate not all families can do that. I completely agree with you that we have to create an economy in which everybody feels there is the prospect through their own endeavours work to make their lives better. We do however have a serious problem of relative child poverty having got worse. And I completely understand why there's a widespread view that it's wrong to sort of punish people who've already made the decision to have extra because one of the things if you look at the opinion polls what a lot of british people say is if you're in work it's fine to get a bit more help from the state but his view would be and i think a lot of british people would and it seems to me that you also share this view that if you're out of work you shouldn't be incentivized to have more children and i think a rich people think that if you if you abolish the two child limit on universal credit you are basically incentivizing people to have children rather than to better their lives now i think this is a very very difficult i think this is a very very difficult uh issue um and uh you know given the given the levels of of really acute child poverty at the moment i completely understand why the government is going to lift this limit but it's a very difficult debate it's a really difficult one because it sounds really mean to suggest that because you want a larger family, you shouldn't have the same support after you've got more than two kids.

28:45In the short term, it should be lifted, I think, but with a structure so that it's needed less and so that people are able to bring in money without relying on the state so much. So maybe you lift it in the short term, but have something structural in place that's about giving better childcare support for people to go back to work because it's still really hard. Like, do you know what? A school day finishes at quarter past three. It's very hard to end your working day and get to the school to pick up your child at quarter past three. Yes, they're out of our school clubs and wraparound things, but it's still really difficult to balance everything.

29:23And so if there was more support around that, I think that would be more of an incentive. And then if you've got, it's a really tricky one, like you say, because it sounds really mean and maybe you lift it in the short term, but that cannot be the long-term solution. It's just to get more and more money from the state. That's not how we should be living our lives. We should be able to, for our own pride and everything else, be able to bring in our own money. And if you can't, if you are because of disability or whatever else, that's different. But if you can, then you should be supported to work.

29:55Now, you've got some very interesting things you want to share with us about retail. Let's do that after a very quick break. This episode is brought to you by Google. Now, small businesses are the backbone of the UK economy, but most owners are stretched, juggling roles to keep things running. They need tools that work. That's where Google's AI helps. Take Kent Brushes. They've manufactured hairbrushes since 1777, and they remain family-owned. Zoe Crosby, head of PR and partnerships, is busy juggling the demands of running a global brand with family life. As she puts it, you never stop, which is why she's using Google's AI tools to support her with some of those daily time-consuming tasks.