LIV - or let die?

0:00This BBC podcast is supported by ads outside the UK.

0:29CFO. LinkedIn has a word for that. Bull spend. Now you can invest in what looks good to your CFO. LinkedIn ads generates the highest ROAS of all major ad networks. You'll reach the right buyers because you can target by company, industry, job title, and more. So cut the bull spend. Advertise on LinkedIn. The network that works for you. Spend$250 on your first campaign on LinkedIn ads and get a 250 credit for the next one. Just go to linkedin.com slash broadcast. That's linkedin.com slash broadcast. Terms and conditions apply. Save on tropical flavors at Whole Foods Market during the Savor the Tropics event with yellow sales signs highlighting seasonal finds throughout the store.

1:19The produce section is bursting with pineapples, mangoes, and kiwis at their juiciest. Grill up fresh seafood paired with tropical fruit marinades or grab and enjoy the spicy Hawaiian pizza, huli huli chicken and more. Finish with a sweet slice of mango yuzu chantilly cake. Savor the tropics and save at Whole Foods Market. Wake up to money from BBC Five Live. Hello, welcome. It is wake up to money. The Bank of England governor tells us he won't rush any rate rises. Inflation is going to be higher and it's going to have a negative effect on activity. That's a very, very difficult trade-off to deal with in policy terms.

1:59More to come from Andrew Bailey and his thinking about the prospects for our economy. Also, we're going to be kicking off our interviews with all the main parties today as millions of voters will head to the polls in May, of course. First up, the Liberal Democrats. And is it live and let die? There are reports that golf's breakaway tour, live may be folding. We'll dig into what's gone wrong for the Saudi-backed disruptor. Wake Up To Money with Sean Farrington. Good morning. It is Wake Up To Money and it is Thursday morning. It's the 16th of April. It is just after five o 'clock and as I flick through the front pages of the papers this morning, it made me think, well, it's a good job we've got Wake Up To Money today.

2:44Whether it is the front of The Guardian talking about oil profits and it cause a wall windfall, The front of The Telegraph talking about tax increases, family tax bills rising£4 ,000 under Rachel Reeves. The front of The Times, UK facing summer of shortages on shelves, a lack of carbon dioxide to hit farming if the Strait of Hummus stays shut and plenty more besides as well. So we'll get through some of that and lots more on Wake Up To Money this morning and your thoughts on all of those. because beneath the headlines, as ever, there's complex stories to be told. I've got Simon French with us this morning, Chief Economist and Head of Research at Panmere Libera.

3:28Simon, very good morning to you.

3:33Will we say good morning? Good morning, Sean. Yes, we've got him. Good news. Starting off with good news on Wake Up 20. And Rachel Waring, Managing Director of Waring's Furniture, based in Norfolk. They supply the hospitality trade in the UK, overseas as well. Always fascinating to get the latest from, Rachel, on those markets. Good morning to you. Good morning, Sean, and all. Thank you, Rachel. Rachel, I've just mentioned a few various aspects of what's going on in our economy there, the global economy, the decisions being made, who benefits from this, that and the other. What feels top of the tree for you at the moment at Waring's Furniture, given the industries you supply, the stuff you make, the confidence you need for people to buy it?

4:21Well, a big one is the scare of fuel shortages. And I think that all the businesses in this country will be feeling like we need to hear what the government's plan is if the worst happens and we have real fuel shortages, which I think has been a bit lacking. I think everyone is a little bit nervous about the second half of this year. I haven't seen the shrinkage yet of our order book, but because I think it's coming, our company just keeps trying to take on as much extra business as we can, which means we're very busy. Whether we've overdone it, I don't know. But there's that fear. So we're all sort of chasing everything we can at the moment, but through fear of things getting a bit sticky at the second half of this year.

5:07Simon, is it because of that type of nervousness across the country that we get the governor of the Bank of England talking a bit more about the prospect for interest rates? Ordinarily, we just wait for that interest rate decision for the Monetary Policy Committee. There may be a few hints here or there, but starting to talk because people's thinking has changed over what might happen this year. So I think there were two reasons that the governor has been speaking overnight. One is exactly as you talked to, which is it is already a conversation in boardrooms amongst people running small businesses, looking at potentially what their household bills look like from mid-year and also the cost of the petrol pump.

