Steely Plan?

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0:51Listen at schwab.com slash Washington Wise. That's schwab.com slash Washington Wise. Wake Up To Money from BBC Five Live. Hello, welcome. It is Wake Up To Money, the boss of Hewlett-Packard Enterprise, huge tech company, has been telling us about some of the challenges around building AI infrastructure in the UK. There's a problem. I think the UK has been a a little bit unstable from a political perspective as a lay, and that has not created continuity. Plenty more on that coming up also. At his first PMQs yesterday, the Prime Minister outlined his concerns about a new European Union initiative on manufacturing, what it could mean for British industry.

1:36The Made in Europe agenda could pose significant problems for British steel. So we'll look to get to the bottom of what exactly that Made in Europe agenda is. And...

1:53You might have caught Fontaine's DC performance at Reading Festival, but did you notice the band's frontman was wearing the shirt of a little-known football club from the south of Wales? We're going to be taking a look at just how that collaboration came about, how it can boost the finances of smaller teams. Wake Up To Money with Sean Farrington. Good morning to you. Wake Up To Money on BBC Five Live. It's Thursday morning. It's the 3rd of September. Thank you for being with us as we approach five past five. The number to get in touch, 85058, as it ever is, whether we're talking about football fashion, has it dominated your lives?

2:30Your wardrobes full of retro shirts or brand new shirts bought straight from the high street that make you do a bit of a double take and you think, hang on, which football club is that? And then you get a bit closer and you realise it's just something from New Look that is top of the range at the moment. We're going to be hearing later how the desires for football fashion, something a little bit different, is making people who run some small teams around the country think a little bit how to boost their own revenue. How can you do a tie-up with somebody with a bit more of access to a wider audience than you might have as well?

3:0585058, all we're discussing festival gear. We'll find a way to get you involved in the conversation, so join in 85058. Joanna Jensen is with us this morning, founder of the skincare brand Child's Farm, now an angel investor. Good morning, Joanna. Good morning, Sean. Retro fashion, does it have a place in your wardrobe, whether it's new stuff you're buying, going a bit vintage, sports in there anywhere? Always, always. I'm still wearing stuff I bought 30 years ago. So are my kids. Does it feel retro, though? Are you wearing it with a retro vibe? No, because it's been bought in my lifetime, so therefore it's clearly quite new.

3:42It must be. It must be. Well, we'll see how long some of these football shirts might hang around a little bit later. We've got Laura Lambie with us as well, Senior Investment Director at Rathburns. Laura, very good morning to you. Good morning, Sean. How are you? I am well, thank you. Any rugby shirts going back decades, Laura? Football tops in there? I've got a few Middlesbrough tops the last time that they were in the Premiership. Yep, they're still sitting there waiting to be used again. They're a good example, aren't they, Laura? There's an iconic story behind them. For those that have followed Premier League football for decades, going right back to the launch of the Premier League, when you see one of those original 1990s tops of a team that, you know, maybe wasn't the biggest team around, but Middlesbrough had their time in the limelight around then, there is a sense that you can roll back the years by wearing that stuff again, can't you?

4:39Yeah, I mean, some of the old shirts are lovely and I think some of the newer ones have caused a bit of consternation, but there you go. I'm just imagining Laura cheering on Fabrizio Ravinelli, Juninho in the late 90s, Laura. The heydays will return, no doubt. People, many making comparisons about the late 90s era with the cost of government borrowing as well. We've seen long-term costs of government borrowing reach those same levels as we did 30 years ago. I noticed yesterday, Laura, that when we talk about the 10-year cost of government borrowing, that 10-year bond or the 10-year guilt, one that is very regularly referred to by commentators and investors like yourself who will look at that and compare it to other countries and give us a sense of how much borrowing costs might be for everybody right across the country, not the government.

