Transcription
Do you think that inequality? Do you think that that is what Gary Stevenson has shown though? Is that the left could build out from this inequality piece as a way to kind of unite the left and win over some of these non-political audiences as well?
"I know we don't agree on everything, but let's find the thing that we do agree on and let's fight for that because those people at those protests, they just like you are struggling to pay the rent. Their kids are struggling to pay the rent. They're struggling to find economic futures. If you center that, if you focus on that, you can build something positive, you can win them over."
I mean, this takes us back to the sort of confusion within Labour about who the enemy is and who, who the, who whose side they're on. Like, you could rebuild the voter coalition that Labour won the '24 with and even add to it on a very strongly economic populist argument. But big businesses will hate that.
"Will absolutely hate that."
And is it electable? I think it probably would be electable, but it, you would, you would be constantly being attacked, um, as harming the economy.
They are. I mean, they are anyway, but, but, um, but that would be, that's the, that is the one thing that ties together, uh, sort of continuing loyal Labour supporters, people who've defected to the Greens, people who have defected to Reform, is they're all attracted by an economic populist message. Um, where they differ is on social issues and authoritarianism and immigration and so on. Um, so you absolutely want to pivot to the economy if you, if you want to hold that coalition together. The problem Labour have is the economy isn't doing very well either. Um, and they're going to have a horrible budget and etc., etc. So if you could, if they could find a way to get a little bit of economic stability and start to build on that, that would be, you could, you know, and, and, and to push the argument that Reform are just in the hands of big businesses, that the Tories obviously always have been, then, then you could start to see them forming an
"So you think there's room for economic populism once the economy is stable?"
I think they're just going to be too scared to do it now because they're so worried about investment into the UK and our complete lack of growth. And I get that, right? It is a huge problem.
Um, and you really don't want, um, a lot of companies who might be about to invest in the UK to go, "Oh, wait a minute. We don't like the sound of all of this. We're going to put our money into France instead." So, I get why they're worried about it. Um, but it's the only enemy they've got that works for their voter coalition. So, so you're basically saying the problem is, can you do economic populist messaging without frightening the bond market, essentially?
Right? And, and, and I'm not sure you can, right? I'm not sure there is.
"Can you explain for listeners a bit about how the bond market and bond vigilantes are really kind of determining not just our politics actually, but all over the globe, um, what their decision-making?"
Yeah. How is, how it, and how it's gridlocked. Rachel Reeves.
Yeah. Governments need to borrow a huge amount of money. Um, every government, uh, pretty much, not quite every government, but most governments have to borrow money. We're borrowing a huge amount of money every year, hundreds and hundreds of billions of pounds. The people who lend that to us are buying bonds, uh, government bonds, and they're a mix of different types of organizations, um, who buy those, like banks, uh, pension funds, individuals, um, etc. But if they're not willing to buy that debt, you are absolutely [ __ ] as a country.
Um, because if you can't sell your debt, you, you, you have to put the, you have to put the interest rates higher and higher and higher to sell that debt.
You have to pay more and more interest on that debt.
Um, and it just, it just cascades into a position where eventually you just go broke, um, and have to be bailed out or, um, uh, etc., which happens in the developing world.
All the time.
From time to time, doesn't tend to happen, or hasn't happened in recent years to any rich country apart from, well, Greece during the, after the financial crisis.
Um, so, so that's the, the, the concern. But even if you don't get to the point of being bailed out, the, having to pay higher and higher interest rates on your debt really harms your ability to do anything positive. You know, we're spending well over 100 billion quid this year on debt interest. That's not what you want to be spending your money on as a country.
Um,
That's just interest, right? That's because we're borrowing so many trillions of pounds that just the interest is.
And who's that money going to? Uh, banks, pension funds, any individuals if you've got premium bonds, you, uh, so it goes to a lot of different people. But, but, um, but that is the, that interest is the risk they're taking for holding British government debt, effectively. Um, so, so you, as a government, you, you're aware of this and you have to pursue policies that, uh, try and keep that interest rate, that is being paid on your debt down as much as possible. And if Rachel Reeves comes, came out of the budget and said, "Screw it, we're, I'm doing, I'm spending another 100 [clears throat] million quid on all of these important things that we need." The bond markets would freak out. Suddenly your interest rate goes, it's, um, about 4.7% interest we're paying on 10-year bonds at the moment, it would go 6, 7%. I mean, it would just destroy.
Which is higher than we were paying under Truss, right? Even after that. It would, it would destroy the government's ability to do anything. So, so bond traders have this huge.
And it's not coordinated. It's not like there's a bunch of people sitting around a table like Bond villain, rubbing their sort of hands together, think, "How can we, how can we screw the government over?" It's just the way markets work that if people are scared of the risk around a government's ability to manage its own finances, they will charge more interest to hold debt.
"Do you think there's any credibility in the argument that if, um, to a point, independence would of the Bank of England was to be compromised and returned to the authority of the Chancellor, or at least the Chancellor could sit at the Monetary Policy Committee and have a vote on, uh, interest rates? Could that sway in it, or is it just too embedded in?"
I think that would, that would, at the moment, be quite damaging. People would see that as a,
Political intervention.
A political intervention, um, against good fiscal policy, and that would, that would push, um, the cost of borrowing up, um, and, uh, and be quite damaging. And the interest rate that the bank set, that, you know, we all pay on our,
2 and a half percent. It's 4%.
