278. Can any Starmer rival rescue the economy?

15:00Robert Peston:If you look at what he actually announced yesterday, you know, he says Brexit has failed and I want Britain to be, in his words, at the heart of Europe. Okay, now there are many people listening to this podcast who will agree with all of that. But what is his coherent plan to be at the heart of Europe? When asked yesterday, does that mean we would re-enter the customs union or the European single market? He basically said, no, no, there are new ways of somehow getting commercially close to Europe. Well, maybe there are. I mean, I do think that we now have quite a lot of leverage with Europe because the threat of Putin means closer defence cooperation.

15:55Robert Peston:We have, relatively speaking, compared to most of Europe, a powerful defense capability, which combined with the rest of Europe's will make Europe more formidable versus Putin. and closer cooperation in defence ought to be a route also to get closer commercial cooperation because they do, to an extent, Europe leads us more than they used to because of our defence capability. But even so, there is no actually compelling roadmap to really get the costs of trading with a single market down in any very significant way that would boost growth. And absent something that looks like a practical plan, those investors that currently are very sceptical about the UK are not going to become any less sceptical.

16:53Robert Peston:I mean, there are lots and lots of Labour supporters who would dearly love him to move towards a position where the next election would be fought on a single big issue, which is that we should rejoin the European Union. But he seems to be a million miles from making what would be a very courageous leap. Now, as I say, there are lots of people both within Parliament, within the government, and indeed the wider sort of group of Labour supporters who take the view that were he to do that, that would reunite the centre and the left of politics. and it would give the Labour Party a fighting chance to beat reform.

17:39Robert Peston:And actually, at the moment, there aren't many issues that the Labour Party can coalesce around that look as though they would give Farage and reform a bit of a run for their money at the next election. But again, as I say, there's absolutely no sense that he's got the courage to move Labour in that direction. And then when it comes to industrial and economic policy, I mean, the one thing that he announced, OK, was taking British steel into public ownership. Now, I'm not saying that taking British steel into public ownership is necessarily a bad thing in and of itself. I mean, you know, I broadly take the view that this idea that he put forward, that it's incredibly important for an economy like ours to have a steel manufacturing capacity, that this is some issue of enormous economic security.

18:33Robert Peston:I personally think that's slightly overstated in the sense that, you know, there is definitely surplus steelmaking capacity in the world. The idea that we're ever going to be a position where we can't import steel, I personally think is mad, but okay, I'm not prepared to die in that particular ditch. But what I do think is, you know, nationalising steel sounds like the Labour Party of 1967 when they last nationalised it. It doesn't sound like a very modern economic strategy or industrial strategy that is going to benefit the people that you're talking about. People on low, you know, if you happen to work in steel or related industry, you probably think, thank goodness.

19:10Robert Peston:But we're talking, those are thousands of people. You know, it is not the millions and millions of people who want their living. You know, if you nationalise steel, it will have zero impact on the vast majority of people who are struggling to, you know, pay their bills at the moment. And in that sense, as a symbol of what labour is, it's ridiculous.

19:29Steph McGovern:It's out of date, isn't it? That's what it feels like. Because I get it. Like, as you say, if you look at an individual, you know, steelmaking facility, obviously, it's really important to the community. I grew up in Middlesbrough. I know this. I am growing up in an area where steel has been absolutely vital to the local economy and, you know, watch the hardship of people who've lost jobs in it. But life goes on and it's about reskilling those people like we're seeing happening in the oil sector. you know the lads I know because it is many lads who've left that sector retrained and gone into renewables and okay it hasn't been a perfect system of transition but there are things happening there which are working and it's really important to be forward looking in terms of growth and not be clinging on to to the past but anyway let's go to a quick break and then afterwards should we talk about then the leadership contenders and what they might do for the economy you know where does Wes Street and Angela Rayner, Andy Burnham stand on all of this.

20:27Steph McGovern:This episode is sponsored by Starling, the bank that helps you organize your money, build great habits and stay in control of your spending. Now, I talk a lot about financial literacy and its importance in our economy, you know, giving people knowledge, but also confidence with money too. And Starling reckons anyone can be good with money and you can start simply by checking your balance daily. It gets easier every day and it takes the mystery out of it. And then the real value comes from digging into the details with tools like Starling Spending Intelligence. So this is an AI powered search bar within Starling Current Accounts where you can ask a question about your spending habits and get an instant answer in app.

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21:49Steph McGovern:That's indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs.

22:01Robert Peston:So welcome back to The Rest is Money with me, Robert Peston. And me, Steph McGovern. Now, what is important, I think, is that the candidates for the leadership would, I think, take the economy in a different direction from Starmer. Now, it's early days. None of them have put out any kind of compelling manifesto, but we have got a sense of where they would go that is different from the status quo. And I thought I would just start with a document, actually, that by chance was put out today by a group of MPs called the Labour Growth Group. Right, who are they? And so they are broadly people who I think would generally think of themselves as being in the sort of centre towards the right of the Labour Party.

