474. Does Reeves' Budget Really Change Anything? What It Means For You

26:43Boris Johnson came in and started for various reasons spending like a drunken sailor, which is part of the problems going on a lot of this. And there was COVID. And there was COVID. That's one of the things he was spending on. Went up to about 35%. But now it's up at 37%. And this is a level of the amount of tax being paid as part of GDP, which has almost never happened in Britain. And if you are somebody thinking about growth, you would also notice that productivity is still flatlining. And the OBR, the blue document over there, has basically got a sentence saying, none of these measures in this budget we think are going to lead us to adjust our growth forecast.

27:20We have revised down our assessment of medium-term productivity growth from 1.3 % to 1%. There is a massive problem with productivity. The other thing that triggered me was Brexit was mentioned once as one word when she was basically trying to say this is down to stuff that happened on your watch to the Tories. So Brexit, COVID, she mentioned. Austerity, Brexit, COVID, she mentioned. If Brexit is the disaster for the economy that it's been, why are we not doing more to fix it? And you talked about the, I think the problem the Tories are. You're right. Listen, she was much more effective today than she has been.

27:57But they have a real visibility problem in this. So Nigel Farage, I had two channels on in the background. Nigel Farage press conference, his presentation was done live. Mel Stride apparently strode into the briefing room. There was hardly anybody there. And that's because the media has decided reform are more interested than the Tories. I think she'll have rested that back a bit. But I think you as a tribal Tory, obviously, Rory, I think you're kidding yourself a little bit if you think this is going to sort of change that dynamic too much. Another thing that's interesting for me as a tribal Tory is that when all's said and done, if you were to step back and look back at it from 10 years' time, it's not the most interesting budget in the world.

28:44It's a terrible thing to say to people who are watching us live. But I called my friend David Gork, who was the chief secretary of Treasury and absolutely core of George Osborne's team. So very, very much part of the austerity neoliberal economic consensus and said, you know, what's wrong with this budget and what would you do differently? And without being unfair to David, I didn't get a great deal back. I mean, he had some ideas. You know, he said, you know, he would have been a bit more cautious about what was happening on the minimum wage. He would have thought a little bit about taking on some of the nuclear recommendations, thinking about the triple lock pension.

29:19But the message I got from that is this is not enormously different from the kind of budgets that Jeremy Hunt or Rishi Sunak would have brought through. I mean, there are different types of conservative budgets you could have seen, right? It's not George Osborne. It's not, let's cut spending. It's not Liz Truss, let's cut taxes and not fund it. It's not Boris Johnson, let's spend like a drunken sailor. It's a pretty mainstream, middle-of-the-road Treasury budget. And I guess the problem with your business is it's not remotely radical. I mean, there's nothing in this which really makes you think radical deregulation, radical change, which is suddenly going to make…

30:03Yeah, absolutely. Let's rejoin the customs union. You would push for a second referendum, but that or what have we really got to do to fix this productivity problem? I mean, it's all about productivity. As you've often pointed out, if productivity had remained at the levels that it was at from late Thatcher through Gordon Brown, we'd be about 30 % richer than we are. As it is, productivity is flatlined. And sadly, the OBR is saying this is not a budget that's going to change that because there's nothing here which really makes so what are the things that britain could have done for business and then i'll hand back to you the other stuff there could have been much more dramatic move to reduce energy costs energy costs are very high for households they're very high for business and there's been some calculations that actually it's imposing a three pound cost on the economy and only getting a one pound revenue to the treasury the way that this energy costs are So hold on, the first line of the executive summary is they claim they're taking 150 pound off energy bills on average from April next year.

31:04I've not read the kind of the detail on that, so they say they are doing something for households. Right. So questions about how that works and what happens to the carbon pricing and how that happens for businesses. And that's going to be vital because if Britain is trying to compete on AI and it wants data centers, these data centers eat energy like you can't believe, leaves, there could have been other things they could have done. They could have replaced stamp duty with property tax. We talked about David Gork was talking about triple lock pension. This is a big, big problem. More and more money is going to old people.

31:34But the fundamental thing that they didn't do is they didn't deal with the fact that Britain is now a complete outlier in the world on the relationship, weirdly, between the amount of tax paid by people on the lowest incomes, the amount of people paid by tax on the highest incomes. The amount of tax paid by people on lower incomes in the United Kingdom is very, very similar to that of the United States. The amount of tax paid by people in higher incomes is much more similar to people in Scandinavia. So we have this very odd situation where we're spending like a Scandinavian country, but most income is coming from the top.

