Ed Conway on Rachel Reeves - what her conference speech reveals

0:00Ed Conway:How does a banana trigger a CIA-backed coup? Do AirPods herald the arrival of a new global order? What do LED lights say about the future of humanity? I'm Ed Conway, and in each episode of my new podcast, Stuff Matters, I take an object, crack it open, and reveal the world-shaping forces hidden inside. This is economics told through the things we think we understand. Search Stuff Matters on your podcast app to listen and follow. Coming up on the Sky News Daily with me, Neil Patterson, a big day for the Chancellor. Rachel Reeves has addressed the Labour Party conference in Liverpool. So how'd she go down?

0:39Ed Conway:How does a banana trigger a CIA-backed coup? Do AirPods herald the arrival of a new global order? What do LED lights say about the future of humanity? I'm Ed Conway, and in each episode of my new podcast, Stuff Matters, I take an object, crack it open and reveal the world-shaping forces hidden inside. This is economics told through the things we think we understand. Search Stuff Matters on your podcast app to listen and follow.

1:12Hi everyone, Neil here with the Sky News Daily and we are off to Liverpool because of course that's where Labour are holding their annual conference. And usually for a party in government it's an opportunity to engage in a bit of back-slapping for things they've managed to achieve. But that is difficult when you're a Chancellor best known for your U-turns, whilst the economy shows little sign of changing its direction. And as a result, neither Rachel Reeves nor her boss Keir Starmer would claim they're currently the most popular of politicians. Quite the opposite, in fact. Still, there is a budget due late November, so what we heard in Liverpool could, could, give some indication of what's coming.

1:52I'll be speaking to our economics editor in just a moment. First, though, here's a flavour of what we heard from Rachel Reeves. In the months ahead, we will face further tests, with the choices to come made all the harder by harsh global headwinds and the long-term damage done to our country, which is becoming ever clearer. Our first year in power was about fixing the foundations. Our second must be about building a renewed economy for a renewed Britain. Ed Conway, our economics editor, is at the conference in Liverpool. Ed, so how did the speech go down?

2:24Ed Conway:It went down pretty well. She's had this really tough year, Rachel Reeves, personally, and obviously with what's happened in economic policy. There was the episode, obviously, it's very familiar with, of the tears in the House of Commons. But also, you know, there's the U-turns, the fact that the numbers are really not looking so great. The economy is weaker in certain respects than a lot of people would have expected. Inflation is higher. So I think a lot of people wondered, how is she going to be? And she seemed pretty confident. I guess the kind of telling moment was everyone was expecting there to be a heckler, you know, potentially all of these big speeches.

2:57Ed Conway:There's going to be some sort of protest, probably about Gaza, given what's going on right now. And there was, and she obviously was expecting it, and she had her lines to deliver, which she clearly memorised.

3:11We understand your cause, and we are recognising a Palestinian state, but we are now a party in government, not a party of protest.

3:21Ed Conway:And actually, he kind of stood down. He wasn't kind of carried out screaming. Instead, he was kind of silenced by her response and by the cheers that happened around there. It went well, and it went, I would say, actually better than expected with the party faithful. They were probably kind of, they enjoyed it. But then that kind of goes to this broader question, which is, what was the content in it? There were some policies, but there was nothing that was strictly new because so much of it had been pre-trailed. So, you know, ending youth unemployment, kind of long-term youth unemployment, that was a big commitment that's been made.

3:56Ed Conway:It's not entirely clear how they would do that. But again, you know, it's certainly kind of interesting. British steel for British ships, again, it is an interesting reflection of the fact that we don't actually make much of the steel that we use in this country. How's the government going to make that happen? No one's entirely sure. So there are still enormous questions about some of these commitments. But like I say, none of them was big enough that you're likely to see them on the front pages tomorrow. I think that's the key thing. And, you know, you can make the reasonable question, well, hang on, this is a party in government right now.

