88. Why are Labour drip-feeding us the bad news?

0:11Hello and welcome to The Rest is Money with me, Steph McGovern. I'm with me Robert Peston You've been on a little break haven't you Robert? Are you feeling refreshed and invigorated and ready for the year ahead? Listen it's a joy to be back. Did you miss me? I did. I did actually really miss you. I didn't think I was going to but I did. Well I missed you very much. Yeah but there's been a bit happening hasn't there even though we're in summer recess. Kia has been in the garden of number 10 telling us well it was pretty depressing really what he was saying this week wasn't it yeah it's what my dad would have called technical term he was an economist he would have said i think he's a bit of a misery guts there is something about this government at the moment which is all about telling us how terrible it all is there's obviously we've talked about this before there's a political strategy here of blaming the last government and you know we've got some calls to do that?

1:10We knew that before. Paul Johnson from the IFS was saying, if they come in and say, we didn't realise how bad things were, we shouldn't listen to them because we all knew how bad things were. Look, it's definitely a bit worse than was in the public domain in terms of the current year. But the lack of money for important public services was there for everybody to see. I talked about it week after week on this podcast before and during the general election. I talked about it week after week on television. The Labour Party, for its own political reasons, decided not to run this as a big theme during the general election because they didn't want to talk during the general election about putting taxes up.

2:00I said during the general election, repeatedly. The thing they're bound to do is when they get in, they're going to say everything's worse than we thought, and then they're going to put taxes up. It was obvious that that's what they were going to do. And it is what they're doing. And you pay your money, takes your choice, whether you think that is cynical or whether you think politicians never speak the truth until they absolutely have to. But it's like anything though, isn't it? It's like when you're telling somebody about how things are going, you never really tell them how bad stuff is. You always put a shimmer of something on it to just make it not look as bad.

2:38So I don't think it's a shock. I don't think they're really shocked by how bad things are. But now in terms of what they're going to do about it, we've got the October budget coming up. So this is going to be when we find out how painful it's going to be for taxpayers and for the country. We know still that they're saying it's not going to be an increase in terms of working taxes. So no VAT going up, no income tax going up on national insurance. So everyone now is doing the guessing game of what that does mean in terms of what is going to go up. So it's probably worth us just, you know, giving a flavour of those because we're talking capital gains tax.

3:16We're talking what they might do with pensions, inheritance tax and the key thing we keep hearing from the likes of Rachel Reeves and Keir Starmer is it's about the wealthy here isn't it they're the ones who are going to be the people who pay for this that's the kind of assumption we're taking from all of this we're going to see short-term pain for long-term good and it's probably going to be the older generation who are more often than not the richer ones and I think it's worth reminding everyone where we're at isn't it yeah Yeah, look, so I just want to talk you through what the conditions are that the government has inherited.

3:53And look, there are some things that, you know, if you're Chancellor or Prime Minister, you're going to be very worried about. I mean, one of the things is there's been some good news, which is the economy is growing faster than was expected at the beginning of the year, faster than the Office of Budget Responsibility was expecting. But that faster growth doesn't appear, for reasons that are not clear, to be yielding much higher tax revenues. So we've got higher growth, but not additional tax. So there is a funding problem on that side. The other thing that we learned only a few days ago is that the Tory government spent more at the beginning of this year than historically governments do early in a fiscal year.

4:37So if you look at the budget for the whole year, for the whole of public services, a record amount of that budget has been spent in the first three or four months of this year, which shows quite how desperate many public services are in terms of the pressures that they face. They are spending money early because the pressures on them are so great. And the corollary of that for any government coming in is there's not enough money for Labour for the second part of the year. And this is now a Labour problem, not a Tory problem. So, you know, there is an issue about a shortage of money and it falls into two parts.

5:25There is the problem that we've got this year. And then we've got, which is much more important, the fact that the government of Jeremy Hunt and Rishi Sunak did not budget for any significant increases in public spending in 25, 26, 27. And that's where the real pressure is. And that is why this government now faces this horrendous choice. How much do they put up taxes? How much do they squeeze public services? And that is now what the big debate will be within government between now and a budget in October. and they've already done something. And I think this is, I mean, if I'm honest with you, I think this was absolutely bonkers, but they've already done something as a symbol of their so-called tough intent, which was to scrap universal entitlement for retired people to the fuel allowance, right?