5:29That 10-year borrowing cost did sneak to a level that we hadn't seen since the financial crisis yesterday and then seems to have come down a little bit. How have the last 24 hours been borrowing-wise? Oh, very much. As you say, highest levels since the global financial crisis. And, you know, these are surrounding fiscal concerns about government borrowing and not just in the UK, to be fair. Also in parts of Europe, inflation higher for longer, all tied in with the oil prices. So we're really looking at most central banks around the world, either looking to not cut interest rates or indeed put them back up.

6:07We've seen that possibly happening in Japan, being one of the most obvious candidates to put interest rates up. So there's definitely around the world a fear that we're going to get interest rates going up rather than down wherever one was expecting them to go. Joanna, it was a topic that dominated those first Prime Minister's questions for Andy Burnham yesterday. And not surprising, you know, over recent years, every time we've seen any spike in the cost of UK borrowing, whether it's for reasons more globally, as Laura's laying out, as it perhaps has been in recent weeks, to the core questions about the UK's nation's finances itself and how we are running things.

6:51it's a question for the Prime Minister to answer, isn't it, when you start getting to these levels again? Well, it is, totally. And what we saw yesterday was, when you see the market's response to a Prime Minister, let's not forget, this is what, our seventh one in 10 years? They typically do it through Gilt's bonds. And it's now cost John Healy. He's now got to find another£14 billion. And that's the reality. And it's all well and good, this sort of tit for tat. Oh, well, Liz Trust, look what she did. Well, you have to walk a really steady path right now if you're in government in the UK. And this was really a response to Andy Burnham saying, we're going to do this, we're going to do that.

7:33Spending money in all sorts of places which haven't been talked about before. This is the problem about seven prime ministers in 10 years. You have inconsistency of policy. And also, I guess you have seven prime ministers wanting to lay out some of the easier news to tell people. Would that be a fair thing to say over the years? Initially, if you have a new prime minister as regularly as we have done, you're going to hear what their more positive things are earlier on because that's the mood that they want to get people in, isn't it? Yeah, you do. And this is the problem. We have a four-year, five-year term.

8:14And if you were a CEO, you would go in and you would actually get your feet under the desk and you'd find, you'd read the runes, understand how the business works, understand those people involved, the people that move and the people that shake. Because any government is under pressure to make a difference very quickly, or so they think, they just go in and make promises way too soon. There needs to be more contemplation, I'm afraid. You can't please all of the people all of the time. And I think this is because we have had a number of prime ministers who have no business experience. It's always trying to please the people rather than doing what is best for the country.

8:55So they should just take a beat. And so that's the government finances aspect of it, Joanna. What's the reality of running a business when the mood is cost of borrowing is getting higher, the highest you've seen for a while? What impact does that have? Well, the first thing you do is you say, right, what assets, what value do I have? What else is it that I can sell to raise some revenue? And, you know, this is what I talk about a lot, is the fact that we do have these assets off our inshaws, which is oil. And yes, we need to be more sustainable, but can't we use our oil reserves to become more sustainable?

9:38We're buying this stuff anyhow. The impact it has on the environment is already happening. But we have our own resources. They are crowned owned. So if we actually did the digging ourselves, so rather than just sell the petrol at the forecourt, why didn't we aim the forecourt as well? And if we invested 30, 40 % of the cost of bringing that all up, we will begin to have revenue, which is the start of a sovereign wealth fund that we can use to actually build the infrastructure this country is in desperately need of upgrading. And, Janet, is that a view you feel like you would have always held over the years, that we need to be drilling for more oil in the North Sea, oil and gas?

10:20Or has your perspective on that changed? I think it's always been there because I've always looked at the way that Norway have handled their North Sea oil as exemplary. Because they've had an agreement with successive governments that they've stood to it that this is what they're going to do. In the same way Ireland has done that with corporation taxation. But Norway, over 30 odd years, have stuck to the plan. and have created a sovereign wealth fund that means every person in Norway really has got financial assets of£250 ,000. Now, that's considerable, isn't it? And an immaculate country. I mean, I took a ferry just in April we were there.

