295. Jim O’Neill – The man shaping Burnhamomics

0:00Robert Peston:You are reported regularly as being, in some senses, an advisor to Andy Burnham. Andy needs to figure out what is it exactly is key priorities and then communicate that to everybody and then actually stick with them. One of the many mistakes that Keir Starmer presided over was effectively trying to play around with small amounts of savings in welfare that I think the triple lot needs to be dealt with. And I suspect once the right person is bold enough to do it, it's going to be pretty hard for any major political opposition to disagree.

0:33Steph McGovern:Burnham's talked about a 10-year plan. We've been talking about Prime Minister's only lasting two out of a four-year term and, you know, some even only last weeks. Do you think the markets will buy into that? Will people, will the electorate? Is 10 years going to be the right time frame? There are two opposing issues that somebody like Andy's got to face here. This episode is brought to you by Octopus Energy. Greg Jackson, the CEO, is with us now. Greg, I want you to look into your crystal ball and tell me what's your vision in terms of, let's say, 10 years for how the average UK house will be powered?

1:12As we build out more and more renewables on the grid, the underlying electricity system is much more volatile. And that means that people have got their own solar panels, their own batteries can help balance the grid. And cars are going to be doing that as well.

1:26Robert Peston:So you're going to end up with a system that looks a lot more like the Internet, where everything is automatically improving, just like in the Internet, improves your bandwidth. Here, it'll be improving your energy cost and prices are going to come down. and by the way it brings prices down even for those people who don't have the solar panels and batteries or the electric cars because it makes the whole system more efficient for everybody

1:49Steph McGovern:let's hope that's right then greg thank you now on with today's episode this episode is brought to you by google chrome you think you know a browser but gemini and chrome that's new it can help you with practically anything on the web like restoring a vintage motorcycle from a 50-page restoration block or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18 plus. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs.

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3:00Steph McGovern:Hello and welcome to The Best is Money with me, Steph McGovern.

3:03Robert Peston:And with me, Robert Peston in Ankara in Turkey. I'm at the NATO summit of world leaders. It is Keir Starmer's last proper outing at an international conference as Britain's prime minister. And all the tension here is between Trump and the European leaders, including Keir Starmer. but we're not going to focus on that today are we Steph?

3:34Steph McGovern:No because over in the UK obviously Andy Burnham is pretty much set to become Prime Minister very soon and we want to look further in this episode into what might shape his economic thinking. One of the people we know he's talking to is former Goldman Sachs top dog and ex-Treasury Minister Jim O 'Neill so we've got him back in to find out what advice he's been giving the future Prime Minister. Here's our interview with Jim O 'Neill.

3:59Robert Peston:Jim, it's terrific to see you. You may notice that I'm quite a long way from the UK and a UK that seems to be gripped again by Farage Madness, but we don't really want to talk to you about Farage. What we want to talk to you about is Andy Burnham, who, barring some event that I simply cannot conceive of, will be Prime Minister in a matter of days. You are reported regularly as being, in some senses, an advisor to Andy Burnham. Can you characterise your relationship with him? I mean, I've known Andy ever since the greater Manchester Mayoral Authority was created, which, of course, indirectly, because of George Osborne, came out of the review on City's growth that I was leading.

4:55So Andy was the first person to become a mayor, and I've known him ever since then and I've talked to him frequently about issues to do with devolution in Manchester. As it specifically relates to the press media speculation the past, what, three weeks plus, there is no specific role being offered. The early speculation was actually factually incorrect. As far as I know, he hasn't got any formal appointed economic advisors. but I taught him a lot and I taught him a lot about the right things to do

5:30Steph McGovern:and so you know you've told us in the past about the hard choices whoever is the next Prime Minister probably Burnham are going to have to make so you know can you just tell us a bit about that in terms of what you think they are then? So particularly because of the very very strange nature of how it looks like Andy is going to emerge as the next prime minister which is quite remarkable of course and hence why quite a few people ask whether it's democratic and all the rest of it i think there are there are two opposing issues that somebody like andy's got to got to face here first of all i think there has to be recognition of what i frequently have increasingly called the sacred cows that nobody in the Westminster Whitehall game seems to want to deal with.