32:06So the top 10 % pay 60 % of all the income tax revenue. The top 1 % pay 28 % of the entire income. Of those who pay? of those who pay. The top 0.1 % are paying well over five, maybe as much as 10 % of the revenue that's coming. That's a progressive tax system. It is a progressive tax system, but it's a very odd one. Britain is now right out even of the Scandinavian average. If you were a Scandinavian, Sweden or Denmark, you were trying to run a state the size of Britain. Yes, the very rich pay a lot of tax, but ordinary people also shoulder their share of the tax, and they have to. But the tax threshold change is not necessarily good politics, but that is what that is going to do.

32:48It's going to bring more people into this. Yeah, I think the other thing that's worth saying about that, so look, this is the choice that Britain has never really wanted to face up to. We go on about Scandinavian public services. When we had Hella Thorny Schmidt, their former prime minister on the podcast, and she was saying, look, sometimes I look at your public service and how did the public put up with this? What do all the tax do you pay? They pay a lot of tax and they get very good public services. The problem, I think, for any government today is we're paying all the tax, but we're not getting necessarily the world-class public services that we should get for it.

33:17Which brings us to the question of reform. Not the political party. No, but her first line was stability, investment, reform. Correct. Right. So there is a big problem with productivity, and a lot of that is, sadly, in the public sector. We talked in previous podcasts about the fact that we're getting in a lot more doctors, a lot more nurses, but we're not seeing the productivity improvements in the NHS. we're seeing waiting lists come down, but there's an amazing figures that we're getting in some fields, 20, 30 % more people. What the public is seeing is going up by 7, 8%. The productivity is coming dramatically down.

33:49So one question, I guess, is could Keir Starmer and Rachel Reeves become the real government of reforming and changing these things? And that brings me to your third category, which is the Labour backbenchers. Because a lot of the sort of stuff that you might want to do if you were more on the kind of tribally Tory side. Cut government spending, improve productivity in public services. We'll have a lot of screams and protests from people who the Labour backbatch is very sympathetic with. Yeah. I think one thing Gordon used to do is he was very good at name-checking colleagues and ministers. She did a lot of constituency name-checking.

34:26Yeah, which always cheers everyone up. Yeah, exactly. He said, thanks to the representations of the MP for X, I've decided to do Y. Even with George Osborne's Omnichambles budget. I enjoyed that one. Yeah, exactly. He loved that one. That was a pasty text. But at the time, most of us were shouting and cheering and waving our order papers because we were all getting sort of little tidbits for our constituency. He was announcing for the 15th time that the A66 was going to be duelled. Well, she did a lot of that. The big moment for the backbenchers really looking like they were embracing the whole thing was the two-child benefit cap, getting rid of that.

34:59But along the way, she had some very good kind of quite punchy attack lines against the Conservatives. But I think this sort of settled the PLP for a bit. But I think they know just how fragile the situation is right now. Because you are, as you said earlier, you're talking about government that came in promising growth. It hasn't really happened, and that's clear from the reports. I mean, presumably the argument, without sounding too much like Gordon Brown, should have been logically growth, not stability investment reform, but growth, growth, growth. That stability investment reform are the things that produce growth, but the argument is about growth.

35:37Well, that's why the business reaction, I mean, you know, nobody can say what the business reaction is. You talk about thousands of different people and organizations. But the sense I've had so far is of them actually thinking this is – actually, Ray Newton-Smith, who's the head of the CBI, said this is a budget for stability, not for growth. And look, we've been saying this for ages. If growth is the thing, then you have to bend every aspect of policy towards that. And that's why when you do sort of put further regulation in or further taxes on business, national insurance, etc., you may have a perfectly sound political argument for it, but you have to be able to say why that relates to your broader growth agenda.

36:22At the moment, in budget two of a Labour government, they're essentially saying that they're doing this because they're still on the getting the foundations right, getting the stability before they go for growth. And I think that what the next stage has to have is this sense absolutely of go for growth. Otherwise, where are they going to end up? Well, because as you say, fundamentally, all problems are solved by productivity and growth, right? Otherwise, she's stuck in this impossible question all the time of, am I going to cut spending? Am I going to raise taxes? Am I going to raise borrowing?

