262. Does the Chancellor have a growth plan at last?

0:00We can't go back and change history.

0:02Robert Peston:The underdeveloped part of the EU single market is in services. It is also, by a wide margin, the biggest share of both the EU's economy and our economy. And if you are wanting to get the growth rate up in the UK, all of that, if you really want to achieve that, is another argument for trying to get back inside the EU. But there is a massive pot of gold at the end of that particular rainbow if you could get back inside and start playing a leading influential role in shaping the future of Europe's single market.

0:48Robert Peston:Hello and welcome to The Rest Is Money with me, Robert Paxton. And with me, Steph McGovern. And today we referenced this in the last podcast that Rachel Reeves was doing her Mays lecture. So this was at City University, wasn't it? Where she was basically telling us about what her plans are with growth. You and I, Robert, have talked a lot about the fact that we haven't really had a growth plan. There's been nothing to suggest there of any ideas when it comes to how they're going to grow the economy. So that is what we're going to talk about in this episode. There were three big areas she hit on, which was AI, our relationship with Europe and devolution.

1:29So we want to talk through them. Also coming up today, we're going to be taking a closer look at some of history's greatest economic shifts. This is in partnership with our sponsor, Hargreaves Lansdowne. But Robert, first of all, give us your take on it from the top.

1:42Robert Peston:Well, just two big things to start with and we're going to drill down. One is quite a lot of what which you announced today is perfectly sensible, but frankly, all of it could have been announced a year and a half ago and started a year and a half ago. It's another manifestation of how much time they've wasted. And the second thing, I spent, as you know, spending a very unhealthy proportion of my life talking to people who work in tech, people who invest in tech, and they keep talking to me about how they are now taking, have you come across this expression, the red pill? Do you know about the red pill?

2:15Robert Peston:Yes, I do. The manosphere. God. Well, the red pill is, you know, from the Matrix. It's the pill which allows you to see the world as it is. The blue pill, you know, is the sort of comforting world that's been manufactured by other people. But the red pill is the truth, right? And I keep being talked to people who say they've been red pilled by Claude's co-worker launch, plus the latest version of AI. And they all say, my God, on the basis of this, millions of jobs are being lost fast. And this is a speech given by our chancellor talking about the potential of AI, where she doesn't even refer to any of the really big stuff that is happening in that world right now.

2:59Robert Peston:And so one of the things that just makes me sort of uneasy about this speech, and I felt uneasy about this, you know, with a whole succession of governments, but this is certainly a manifesto. Government is so behind the curve in a world that is moving so fast. And this is yet another speech. We'll get on to the detail of this towards the end of the podcast. But it is just how government always plays catch up with the big trends that are reshaping our world, not leading, but following and too far behind. But I wanted to start because one of your big passions, how we have not addressed the income and wealth inequalities between North Midlands and the very rich London and South.

3:43Robert Peston:This is a speech where she says one of her absolutely biggest growth planks of the three growth planks is to raise up living standards, increase investments in the North, devolve tax spending powers. So give us your take on whether what she's announced you think makes you more confident that where you live and work in the Northeast, you know, things are going to really move forward in terms of growth and living standards. Yeah. So just to explain, this is a plan which she says is going to be announced in this year's budget, which will give regional leaders control of a share of some national taxes.

4:25Now, she hasn't said how that will be worked out because one of my concerns would be if it's about the taxes raised nationally, but from a particular area, like if we were going to use a proportion of income tax, but the proportion is based on the income tax in that area, then that could be problematic given there's such a big difference between what people are paying an income tax in the North versus the South because they earn more money in the South. So that would be a concern for me.

4:54Robert Peston:Spell out what you mean by that. What you're saying is if in Middlesbrough, you only get the share of income taxes paid in Middlesbrough, whereas in Manchester or Birmingham, you get your share. basically people's incomes in Manchester and Birmingham are higher. And therefore, it just reinforces inequalities if all you get is the tax that your local people pay. Is that what you're saying? Yes, that is what I'm saying. But let's assume, because she hasn't said that, but let's assume it will be divided more equally than that. So it's not going to be about what is raised from an area. It's simply about dividing it where it's needed.

5:33Now, the interesting thing about this for me is I do think this is potentially a good idea because there is a serious problem with big projects being, they happen a lot in the South. You and I have talked about the Oxford Cambridge Corridor and yes, okay, it will have national benefit in terms of supply chain. It's still very much money that is going to one particular area. And I think it's hard to see how that will extend out other than in supply chain businesses. And still, that will be weighted to the ones closest to the area. So, you know, and I'm already seeing on a daily basis, for example, where I am, I often take the view of where I live in the northeast, where our mayor is, our northeast mayor is Kim McGuinness.