6:33They're means testing the fuel allowance. And it means that quite a lot of people on low incomes who are retired will be in real trouble. And the reason I say this is bonkers is not just because some people on low incomes who are elderly and frail are going to be in trouble. It's also that if you've got a budget coming, you didn't have to do it now. It looks like sort of mad macho politics. I literally can't understand why they would want to define the opening weeks of a Labour government in that negative way. We're taking money away from vulnerable people. But surely it's because they've got to just get on with it.

7:12So, you know, you say vulnerable people, and of course there are lots of elderly people who are very vulnerable who need this money. But there's also quite a lot of people who don't. Like, I was asking my dad about this and said, you know, how do you feel about getting this winter fuel payment taken off you? And he went, oh, I don't mind at all. I think, you know, we can afford it. We don't need it. Yes, there are people who absolutely need it. But there's also quite a few people who don't, who are getting this money. And we often talk about the fact that, you know, the older generation, my mum and dad are not rich, by the way.

7:45They're just a very typical family who live in Middlesbrough and they've not got loads of money, but they've done all right from their workplace pensions. So there are a lot of people who don't need this fuel payment. So it should be taken off them, shouldn't it? My point is not whether or not this is a sensible use of public money, whether this is a sensible benefit. My point is simply that why do it now? Why not wait till the budget? Actually, I was talking to a senior member of the government about this yesterday. And I said, why on earth didn't you, you know, given that she's going to have to announce a whole series of really difficult, you know, unpopular things in October.

8:28Keir Starmer in the Rose Garden made that absolutely clear yesterday. He said it was going to be painful for lots of people, that budget. Why not keep all the pain till then? Why do it now? And I asked the member of the government, why do it now? And he said, well, because we needed to get the confidence of markets. I have to tell you, that is, I'm going to use another technical term, bollocks, right? If she'd simply announced this 22 billion black hole and said, we pledge to do something about this in the budget, let's be absolutely clear, there would not have been panic among investors. The pound would not have been sold.

9:07Guilts would not have collapsed because one of the things they've done a very job of is to build up the confidence of investors that they will stick to these fiscal targets. I've said many times, I think their fiscal targets are nuts, but nonetheless, they've got them and they are not showing any sign of drawing back from them. So given that I don't think markets would have moved against them, I'm literally bemused by why they thought this was decent politics, particularly since they are under enormous political pressure. And I guarantee you one thing, right? They may not abandon the policy altogether, although there is enormous pressure on them to do a U-turn on the cancellation of the Winterfuel Allowance for everyone.

9:55But they will amend it. They will soften it. They will make sure that the various people who won't at the moment benefit from this payment under the means testing scheme, they will somehow bung money at sorting this and it will look weak and it will look like a partial U-turn. So I just think they've made a genuinely serious error here. You're saying that from a kind of political game playing point of view, though, you're saying deliver all the bad news together, don't spread it out. No, it's not. It's not political. It's economics. It's basically, if you want to be a credible government, you want to set out a path for spending and taxes that is a coherent whole.

10:35You shouldn't be doing it, you know, salami slice by salami slice. You're a new government. You should have a vision, you know, and you should have a plan. And at the moment, we neither have the vision or the plan. But has it really made any difference them saying it now and not in the budget? If you take it from a kind of real person's perspective, it's probably better to have all this information broken down a bit so you can go, But all right, OK, Trevor, we're not going to get that fuel payment anymore. So we need to think about this. Let's see what they say next. You know, I get your point from, oh, they should put this all together and show a coherent plan.

11:08But does it really matter? Has it made any difference them saying it now? Has it impacted anything? I think it does, because if you had taken your time and included a change of this sort, along with other changes, then people can judge you in the round about whether or not you are really putting at risk people who are vulnerable. Because as I say, they will have to protect those older people who don't qualify for pension credit. Those are the people who will retain the winter fuel allowance. There are people who have an income marginally above qualification for pension credit who are not going to get this winter fuel allowance.

11:50They will have to find a way of helping those people. Far better, therefore, to announce all of this in a budget where it looks like a coherent plan rather than face weeks of carping from your own side, not just tourists, but also people from your own side about how you're letting down the vulnerable. And I think the other point about this is some would say it looks a bit vindictive. Why do I say that? Because on the one hand, the orthodoxy in the Treasury would be the older people have had it too good over the last 10, 20 years. It's young people who've suffered. And therefore, you know, you could argue this is the Treasury, in a sense, forcing through their view that the benefit system has been tilted too far in favour of older people.

