273. How angry are business leaders with the government?

21:33Steph McGovern:He was doing shady deals, allegedly, behind the scenes. But I do think this is that classic example of people just being blinded by all the good stuff that they see. And they just go, it doesn't matter that they might have done that in the past. They'll do so much good. I'm going to throw in another business example for you, which is Uber. So Uber hired this brilliant engineer from Google. He'd worked at Google for years and was one of the brains behind the algorithm, the search engine at Google, obviously the key to it. And he'd left Google. So he joined them in 2017. And then just a month after he joined, it came out that actually he'd been asked to leave Google over a credible allegation of sexual harassment, which I should say he denies.

22:27Steph McGovern:But then Uber had to boot him out. you know again this was a whether it was a vetting process that didn't work or something was ignored it then led to you know further chaos for uber because they were already in a crisis over their workplace culture at the time and that eventually ended up with the co-founder travis having to go but this was also just added more damage to the company but you know this is before its valuation for the IPO as well before it was sold off. But this, you know, I think people just think, right, it doesn't matter because they'll do more good than bad. And then it just comes and bites you on the bum because people these days always find out and there'll always be someone digging to get the, you know, to either because they don't like the person or it's a journalist looking for stuff to get to the truth of things.

23:18Steph McGovern:So it'll always come out. And that's the thing that it was always inevitable that yes okay there might have been drama if he hadn't have done the appointment and the media might have kicked off but look at the drama now and the potential that he might lose his job over all of this it just feels like why when are people going to learn

23:35Robert Peston:not to just take things at face value and and you know as you say we've seen this in business so often. I mean, you'll remember Sir Philip Green, the buyout billionaire who bought BHS, bought all manner of retail businesses, Topshop perhaps most famously. But he was also notoriously somebody who was a bully, who shouted at people. And I remember, you know, for a period, he acquired this reputation of being an absolute genius. So banks would pour money at him. I mean, Bank of Scotland, Goldman Sachs worked with him for a period. And, you know, he was regarded as a sort of genius, whereas actually what he was doing was really pretty simple.

24:35Robert Peston:He would just, you know, buy companies with debt, strip out the cost, try and extract dividends in the short term. But if you looked at the history of capitalism, you know, there's a long, long and sorry history of that kind of, I mean, many would call it asset stripping, ending in tears. And indeed, it did end in a lot of tears. And, you know, his reputation for being a genius then was transformed into, you know, being, you know, for a period, almost the most hated person in Britain. But he got away with it for quite a long time because, you know, not unlike Peter Mandelson, who was regarded as this political genius, you know, he was widely regarded as somebody who was just intrinsically, you know, way better than anybody else at that particular thing of buying undervalued assets.

25:40Robert Peston:and people just didn't want to look under the bonnet.

25:43Steph McGovern:Yeah, yeah. And that is like the common theme here, as you say. And we could go on for hours listing all the different examples where it's happened in business. Can I tell you one more before we move on? It's another one that I, it's that classic people lying on their CV or enhancing it or doing a blag on their CV, which, you know, actually there's been politicians who've been guilty of that as well. But the former CEO of Samsonite, the fake luggage company, a guy called Ramesh, he often used doctor in his title. And he did that on the basis that he said he had a doctorate in business administration.

26:24Steph McGovern:You all know what's coming. He didn't. And the Samsonite board didn't check his credentials on this. Now, you might think, does it matter? But it did to an activist short seller who was who basically for whatever reason, wasn't happy with the Samsonite boss. And so he just did his own digging. He rang the university that Ramesh would said he went to and he had enrolled in the course, but he never finished it. and off the back of it, you know, he was forced to resign. The share price dropped in a matter of days, you know, knocking as we talk about, you know, lots of money off the market valuation of the company.

27:04Steph McGovern:And it was another disgrace. And so these things, and again, that's, you know, the world's biggest luggage company. I'm sure a man who'd been there for many years at Samsonite worked his way to the top. And then just that one stupid thing of putting doctor in his title was his downfall.