11:03Took a ferry from island to island. They're all electric. The roads are immaculate. I didn't see a single pothole and we were on a driving holiday. I mean, that also sounds very delightful and also raises a fair few questions within that as well, which we haven't got time to delve into this morning, but very interesting to hear the different experiences there. Laura, on the front page of The Telegraph this morning, tying in to all this, the Daily Mail has the story as well from the Conservative Party, which is laying out how it thinks the country can raise money to meet defence spending in particular, reforming housing benefits, reintroducing the two-child benefit cap.

11:47That's not child benefit. That's the benefits cap around families that have two children and saving a little bit of money, as we heard in the headlines, from not doing that Chagos Islands deal that has been much talked about in recent years. Laura, what is this sort of signifying, with the Conservative Party laying out how they might go about this? we've got a budget at the end of next month. Is that the kind of thing investors need to be hearing when you see we could be reimposing caps on benefits for families with two children and reforming housing benefit? I mean, I suspect what it's seeing is more kind of big picture in terms of defence is now very high in the agenda.

12:31And it's something that really prior to 2021, you know, hadn't been discussed for many years. And I think it just reaffirms the fact of security. You know, Joanna was talking about oil. Oil is part and parcel of that security for the country. And, you know, defence is the same. Andy Burnham talking about protecting steel, for instance, and agriculture in the Commons yesterday. Again, all to do with the security of our country, protecting food sources, protecting manufacturing, protecting defence. it's all part of a big theme and that you would expect the Conservatives to have their views on it and yeah, it's important to hear what they say but at the moment it's not going to have a massive impact on anything.

13:19The front page of the Financial Times this morning which we'll be getting into a bit later in wake up 20, Burnham seeks to shield steel and farming from made in Europe push, so those talks underway as the Prime Minister meets Emmanuel Macron today lots of Bayeux Tapestry chat as well going on isn't there? 85058 your thoughts, let us know what you make of those suggestions by the Conservative Party is that where spending cuts need to be, how do we get to where the government wants us to get to by the end of the budget next month when all the spreadsheets are handed in and we work out what the financial policies are of this Prime Minister and his Chancellor as well let's know your thoughts, we're going to be talking more about advancements in artificial intelligence as well, particularly in the UK, not just our use of the tools, but what it might look like on the landscape of the UK.

14:11Are we going to be a country heading for big data centres everywhere? And what does that do to the economy? We're going to be hearing from the boss of one of the world's biggest tech companies about investing in all of that. Do let us know how you're getting on. Has there been a ramp up in the return to schools, return to work this week? Have you worked all through August and you've got a break coming up at some point in September? Let us know how that world of work is feeling for you at the moment. We're going to hear more now from this boss of Hewlett Packard Enterprise, HPE it's called. It's not the company that flogs laptops.

14:46They do have a shared history, unsurprisingly, given the name. This is a massive US tech business that actually now provides lots of IT infrastructure, software and services to businesses. Helps provide much of that that is needed to get a data center up and running. So helping with the adoption of artificial intelligence tools as well. It's worth about£50 billion, this company, in English, in British money, meaning it's among the most valuable companies listed over in the United States, 67 ,000 people globally. Might not be one of those that grabs the headlines quite as much as the likes of Amazon and Alphabet, but they're a huge deal in getting this AI infrastructure off the ground around the world.

15:30They work with lots of governments, lots of businesses around the world. And the boss there, the chief executive, Antonio Neri, has told me that political uncertainty in the UK has been a problem for investment in AI infrastructure here, that long-term projects like data centres need certainty and continuity and political instability has been a problem for this. We're speaking as the company has issued results. They showed that their sales were rocketing. It continued many of those headlines in the world of AI that we've heard from the world of tech as well. So I started by asking Antonio Neri whether this spending on AI is actually sustainable.

16:06We believe in this technology. They went from proof of concept now to workflow transformation. I don't see this as another IT innovation. I see that as an opportunity to transform your enterprise. And then obviously there is the sovereign part of this, governments that understand that this technology can disrupt many things. and therefore they want to make sure they are protected. And we see that in defense. Obviously, we see that across the government structures. We as a company, as an example, we are aggressively deploying AI across our enterprise. And we have more than 1 ,200 use cases already in the works with more than 300 in production.