6:18And she's been out several times in the last few months just talking about the money coming into the area. Even today, she's just announced another£120 million is being allocated from the Treasury to speed up stalled city regeneration plans. I don't know what any of this means yet, but she's saying it's going to mean better housing and better infrastructure and all of these things. And that is going to be really tangible to people. So if we see in our local area money raised nationally, but being put into projects that have a really tangible outcome, then I think that will make a difference to how people feel about where they live and feel about what is there and hopefully help with job opportunities and everything else.

7:07Robert Peston:And you were telling me earlier what this fund is called. Tell me what it's called or tell our viewers what it's called because it's got the most bizarre name. This is called the Treasury City Densification Fund, which is such a weird name, isn't it? Densification. You know, as I said, when you said densification to me, I just thought, why would you be paying money to make people thicker and denser? But that can't be what the money's for. No, I think it's about regenerating city areas so that they will become more dense. We're proud to say that The Rest is Money is powered by Octopus Energy this year.

7:44Greg Jackson is back to answer another question. Now, this is something that we see a lot that I wanted to ask you about. When you're building a business from scratch, what's the most important thing early on and what do people get wrong?

7:57Robert Peston:Early on, the most important thing is to start building a customer base. until you've got customers. You have no idea whether the products and services you're offering are going to be the ones that people want. So a lot of people spend far too much time building out pages and pages of business plans, thinking too hard about what they're going to do rather than just doing it. What surprised you most when you were launching Kraken? You know, the great fun of launching Kraken was it was the engine that powered Octopus to grow, you know, ultimately to the biggest energy supplier in the UK with, I think, the best service.

8:29Robert Peston:but we were able to license it to our rivals as well. So the interesting thing is the world is more complicated than you think and your competitors will work with you if it's in their interests. Cheers, Greg. Right, well, you'll be hearing more from Greg throughout the year but now let's get on with this episode.

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9:29Robert Peston:It's a simple way to make sure your listing is the first candidate C. According to Indeed data, Sponsored Jobs have four times more applicants than non-sponsored jobs. So go build your dream team today with Indeed. Get a$75 sponsored job credit at Indeed.com slash podcast. Terms and conditions apply. So on my wall is, just because it's, you know, it's on my wall because this is where all my family came from. There's a map of the extraordinary density of Jewish immigrants in the east end of London at the turn of the century. And it's absolutely terrifying how many Jews lived in a tiny space. And all the desification makes me think about it's cramming too many people into a small area.

10:11Robert Peston:But that can't be what they're talking about. No, but it is about house building in those areas. So again, I know I always talk about the northeast, but it's the easiest place for me to give examples of. but there have been quite a few delays to city centre house building. So there's the stalled development of something called the Newcastle Helix site, which is one where I was planning to open the fitness business, but haven't been able to because it's so far behind on everything. And then there's other parts of Newcastle again, where they've got plans for regeneration, but they've just been massively stalled.

10:45So what the mayor, Kim McGuinness, is saying is that's what it's going to go into, is just getting those moving. And if you look at how the Treasury have described it, they say they want to bulldoze through the roadblocks. So when they came into power, they talked about planning, didn't they? And reducing the planning restrictions and hopefully getting more movement. And this is an example of that, I think, in terms of what they want to happen. So for me, I think that what Rachel Reeves has said about devolution, I think is really important. but like you said right at the start, it feels very slow.

11:24You could have announced this two years, well, a year and a half ago whenever they came in.

11:28Robert Peston:And all she's done now is a statement of intent rather than giving us the detail. But I want to ask you, given that she has said yes, more money to mayors, but she hasn't actually specified what they'll be able to spend that money on, if you were advising her about what additional powers to give to mayors so that they can spend this money in a way that has the optimal impact on growth in the region, on incomes in the region, what would you recommend that she allows, Andy Burnham in Manchester, Kimmer Guinness where you live and the various other mayors, what should they be able to spend money on that they can't now?

12:16On what they want to spend it on and what they've worked out is the need in the area. Yes, because I can't answer for Manchester. I mean, I used to live there for quite a while, but I can't tell you now what the issues are there. I can talk about what's going on here. And I think, but the whole point of having a mayor is they're constantly talking to people across all organisations to find out where the need is. What is our local economy needs? What are our jobs needs? What are our, where are our pressure points in terms of social services and things like that? I can't answer that question because I'm not talking to these.