5:45So it's affecting expectations. And of course, the bank needs to manage inflation expectations and economic expectations. But the other reason, and maybe we'll come to it later, is he was quite put about, I think, surprised by how markets pivoted from expecting one to two interest rate cuts this year to at its peak, actually, in late March, for interest rate increases. And he wants to push back what central banks or us in the city call managing the curve, trying to reduce expectations that maybe for people on floating rate mortgages, they might see a one percentage point increase this year. He's saying that's unlikely.

6:25That wasn't our central case. So trying to manage expectations. Interesting. Well, let us cross to the world of Washington, where the top leaders in finance have been gathering at this spring meeting of the International Monetary Fund, which has been doing a lot of analysis, generating some of those front pages that I mentioned this morning, the World Bank as well. And earlier in the week, we heard about the prospects for the UK economy because the consequences of the war in Iran wasn't good reading, lowering growth forecasts, but also the UK being particularly hit because of how we get our energy and where we get it from and the rising costs of energy.

7:03So Andrew Bailey is the governor of the Bank of England. Of course, he's among the speakers today. He's already been speaking to our economics editor, Faisal Islam, who started by asking him what he made of the state of the global economy right now. Well, it's very serious, obviously. And we've had some very serious news in the last six weeks now. So it's obviously almost dominating the discussions. And that's understandable, of course. And I think we're all trying to come to terms with what is, for many parts of the world, a story of, I mean, inflation is going to be higher and it is going to have a negative effect on activity.

7:35So that's a very, very difficult trade off to deal with in policy terms. And we've talked about this before, but we've been in this situation now for six weeks. We're not entirely sure how much longer it's going to last. Has anything surprised you in terms of how pervasive the impact has been? Well, first of all, I mean, you're absolutely right to point out that the length and the duration of how long this is going to last is a critical factor. I mean, I have to say I've said it before, but I'm going to say it again because it's so important. the faster there is a resolution to this situation and I particularly mean in terms of the supply of energy coming out of the Gulf the easier and better the outcome will be and that's really critical at this moment I think it's still too early to say what's the price because obviously we're still waiting for any sort of really meaningful sort of data and evidence to appear I mean it's still quite impressionistic particularly in terms of how it's going to affect activity how this increase in costs is going to get passed through, how much, how quickly, what effects it's going to have, what effects it's going to have on the labour market, all these things, it's really too early to form strong judgments on that.

8:46So we've obviously had some kind of understandable movements in markets and prices of oil and energy. We'll park that for a second. This is also the moment where those ships that are locked into the Gulf would have been expected to deliver wherever they were going to dock. And is there a concern about physical supplies of energy or of petrochemical derivatives in the plastics or in the fertiliser industry? Is that starting to materialise anywhere in the world, Europe, UK even? I think, again, it's a question of the longer this goes on, the tighter many of these supply positions look. I say tighter advisedly because I think it's very hard to see how many adjustments can get made, how things can be adjusted when there is a real stretch on the system.

9:37But there's no question, and all the people I talk to who are much more expert than I am in this world of supply chains and the details of industrial products say, look, there's a certain amount of resilience on the system, but it will run out and it will get stretched. Yeah. And in terms of the prices being passed through, I mean, these are pretty remarkable increases. And the IMF, for example, have had to make a set of assumptions about what that would do to growth and what that would do to inflation. Do you buy the idea that the UK would be the hardest hit of the G7 nations this year? Well, the UK has quite a strong dependency on gas.

10:17You know, it remains our marginal source of energy for quite a bit of the time. Not the whole time, but quite a bit of the time. So there is a dependency there. So that's one thing. In terms of pass-through, of course there will be pass-through. It would be hard because as you say, the size of this energy shock is very substantial. But the context does matter. The context is very different to what we saw four years ago. We are seeing quite a softening of the economy, quite a softening of the labour market. When I go around the country, as I do a lot, firms say to me that they are not finding it easy to pass costs on.

10:55This was before any of this happened. Now, I'm not saying therefore it will all be okay, because any way out of this isn't okay. I'm not saying there won't be increases in prices. I'm afraid that will happen. What I'm saying is that we have to be careful about that there's really difficult judgments to be made in here, judgments that we have to make and we will make. But we're not going to rush to judgments on those things because there are a lot of uncertainties around this, not just how it's going to play out, but also how it's going to pass through into the UK economy. So that was Andrew Bailey, the governor of the Bank of England, chatting to Faisal, our economics editor.