12:43And it was like a knee jerk thing that they wanted to get in. And then as somebody who has immersed themselves recently in who voted for Labour, the one cohort of the population that was incredibly reluctant to vote for Labour, Well, older people, right? Labour did brilliantly among very young people, among people between 25 and 50. As soon as you get to over 60, that is the area where, frankly, people were incredibly reluctant to vote for Labour. And so there would be some people are saying, well, they're punishing older people because they didn't vote for Labour. But at the end of the day, whoever you voted for, we're still in this situation where there's a massive hole in the finances.

13:29and as things stand they're obviously the government looking at this and thinking well it is the elderly who where we can take money from who can afford it you know I get your point that there are vulnerable people within that section of society but there's also a lot that aren't who've done very well out of house prices going up and who get all these kind of different tax reliefs on their pensions remember when I was being encouraged to put in a pension the whole premise of the, you know, motivation to get me to do it was on a tax relief basis. You know, and if you look at the actual tax relief people are getting, they are quite unfair.

14:06Like, for example, only a third of people who benefit from tax relief on pensions are women. That's obviously, you know, they've got these clever people in the Treasury working all this out. That's obviously where they see there is money to be made to fill this black hole. And I know it's tough for all the people who are pensioners, but it's got to come from somewhere. Yes, look, but this is a game plays to, I think, the big point that I want to make. This budget is, in terms of events that Labour can control, it is the most important event, probably, of this parliament. Now, if there's another war somewhere, something that's unpredictable, there may be other things that Labour does later in this government that is more important.

14:49But in terms of an event which is under their control, this will be the most important event in the lifetime of Keir Starmer's government. This is the opportunity to do what would be called a reset of public services. We all know that public services across the piece have been creaking. People can't go to prison at the moment because we haven't got space in our prisons. The police don't investigate so much crime because they haven't got the resources. The waitingness of the health service. Talk to any teacher about resources in schools. OK, public services are dramatically underfunded and putting to one side the whole issue of the reality of this one year, 22 billion pound black hole.

15:43That's really not the big issue. The big issue is that there is not enough money to rehabilitate our public services for the next three, four, five years. Okay. And the only time that you can both blame your predecessors for what's gone wrong and raise taxes and do what Keir Starmer said in the Rose Garden as painful things, the only time you can do that is shortly after you've been elected, particularly shortly after you've been elected with a huge majority. because you're far enough away from the next general election to have the time, if you do these unpopular things, for people then to see the benefits of them over time.

16:27So this is his one moment to raise enough money to completely reset public services. And so the big question is, are they going to have the guts to raise the taxation that is necessary? They may also have to do some very brave things in basically saying, actually, there are some public services which are surplus to requirements. I mean, goodness only knows, I have no idea what they might be. It's not clear to me that after years of austerity, the public sector is doing all sorts of stuff that they shouldn't be doing. But my fundamental point here is, if he doesn't raise taxes now in a very serious way this is going to be a government that is going to lurch from crisis to crisis to crisis over the next few years right so this is a huge moment yeah it is and i guess the things everyone are talking about in terms of trying to guess where it's going to be is we've talked about pensions there's also inheritance tax that's on the table and capital gains tax and i don't know if you remember robert when we were with the that group of entrepreneurs recently you know lots of fantastic entrepreneurs who are wondering what's going to happen next they were all stressing about capital gains tax because as we were walking out the door quite a few of them were running up going what do you think is going to happen with capital gains tax because for them obviously they're thinking about when they sell their business what it's going to mean for them in terms of tax so everyone is kind of at the moment just hanging about going we don't know what to do you know if it is capital gains tax what's that going to mean for landlords we might start seeing some landlords starting to sell their properties before the Auckland statement comes out because people will be trying to work out if that's what it's going to be.

18:08So this period now, we talk about certainty a lot and the fact that uncertainty is a problem for business. This is that moment until they do the autumn budget when everyone's trying to work it out and it's really uncertain and people might be making rash decisions on that basis of not knowing what's coming next. It's certainly true that we are living through this period of some considerable uncertainty. I mean, let's be absolutely clear. This is not an easy budget for Rachel Reeves because they have ruled out raising money from the taxes that are most important in terms of the economy. They've said they're not going to put up the rates of income tax.

