The Week in Review

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0:55Will Bain:Wake Up To Money with Will Bane. Hello, morning. Welcome to Wake Up To Money on Friday the 3rd of July. No live programme this morning because of the World Cup football, but we couldn't let you, our loyal podcast listeners, miss out on our Friday panel. In a week in which Andy Burnham has laid out some of his economic thinking and the very long-awaited defence investment plan was finally unveiled. We'll also be chatting about the latest piece of work by the former boss of John Lewis, Sir Charlie Mayfield, on how to tackle absences due to sickness in the workplace. And before they share the pitch with Lionel Messi and Argentina tonight, we'll hear from the company behind Cape Verde's World Cup kit and how they're trying to mix it with the big shirt manufacturers off the field.

1:38Will Bain:So plenty for our panel to chat about still this Friday. And they are Anna McDonald, Investment Strategy Director at Hargreaves Lansdowne, and George Ligarius, Chief Economist at Forvis Mazda. Morning both. Great to have you with us. You had World Cup fever throughout or? um well that sounds like a no yeah so to to to be honest Greece isn't playing so I'm just watching England see how far it goes forget no Scotland no party no Greece no party Anna now that Scotland are out is that that been the end of the fun for you as well well no I mean my we had uh an evening with colleagues or in Bristol on Wednesday night and of course many of them were supporting and I I was too.

2:20And I have to say, given that we had dinner afterwards, I was very pleased that they won. I didn't want to be surrounded by glum faces.

2:26Will Bain:Yeah, I wasn't sure if I was ever going to be able to come back to work again, had England and Harry Kane not managed to turn it round there. And of course, we've got it all again, Sunday night into Monday morning. You'll be able to hear that live on Five Live. And we'll find out by the next time we're on air whether England are through in the World Cup as well. Let's turn to domestic, well, political and economic matters, though. Big week, wasn't it? Anna at the start of the week with Andy Burnham laying out, I guess, or in theory beginning to lay out, I guess, the sort of skeleton of what his economic touchstones might be if and when he does become prime minister.

3:03Will Bain:Shall we hear a little bit of him first of all? This is him outlining his vision for the country in a speech at the People's History Museum in Manchester. And it comes from not leaving everything to the market, but public intervention where necessary. to set higher ambitions for towns, as we did in Stockport, and kickstart the process of change. This is Manchesterism.

3:32Will Bain:What did the market make, Anna, of being told to not leave everything to them? Well, I mean, it's been fairly relaxed. And I think that's because there isn't yet a lot of meat on the bones here. we have some ideas of what he might bring from Manchester in terms of trying to drive more devolved spending. But there's been nothing like we don't know who the next chancellor is going to be. We do know that he's talked about still keeping to the Labour Manifesto about which taxes are safe from being increased, and that's national insurance, income tax and VAT. National insurance, I should say, from the employee's point of view, we do know all about the Rachel Reeves increase from the employer's point of view.

4:30So those aspects are probably quite reassuring to markets and talk about the fiscal rules still intact. But we're hearing other things like potentially we've heard his advisors who are well-known people, well-respected people, Jim O 'Neill, Andy Haldane, Richard Hughes. These are all well-respected people. Some of them have got quite some ideas, for example, around funding defence spending, the national security bond and things like that. But the markets have been quite relaxed. And I think that's also because we've got what seems to be more flowing through the Strait of Hormuz. Some of that inflationary pressure from the increased oil prices is rapidly falling away and oil prices are back to where they were pre-war.

5:21Will Bain:George, what was your takeaway? My takeaway is that, yes, markets are more relaxed, but like each and every one of his predecessors, he's going to be tested eventually. Now, to be fair, only one prime minister failed the test. That was Liz Truss, and she became the shortest-lived prime minister in recent history. But he will be tested. Markets are fairly relaxed because markets don't panic with what they don't know. And yes, his advisors are serious people. And yes, he said he's going to adhere to fiscal discipline, but he will have to pass the test. Well, let's hear about what Andy Burnham had to say about tax then, as George mentions.