11:36Rachel, what did you make listening to that? yes i i agree with i do agree with what he's saying um i think that the the main issue that we have when we're trying to set prices with our customers which bizarrely i have actually had to do this week i put in prices yesterday which are going to last right through till the end of june next year i don't feel just like andrew bailey is saying i don't feel that we should be trying to pass on everything to our customers because I think we need to be more optimistic. Otherwise, as a firm, if we've got our finger on the pulse and we try to protect ourselves, you don't protect yourself from anything if you don't end up winning that business.

12:19So I ended up making the decision that this is going to be temporary and it's more important to keep our client base, look after them, us take the hit and then we'll see how it pans out next year. Simon, another aspect to our economy and part of what the event that Andrew Bailey is at there is all of this analysis that we get from the International Monetary Fund. And they're obviously all gathering many finance leaders from around the world. And that makes a few headlines. We've already seen a few headlines about the UK this week about it being one of the hardest hits from the energy price spikes from the war in Iran.

12:56Today, the headlines are a little bit more about when the International Monetary Fund has compared tax rises. And when you look at the list of those G7 leading economies, the UK is effectively on course, Rachel Reeves on course as the Chancellor to raise taxes, as the Times puts it, at the fastest pace in that G7. The Daily Telegraph has that headline. Family tax bills rise£4 ,000 under Reeves. Households bear the fastest tax increases in the world. And also a few of these articles also pointing out that the International Monetary Fund maybe thinks our finances as a nation are better off than they were because of this.

13:35What's your take? Both things are true. The increase in the tax take does put the UK on a path to have a faster pace of deficit reduction than comparable economies across the G7, including the United States. So when we say deficit reduction, that's a plan to borrow less in a given year. Correct. So on a sort of rolling 12-month basis, the UK public sector borrows about£140 billion. That is about between 4 % to 5 % of GDP. That is expected on Rachel Reeves' current plans to come down. Now, that is in contrast to the United States and other economies that the IMF look at, where there isn't any deficit reduction as a proportion of their economy.

14:21and a lot of the heavy lifting of that is increases in taxation. And the other part to this, of course, is that the tax burden for the UK is just about to go to an 80-year high. So we haven't seen this since just after the end of the Second World War. Now, that is, for almost everybody, a live and unprecedented situation, but it is also relatively middle of the pack compared to all the other economies the IMF look at. So the UK is moving up those rankings, but isn't certainly the top. There are certain countries in Europe particularly that tax at a much higher rate, but it's quite unprecedented for the UK economy to have a tax rate at those levels.

15:03Rachel Waring, when you see the decisions that the government has made on all of this, here, there, what the International Monetary Fund is, how it views the state of the nation's finances and how we're getting there. Does it feel to you like that's working if the borrowing is coming down and that's the way to do it? No, honestly, I can't even put into words how awful everything appears from my perspective as a business owner in this country. It is everything that is happening is against us. I mean, literally everything, you know, employing staff. staff since since the new rules came in for example um our sickness record is now is gone up sort of we've had about 15 to 20 percent of our workforce sick constantly these new rules that have only just come in in what the recent recent weeks yeah yeah it is it just came in since about the 6th of april so there is everything they're doing there are consequences just joined you because that's where the changes are right isn't it isn't it about getting no it's everybody no no no it's all staff um and i think there's a misconception anyway i'm coming off the topic no i just wonder what what's changed for those staff particularly well because they can claim um statutory sick pay from day one whereas they used to be three days waiting and the three days of receiving no pay um you know it's hard um but but what's happening is people are just mondays masses of sickness you any you speak to any business operator in this country they'll all say the same thing.

16:42Sickness has gone off the chart. And just so many things at every turn, you know, that they were talking yesterday. I think Rachel Rees was in, well, you might move on to the Washington story where she's talking about helping some manufacturers. She's not going to help SMEs like mine. So when you're an SME operator, I just, we are constantly taken for granted. We put 55 % of all revenues into Rachel Rees's pot of money. And yet we are totally taken for granted. We are ignored. We're not appreciated. It's honestly, it's so frustrating, but we just keep plugging away and we are the backbone of this country.