12:50I mean, I have an overview from work I do with a food bank and having a business here and stuff like that. But that's why I think it's good to let those, as long as they're held to account, you've got to hold people like Kim McGuinness to account. But I know she'd be well up for being held to account. She wants to make a difference to this area. And so I think Andy Burnham knows that area, the Northwest, better than most. So I think they should be, with proper advice, be able to decide themselves what they do with that money. And then we all hold them to account to make sure they do it well enough.

13:24Robert Peston:So you would be in favour of what you might call variable geometry. So you would say, what, in one area, you know, if Andy Burnham wants to have way more money for skills, he should have that. And if Kim McGuinness thinks it's more about social housing, then she should have that. But with a view to growth. So I think growth has got to be the aim. So it can't be just, you know, we've talked about this before, haven't we with Marianne Matsukuto about how it's really important what the aim is and the aim of this is for me it's about economic prosperity and growth and that has to be the target so if to get that social housing is one of the biggest things you need to solve then then you do that but it can't be just solving it for solving its sake it's got to be with a target of driving economic growth because then everything else will follow from that.

14:20It's a bit like when we talk about diversity in business, often social mobility gets discussed as a last thing. It's normally about ethnicity and gender and sexual orientation or whatever else. But actually, if you focus on social mobility, you get a lot of that diversity anywhere by proxy because often you'll find those minorities are the ones who are least socially mobile so for me it's about what the aim should be economic prosperity for the area for growth and then work it out based on that I completely agree with you

14:59Robert Peston:one of my long-running critiques as you know of this government has been it talked the talk of growth and then did so many took so many actions that were anti-growth and and so I completely agree with you that this is a moment where anything that is going to add grit in the wheel is going to slow growth down, has to be avoided, and everything should be concentrated on, or resources should be deployed almost exclusively on those initiatives that are going to get the growth rate up are going to create really decent paying jobs because growth for growth sake isn't isn't the be all and end all it's actually got to be about raising people's living standards and so it has to be the kind of growth that is uh diffused throughout the maximum number of people getting decent well-paid employment um and so one of the things that you know mariana would always say is you know actually do refine what it is by your mission in a way that is a practical goal i mean many people would say you know you need growth to do almost anything um so let's let's let's you know obviously we got it we we've got to get the growth rate up but then let's say what are the what are the outcomes that we need um that growth can can deliver to get back to your point though it is quite interesting to me so housing definitely you know improved housing is definitely an engine of growth, no question about it.

16:38Robert Peston:Because apart from anything else, it will mean that in an area which is losing highly skilled and talented people because they can't get anywhere decent to live, they're more likely to stay in an area. Skills plainly are very correlated with improved growth. I mean, the interesting thing for me is, should you devolve more control over health budgets because there will be parts of the country where you know there are way too many people who've signed off work for all sorts of reasons to do with both mental and physical ill health again you could argue uh you know even though you know there is um uh uh some within the extraordinarily you know huge national health service with its massive employment some devolution of decision-making, you could argue there's nowhere near enough devolution of decision-making when it comes to health provision, health resources.

17:45Robert Peston:There is a big question about how radical you want to go when it comes to devolving powers to these locally elected mayors. Yeah, there is. And do you know, it's interesting the point you make about healthcare because I was thinking in my head there, what do I think on this? Should that be devolved? But you're seeing really interesting things going on with healthcare in some particular trusts. Like for example, I'm good friends with the author Anne Cleaves and she's been heavily involved in this reading for wellness. So people being prescribed reading where people will read to them and there'll be community groups where people will be prescribed to go and have books read to them, which sounds totally hippie.

18:26I totally get that. People are like, our health service shouldn't be doing that but what you're seeing results where people who are suffering from anxiety you know issues around um loneliness and and just you know which is impacting their physical health it's helping on things like that and so i wonder if again if there's some element of of regional devolution to um health stuff you can do more of that and trial stuff you know like where we are we've got an amazing coastline so maybe think that could be used more where you're not going to get that in the center of london but you've got lots of other resources in the center of london that would be great in other ways to help with health care i don't know because it all sounds a bit wacky doesn't it when you start talking about um wellness prescriptions and i know it's been in the news a bit this week as well about all that but i don't

19:16Robert Peston:think i don't think it sounds wacky i mean it's i mean you know there's an enormous amount of science behind you know what kind of therapies work so um but but and and i think the point that we're making is simply if you want to really regenerate and get optimism and hope going in an area you need the big decisions by people who are not sitting in westminster but who live and work locally and know their communities best and can respond to the, you know, the revealed needs of the community. Yeah, because I often say I would love the kind of politicians in Westminster that are there all the time to just sit on a bus in Newcastle and see what life is really like for lots of people.