27:21Robert Peston:We've only just got started, but let's go to a quick break.

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29:33Robert Peston:Hello and welcome back to The Rest is Money with me, Robert Perston.

29:36Steph McGovern:And me, Steph McGovern. Shall we talk global economics now? It's nearly two months on now, isn't it, from the US-Israel attack on Iran. The Strait of Hormuz, no matter what the leaders of Iran or the US are saying, there's still not much getting through there, if anything. It's chaos still, despite ceasefires and everything else. And that is, so, I mean, it's just been a very volatile time on the markets, Robert, hasn't it?

30:05Robert Peston:Yes, it's been volatile, but I am staggered that both the stock markets are as high as they are. breaking new records in America, which is astonishing. And the oil price itself isn't higher because the Strait of Ormuz is still blocked. You know, fifth of the world's oil still not getting out. Fertilizer not getting out or the feedstocks of fertilizer not getting out. So, you know, that this shock to energy prices will inevitably get worse because, you know, we are running out of, in much of the West, you know, fuel for airplanes, diesel, fertilizer, which is going to be a huge problem, particularly in poorer countries, Africa in particular, where, you know, There's a real risk of starvation if we cannot somehow get the fertilizer to them.

31:15Robert Peston:And enough time has elapsed for now stocks of all this stuff to really start becoming way more visible. So it is it's just sort of, you know, blows my mind, actually, that all markets want to do at the moment is focus on quite a lot of the nonsense that Trump says, you know, the Iran desperate to do a deal. He keeps saying, well, that seems to be one of the most absurd things that I've ever heard, because it's quite clear that the IRGC, the militia that's in charge now, totally thanks to Trump's war. I mean, he had did he did it. He has organized regime change. He's made sure that the regime is, you know, even worse than it was before the war, because any moderate voices have now been marginalized.

32:07Robert Peston:and you know that you know iran has proved that it can absorb an awful lot of pain and they don't like the terms for a piece that trump is trying to impose on them so this thing could go on for weeks and months um now you know you never know in these situations um that there could suddenly be a breakthrough but the thing that i just find odd is the overwhelming evidence is that there will not be a really serious breakthrough anytime soon. And yet markets are behaving as, you know, they are literally putting everything on red at the moment, whereas there is a very, very high probability that that is not where the roulette wheel is going to end up.

32:59Robert Peston:I mean, as I say, I am staggered that, as I say, stock markets aren't lower than they currently are and stagger that the oil and gas price isn't higher. And I fear it's only a matter of time.

33:13Steph McGovern:But you're already seeing how it is tangibly impacting the cost of living here. So like petrol and diesel, that's already gone up straight away because of it. And if you look at the latest inflation figures, that's now pushing inflation up when everyone was talking about it coming down a bit before the Middle East all kicked off. And food prices as well. If you look at how much food's going up by every year it's something like nearly four percent year on year the increase in food costs and as you say with all these fertilizer things going to come through that is inevitably going to hit but it's it's i feel like it's already then this is why it feels even crazier that the stock markets aren't reacting more it's already being felt by people especially when it comes to travel and you know pain to fill their car up yes i mean and as you

34:01Robert Peston:say it's early days things are going to get worse i mean one of the things i was talking to people in the travel industry. And, you know, they were telling me that people are not booking flights and holidays because, you know, they are, you know, worried, you know, they've heard about the fuel shortage and, you know, consumers are, some consumers are worried their flights aren't going to take off. So, you know, it's already having a material impact on some businesses in that sense. And you can only expect it to ripple through the economy more broadly. The good news is that the Bank of England has been signaling that when the markets were pricing in, three interest rate rises as a result of Trump's war in Iran.