22:51And, you know, most of them would, I think, end up being West Streeting supporters if he ever, you know, does have the courage or foolhardiness, depending on your point of view, to gather the nominations and challenge

23:06Robert Peston:Keir Starmer. And as I say, they put out a document today, which is actually quite an interesting programme. It's called An Honest Day. What a weird name for a growth strategy, An Honest Day. Yeah, I'm afraid it does invite satire. But anyway.

23:29Steph McGovern:Yeah, well, absolutely hammer that on Have I Got News for You.

23:33Robert Peston:Okay, I'm looking forward to that. Anyway, the bit of it that I find interesting and important is what they're broadly talking about is shifting the burden of taxation from people, from earnings. Yeah, from income. From income to assets. Okay. Because at the heart of their analysis, and I think there is a lot to this, that broadly what's been rewarded in the economy over the last 15 odd years is not labour, not essentially the fruits of what we all do to earn a living either as self-employed people or employees. but assets of various sorts, and in particular property. And what they are, so I'll give you one example of a policy that I think is definitely worth considering.

24:34Robert Peston:They are saying that you should shift the burden of, well, you should reduce rates on businesses and then look at who owns the underlying property and make sure that they pay more on, We've talked about property taxes before.

24:54Steph McGovern:So, for example, in my case, with one of our retail units, rather than us being hit by it, or it would be reduced a bit for us, but it would let our landlord.

25:03Robert Peston:Yeah, your landlord would. And so I think that is definitely an idea whose time has come. One of the things we've talked about is, you know, it is ridiculous that we don't have a proper property tax in this country. You know, one of the advantages of, I mean, first of all, we have seen the most massive inflation over the last 15, 20 years in the value of property. And I think you could argue that the owners of those assets haven't paid their fair share. But secondly, the great thing about land is you cannot move it. Yes. You know, unless Trump finds a way to buy the entire United Kingdom, right?

25:46Robert Peston:Britain will remain sovereign. And if you own land here, you're just going to have to pay whatever the tax is here.

25:53Steph McGovern:Has anyone done any kind of modelling on that about what it would mean? Because obviously, with all of these things, with tax changes, we always talk about how that changes behaviours. And maybe that's a good thing. You might get people who downsize from properties who don't need these big properties. And that might free things up in the market and things like that.

26:12Robert Peston:I think it's less that. Yeah. Although that's got to be part of what you'd hope would be the benefit. The other point is when it comes to where investment money goes, if the tax burden is less on operations and more on assets, then if you are a provider of credit or investment, you will actually direct that money and actually arguably at lower cost to those businesses that are actually creating employment and you'll reward proper operational businesses that employ people, and that would be a good thing.

27:01Steph McGovern:And this sounds good then. Like on our brief analysis of it, this makes sense to me. And as you say, it kind of rewards and taxes the right and wrong things. So therefore, this is good.

27:14Robert Peston:I think it's an intellectual framework. It's a really good place to start. Yeah. Right. And, you know, so, for example, one of the shorter term practical things that they talk about, which, again, we've talked about before and has been around for ages, is also equalising capital gains and income taxes. Yes. So that, again, you know, you don't have this distortion where if you've got some spare money, you are more likely to put it, you know, into something that can yield a capital gain, you know, rather than, as I say, rewarding work. Yeah. Because one of the big trends over the last 50 years, and it's absolutely, you know, it's such a powerful trend, is the share of the economy that rewards capital as opposed to labour has gone up massively.

28:09Robert Peston:Right. And, you know, that's why, to go back to the point that you were making, people feel the social contract has broken down. That's another way of saying, right, that the economy is not working for most people. It is working for owners, not workers.

28:24Steph McGovern:Yeah, yeah. That's a really good point. So we think this is, to frame this around everything that's going on, this is the kind of West Streeting vibe then?

28:34Robert Peston:Well, it is certainly, what's striking about it is these are a group of people who, you know, it's in the name. What they want to do is promote growth. And as it happens, quite a lot of people associated with this group would be streeting supporters. So my working assumption is even though streeting is not once since becoming health secretary stood up and made the kind of speech which would give you a clear insight into what his economic plans would be. My assumption is that this is the kind of thing that he would adopt.

29:09Steph McGovern:And just on that, some of the other things that this Labour Growth Group mention is, you know, they talk about what we've heard. There's been a lot of rhetoric around, you know, getting rid of the bureaucracy on big projects. So they're saying they want to create a powerful department of the prime minister. I mean, it does read a bit like satire this as well, to drive national priorities. They want to stop making local councils bid for small grant pots and instead give mayors in England real tax and regional spending. Again, we've heard Reams talk about that. That's a good thing. Yeah, it is.