6:05Will Bain:This was him speaking to LBC last night. I stick by the manifesto and the promises that it made. So let me be absolutely clear about that. But there is some room within that manifesto for movement on tax. So is there a danger with that, George? He sort of started off locking himself into the same problems that all his predecessors had and then sort of with that last bit of the answer tried to leave the door open at Jar? Yes. He talks about devolution. There are several problems with devolution. The primary one is that George Osborne promised it, and so did Cameron, and so did Tony Blair. but the problem was always the same.

6:51It's not the money raising that's being devolved, it's the money spending. And that sounds simple but it is not because the money raising is still in the responsibility of the Treasury. So what devolved governments get, local governments get, is essentially a ring-fenced budget but they don't have real money raising power so everything still reverts back to the treasury to the central government and that's where each and every one of his predecessors failed to to produce real devolution so you think that there should be more because that's been incredibly

7:32Will Bain:controversial hasn't it across the history of devolution certainly in the uk about tax raising powers more tax raising powers so what i will tell you is that other countries like italy have tried this sort of devolution, as has the UK, and the results haven't been, you know, they haven't been convincing. But in some cases, in international literature, where the money-raising powers were devolved, then somewhat better results. We saw somewhat better results. Having said that, its growth, even at best, it's a little bit more growth on the margins. There are far bigger growth drivers that he's going to have to address.

8:11and these were the same as his predecessors.

8:13Will Bain:Anna, we've heard one of the sort of elements that's been talked about in terms of devolved areas raising money has been these sort of powers for charging people basically for overnight stay, sort of holiday taxes, isn't it? I mean, it's quite a big step from going from that to having more significant kind of tax and spend powers devolved around the UK. What do you make of it? Yes, absolutely. Yes, I mean, I think it shows quite a... That's a very small beer in comparison to what you need to do. And I mean, I think that some of the initiatives that have made Burnham popular in and around Manchester have been, for example, he's improved transport, especially the buses.

8:57But it's a very different thing to go going to improve bus networks than it is to really trying to transform things. And the experience of, for example, Scotland, where we do have some limited tax raising powers and we pay an extra penny on higher rate income tax, for example, I don't think that it has led to considerably better public services or has been able to be recycled into particularly higher growth initiatives. So I think it is, we are tremendously a centralised country. I think we actually are, you know, Italy, which George just mentioned, is a little bit less centralised, but we are phenomenally, I think, known as one of the most centralised economies.

9:47Will Bain:And incredibly centralised compared to somewhere like Germany, right, with quite a similar economy to ours. Yeah, absolutely. And it does lead to, as George was mentioning, it's about local tax raising powers and being able to see that sort of, and then the local spending. So I think there's, as George says, Brenham's still got some very tricky decisions he's going to have to make. And I think it was quite notable in Keir Starmer's presentation and discussion around the defence investment plan. I think he was sort of like, well, you know, it's pretty difficult. We've still got money. There's still a gap and we still need to raise more.

10:26So it is a significantly difficult problem.

10:29Will Bain:Yeah, we'll be circling back to the defence spending in just a moment as well. One of the other areas, George, that people point to a lot when they point to, if they would like to point out Andy Burnham's successes, if they're on that side of the argument, if you like, in Manchester itself as a city, has been the building work in close to us in Media City. You can see it, right, physically, the skyscrapers that have gone up, the kind of flat building that's kind of transformed the city centre. Here is what he had to say about his housing policies. Working with local areas, Number 10 North will oversee the biggest council house building programme since the post-war period.

11:08Will Bain:Number 10 North, of course, this plan to devolve and have some offices of the Prime Minister outside of London, potentially in Ancotes in Manchester, if you know the North West well. House building, George, is that one of the more useful levers, if you like, to what you were talking about before in terms of boosting growth? If we're talking about improving the lives of people at the marginal level, this is all very useful. But growth, real growth, the kind that takes a few billion to boost, doesn't come from housing projects. Look, until the 1980s, we had a lot of babies. And really, that's where 80 % of your economic growth comes from.