34:54Robert Peston:The markets were overreacting because the Bank of England obviously takes seriously what we are worried about, which is when the cost of living goes up in that way. People spend less, companies invest less, and the economy slows down and you head towards recession and higher unemployment. And so the Bank of England is is at least as much concerned with the deflationary impact of this shock as the inflationary impact. And it's too early to say which of those effects of Trump's war will turn out to be the strongest in the short to medium term. But, you know, nonetheless, the Bank of England, I think, is signaling that there will no longer be cuts this year in interest rates.

35:48Robert Peston:And before Trump's war, we were expecting interest rate cuts of anything between a half percent, a half of a percent or three quarters of a percent. So, you know, even when it comes to the cost of borrowing, the cost of money, Trump's war has significantly damaged us. And actually, as I've said on this podcast before, one of the really annoying, shocking, you know, infuriating thing about Trump's war is that the American economy is still, you know, actually, I'm going to use a phrase. It's all basically powering ahead, you know, partly because of the AI investment boom. And, you know, whereas if you look, for example, at the IMF, the IMF thinks that British growth will fall at least half a percentage point and probably rather more than that.

36:39Robert Peston:This could end up being a year of zero growth in the UK, whereas American growth looks as though it's going to be well over 2 % and has been knocked only the tiniest amount by Trump's war. And that's because America is self-sufficient in energy. It is true that politically it's very unpopular, this war, because petrol prices, what they call gasoline over there, has gone up very sharply. But nonetheless, the momentum in the American economy is so much greater than ours. They are paying a much lesser price than we are.

37:16Steph McGovern:Yeah. And interestingly, of course, Rachel Reeves was in the States, wasn't she? Essentially trying to show that the UK is ripe for investment for America. So she was in Washington as part of these IMF World Bank spring meetings. And she hosted this investors roundtable there and had like key players in the investment world, like Citigroup and BNY Mellon. And also, you know, big names in business like Lockheed Martin, the world's largest defence contractor. And what but what struck me about that trip is obviously we see politicians do this all the time. They go and try and, you know, show our wares and get people to buy into us.

37:55Steph McGovern:But, and you'll understand why I found this so interesting in my next sentence, which is from a Northeast perspective, the only regional mayor she took with her was our local mayor, Kim McGuinness. Now, that I have found really interesting because Kim McGuinness is on a mission to try and get more foreign investment into this area. And she's been Japan and doing all these, you know, different visits and things. And there are already some really strong relationships between the North East and the US. I mentioned Lockheed Martin and they're actually involved with a space skills centre at Northumbria University here.

38:36Steph McGovern:But I just found it interesting that that is the only mare that Rachel Reeves took with her. Because another, in parallel to that, there was an event I was at at number 11 recently, which was for female founders, so women who'd sell businesses. And it was a Northeast-based one. And apparently nothing like that had ever happened at the number 11 before. So there'd never been so many women, businesswomen, in number 11 at that point. I think it was about 50, 60 of us in total. And again, but it was interesting that it was the Northeast, which is the first one to get this exclusive visit of networking and everything else.

39:15Steph McGovern:And this big promise from Rachel that she's going to do all these things to help the Northeast, whether they happen or not, I don't know. But it does feel, I feel way more optimistic than I have in the past about this sense of we are open for business because that is how we're going to solve these problems. That's how we're going to get growth in the region is if we get that investment to do business.

39:41Robert Peston:I'll give you the counter argument, though. So, I mean, look, we've talked at length about how successive governments have utterly failed in their regional policies. And, you know, truthfully, the income and wealth gap between the Northeast and London and the Southeast is still way, way, way too great. And so certainly, I suppose, in a public relations sense, it's definitely a good thing that the Chancellor is favouring entrepreneurs like yourself and other business people from the Northeast. but I've called it PR because I was with a group of very, well, the bosses of very big British businesses just the other day.

40:32Robert Peston:And what they all said is that she's wonderful in terms of wanting to see them and she always talks a good talk. But then they all said, we are literally at our wits end with this government because they pretend to be listening to us. And then they do precisely the opposite of what we suggest to them and they say they're going to do. And honestly, I was genuinely shocked. And, you know, if Labour MPs are listening and if ministers are listening, you need to hear this. Because, you know, I have never been, you know, actually for years and years and years in a room with business leaders where there was such uniformity of disillusionment with a government.