17:21And I just wish people would appreciate it. Simon, when you start to hear bosses like Rachel talking about consequences of changes like that, as one of those many changes, statutory sick pay, payable from the the first full day of sickness absence. Is there a point, maybe even see it very soon, where you, when you look at the numbers right across the economy, are starting to see whether these things are changing habits right across the board? We've seen it really since July 2024 and the aftermath of the general election. We've had employers, including Rachel's example there, have to deal with a lot of domestically generated cost burdens.

18:07The national living wage going up considerably faster than productivity and inflation. We've had the employer national insurance increases and the Employee Rights Bill, now the Employee Rights Act. Now, each of those individually, if you talk about the public policy issues of low pay, of financing the public sector, of employee rights in the workplace, individually. I think we probably all agree, most reasonable people would agree that those are sensible objectives. But I think the problem and what I'm seeing in the data, to go to your question, is a contraction in payroll employment, partly because employers are saying that is an awful lot to absorb in one go.

18:45And we don't want to pass it on, again, channeling some of what Rachel said, to our customers in end prices. So we're actually laying off workers and we're seeing this spike in youth unemployment and indeed overall unemployment, I think is a direct result. In fact, I don't think I'm pretty confident from the analysis as a direct result of the totality of the burden, not the individual measures, but all of those in together since middle of 2024. Now, we've got a big energy announcement from the government today. Rachel, I wonder what you make of this one. So this has been for energy intensive manufacturers.

19:18I don't know if anywhere along your supply chain or yourselves would be classed as that at all, because we ordinarily would talk about steel pharmaceutical companies. So this is around 10 ,000 manufacturers in sectors like that seeing their bills cut by up to 25%. Originally, it was going to be 7 ,000 companies seeing those bills because of certain levies being taken off what they're charged. Is that more of what you're looking for, Rachel? No, because we'll be excluded from that, obviously, being an SME. They're only interested in the huge sectors, automotives, aerospace, steel, pharmaceuticals.

19:57They're not going to include companies like mine. What is happening then with energy bills for a company like yours? Well, we were for once quite clever and we invested with the Rishi Sunak deal after Covid. We invested a lot in some solar. And so we've got a field of solar panels. So we are about 80 % self-sufficient. And that was just the most brilliant thing that we did. And it is partly down to that Rishi Sunak idea. And we used it. So what was his idea? When you say his idea, you know, what was that in particular? It was a grant. I can't remember the name of it now. Anyway. Yes. So we, yes, it was a capital expenditure.

20:43It was subsidising, giving a grant to business to invest in solar. It wasn't a grant so much. It was like a tax efficient method. If you invested into things for productivity and you could use solar for it. So it was really capital expenditure and you could use slightly reduced tax return to invest in that. So it didn't have to be solar panels necessarily, but that was the benefit. Yeah, I remember the scheme that you're talking about. And it's gone out of my brain when it was full of time. It was a temporary one, wasn't it? It didn't hang around. So we sit quite pretty. We also, in the same scheme, we invest in a biomass because lots of our clients want us to try to become carbon neutral.

21:22So we have a biomass boiler, we have our solar. So we are sitting quite pretty, but that is not going to be the case. We are not on an industrial estate, so we've got space to do these things. Yeah. But if you are an SME on an industrial estate, you don't even have room to park your cars outside your business, let alone try and do anything else. So none of this that has been announced is going to affect any business like mine at all, even if I didn't have my solar, because we won't be part of what she considers. What she stated was she recognises these industries are a critical contribution to the UK economy.

22:01The SMEs give you 55%. We are the critical contribution to the UK economy. We do export. We are the backbone. and at some point somebody in government has got to wake up and recognise this and give us the boost because we are the ones that can give it to the country. And Simon, this balance then of hearing from Rachel there, if you're able to invest in certain kits for your energy consumption, whether you're in a home, you're in a business, whatever that might be, then you may have been able to reap benefits of that. but the government having to sort of balance how it encourages people to go down that route a bit more with actually just what are very high energy bills for lots of businesses right now.