18:48They're not going to put up the rates of corporation tax. They're not going to abolish full expensing of capital expenditure by businesses. They're not going to put up the VAT rate. They're not going to put up national insurance. They've ruled out their ability to raise money from something like 70 % to 80 % of all taxes by value of money raised, which is why you've been talking about capital gains tax, inheritance tax. It's not enough. Labour needs to raise an awful lot of tax and there is no simple way for them to do that, given the promises they made during the general election. And of course, we'll get all that information on the 30th of October, when the autumn statement comes out.

19:29There'll be lots of chat from us about it, I'm sure, in the meantime. But let's have a look at some of the questions we've had in and we'll do that after the break.

19:53Investieren birgt verlustrisiken, bedingungen gelten, externe Kosten fallen an. Hi, I'm Stephen Carroll. And I'm Caroline Hepke, here to introduce you to a podcast that brings you the news you need to start your day in just 15 minutes. It's called Bloomberg Daybreak Europe Edition, covering all the top stories across Europe and around the world. Each weekday morning, we're up early to bring you the latest news by 7am. We've got everything you need to know, from geopolitics and global events to economics and what's moving markets. I'm covering it all from London. And I'm in the EU's capital, Brussels.

20:26We have 3 ,000 journalists and analysts around the world to tell you what's happening, what it means and why it matters. It's more than just business headlines. From the price of your breakfast to global shifts in power, economics and money aren't just part of the story, they're often the driving force. So start your day with us on Bloomberg Daybreak Europe Edition for the news you need to know and the context to make sense of it. Find new episodes of Bloomberg Daybreak Europe Edition by 7am London time on Apple, Spotify or wherever you get your podcasts.

21:00Welcome back to The Rest is Money with me, Robert Peston. And me, Steph McGovern. So, a couple of our friends have been in touch, haven't they? Marina and Richard from The Rest is Entertainment. and they ask all the really sophisticated, I mean, intellectual questions, don't they? Yeah, they do. Do you want to hear it? Because we've actually got it recorded. So here is Richard and Marina. Hello, Steph and Robert. Hello, Steph and Robert. It's Richard and Marina here. I'm Richard. That was Marina. We're from the Restless Entertainment herd of it. And we're here with a question we hope you can answer.

21:39Something we've spoken about many times on our show is just how many celebrities are starting their own drinks companies. The Rock has his tequila. Bruno Mars can sort you a rum. Ryan Reynolds has a gin. Metallica have a whiskey. Rita Ora is another with a tequila. I'm launching some rum punch. Very soon the list goes on. Please can you explain to us why this is such a good business and why they do so well with celebrity ambassadors? Literally. Cheers.

22:06so obviously this is one of those questions that i've been having sleepless nights over and i'm not sure i have completely got the answer but listen kick off tell us what you know about it steph yeah do you know what they're right though it's easier to ask which celeb doesn't have their own drinks brand than to ask which ones do and i think it's worth breaking it down a bit because there's a big difference between like celebrities who are genuinely kind of making alcohol you know you get the likes of Sting and his wife who've got these vineyards and they are genuinely making wine compared to those who are just kind of putting their names to different alcohols and I think wine isn't actually a really interesting one to use to explain it because the majority of wines around the world are owned by the same five or six companies and you will often see that celebs will be used as kind of paid brand ambassadors with them for example Snoop Dogg He is currently the face on the 19 Crimes Wine Bottles.

23:02It's a brand that's owned by Treasury Wine Estates, which is one of the largest wine companies in the world. And that's a straightforward transaction of paying Snoop Dogg to put his face on it. Then you get your kind of Kylie's, who are a bit more involved. Have you tried Kylie's Rosé Prosecco, by the way? It's dead nice. I've got to be honest with you. I am not the consumer that this is aimed at, because I have a rule in life, which is if it's got a celebrity's name on it, or if it's created by a celebrity, I'm never going to drink it. Right. Well, that's really interesting. Do you know, she sells about£20 million worth of wine every year.