4:28Ed Conway:Are they actually going to be able to move the needle in this kind of a forum rather than at the budget? Fair question. But actually, think back to the Tories and George Osborne in particular. When he came to conference as Chancellor, he was always very keen and very clear that he wanted a policy. and so there's no reason why she couldn't have come here with a massive policy you know not not necessarily the undermined budget but a big thing but she chose not to. That was going to be my point I mean when you have a budget coming in November why on earth would you you know spoil spoil things by announcing a conference.

5:01Ed Conway:Talking to people around here one of the frustrations that you know Labour activists have as well is it's not entirely clear that this government is about leading it seems like it's more about responding to things when they happen you know some of the biggest cheers that were you know there in the audience is when the government decided to nationalize British steel or effectively nationalize British steel well that was a response to something that was happening and so far I think one of the concerns here is that this government hasn't really had you know set out what its vision is on how it wants to change the country clearly enough that when things happen it's obvious that it was their idea rather than being a response to the prevailing conditions so you're right yeah she she chose the other route But it's not a given that she couldn't have gone in a different direction.

5:44Which I accept, but I'm just making the point that perhaps it is safer, given that every time this Labour Chancellor has taken the lead, as you say, say, for example, increasing employer contributions and national insurance, businesses hated it.

5:57Ed Conway:Yeah, and I mean, this is back to this kind of bigger issue, which is that when she did that, I think she sincerely thought that it would be the only time she would have to do something difficult and really unpopular. And the difficulty that she's faced with now is she's having to come back. And this was the subtext, I think, to some of this speech. She's having to come back and say, listen, we're about to have to announce some stuff that's going to be tough again. And there were a few kind of references to that within the speech. There's work to be done. And that, essentially, the kind of interpretation of that is this is kind of about as good as it gets for a while.

6:39Ed Conway:She's had this difficult year. And part of the difficulty of it is they've still yet to actually implement the fixes to the stuff that's gone wrong in the past 12 months. And that's before you even consider, to be honest with you, the bigger stuff, which is that the Office of Budget Responsibility, and I know we talked about it before, I'm afraid we're going to talk about it again, but it's just the way that their fiscal rules are set up means that every time the OBR comes back and says, oh we think actually the economy's a bit weaker or stronger than expected then all of a sudden that has a massive implication on the amount of fiscal headroom that she has and again she's made her bed and she's kind of got to to lie in it but it's just gonna get it's gonna get bumpy you say she's made her own bed but actually wasn't the argument she was making from the podium today that actually it wasn't her that made the bed it was the conservatives that did it unfortunately and they made it really badly and that is why we're in the position right now i mean an awful lot of time was spent pointing a finger of blame, presumably because come November she's going to be doing the same.

7:43Ed Conway:Yeah, I think she will. She will be blaming the Conservatives. But no, she didn't need to choose the fiscal rules she chose. She didn't need to structure them in the way that she has. That was all up to her. It was up to her to, or rather up to Labour in general, to put a commitment in the manifesto not to raise taxes. So a lot of the problems that she is faced with right now are ultimately of her own making, as well as the prevailing economic conditions, which owe probably more to the previous governments. I mean, one of the problems that any Chancellor faces, but in particular Rachel Reeves, is that institution that you mentioned before, the Office for Budget Responsibility, you know, producing reports twice a year, and she's got one coming down the pipeline on Friday.

8:28I find it pretty interesting to hear rumours, rumblings, that actually she would prefer the OBR assessment not to be twice a year, presumably for some pretty obvious reasons.

8:39Ed Conway:Yeah, she would. And frankly, actually, that seems perfectly reasonable because what happens is, as a result of having certain fiscal rules, which, she says, are ironclad, and those fiscal rules are basically dependent on how fast the OBR thinks the economy is growing right now, It means, obviously, every time they take a different view on how fast the economy is or isn't growing, then that has a bearing on the fiscal rules. And they are duty-bound, under legislation, which goes back to the Tories, to do two forecasts a year. But again, think back to last year. She kind of had an opportunity to do this.