29:42Robert Peston:We definitely want mayors who know their communities better, more ability to work out where investments should go in their communities, what skills are needed, all of that. We've talked about this endlessly. That kind of serious devolution is definitely a good thing.

30:01Steph McGovern:Yeah, they also, just to briefly mention as well, a hard line on services saying they think that you should let failing debt-loaded utility monopolies like Thames Water face the consequences of their failure rather than failing them out.

30:14Robert Peston:They basically think Thames Water should come into public ownership, which actually, to be honest, that unites. One of the things that actually is quite interesting for what it's worth, whether you're on the left of Labour or the right of Labour, they all hate Thames Water. They all want Thames Water essentially to be owned and controlled by the taxpayer.

30:30Steph McGovern:So, right. So that's potentially street in. Who do you want to do next? Burnham or Rayner?

30:36Robert Peston:Well, I'm not 100 % certain how far apart they are economically. So I think we can sort of talk about them, you know, as having a sort of similar soft left position. And, you know, one of the things that they both believe in, you know, certainly more than you would argue the Starmer government does is public ownership. And it's a very interesting question how far they would extend that beyond transport, for example. I mean, Burnham has certainly shown when it comes to transport in Manchester that he appears to have improved the transport in Manchester essentially through public ownership there.

31:23Robert Peston:um reyna would sign up to all of all of that i think the thing that is interesting to me about reyna she put out a statement where she broadly said um star was in the last chance saloon like all of us she shares the diagnosis of millions of people on low incomes being able to unable to pay the bills. Now, again, interestingly, the Good Growth Group, they basically say so much of government policy has to ruthlessly focus on what are the bills these people are paying, I mean, energy being a really important one, and just driving as hard and fast as possible to get those bills down. Rainer would, I think, take a similar sort of view, but she also talks about how she believes you can do this by essentially putting up taxes for those at the top of the income spectrum.

32:32Robert Peston:You know, whether it's wealth taxes, She sort of implies, without quite being explicit, that she wants yet another super tax on the oil companies who are obviously making quite big profits out of Trump's war in Iran. There's a sort of implication that she would put up taxes on the banks. These things are always possible. But, you know, banks' big profits are cyclical. They go up and they go down. Oil companies' big profits are cyclical. They go up and go down. If you put extra taxes on these institutions, you can raise money in the short term, but it is not a long term solution to a cost of living crisis.

33:20Robert Peston:You know, the only long term solution to the cost of living crisis is to get the growth rate of the economy up. It is to get the economy generating more taxes in general. And then if you want to distributing those taxes to people on low incomes in different sorts of ways so that everybody's living standards are increased. And, you know, I think the most powerful criticism of the Starmer government, and I think this would apply to both, at the moment, Rainer and Burnham would be, yes, you can do things in the short term, possibly by, as I say, putting super taxes on institutions that in the short term seem to be making really big profits.

34:12Robert Peston:But that nonetheless will do zero to get the growth rate up. In fact, it might actually undermine the rate of growth. And if you actually want to do stuff for working people, you have to have a growth plan, an incredible growth plan. And it's not obvious to me, other than a sort of commitment, both of them seem to believe that the public sector in general, if you just give more money to the public sector, it will somehow invest it better and the growth rate will go up. Well, actually, the history of capitalism doesn't show that the public sector is a better generator of, might be a fairer generator of growth in some ways, But it's definitely not, you know, obviously a better generator of growth than the private sector.

34:55Robert Peston:And this was, I mean, to be clear, the Gordon Brown, Tony Blair consensus, you know, when Labour were last in power with a proper majority was they absolutely knew back then that if you wanted to get the growth rate up and it succeeded, you had to give the private sector confidence. Yes. Yes.

35:13Steph McGovern:And you can't keep hammering the people who are, as we've talked about a million times, about how, you know, it's a tiny proportion of people who are paying the biggest income tax, the richest, isn't it? They are, you know, the ones who are paying the most in tax. And if you keep hitting them, they're going to change their behaviour. They're going to leave. They're going to do things differently. And also a lot of them are employers and things like that as well. So you can't, it's so, it makes so much common sense to just grow the economy and that will increase tax revenues. It's just the real basics of economics.

35:46Robert Peston:So the issue is whether any of these leaders will have the guts to do what Starmer didn't have the guts to do, which is actually to do some measures that many working people will feel does not in the short term help them, but they are essentially measures to encourage the private sector to invest a lot more. such that you get the productive potential of the economy up. And at that point, you can do all sorts. Once the economy is growing faster, right, at that point, there are all sorts of things you can do to improve employees' rights. There are all sorts of things you can do to get the minimum wage up and the living wage up because the economy is way more productive.