22:51They are. What worries me a little bit is, or quite a lot actually, is it's something of a sort of policy whack-a-mole. You see an issue, as the former Prime Minister Rishi Sunak did, as Rachel Reeves now does, and looks for targeted support for certain industries. and you can see this with the business rates debate, targeting pubs, not restaurants. The problem is, if you don't address the source of the problem, and let's be really, really clear what the source of the problem is, the UK has the highest electricity prices in the industrial world and we now produce 25 % less electricity than we did 20 years ago.

23:28We have rationed electricity. If you reduce supply, you raise costs. It's pretty much economics 101. And if you do that, then all parts of the economy, SMEs, those with good lobbying teams, those with bad lobbying teams, those with profile, those without profile, everybody benefits. But similarly, everyone hurts when energy prices hit, which is one of the reasons, linking this back to the IMF story, why the IMF downgraded the UK's growth outlook the most amongst the G7 was because we're very reliant on imported energy. That is a policy choice made by successive governments over two decades. The US that saw the smallest downgrade is now energy self-sufficient.

24:09Those two facts are not unrelated. And I noticed that in the Financial Times, the description from business lobby groups about this help for manufacturers is it will only scratch the surface with higher costs, business groups have warned. Let's have a look at what's going on in the rental market at the moment. It's just over a couple of weeks to go until the Renters' Rights Act comes into force on the 1st of May. New legislation that will abolish no-fault evictions, prevent unreasonable rent rises, it says as well. So how is the market looking? Well, there's a new report from Rightmove out that said the average rent of homes outside London has remained flat at the start of the year, so hasn't increased, hasn't decreased, stayed the same, for the first time since 2017.

24:54It reckons it's partly down to lower tenant demand. I've got Caroline Pattinson with us, who's the director of Chester Home Share. So she's got around 100 tenants across Chester and North Wales. Been in the business for 30 years. Caroline, good morning. Does that sound a familiar tale to you? Good morning. Thank you for inviting me on. Yes, it does. It's quite accurate, although the reasons behind it are probably a little more interesting. Well, let's get into this. Why we get you up early, Caroline, to tell us before you go ahead and start running your business throughout the day. So what have been the changes you've seen that have meant no rent increases?

25:32It's tenant demand. And I think to link the landlord-tenant dynamic to the Renters' Rights Act and to the ever-increasing taxes, which are coming our way. But for me personally, I specialise in graduate housing. So I'm quite at the sharp end, if you like, of the jobs market. So not student housing, but once I've been to uni and moving into the jobs market, that's my specialist area. And what I'm seeing, and the same people like myself across the country, is that because the jobs are not being offered as freely as a result of the employer's national insurance increase and so on, that's having a huge impact on demand and affordability.

26:19So what are students doing? So it's graduates, it's people who are leaving. What are graduates doing? Yeah, they're really struggling to get jobs. It's as flat as I've known it in donkey's years. And so because the jobs are not there and the take-home pay from the people who do have the jobs is less because of the government's taxation increases, it just means they have less to spend on rent. And my experience is that that is what is driving the flattening of the rent rather than the property related impacts. Yeah. So is this there are fewer graduates looking for your rather than the same number of graduates, but they're just saying we can't pay any more?

27:05A hundred percent. And it's so strong. I've been doing this for nearly 30 years now. I've housed well over a thousand tenants. And it's definitely a jobs and an affordability issue rather than the Renters' Rights Act and the increased taxation on landlords, which is driving it. So, you know, renters or would-be renters, people may be looking for that first job and looking and thinking, great, I can be, you know, renting my first place soon enough. might see a headline that rents aren't going up, but then you hear the story behind it and it might not be so optimistic. But there could be a feeling there, Caroline, that the second there's a normal state of play where people are able to get jobs and that is what many will want to do, what many will want their children to do, if that was in a better situation, then we're just in that scenario where rents go up and up and up and up.

28:03Yeah, that is what has happened. And at the end of the day, supply and demand drives everything, doesn't it? Whether it's property, rents or anything else, it's always a supply and demand issue. But it's tenant affordability, which has caused the rents to pause. It isn't that they're dropping. There is a bit more supply coming onto the market. And of course, the rate of increase over the past few years has been, you know, ridiculously high through the supply and demand issue. So it's more that they're pausing and levelling off rather than actually dropping, in my experience. How does this change, you know, maybe how you view Chester Home Share with your tenants that you've got?