36:53If she can get productivity and growth, naturally, the revenue of the government will go up. You'll be back in that happier situation that you guys were in from 1997 onwards, right? Yeah. One of the bits that I was reading ahead of the budget, once this report got pre-published was the chapter that i think this is always worth looking at in the obr report risks and uncertainties key risks to our economy forecast include productivity growth and that's where they set that out bank rate and gilt yields uk equity prices and then key risks to the medium term fiscal forecast include local authority borrowing has increased by around seven billion a year in this forecast compared to march reflecting recent upward revisions to outturn and financial pressures from the costs of special educational send goodness and well sorry sorry i mean can i just push back and that wasn't mentioned yeah yeah yeah interesting and i and in so far as some of that cost is falling on london councils they may also be a bit cross they're not getting the revenue on the council tax uplift so so so that i thought that was and then then in the same paragraph the same page other spending risks include the impact of the budget of further strikes, negotiations over pharmaceutical spending, the assumption that the Home Office will reduce small boat arrivals and end the use of hotel for asylum seekers by mid-2028 and deliver savings of 1.1 billion.

38:14So sort of indicating there we're not 100 % sure that's going to happen. The unfunded cost of digital ID cards at a provisional cost of 0.6 billion and the commitment for defence spending to reach 3.5 % of GDP by 2035, which will cost an additional 32 billion. So they're basically saying there, yes, there's much more headroom, but there are these other factors that maybe haven't properly been costed in. And the point about defense, there was one, I was watching on the Parliament channel, and there was a cutaway to John Healy when she started talking about defense, and it lasted about five seconds.

38:50I was really hoping today - There was going to be a big thing about Ukraine. Yeah, no, there isn't, because I'm afraid the truth of the matter is that a lot of the commitments are set forward in time. As you say, they're sort of 2035 commitments. And in real terms, British defense spending isn't really going up in the immediate term, and most of the money is going to be hoovered into our nuclear weapons program. So there actually isn't going to be money available for half the things that you would hope the British government would spend money on to protect itself against Russia and Ukraine. I think another example of something that she missed, which she could have done, is there was a very interesting report, which many listeners will have heard about, not all, by a man called Fingleton, who produced a report on nuclear.

39:33And it's a really, really interesting report because nuclear is going to be absolutely at the centre of the government's strategy. It needs to be because it's not emitting carbon, but it's generating energy, which acts as backup for wind and solar. So we're going to be building these big nuclear power stations, and we've announced them, Hinkley, Saezwell, etc. He's pointing out that our nuclear power build is the most expensive in the world. And he thinks that almost all of this is about regulation. And this is a good deregulation story for a bold government. He gives an example that there are stronger restrictions on workers being exposed to radiation in a nuclear plant than on doctors and dentists going near the similar form of radiation in a doctor's surgery or a dentist's surgery.

40:16And he says that just fixing these, and he lays out an enormous amount of these things, could save tens of billions of pounds a year. So this was a real opportunity for a government to say, it's not true that we don't believe in deregulation. I heard her mention the name, but what was said about that? So there was a funny ambiguity because there's a statement saying, well, we're looking at the recommendations, what the Treasury said when it first came out. Then there's a statement on paper saying they accept the recommendations in principle. But I would say it's a huge open goal to say, yes, absolutely, we're embracing this stuff.

40:48We're going with it. Rui, you know how we love our votes. Oh, yes. Whilst we've been talking, one of our marvellous team created a poll of the people who are listening. Is this Rachel Reeves' last budget? Yes, 45%, no, 55%. So there you go. So just over half of our left-leaning listeners think Rachel Reeves should remain the Chancellor. You think they're all left-leaning? Well, I think pretty, pretty much. Hopefully I'm converting them step by step. I had a couple of people on the tube down here today who were very, very far from being left-wing. Oh, good. And who are absolutely... Well, I hope my new push for this deregulation, small government, pro-business...

41:33Pro-you get stuck into Europe again. Yeah, yeah, yeah. And clearly... Winning them all up. Here's one more thing, and this will be my last sort of big point on the budget. Minimum wage has gone up. So minimum wage in 2015, the UK minimum wage was, as it were, 48.7 when the OECD average was 51.3. Ten years later, the OECD average is 51. It hasn't changed, but the UK has gone from 48.7 to 61.1. And even the Resolution Foundation seems to be a little bit wary about what the government's doing on the minimum wage. Again, businesses will be worrying about that because it becomes more and more expensive.