11:57okay a good demographic after that our demographic sort of uh stayed stagnant uh so um you either need to raise your productivity uh or you need to to borrow and that's what we have been doing uh you know consistently for the past 40 50 years the problem is that now we're in a mature part of the debt cycle so it's very difficult to borrow to to fund growth um and when you say that it means

12:26Will Bain:that a lot of the payments are having to be made and people are a bit nervous about allowing the government to take on more borrowing because, well, hang on a minute, you haven't finished paying off the bill of the first stuff yet. Exactly. We are at the point where markets are sceptical and that's why all prime ministers are now in the crosshairs of markets because the UK, like most countries, have borrowed as much as they can and now they need to be very careful with the borrowing, which means that they cannot fund growth in the same way that they had in the previous 50 years. And that is Andy Burnham's burden as much as his predecessors.

13:02What I can pretty much reliably tell you as a Greek is that borrowing has limits.

13:10Will Bain:Well, let's use that to bridge across because one of the areas where people would like to see perhaps borrowing used is exactly as Anna was talking about before around defence spending. We finally, how many times have we talked about this on the programme and how delayed it was? I mean, it's almost a year late. The Defence Investment Plan, of course, saw the Defence Secretary John Healy quit over how much money or lack of money there was from his perspective in that final version. £15 billion increase in military spending, although£10.3 billion of savings has been identified so far to fund it.

13:45Will Bain:Here is the current Prime Minister, Sir Keir Starmer, speaking ahead of the plan on Tuesday, arguing against borrowing money to increase investment in the military. But the fact is, doing this through borrowing would push interest rates higher at a time when one pound in every ten already goes on paying debt interest. So the plan will be funded instead by cuts to the budgets of other government departments. Some capital projects, for example, on roads and energy, which are important, but not immediately vital, will no longer go ahead as planned. Anna, there's some of those difficult choices straight away.

14:28Absolutely. And what we do know is that, you know, there's a difference in what we call the multiplier effect. And traditionally, infrastructure spending tends to, for every pound you spend, it brings back way more than one. I think, George might want to correct me, but I think it's up at about 1.7, 1.8. Defence spending is still greater than one, so you get back more than the pound you put in. But it's not as productive for the general economy. But it just shows you that this is really important. we are not spending as much as we used to on defense and the world has changed and I don't think that people in this country perhaps realize how much it's changed if they were to look if we were to look to our neighbors who are on borders or closer to to Russia for example and I can give the example of my mother she lives in an island in the Baltic a big large flat island called Gotland and NATO used to be very present there and now they're back and my mother has taken part in things like bomb shelter drills and evacuation exercises so and Sweden is now spending four or five percent of its GDP on on on on defense so I think that we just aren't aware of how and I don't think perhaps politicians have done a good job in talking to us about you know if Really, our primary concern, which it should be as the government's primary concern, is keeping us safe.

16:00We do need to spend more.

16:01Will Bain:George? Okay, so a couple of things here because I'm not a great armchair in general. But what I witnessed a few weeks ago was a small, not a small, decent regional power in Asia withstanding the pressure of the United States of America. So the one thing that we do know is that defense is not just about spending. Drones have changed the nature of war. We saw this in Iran. We saw this in Ukraine. So for one, proper defense, which is the objective here, is not just about the billions. It is about redesigning the army to be more modern. Okay, and that might not be an exercise just of money. So let's just keep that one aside.

16:51Having said that, the UK's recent spending on defence hasn't been great. And yes, its infrastructure, its military infrastructure has been somewhat wanting. But the problem is the same. Where do they get the money from? For every rocket they would buy, they would need to defund a hospital or something or a school. But do you think we're at that stage?

17:18Will Bain:I mean, there are people on there, certainly not just in the UK, but around Europe. I mean, I interviewed, you know, Anna's talked about Sweden. I've interviewed on the World Service the Prime Minister, sorry, the Defence Minister in Estonia saying, but basically people need to wake up. This is as big a priority as a hospital now, the threats from cybersecurity, from China, from Russia, etc. It is. It is. All of these are important. they have always been they have always been important but the problem is still the same a choice needs to be made you can't have your cake and eat it too if defense is a higher priority than a school or a hospital then we're going to have fewer schools and fewer hospitals okay, it's as simple as that so decisions will have to be made decisions are having to be made across most countries, the same decisions and that's why you get a lot of political disruption.