23:38Now, I read an interview with her in the Decanter magazine where she was saying it came about because she was drinking a glass of rosé in Nashville and thought, what if I made my own rosé? Now, I don't know necessarily if that is exactly what happened because she's partnered with this company called Benchmark Wines. And Benchmark Wines seem to be the ones who love the celeb tie-ups. So they've done one with Gordon Ramsay, the Gary Barlow's range. And they like to argue the point of saying, yeah, she gets involved in everything from blending the wines to designing the packaging and all that. But what does blending really mean?

24:14Is it a case of just putting a few things together? She has a taste and then go, yeah, I really like that one. That's the one you should make. Whatever it is, it's totally worked. And actually what they found with Kylie's wine is it's encouraged new people to drink wine who wouldn't normally. And it's now in the top 150 British alcohol brands as well. And I think with something like Kylie, Kylie has real authenticity. And actually her fans are people who would just buy anything she puts her name to. So it brings new people into a sector which, excuse the point, is quite saturated anyway. Because, you know, let's face it, when you go in and you have to buy wine, if you don't know what you're looking for, if you don't have a particular type you like, it's a minefield.

25:01You can be stood there for ages trying to suss out which one. I suppose the thing for me is, why do you want to get, you know, rat-arsed like George Clooney? Well, it's a lifestyle. You're buying into a lifestyle, aren't you? you're thinking, oh, we're just like Kylie. Kylie will be sat in Nashville drinking this rosé now, just like we are in our back garden. You know, it's that sense of people like to feel part of, you know, these celebrities' lifestyles. Except there's a markup, isn't there? The point is you are paying for the celebrity endorsement. Yes, of course you are. Everything that's collaborated with celebrity, you're paying for that.

25:36But the question that Marina and Richard are asking is, obviously we've talked about why you know there are celebrity endorsements of all kinds of products i mean for example perfume has been you know a celebrity thing for years yeah forever i think when we were on the wheel together one of the one of the questions i can't remember if this that may have got this wrong wasn't i wasn't i asked a question about which of the following celebrities hasn't in hasn't endorsed a perfume or hasn't got a perfect anyway the question is why Why has there been this explosion of celebrity drinks brands? Why has this area gone so nuts, in your view?

26:16This is a market that is, you know, hundreds of billions of pounds every year. That is growing. But you say this is a new thing. You know, if you look at someone like Sting and Trudy, 1997, they started their own wine brand. They bought a neglected Tuscan vineyard and they sell and produce something like 150 ,000 bottles of wine every year. So it has been going on a while. It's just taken everyone else a bit of time to catch up on it. And of course, the influencer market is something we've talked about before and how much that's going. So everybody is looking for things that, you know, consumable goods that they can tie up to celebs to sell more of them.

26:53And we all fall for it. That is the thing I'm interested in is, you know, we've talked a lot about Instagram or TikTok, you know, the influencer social media explosion. Is that what's driving this? Yeah. And I think, you know, just to give you my own personal example, obviously I've talked on this show before about my slime business, Goo Topia. One of my mates who is an influencer who has millions of followers on Instagram took her kids to one of the shops recently and she posted about it on Instagram. I didn't pay her to do it. She just went there anyway. She didn't even tell me she was going.

27:28So it wasn't even a freebie. and we sold out four weeks off the back of that tiny you know story on instagram so now with social media you get all of the metrics to be able to see exactly who it is who's following them what age they are the demographics so it allows marketers to be able to target much more specifically to audiences in a way that they never could before so i think that is why the influencer market is growing so much because you get so much data as well as getting your products promoted right i think that's possibly a good point to move on um and um if you look at my tiktok feed you will see that pestens potions is available as of tomorrow so we've got a question from arman malholter who says why doesn't the government ban short selling surely that would get rid of the financial crisis robert before you answer do you want to just explain what short selling is again, just remind everyone.

28:27Yeah. So short selling, it's about betting that a price of an asset, could be a share, could be a bond, is going to fall. And the way that you do it typically is you sell an asset, shares or bonds that you don't actually own. So let's just say you borrow from another investor, and this is a typical way of doing it, you borrow 10 shares in Peston Inc. At the moment that you borrow the shares, each share in Peston Inc. is priced in the market at one pound. And then you borrow the shares and then you sell them and you've pocketed 10 quid. Now, if you've done your job properly as a short seller and the world suddenly discovers that Peston Inc.