36:39Robert Peston:Exactly. But it's about not putting the cart before the horse. There was a very, I thought, intelligent analysis of why certain Scandinavian economies like Finland are both seemingly happier places, but more importantly, they have a greater sense of national identity. And Clive Lewis, who's a great supporter of Andy Burnham, was using, which many people do, the sort of Finland model for social cohesion and pointing out all sorts of things to do with the fact that they have a very generous welfare state and therefore cutting the welfare state in the UK would be a bad thing. Well, all of that is right.

37:29Robert Peston:But the other absolutely striking fact about all of these Scandinavian economies is they are fabulously productive economies. is they have a whole range of really competitive industries. And the challenge for, you know, whether you are, you know, Clive Lewis or Andy Burnham or Angela Rayner is, you know, building a diverse, more productive economy. And, you know, obviously they talk the talk of, you know, let's invest more in the regions, let's invest more in our second cities. All of that is very, very good because productivity levels there are, But it's all slightly at the level of, in my view, you know, wishful thinking of sort of cakeism because they're not prepared to accept that some of the things that you've got to do to help the private sector will not be popular with many of your core supporters.

38:30Steph McGovern:And you've got to take that hit and stay committed and not do utans. But the one we started at the beginning of this podcast talking about the bond market. So let's end on that because it feels to me like the bond markets wouldn't like Rayner and they wouldn't like Burnham. But Streeting might get through in terms of if the bond markets dictate this, the bond markets are going to be happier with Streeting's ideas for growth.

38:57Robert Peston:Probably. And I mean, let's be clear. I hate that. I mean, I sort of, you know, we've talked about this on a very recent podcast. I sort of hate that as an idea because whether or not any of us prefer streeting to Rayner and Burnham or prefer Burnham and Rayner to streeting, these decisions should not be decided by faceless hedge funds in different jurisdictions deciding that they're going to punish the UK because it looks as though Rayner's going to win, but they're going to reward the UK. They should not be having this kind of influence. I mean, what is therefore imperative for Rainer and Burnham is as and when this becomes a really live issue, as and when they are serious candidates, right?

39:51Robert Peston:They do have to very clearly set out how they will prevent an unsustainable rise in the indebtedness of the UK. And what that basically comes down to is two things. Angela Rayner said half of it, right? But it's a half that, in my view, almost doesn't as much harm as good. She says, basically, I'm going to put taxes up to meet the fiscal rules. That's basically what her statement said. The problem with that is, in the end, and this is the virtuous cycle any British government has to get into, whether you're a hedge fund or some other kind of institution lending to the UK, the more confidence you have that the UK can get out of this period of stagnation, if you believe the British economy is going to grow faster, it means the denominator for the measure of debt, GDP, will be bigger.

41:04Right.

41:05Robert Peston:And at that point, you think, wow, the UK is a much safer place to lend money. So growth is genuinely the answer to everything. Growth and productivity, the answer to everything, because they both generate the taxes that you need to pay for your public services and lift people out of poverty, and growth reassures lenders to the UK and means they will lend to the UK at a lower rate. And the fact that that's why, you know, God knows how many times we've said this on this podcast, you and I. Any government that wants to succeed, you don't just talk the talk of raising growth, the growth rate and productivity.

41:43Robert Peston:If you don't make that your number one priority and you don't do the tough things to achieve it, you will always be in the mire. You will always be in the shit.

41:52Steph McGovern:The tough things to achieve it is the key there. You can't back down when you get a bit of rebellion from your back benches. You've got to carry on. And if that is the plan that you think is going to work, you make moderations along the way. if things happen with geopolitics or whatever else. But on the whole, you should stick to a plan, form it, have an end goal and stick to it. Anyway, we know that. So there we have it. It's growth. That's the key here. A growth with a plan.

42:19Robert Peston:A growth with a plan and just leadership. What we need is strong leadership with, you know, focused on growth.

42:25Steph McGovern:And while we're getting through all that, we need a good book to read. And Robert, you just happen to have one coming out. Well, it won't be out till July.

42:32Robert Peston:What I've now got is the cover and the proofs are in. So it's called The Kill Switch. It's the 30-hour trilogy of thrillers. It's actually about chaos, murder in politics. Actually, let's talk about it in detail another time. But I loved writing. It's the most enjoyable book I've written in terms of just the process of writing it for donkey's years. Good, right. I hope people enjoy it as and when it's out.

43:03Steph McGovern:And it's worth pre-ordering. But that's it from us. Bye-bye.

43:06Robert Peston:Goodbye.