41:24Robert Peston:I mean, you know, obviously, you know, in those few weeks when Truss was doing her best to wreck the British economy, there was sort of terror and panic in the business community and enormous relief when she resigned, you know, enormous relief when she sat quasi-quatic and then, you know, and then she was forced out. but um you know in conditions where there isn't a crisis and there isn't a crisis at the moment other than the trump crisis but you know you you know there's there's obviously a problem with the british economy that the government um has taught this talk of growth and not delivered it but we're not going through a fiscal crisis at the moment i mean that may come as a result of trump let's see But it was just within, you know, this particular slightly more stable period for the just degree of anger with the government.

42:24Robert Peston:I mean, I was genuinely shocked by. So, you know, I'm pleased for all of you that you, you know, had a very nice time in. I'm pleased for you that you had a nice time in number 11. But let's just see what Rachel Reeves ends up doing for all of you.

42:39Steph McGovern:And I, you know, I'm not stupid. I obviously know that like there has to be more than, you know, some canapes in number 11. But it's it. But it does feel like there's, you know, I remember the Northern Powerhouse and all the plans for that, which just that, you know, and again, that was lots of us being told, even when the BBC moved north. I remember this whole thing where I met with the then DG of the BBC for these breakfasts and there was all stuff around that. But I just, I don't know, this has just felt like for the first time in ages, just a bit of optimism about this genuine collaboration.

43:17Steph McGovern:However, I think you're right. I get why business is mad because everything that so far the government's done to try and bring in more money has been at the expense of business. You know, we constantly talk about employment costs, employment rights, about the business rates, about the national insurance contributions. All of these different things are really hammering the businesses that give all these young people their first jobs that, you know, it all feeds into itself. So and we still haven't got on top of skills. So yes, I'm not, but I just, yeah, I just, I felt like for the first time in ages that there was a sense of we are going to bring tangible things and it's not just going to be, I've said the word tangible too much in this episode and it's not just going to be hot air.

44:03Steph McGovern:On the love of the Northeast, obviously Kia Starmer's been here as well, less bothered about that. But Nigel Farage has practically moved in. I mean, he's here all the flipping time.

44:13Robert Peston:Is he your lodger? Yes.

44:14Steph McGovern:So yes, he has been staying nearby with a local business person. But it's interesting because every time Farage goes to, you know, a venue around here, the division is unbelievable. So there was a local business that posted that Farage had been in and they got absolutely annihilated by people then saying, we're not going to come and buy stuff from you anymore. where you know like the local restaurants and you're like oh my god this and what they saw the business was oh this is a chance for a bit of publicity you know and then they ended up having to come out and say we don't have any political views and it's it's quite unbelievable but yes

44:55Robert Peston:he is spending a lot of time there are lots of people in the northeast who presumably love him um given that reform is doing quite well in the north east at the arena i think it was in sunday

45:05Steph McGovern:The queues were insane. It was like people absolutely desperate to get a glimpse of him. So, yeah, there's a but that division is really palpable.

45:14Robert Peston:You know, you divide, you divide opinion, you know, everywhere. Look, just very briefly, because we've obviously focused on the cost of living impact of Trump's Iran war. The other big sort of economic business issue that the government is grappling with is this whole issue of how far to exploit the remaining gas and oil in the North Sea. You mentioned Farage. Farage's position is every last drop has to come out. Strikingly, Donald Trump keeps telling the prime minister to exploit every last drop. So there is this halfway house, which is this looming decision about whether to exploit the Rose Bank and Jackdaw fields for oil and gas.