16:48That's what we see. And that's why we believe this is durable. We've had our own governor of the Bank of England, Andrew Bailey, warn just in recent days of what could be a big worldwide future market correction. You know, almost every day for feels like years now, we've talked about some major growth in the world of AI. He's concerned that if there's a collapse in growth, there could be a huge ripple effect. So how do you protect against that if you have central bank governors seeing this as a growing risk? Well, obviously, I'm not an economist. What I can tell you is that we have lived technology or major transformation over the centuries.

17:28Think about the industrial revolution, think about other massive technology that allows us to multiply the growth that each of the economies saw for the next decades. And so I do believe this is going to be a multiplier of growth. It is not just a productivity improvement that will require less people in some areas, but actually an accelerator of growth because we're going to solve problems and create new businesses that we couldn't do at the pace that we were on because we didn't have the technology to do it. So I am more optimistic about this, but obviously it has to be governed, it has to be managed, and it has to be understood.

18:12And it has to be equitable, right, where all sectors of the society can participate. How should that be governed? Is it a global regulator? I don't think so. I mean, you can govern globally everything that's happening in the world and honestly in your own country. I think it is a combination of local regulation with global partnerships and, by the way, between the public and the private sector. Both have equally important responsibilities here. And the reality that the government needs help from the private sector because they are not equipped to understand all this technology evolution, because the technology in many ways is far ahead of the policy.

18:54People, just sorry to interrupt you just on that point, but can you see why people might get concerned that what are a relatively small number of huge technology companies from the United States, maybe from China as well, have so much more power and influence over how things are going to work than the governments that people are voting in have? Yeah, I can understand some of that. But I think in the end, you can't stop innovation. What you can do is govern it in a way where there is some equality, but ultimately is up to each of the governments and private sector to decide how far they want to go.

19:34The pace we are innovating these days is just remarkable. And I speak for myself because, you know, I have seen every inflection point pretty much in my career. And I've never seen the pace that we've seen in the last five years. How does the UK compare as a place for HPE to invest, for other businesses to be looking at building data centers and increasing investments in this technology compared to other parts of the world where you have a big presence? Well, first of all, the UK market is very strategic for us. We have a very large presence over many, many decades. We serve some of the largest customers in the UK, from telecommunication to banking, to retail, to hospitality.

20:19We as a company, we don't build our own data centers for consumption. We help companies build data centers. High-cost electricity comes up all the time and not just in the UK. Clearly, the UK is not one of the lowest cost per kilowatt, but as a matter of attractiveness, there are areas and some innovative approaches like using waste as a way to generate electricity that eventually power these data centers. There is a company in the UK that we have partner just because of that. We discuss planning a lot. How does the UK need to approach this from a planning perspective? And is the environment there to encourage this kind of growth?

21:06You know, it comes down to things like having a set of policies that facilitates permitting, that drives incentives in specific regions of the UK, where companies feel compelled to go invest their capital to grow in these areas and create jobs in some of these areas as well. So there has to be a 360 plan associated with that. And then obviously how to facilitate the growth of this infrastructure by thinking about three to five years out, what it means for energy and other things. You know, once you create that plan, then people draft behind that plan with certainty. Because the problem, I think, the UK has been a little bit unstable from a political perspective of the late, and that has not created continuity.

21:59Here, when you invest this amount of money, you have to have certainty and continuity, because much of this technology gets this depreciator over a long period of time, five, six, seven years. Has this latest change in prime minister in the UK kept some continuity, or does it feel to you like it's brought in another level of uncertainty? I think it's too early to say, to be honest with you. What we would like to see is continuity in the policy and stability in this area, which allows us, the reality of the companies, to stay focused on executing that thesis in terms of investment and availability of these resources.