6:28Because otherwise, what's the point of having had a new leader, you know, to replace somebody that was constrained by not wanting to change the games? But at the same time, because of this sort of very strange role of manifestos, which to somebody like me, not that interested in politics, seem like marketing tools. but they do seem to bound elected governments, and maybe that's right, without them calling another general election to seek approval for what is supposedly a different mandate. And those two things, I think, as Andy's building up for government, are sort of clashing because you can see that and every time he's pushed on certain issues himself.

7:15But I do believe, because you've got lurking in the background every second of every day the financial markets that are not charging the UK a premium on its interest rate borrowing for nothing, expecting at some point somebody's going to be bold enough to take on some of these so-called sacred cows and put us on a more sustainable path of debt. But in my view, one that should be thought of as a sort of reward potential in the same modern, a modern version of when Tony Blair and Gordon Brown appeared and made the Bank of England independence and guilt yields dropped dramatically just that week and stayed down.

7:58And I think that's that should be the reward for somebody that's going to be bold enough to deal with some of this stuff.

8:02Robert Peston:And just to therefore identify the sacred cows and also in order of importance, there is the triple lock, which leads to some believe unaffordable increases in state pension year after year. and significantly increasing the share of public spending that that pension takes. There is the thorny issue of welfare reform and whether the current system is the right system, frankly, to support people who are unable to work because of various disabilities, but is also forecast again to take a hell of a lot more money out of the public spending purse over the next few years. I assume those are two of your sacred cows.

9:03Robert Peston:What would the others be? I mean, I have four that I think I've talked to you guys about before, and those two are probably the most obvious. And, you know, let me again emphasize, because I have talked to Andy and his team, I have no idea quite what precise things will happen, But I'm on public record in the past three weeks and certainly before it that I think the triple lot needs to be dealt with. And I suspect once the right person is bold enough to do it, then it's going to be pretty hard for any major political opposition to disagree. and you're very right to point to the growth of debt servicing and cost as time goes on if it's left unchanged because it is pretty spectacular as we go towards 2050 as actually the latest OBR mid-year forecast upgrade has just shown.

10:00But there is this issue about the manifesto and all the rest of it and when Andy was pressed on it, of course, a week or so ago He said, sticking by the manifesto, but let's see what happens on that. But I think that's definitely right at the forefront. And it's also very unfair from an intergenerational perspective with all these young people that can't afford to buy or rent in some parts of the country having to be expected to pay more and more tax for a lot of people who own a lot of their own homes and still get a very nice protected pension increase all the time. Second thing, which relates very much into the devolution argument, and I think there's a subtlety to it that Andy's already talked about, and that's welfare reform.

10:45I do think one of the many mistakes that Keir Starmer presided over was effectively trying to play around with small amounts of savings in welfare, purely to meet what one might regard objectively as an arbitrary fiscal rule or the fiscal space. Whereas if you're really going to do it, you've got to have a systematic reform of everything that connects to the various welfare payments that are going on. And at the core of the idea of number 10 for the north, as well as giving a lot more devolved responsibilities to areas of the country that are capable of handling it, what I think you will get is a much more connected approach across all the departments that are relevant to different forms of welfare reform.

11:38Part of what Andy is being influenced about is Manchester has something called the prevention demonstrator going on, which involves a completely connected approach. And it's pretty clear to me that if you do that correctly, you could end up saving considerable sums of wasted money that are going on welfare payments. and much more importantly probably have an increased chance of actually improving some outcomes about so many people in these troubled situations uh getting getting jobs if they're young getting better uh support if they've got genuine mental health challenges and so on yeah

12:19Steph McGovern:there's loads to dig into there jim but so just to kind of summarize what you've you've just said there so what you think if you i guess were prime minister is overhaul welfare get rid of the triple lock and don't worry too much about sticking to the manifesto well i i i think i might be far too removed from the nitty-gritty of politics and the constitution and i that would be my natural instinct but i'm a crossbencher and i don't have to worry about those things i do think that the more i listen to it there is there is probably a bit of an issue uh about about what a party puts and stamps in its manifesto then goes ripping it up when their leader hasn't been facing the British public.

13:07So, you know, subject to how one deals with that, yeah, I would, if it were me, but luckily for the country, it's not me.