46:05Robert Peston:And, you know, they are at an advanced state of development. They just need Miliband's approval. And I have to say, Miliband does seem to me to be unbelievably isolated. Even when I talk to, you know, green leaning energy bosses, they just take the view in today's world not to exploit it is absolutely mad. Not because actually, if you were to exploit it, it would bring the oil and gas price down in the UK because it almost certainly wouldn't. because obviously, you know, these things are priced on global markets. The main reasons for exploiting Jack Doran Rosebank are, one, if we don't, we will be importing oil and gas from other parts of the world that are further away from us, where the climate costs of shipping it and actually many of the practices of exploitation in these countries are way more damaging to the environment than the practices we force on those who extract oil and gas from the North Sea.

47:11Robert Peston:So even on an environmental basis, there's an argument for exploiting it. But the main point is, you know, they'll generate very large amounts of tax revenue. This is a government that doesn't have, you know, it doesn't really have enough tax revenue. Every last bit of tax revenue will be quite useful.

47:26Steph McGovern:And secondly, you know, it'll support jobs. Skills is the biggest problem around a lot of the energy stuff, is when we're not bringing through enough people who can do all the, you know, the jobs that we need. And we haven't got enough coming through learning all the clean energy things as well. But just on the point of Miliband, you know, this idea of delinking the, you know, the cost of electricity from gas. So, you know, this is the sense that currently the price of electricity is dragged up by the price of gas because that's what they use to work out the price. even if that electricity comes from cheaper sources like wind or nuclear whatever it the price it's sold at is dictated by the wholesale gas world price and so this plan to you know his suggestion to try and de-link that through you know these different contracts he's going to offer these fixed term contracts which will hopefully bring a bit more stability for people making energy that there's there's that argument as well isn't there about but that's that feels like it's you know it's hard to quantify whether it would work it depends how many of these energy providers sign up for these fixed term contracts so there's nothing yet which feels like a sustainable answer

48:41Robert Peston:to the energy crisis is there well even if his plan works to you know essentially lessen the the frequency with which the clearing price for energy is set by a very high world gas price by essentially forcing down the renewables price by getting these older renewables providers, older wind farms, for example, onto these fixed price contracts. And he's sort of basically threatening them if they don't. They're going to lose their super profits anyway because he's putting up the super tax that they generate. He's putting up the rate. You know, even if this works to an extent, which it may, none of that's going to feed through to our bills for, I mean, certainly not any time soon enough to counteract the impact of Trump's war.

49:43Robert Peston:We're looking sort of a year plus away for, you know, maybe longer for it to have any impact in a positive sense on our bills. And then secondly, there are some in the industry who worry that the impact of all of this will actually decrease investment in renewables, which would not be a great result. So, you know, so I mean, look, his heart's in the right place. It is literally mad that with all these renewables, the price that we all paid is basically dictated by, you know, it was being dictated by Vladimir Putin and his mad and appalling criminal war in Ukraine. And now it's being dictated by Donald Trump and his totally insane war in Iran.

50:37Robert Peston:So, you know, obviously it's good if we can somehow get ourselves off our exposure to the world gas price. This is, you know, at best a small, useful step in that direction, but it's still only a small, useful step.

50:58Steph McGovern:But no matter what you do to solve the energy crisis, it's got to be long term anyway. It's inevitably going to be long term. You're not going to be able, from a skills perspective, you're not going to suddenly train up everyone to be able to do all the jobs.

51:09Robert Peston:And also with our still appalling planning restrictions, it's still going to take way too long, you know, to build all this stuff. And even though I've talked about it before, John Pickleton's, you know, brilliant plan to speed up development, for example, of nuclear power stations. And it's great that the government is implementing it. Even so, these nuclear projects, they just take forever.

51:28Steph McGovern:OK, let's wrap things up then. We've got some excellent episodes coming up for you. a Brexit special which will be very interesting it's one of the things we get a lot of messages about Brexit isn't it that's the blame for everything and also we're looking at debt as well what is really going on in terms of people in debt in this country and how we're going to solve it so that's all to come and the rest is money bye bye goodbye from me