42:16Now, I can't see the questions because you have a laptop. So I can completely control the narrative. You can control the whole narrative. In fact, the first question is about a narrative. Oscar and you, how do Labour reclaim the narrative on the economy? the budget may well reflect macroeconomic trends but the right-wing newspapers will surely play this as reeves punching down i did an event at theater last night about the play punch and one of the questions we're talking about criminal justice reform one of the questions was somebody on the panel including jacob dunn's the the real guy who we've interviewed a lead in this week with james graham the playwright just to explain for this jacob dunn is a man who as a young man punched somebody uh and killed them an unprovoked punch they died from a single punch he was put into prison and his uh the family of the victim then reached out went through a very complicated process of uh understanding and actually forgiveness very wonderful moving play yeah and and anyway you were on so yeah so i saw it again last night and afterwards there's this this panel i was on it with him and a woman called alice who ran this switchback charity which is about sort of helping people coming out of prison not to re-offend.

43:22And they both said that part of the problem is that so many politicians put their policy through what they call the Daily Mail test. And so Sean Fletcher, who was chairing it, he said to me, is that a thing? And I said, well, it was kind of a bit of a thing, not just the mail, but the media more generally, 20-odd years ago. But now it needn't be a thing, because even though the papers still, they are very right-wing, They will say the budget is terrible, but politicians, I think, underestimate the power they have to do difficult things and see them through. Yeah, well, let me push back a little bit on the gentleman asking the question.

43:56Oscar, yeah, because I agree with him that there'll be a right-wing media narrative. But I also think it's a bit defeatist to say this is all driven by macroeconomic conditions. I mean, if Rachel Reeves and her supporters are really trying to say, essentially, she has no choice, the whole kind of macro economy of the globe and goodness knows what, COVID and the Tories mean that she has no room for movement. She did. That's no good at all. Yeah. Okay. You'll prefer this one. Stephen Lambden. I'm a centrist dad, Trip Plus member who believes Rory is the best prime minister we've ever had. So you like that bit.

44:30What in the budget will convince my well-qualified children that should stay here and not work abroad? they should stay here and fight for a better Britain Stephen well but I think it's a good question I mean I think if you're a young person listening to this what you want to hear is a sense of hope and a sense of direction and I'm afraid stability investment reform doesn't quite I mean maybe it trips off the phone but it doesn't quite make me think this is a country that's going places I don't want to go to Singapore I don't want to go to Dubai I don't want to move to the us i want to be here in britain because it's interesting though one of the one of the one of the people i said feed me in your thoughts as soon as you have them as an economist and he said he thought that that reading through he thought they were making a pitch to young people higher minimum wage freezing rail fares uh free training for apprenticeships for small businesses i thought that was a good move so and this is the point about budgets there's so much in them and it does take a few days to kind of before they before they settle down ollie richards on On the other hand, does this budget feel like another fiscal event where young people are completely ignored?

45:33And then another poll we've done, Rory, they get very busy, our teammates. I don't know how they're doing this. You think you know our listeners. Have a guess on this one. Is the triple lock on pensions sustainable? No V. Yes. I would say no 72%. Not bad, 83%. I'm 100. I'm 100. I just think it is. Give the argument for the triple lock. Well, I suppose the argument is that people have worked hard all their lives, they are at their oldest and most vulnerable, that being poor in old age is absolutely miserable because your life is getting, you're getting weaker and frailer all the time. And younger people have their whole lives ahead of them and we have an obligation to the old.

46:12Okay, we also, but we have an obligation to the young, but at the moment they're the first generation to grow up poorer than the generation that went before them. And there's actually an interesting bit of good news in the macroeconomic data for young people, given that we've had a couple of questions about young people, which is that actually the cost of housing in real terms has been falling very, very dramatically. And nobody's really picked up on this. People like Torsten Bell, who's the junior treasury minister for the Resolution Foundation, has really made a lot of his career out of fury about the fact that it's very difficult for young people to get on housing ladder.

46:44House prices in Britain have collapsed in real terms, and some of them even in nominal terms. The price of a house in Britain is now below where it was in 2007 on average. Meanwhile, real incomes have gone up. So actually, in some ways, maybe the Zach Polanski voters of the future won't feel quite the sense of burning injustice that people are Torsten Bell's generation. Okay, okay. Niamh, Triplos member from Cumbria. Oh, brilliant. It seemed like the Tories had an open goal in their response to the budget. They could have focused on the numbers, economic effect, how worse off people would be under the tax increases to score themselves political points.