13:14Robert Peston:In practice, if, as I think you think would be the right way to go, you default some of the sort of welfare decisions to, let's say, some of the powerful mayors, what would that mean in practice? Is that to do with a sort of mixed approach of getting involved more in skills and retraining? And is it a combined sort of employment creation as well as, you know, sort of welfare rules devolution? I think it's across the board. I mean, I would imagine, and I'm a strong believer of this, and I have been for years because of my experience with Greater Manchester and other main, but I think the whole of everything to do with adult skills should be devolved.

14:01as well meaning as some people in the department of education and occasionally biz or buys or whatever the hell we're calling it at any point in time that's the business department that they have no capability of understanding what are the right skills needs in a reading versus a rotherham and so you got to take it away from them and give it to on the assumption that you've got accountable and responsible people locally that are that are looking in a holistic way that suits their area i would go as far as also adding rob but something very close to another part of your heart um probably early years education uh and aspects of education in big urban areas should also be devolved i think anybody you care to uh listen to I think I heard Steve Rotherham interview the mayor of Liverpool about this recently, about just how woeful the Department of Education is about this kind of thing, of thinking on a simplistic one-for-all approach all over the country.

15:08And I know with my shine hat on where I've one of the co-founders of a educational charity that looks at young disadvantaged people, it's just ridiculous. And, you know, despite some improvements in certain aspects of schooling outcomes in the really tough parts of the country, you can't solve them unless you're taking a place based approach, in my view. And so I think there's a chance that some of that would follow as well.

15:34Steph McGovern:And I think that's very true of what Robert and I think on this, particularly around education. I think what's been interesting in the kind of build-up to Burnham has been this emphasis on Manchester, though, and this idea. And I've heard you talk about Greater Manchester going three times faster than the rate of London in the last 15 years. And there's this sense, and you'll know this sense of, oh, we might move part of number 10 to Manchester, to the north, which to me is the Midlands. And to Scottish people, it's definitely not the north. Up to the North East, Steph, I feel, coming here. Yeah, good.

16:06Steph McGovern:So, but my, what, and I think, you know, you've just touched on it there in terms of skills. What people are worried about is this idea you can just copy Manchester and that's just going to be replicated. But you're saying that's not what is going to happen. So we're not all going to become Manchester's. I think that would be a very naive and potentially dangerous thing to attempt to do. and in that regard I think what is interesting that one around is very very few early appointments is to appoint Caroline Simpson who has been the chief exec of Greater Manchester to be the person that's probably going to be running this number 10 in the north and so of course on the one hand that adds to this impression well it's just going to be to try and create a load of Greater Manchesters but I don't think at all knowing Caroline in the way that I do that that is going to be the case.

17:00I think what it is is about the concepts of how Greater Manchester's gone around it. And that's what I think can be transferred or the way of thinking to elsewhere. And again, as I think we've touched on before, and now I think it's really important, one of the things that is, I think, from my experience, quite unique about the Greater Manchester part of the mantra of socialism is that for many many years you've had every particularly important constituent player whether it's the university whether it's business uh aspects of civil society and the council and the mayoral's office they're all singing from the same hymn sheets and so it It comes across as a very joined up, committed path.

17:53What I've found in so many other parts of the north and elsewhere in other urban areas that I've dealt with, and I'm afraid to say it's been true, Steph, quite often in the northeast, it is dramatically fragmented with very strong local infighting that makes it effectively impossible for a sceptical Treasury to even seriously start to give them some of the kind of money and responsibilities that Greater Manchester's had, because you can't have confidence anything really good is going to come from it. And one of the things that Caroline's office probably supported out of the Cabinet Office in Whitehall, and here in this regard, the economics campus of Darlington, Darlington, where a lot of Treasury and Biles people are these days, they are going to be now probably thinking of giving much more systematic support as to how other areas can have the staffing, which was at the core of the Manchester story, which actually predates Andy's arrival.

19:01And I don't think Andy is daft enough or whatever the phrase is to think that it all suddenly started the day he became mayor, because it's not actually true. A lot of it was, you know, Howard Bernstein's family should be very proud about all of this because a lot of it started with Howard. But importantly, behind the scenes with Howard, he had something called the New Economy Group where people were qualified for looking at big picture strategic things with some kind of economic lens. And that I think you can have as a transferable thing. But of course, and, you know, obviously you're from there, The nature of the challenges in the northeast, and I often think of Northumberland as opposed to, you know, a less urban place than a Newcastle or indeed a Teesside that has particularly complex challenges, especially as it relates to early years education.