9:21Ed Conway:The Labour government didn't have to come in and say, we're going to basically grandfather all of the rules that the Tories have imposed, or kind of fiddle them and make them slightly different in our case. they could have done something bolder and just tested out the market beforehand they didn't and I think that was probably quite naive and she is still suffering the long term consequences of it What then have we learnt about the state of confidence in Rachel Reeves? Has she served herself well today in that regard at least? I think there's a lot of people who are kind of conscious that Kirstarmer can shuffle people along quite easily he's shown himself ready to do that with other ministers in recent months and I think a lot of people within business would be nervous if that happened to Rachel Reeves not necessarily because they kind of very much agree with her policy but just because it's just another sign of instability in UK policy making and so I think there is a kind of there is support for her as Chancellor actually talking interestingly talking to people Neil around here one of the things that happened recently was Johnny Reynolds so Jonathan Reynolds was the business secretary and he was kind of moved on from that job recently and Peter Kyle has been put into that into that job and I think talking to business kind of people I think a lot of people thought well why did you do that he was he was doing a good job he had quite a lot of support with businesses and why would you move him at such a critical time and so I think they're kind of conscious that the same thing might you know it's not impossible the same thing could happen to the Chancellor in the face of some sort of whatever kind of crisis or difficulty there is in the next kind of six to 12 months.

11:03Ed Conway:There's a lot of people here who would be very nervous about that happening because it's not like the problem is all about her. Certainly there are things she could have done differently but frankly the problem is the UK economy is not that strong at the moment. Policy isn't you know particularly coherent right now. We need somehow to try and balance the books in the long run but we haven't been able to do that under this Chancellor or indeed under previous chancellors it's not obvious that moving on to someone else will actually resolve any of those issues right now so that's that's some of the vibe i'm picking up but it's all vibes neil it's just you know it's not it's not it's not like kind of you know detailed uh analysis in black and white so which is why i'm always i'm always a bit i find these conferences a bit tricky because it's it's it's it's much more vibes it's much less actual hard news but What do I know?

11:52Well, let's take you back to your bread and butter then, Ed, and look forward to that budget. Can we say with any certainty that we know anything that is going to be going in there, VAT, income tax, any form of tax rises?

12:04Ed Conway:We do know definitely that she has this kind of pinch point right now. And you'll probably have seen that everyone's been talking about these numbers, like£20 billion,£30 billion, that those numbers don't actually come from the OBR. That's people kind of working out, modelling it themselves. but until we actually hear definitively from the office of budget responsibility what the the size of that hole in inverted commas actually is we we no one really knows talking to ministers who have been involved in actually in budgets the the weeks ahead of a budget are kind of terrifying because one week you're ahead the numbers are looking good the next week the OBR comes back and says oh no actually looking at numbers it's a bit more it's a bit more kind of testy and so we're gonna have this role this this role I think if anything like view this week as the moment that we're really properly getting on the fiscal roller coaster that will climax that will climax in november the 26th in the budget because we're going to have so much briefing on this stuff so much kind of kitchen sinking of all the bad news um that i'm afraid if you're already sick of talking about fiscal rules and the office of budget responsibility and black holes i'm really sorry you're just going to have to switch off your tv uh and not get this podcast for the next...

13:17Ed Conway:Am I allowed to say that? Do get the podcast. Get this podcast. It's a great one. But for the next few months, it's going to be a lot like that because that's where we are. We're on the rollercoaster, baby. But does she actually have any options? Am I missing something? I keep hearing captains of industry, CEOs, 500 companies telling me that Rachel Reeves is doing the wrong thing. What's the right thing? What are the obvious choices that she has at her disposal right now that she can get through Parliament, for starters? but that will actually also increase productivity and increase growth? Or am I just missing something?

13:51Ed Conway:Talk to anyone who didn't have to sign up to that manifesto pledge that basically said we're not going to raise income tax, national insurance, VAT, and they will say, well, it's not nice to have to do it, but if you're going to have to raise£20 billion or£30 billion, it's very hard to do it without putting income tax up a bit. Maybe the threshold, so that might be the one that goes. So you freeze the thresholds where people, the rate at which you start paying those kind of various different levels of income tax. Or VAT, you know, again, 20 % VAT, it's higher in many European countries. You can raise quite a lot of money by raising VAT.