47:20Instead, this is really interesting, given what we just said. Instead, Kemmy Badenok launched an appalling, scathing, personal exakonries, which I find very disappointing. Has this proved that the Tories and the party of the bullies? Well, there we are. Well, I certainly think that... I mean, it was tough. I certainly think aggressive politics is increasingly divisive. I think there's very different responses to it. There are people who will think that's strength, that's what we like to see and there are people who'll be like oh that's that's not unpleasant but because we wouldn't tolerate it in the workplace i guess yeah it was but and and she had that line you know and may i say to you woman to woman that was that coming out of the back of the mansplain the mansplain yeah yeah there's one here djr working age disability claims are soaring taxing more without talent flight is delusional brexit style arrogance are we waiting for an argentina style crisis and shock therapy what do you propose we're not that bad are we no no no We're definitely not.

48:15I think the bottom line is this was a pretty dull budget. It's quite difficult to think of much to say. If you're Zach Polanski, you would say she should have been much more radical. She should have borrowed more and screw the bond market. And if you're LizTrust, you would have said, let's cut taxes. is you know let's trust as i find free up free up this is possibly the most wooden social media post i've ever seen in my in my life which you put in the user now here maybe maybe this is a good one to end on because you think you know our listeners and viewers so well they've done another poll where are you on the political spectrum don't look okay they've been given the choice of left center and right where are we on the political thing left center and right okay i think they will put themselves 63 % center.

49:04Oh, interesting. 41 % left, 48 % center, 10 % right. There we are. So I'm speaking here to the 10%. Pull over the 10%. Pull over the 10%. And I guess, look, here's another thing that I think has been missed totally. I spent this morning recording this AI miniseries that we're doing for TripPlus members. And AI is the biggest economic story in the world. If AI is rolled right the way through British companies in the way that the champions of AI believe it could be in the next two, three years, there will be an enormous number of job losses, right? If it isn't rolled through British companies, but it's rolled through Chinese and American companies that are directly competing with British companies, then we're going to lose an enormous amount of value because our life sciences, our services, our professional services, companies are going to be hoovered up by American AI companies, right?

49:59So somewhere in this budget, a really bold chancellor would be thinking much more front and central about AI, because I think by the time of the next election, the one thing that will have blown all the OBR forecasts out of the water, either positively or negatively, either in productivity growth or collapse, is going to be artificial intelligence. But this was a budget that basically could have been delivered by Theresa May. Well, that's a pretty harsh final judgment. Oh, no, she's the one who's one, she's your heroine. I love Theresa May. Yeah. Yeah. If I had one big picture criticism, and I don't want to just keep going about Gordon Brown and Tony Blair back in the day, but I think were they doing this budget today, artificial intelligence would have been at the heart of it.

50:44Yeah, because they would have loved that stuff. Blair's fascinated. Brown's fascinated. Economic change. Economic challenge. How do we get ahead? I don't think it was even mentioned. The second thing, as I say, that was barely mentioned was defence. I mean, she said the thing about we've got to stand by Ukraine, and that's why we're putting more into defence. But the budget is an opportunity to project some big messages. And the third thing that I thought was another elephant in the room wasn't afraid yet again Brexit, which has taken a very large chunk out of the economy and out of our productivity.

51:15And sorry, my point about Theresa May is that this is a budget that could have been delivered in 2017. And that relates to your point, right? It doesn't reflect. What I mean by that is it feels like it could have happened almost 10 years ago in terms of fact it isn't challenging what happened around Brexit. It's not recognising the way in which Russia's actions on the Ukraine border has changed things. It's not recognising Donald Trump and the way he's changed the whole global order, and it's not recognising AI. Yeah, okay. So, Rory Stewart gives it 8 out of 10. Thank you everybody for watching and listening and we'll see you again soon.

51:49See you very soon. Thanks again. Bye-bye.

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52:30As the year draws to a close, it's time for our annual reminder that even in an age of political noise and division, one national consensus still stands firm. Roast potatoes. Oh God, all this British stuff. If you're wondering, however, what to buy, the politically obsessed person in your life this Christmas, might I gently suggest a year's membership to The Rest is Politics Plus? It's the thoughtful kind of present. Ad-free listening, bonus episodes, early access to Q &As, book discounts, and perhaps I think most interesting. It's our mini-series, available only to members, focusing on the world's most complex characters and topics.

53:12We've already explored Rupert Murdoch and J.D. Vance, and we're doing many more subjects to come. So think of this as a civilised gift to allow families to disagree agreeably over Christmas. What could be nicer? And if you've left it until Christmas Eve, as I fear I often do, the great thing is it's digital. No cues, wrapping or panic. The membership lands neatly in their inbox on Christmas Day. So spread a little political peace and goodwill. Head to therestispolitics.com and click Gifts.