19:58And so you can't just say, well, we've done it that way and great. I'm actually going to do it the same way that is. It's for the northeast to determine itself.

20:05Robert Peston:I am somebody who hates loose ends. And I am aware that I think we've only talked about two of the sacred cows that need reforming. Just run us through quickly what the other two would be. The third one would be proper housing and land tax reform. Again, I think we've touched on this in the past, Robert. but you shove a load of economists in the room, and on virtually every topic, you'd get them to disagree on anything. But of the few experts that look at this issue, there is widespread agreement that we have an utterly nonsensical approach to effectively the taxation of housing by approaching it from taxing what's on the land as opposed to the land.

20:53And then we end up with crazy things like stamp duty, which are effectively a disincentive to activity. And one of the problems about breaking the triple locket that I now realize more and more is even though over 70-odd percent, I believe, of pensioners own their own housing outright, the stamp duty issues of selling and buying something else are so large that it acts as a disincentive for them to consider downsizing or whatever. And there are many examples like that. And of course, the sort of lunatic way that the council tax system has developed in that the owners of higher price houses effectively pay way less proportionately council tax than people at the other end of the scale.

21:43And somebody bold enough is going to finally deal with that. And most importantly, in terms of trying to change the cyclical momentum of the economy and the mood of business, my own increasingly strong hunch is that the construction industry would then start to think, actually, there's something really, real different going on here. And it would probably act as a major cyclical stimulus as well, in my own view.

22:10Robert Peston:Could you replace Castle Fax stamp duty with a land tax based kind of system? I mean, how long would it take? Because one of the reasons it's never happened is because the Treasury and HMRC always wring their hands and say it's all too complicated. And, you know, the whole valuation process would take forever and all the rest. Do you think these are lame excuses, basically? I don't know is my honest answer. I'm not a technical expert on these issues. In fact, far from it. But there are plenty around. I do suspect to really work it, you know, to implement it probably takes the time. But again, you would know, you know, people like John Mulbuller and Kate Barker and people like this have been thinking about this stuff for a long, long time.

22:52So I think you could actually have the right solutions pretty quickly. The most important thing I would personally believe, being somebody that spent, you know, 40 odd years, 30 of them active in financial markets. If you send the signals that these things are going to change, that in itself starts to influence the private sector in terms of what they're prepared to do and invest in things.

23:18Steph McGovern:Yeah. On that point of time, then, you know, Burnham's talked about a 10 year plan. Do you think that is the right time frame? Is that how long it's going to take to kind of lift up living standards? because, you know, 10 years, we've been talking about Prime Ministers only lasting two out of four year term and, you know, some even only last weeks based on what's going on. So is that, do you think the markets will buy into that? Will people, will the electorate, is 10 years going to be the right time frame? I think there has to be a shift in mentality about that assumption that all 66 million of us hold because, you know, linking it a little bit to education again, and I know we touched on it in the past, the idea that we spend three times the share of GDP on health, a lot of it wasted compared to education, you know, it's not normal.

24:11When Maggie Thatcher was leaving, it was the same. And, you know, if you really want to affect long-term economic growth, just that in itself has got to be changed because it's just ludicrous. But back on this other thing, what I want to really highlight is two different aspects of it so on the big, for things to do with changing the mentality and outcomes and success of infrastructure spending, and you could include housing as part of that, this idea of having NISTA taken out of the treasury as some kind of stand alone body that's like an infrastructure version of the OBR I am a very very passionate advocate for that And rather troublingly for those that are sick to death of hearing me talk about it, John Armit, who was effectively the first person that ran the Infrastructure Commission, has just coincidentally published in The Times something almost identical to what I've been proposing, even though John and I haven't directly discussed anything like this for years.

25:16And John is a guy that, you know, presided over the early days of the Infrastructure Commission, and he knows that there are people that can estimate the macroeconomic consequences of Project X and Project Y in a pretty powerful way that can, most importantly, help the OBR with its own long-term trend growth forecast, But much more importantly, make British people see through the kind of madness of our democratic complexities and elections that various projects can make a difference to the country. One of the things that my suddenly thousand best new friends every day are messaging me about amusingly is Heathrow.

26:02You know, Heathrow would be a perfect thing to put through it. Have you ever seen a proper independent estimate of whether a third runway would be really good for the UK or not? I haven't. Have you ever seen anything like that for HS2? No.