14:31Ed Conway:The problem is, A, people notice it pretty quickly because then everything you're spending money on goes up. And B, Labour have committed not to doing it. And so that's the thing. The simplest thing to do, if you just wanted to raise this money and you weren't worried about all those kinds of things, is you would just raise one of the big ones. But whether they feel they can get away with that is another question. Well, I'm wondering if she's even more reticent to do something like that, given that the mayor of Greater Manchester, Andy Burnham, breathing down her neck, and of course, Kirkir Starmer's neck at the moment, is out there openly saying he'd be bumping the top rate of income tax.

15:09Ed Conway:His name is the one that hangs over every conversation here. And it's very easy when you're kind of on the outside to say, well, this is what we would do. The difficulty that Rachel Reeves has is she has very specifically penned herself in on almost all of the easy levers to pull. And so it is difficult for her, mostly because of the commitments that she's made. And I think a lot of that really was her responsibility. You say it's difficult. Am I wrong to push you to saying that actually, given the restriction she's placed on herself for Rachel Reeves, it's more than difficult, it's impossible?

15:46Ed Conway:No, because I don't think it's impossible. I think there are lots of little tax rises you could try. Ahead of like a budget, you've got this thing called the Tax Ready Reckoner. And what it does is it basically, it's a table that says, for every 1 % increase in this tax or that tax, here's how much you would raise. And the striking thing about this is when you look at it, there's lots of little itty bitty taxes that could raise a few hundred million a go. But if you want to raise one billion, five billion, ten billion, then it's really only the big taxes. So it's raising income tax by a penny.

16:22Ed Conway:You're getting towards ten billion pounds. So a lot of people right now will be going through that ready reckoner and saying, OK, so if you can't do income tax, then maybe there's this thing on capital gains tax. Lo and behold, people are talking about capital gains tax. Maybe there's something on stamp duty you could do. Maybe there's something on raising extra taxes for higher earners, perhaps. All of those things are there in the Ready Reckoner as options. And if you put enough of them together and presume that you'll actually make some money on them, which isn't a given, by the way, then you could maybe get to kind of sums like£20 billion.

16:57Ed Conway:But it would take a pretty superhuman effort because pretty much every time any government has raised that amount of money, then they've had to do it they've had to have at least one of the big ones in there whether it's VAT or national insurance or income tax so it's hard for them but I think the final thing I don't know maybe you've got many more questions sorry but but one final thing I'd say is I think there's a lot of pitch rolling going on at the moment so you know in a way it slightly serves Labour's purpose for them to be saying oh well you never know it could be any of these things Darren Jones was talking earlier on today to Sophie and Beth and basically says, well, right now that manifesto pledge stands that we're not going to raise any of those main types of taxes.

17:38Ed Conway:But tantalisingly, it's like, oh, will it stand tomorrow? Will it stand next week? Will it stand the week after that? It might well be that to some extent it serves their purposes to, you know, almost dangle the prospect of quite scary tax rises in the next few weeks so that when it comes to the budget, they can say, well, obviously we looked at that and we decided we weren't going to do that because we're going to stick to our promises. So there's probably a lot of pitch rolling going on. And like I say, in just the same way as there's going to be lots more talk about black holes in the coming weeks, there's going to be a lot more pitch rolling from Labour at the same time.

18:09Thanks, Ed. And there's more analysis from both Ed and our political editor, Beth Rigby, available on the website skynews.com. The Daily's back tomorrow.

18:27Ed Conway:How does a banana trigger a CIA-backed coup? Do AirPods herald the arrival of a new global order? What do LED lights say about the future of humanity? I'm Ed Conway, and in each episode of my new podcast, Stuff Matters, I take an object, crack it open, and reveal the world-shaping forces hidden inside. This is economics told through the things we think we understand. Search Stuff Matters on your podcast app to listen and follow.