22:41Just finally, I just wanted to ask you about developments that we've seen with the Court of Appeal that has just ruled that the family of Mike Lynch can appeal against some narrow parts of a ruling which previously ordered his estate to pay HPE more than$1.2 billion. And just for the context for listeners, Mike Lynch, who died a couple of years ago, he sold his company Autonomy to Hewlett-Packard in 2011. But a civil trial later found that Mr. Lynch and his former CFO had artificially inflated Autonomy's revenue. And his family say that the claim was wildly exaggerated and that any losses stemmed from HP's own conduct after it bought autonomy.

23:19I just wonder what you say to the family of Mike Lynch there. Well, obviously, it is a very disheartening situation what happened to the individuals that lost their life in that event. But for us, we're looking forward to concluding this matter from a legal perspective. has passed a long time. And on that aspect, I'm not going to comment further on the legal proceedings because that's not appropriate. And that's in the hands of the courts at this point in time. That's Antonio Neri there, the chief executive of HPE, Hewlett-Packard Enterprise, that huge tech business that has so much involvement in the building of data centers, amongst other things, providing that infrastructure for companies, governments, households to use these artificial intelligence tools that are here, they're on their way, going to be used ever more, it seems.

24:13Laura Lambie has been with us this morning, Senior Investment Director at Rathbones. Laura, I mean, another company where the numbers are eye-watering again and the increases year on year in the amount of sales, the demand for these kind of data centres continuing to be at record levels, as the company put it themselves. Are you starting to see businesses, countries, get some productivity gains from this, for people's lives to be improved because of this wonder tool we keep being told about? I'm not sure that we necessarily have the official stats, but anecdotally, I think we all experience in our day-to-day work life that there are huge productivity gains in just the easiest of tasks that AI helps.

25:09Yeah, I think it still has to probably come through in terms of big business, because there's a lot of spend being made on trying to increase productivity. But I don't know that necessarily we've seen that coming through in the stats. Joanna Jensen, who's with us, founder of Child Farm, with us on Wake Up To Money this morning. Alongside this, Joanna, I just noticed, you know, on the BBC website this morning, there's a story how some analysis from the consultancy company PwC says, almost half of people in Britain live in areas where economic growth does not translate into a better quality of life.

25:46And it ties into a little bit about the productivity gains from this and how that actually translates for your people who are working in companies around the country, working for the government, local authorities around the country. How does that improve their lives? How does that work? You've run a huge business, employed a lot of people. How does that trickle down? Well, I think the thing about AI is what it's doing right now is replacing some junior functions. And, you know, this has your concerns about our neat, specifically the number of neat individuals we have in the UK. but I see so much still to be done when it comes to AI.

26:31I mean, I use AI a lot for research and it's not as good as people think it is because let's not forget, all it does is trawl the internet time and time again. The most important data is proprietary and you won't see it. Yes, there's ways that you can automate things through using specific individually built AI systems. But that is a huge amount of money to spend on your infrastructure. But I just want to go back to the Hewlett-Packard boss, which I have to say, was that not like listening to a Bond villain talking about all of these things that are happening with no care, these data centres that are stealing our farmland and sucking up our water.

27:21And he's talking about our faults in the UK when we're in the middle of a drought. And everything about it is you need these things. We don't need global regulation. We know what we're doing. I'm sitting there thinking, my God, is he stroking a cat? Well, when I sort of put to him the concerns, because it's remarkable to actually hear a tech boss say how if the innovation's happening so quickly, Joanna, that governments can't keep up. And there's not much you can do about that. Effectively, that's what he was saying, that the government's going to have to work with these businesses because the businesses are, and the tech within it is just racing away.

28:02What can you do about all of that? But you've got to do something. But what do you do? Do you say, right, we're not going to be a country that has these data centres then, while the US and America and the Middle East are looking to build them at huge rates? Is that what you do and go, we just don't want in on this? No, what you need is you need people that are much more, you need some much more intelligent people than I'm afraid that we have in government. Because this is, you've got SpaceX out there, they've just put in a bid for a million data centre hosters in space. Who regulates that? I mean, what is it, something like 40 ,000 bits of space waste in our orbit as it is.