18:16It's not just the UK, that revolving door. Look at Germany. They don't have great debt to GDP. They're very fiscally conservative, but that's now costing them a lot of votes and unstable governments. Look at France, 150 % debt to GDP. They're going to have to choose between rockets and schools and hospitals. you cannot have a content electorate and a lot of spending for for defense and growth funded by what so choices need to be made choices that were not so burning in the you know previous 20 years yeah i mean i agree it it it is a matter of i mean there isn't a an endless money printing machine I think that there are ways of thinking about it that perhaps will bring us all together.

19:13And when we, you know, for example, there are discussions around a national security bond. So making, maybe drawing on retail investors in the UK who might be keen to buy a bond and create a sort of separate funding line. And that is one suggestion from one of Burnham's advisors that Keir Starber dismissed it earlier the week. He said all borrowing is borrowing and there is a case for that. But there's also, I suppose, a case for trying to, it's not just patriotic fervor, it needs to stand up on its own two feet, but perhaps to try and increase a domestic investor base because we in the UK are quite vulnerable with the proportion of our debt, which is 25 % to a third of debt is owned by overseas investors who can move around their mobiles.

20:12So perhaps that's going to be one way that they might think about really separate. I wonder, it's almost a presentational thing as well. it's separating that idea of, you know, we need to raise money to defend ourselves. And maybe they could make it tax advantageous. There are some discussions around that. But there are, I think, I think that there is, you know, it's the kind of, there's always that difference between the urgent and the important. And it's easy to sort of think that, you know, more immediately returning spending, something that's like benefit cut, benefit payments, you know, people would really feel that if that had to get cut quite soon, whereas defence spending is important.

20:58And I would actually argue quite urgent too. But you know, it's important, but it's hard to see the benefit of that until something terrible happens.

21:06Will Bain:Clearly a massive challenge in not just a few months ahead when we do indeed have a new Prime Minister, a new cabinet to try and tackle it, but going to be one of those things, I think we're going to keep coming back to those choices, exactly as George and Anna have laid out there as well. Another one of those, where those pressures are, particularly around benefit payments, as Anna mentions, has been the number of people who've been out of work due to sickness. And we've talked about this a few times on the programme, this ongoing review called Keep Britain Working that's being run on behalf of the government, sort of arm's length from the government by Sir Charlie Mayfield, the former boss of John Lewis.

21:38Will Bain:He's got an update on it out this morning, Friday. The idea is to help employers take steps to help prevent illness and poor health among employees before issues become too severe and result in people dropping out of that workforce and worst of all, then turning to long-term sickness benefits. Six months after the project's launch, nearly 200 businesses have signed up to be part of a three-year initiative off the back of that review to test new ways to reduce sickness absence, improve return to work rates and increase disability employment rates, all ahead of a government voluntary certified standard being launched by 2029.

22:13Will Bain:Well, one of those businesses is Seddon, a family-owned house builder and contractor, employs nearly 600 people. And Nicola Hodgkinson is the owner and director there and joins us now. Nicola, morning. Thanks for being with us on Wake Up To Money. You're very welcome. Thank you. Tell us about why you kind of signed up then. Well, it was quite an easy decision, really, when we got the call. We're part of our businesses in Greater Manchester, so we're part of the Greater Manchester Combined Authority's Good Employment Charter. which is a brainchild of Andy Burnham's. And it was just an extension of the work that we've been doing with the Charter.

22:54And a lot of that is about sharing what you do as an employer with other employers and learning from other employers. And quite simply, that is what the vanguards do. So when we got the call to be part of it, we were more than happy to give our time. We've had a couple of people in the business who go to the meetings and have those conversations. So it's been really good.

23:16Will Bain:So perhaps what have you learned so far then from other people as we hear your dog ready for breakfast in the background? He is, isn't he? I need to move him. He's naughty. Yeah, what have we learned? We've learned that I think the first thing that we learned was the problem around Keep Britain Working was far worse than any of us had realised. you know with£212 billion a year lost in productivity and how much spend is being how much money is being spent from a public purse in welfare and then you know listening to your guests earlier around you know how much money we actually need to be putting into defence and other things you know I think that became that was a stark reality and I think you know you're going to get good employers who sign up to these vanguards anyway.