20:04And that's what, obviously, regional mayors and devolution is all about, is they know what life's like on a bus in a remote part of Northumberland or going through the city centre what the challenges are for the people who are sitting on it. That's where I learn the most about what's going on in society, sitting on the metro in Newcastle. And you see some of the biggest, as you pass through the different areas, which are some more deprived than others, you get a real sense of what the issues are for people. And I guess that's what comes from, hopefully, devolution, is people understanding more about those areas' needs.

20:38Robert Peston:So what's interesting to me is that in the second big area, which she is counting on to generate growth, She's actually going, I mean, she's giving away potentially powers again from Westminster, but rather than devolving it down to a smaller area, you know, like Greater Manchester or the Northeast, she's actually now saying we should allow more decision making again by Brussels. because her second big area, which she's talking about in terms of generating growth, is to improve access for British exporters to Europe's single market. And probably the most politically controversial thing that her Mays lecture says is that she wants us to go back to, this is one of those horrible phrases, to dynamic rules alignment with the European Union's single market.

21:41Robert Peston:And what that means is that if you are an exporter, and the example that she has historically used in recent, well, the example she's used in recent weeks is the chemicals industry, right? Because the chemicals industry has made it clear that they have no problem with their safety rules, the regulations they have to follow, being set by the European Union rather than the British government. And the reason for that is because that would, they hope, allow them to buy and sell from the EU with far less friction, Less paperwork, less bureaucracy, be faster. And the advantage for them would be the equivalent of a big tax cut.

22:37Robert Peston:Right. Because because the burden on them, the administrative burden would be significantly less. In general, she now thinks that for the prosperity of the UK, she is now prepared to allow dynamic rules alignment between Britain and the EU in pretty much every sector you can think of, other than those where she gets representations from people in that industry that it would be damaging for them. But if, you know, whether it's pharmaceuticals or chemicals or steel or whatever it turns out to be, they say to her collectively, it would be much better for us if we follow Brussels rules. Her instinct will be henceforth to say, OK, we in Westminster will simply endorse what Brussels wants to do.

23:31Robert Peston:We will no longer be a rule maker. To use that resonant phrase, Britain will be a rule taker. um so that is that and that is a big two fingers up frankly at those who uh promoted the brexit case right because a lot of the brexit case was um parliament has to be sovereign we have to make our own uh rules affecting all industries um and so this really is a big two fingers up to Nigel Farage and to Kemi Baden-Ock. But the issue for me is twofold, really. One is,

24:12Robert Peston:yes, there's an argument for it, but it is a conditional argument, because it will only work if the EU plays ball, if the EU says, right, on the basis that you are following rules for chemicals, we will now allow seamless single market access for chemicals. Well, it's by no been certain that the eu will allow that and secondly this is the other point about it is this what she really wants is the kind of a market we have the kind of access british companies had when we were members of the single market but all members of the single market have for example to pay money into the EU's budget, right?

24:59Robert Peston:There is nobody who gets this access for free. And one of the things, again, that is absent from her speech today is would she be prepared to spend British taxpayers' money on getting access? Now, truthfully, the cost-benefit analysis of providing that kind of money to the EU may well make it a sensible thing to do. But again, just think back to that Brexit referendum. It was massively contentious, all that money that we pay over to Brussels. And now we would be paying money to Brussels for access to the European single market, but no voice in the decision-making process. In the old days, when we were a member of the EU, you paid money into the budget and you could help shape the rules.

25:47Robert Peston:Now we're just saying, you know we will take the rules and we're gonna have to pay money to take the rules i mean she cites um the analysis that shows that as a result of brexit being out of a single market the country is you know eight percent poorer than it would otherwise have been yeah right that's true we are poorer for leaving the eu but i'm not sure actually how the argument politically with the british people will play if we sort of, you know, essentially become supplicants to the EU on a permanent basis, pay money to them, but don't have a voice. You know, in a way, the logic of her position is we've got to rejoin the EU, right?

26:33Robert Peston:We've got to get a voice back. But that's not what she's arguing. She's actually arguing for something that I think many, many people, even those who would want us to join the EU, I think many people would feel quite uncomfortable with. But what's your take on it? Yeah, so she's insisting, isn't she? We're not rejoining the single market, the customs union or the free movement of people. But is this our only, is this better than nothing though? I know you're saying, well, you know. It might not happen. Yeah, well, there's that because they might not agree. The EU might not let us. Yes. So let's, for argument's sake, say the EU do let us.