4% now, but the aspirations are, is not, what the, is not what the government has to pay. I mean, they're sort of not necessarily related figures. So even if the bank said, "We're bringing interest rates down to 2%," it doesn't mean the bond market interest rate would fall. It might even go up because they think that was a bad economic policy. So, um, the, the government has very few levers other than trying to convince people who lend to the UK that they're serious about getting, uh, our fiscal policy on track and not, uh, not spending so much money that we can't cope with, with debt in future years. And you laid out in your most recent article about a few different ways the government could go about doing the budget. Well, Rachel Reeves couldn't go about doing, uh, raising taxes in the budget. Could you lay out for us briefly what you think the best course of action is, but then what you think the likely course of action is? And obviously, we can measure you best is, is a, is a relative, relative thing when you're talking about what will be a very difficult budget. Rachel Reeves signed up to a set of fiscal rules which are measured by the Office of Budget Responsibility. They are, we will see what happens, but they are likely to say she needs to find somewhere between 20 and 40 billion pounds.
Wow.
To meet her fiscal rules. Um, it's very difficult for her to cut spending. They might try and cut spending a little bit in a few places to try and help meet that, that target, but we just had a spending review. So, there's not much scope for cutting more spending quickly. Um, she will also try and convince the Office of Budget Responsibility that they're doing some policies around planning and stuff that will help growth and that might help a little bit with that number, but ultimately, a lot of it's going to have to come from tax. And in an ideal world, the easiest way of doing that would be to raise income tax, um, across the board. So for every level of income tax, and you could raise about 20 billion quid just through 2p on income tax.
But of course, they pledged not to do that at the election and [snorts]
It's pretty, given all we've been talking about, trust and everything else in political parties.
Breaking your biggest electoral pledge,
is a pretty tough thing to do.
And, you know, not a great, you know, I don't think they should ever have made that pledge. I think it was a stupid thing to do, but having made it, it's quite hard to break it. What you could do is just try and survive, find a load of kind of fairly small taxes that you know, taxes on banks, taxes on, um, rich people trying to leave the country, taxes on long-haul air flights, which most don't affect most people, and you can kind of probably get away with politically and you sort of just about get through it. Or you could say, "We actually want to give ourselves, um, a stronger narrative, um, to, to, to sell this sort of package and to build a bit of a base of, of, of, of more revenue for the longer term, um, by, uh, by saying that you're going to make changes to income tax, but you're going to do it in a way that doesn't hit working people." So you are technically breaking your pledge, but you're doing it in a way that you think is sellable. So the Resolution Foundation, a think tank, came up with this idea of you say, "We're going to put 2p on income tax, but we're going to take 2p off National Insurance."
And what that does is, if you're an ordinary person who's getting a pay packet every month, makes no difference to you. 2p, you know, it just nets off against each other.
But if you're a pensioner, you're paying more. If you're a landlord, you're paying more. If you're self-employed, you're paying more. So you're hitting groups that
"Aren't those all the people who like the Tories, basically ring-fenced and protected for years?"
So there's a really good economic argument for hitting those groups because they have all been protected unfairly, whereas your, your sort of average person hasn't been. But pensioners vote. Pensioners vote in a 2 to 1 ratio compared to young people. And, uh, you know, um, self-employed people get very upset when you raise the taxes more than employed people, even though it would be justified rationally.
Um, so it would be politically more risky, but it would be an, a clearer argument and would be a, allow you to raise that bit more money that you could then say maybe would reassure the bond markets, but would maybe also, would allow you to do a couple more positive things, um, rather than it just being about tax rises. Um, but, uh, we will see whether they're willing to take those risks. My, my guess, and we'll, I hope I'm wrong, is that they'll just take the survival route and just try and get through it with a few small attacks as best they can.
And all of that, she has to get through her own MPs [snorts] on the back benches as well, which is,
Absolutely.
Uh, at times proved difficult so far.
And they're increasingly fractious and increasingly annoyed. Um, so that also just sort of pushes you towards doing the, the survival and just getting through it, but then you've missed an opportunity maybe to to create the space to do something more in next year. And if you just raise just about enough to survive, then you could just be going through it all again,
In, in, in six months, a year's time. It's, it's quite interesting if you like, go backwards to when, to the election, these fiscal rules came about, that, you know, commentators like yourself, Ed Balls, plenty of people have criticized the fiscal rules as boxing in Labour's, like, plan space to maneuver. But I guess to give the Labour side of the argument, I think they believe that if the Tories had made a tax election,
So remember, Truss and Jeremy Hunt made tax cuts before the election, promised to cut more taxes as well afterwards. And Labour was saying, actually, you know, in almost kind of a, a Cameron-Osborne way.
"It's going to be tough."
"We're going to actually have to raise taxes on you, but to pay for a bit of stuff and maybe we'll hand over a few things like a two-child benefit cap or whatever." Maybe if they change the strategy that way around. Do you really, do you think that Labour could have won a majority because the distribution of the vote was so efficient, right? Like, like was it, like a 1.5% swing? You lose a majority in some of these marginal seats, right?
And there's what, at least 80 of them.
Yeah. So I mean, is it, do you think that it was, you know, Mweeni's gamble that this was the kind of the only way to win basically meant that, okay, you can win, you can be in government, but you're probably going to run up to all of these sorts of problems and it's going to kill you in the long term?
Or you would have never won.
You're right that Labour strategists felt they had to do it to win. There's no way of testing that hypothesis. My argument at the time, and I still believe it, is they would have won anyway, and in fact could have won by more, had they been able to make an argument that they would invest more money in services and, um, uh, and undo the tax cuts that the Tories just put through, uh, and argue that they were not plausible and they were just an election bribe. Um, I think that one of the problems with the Labour campaign and why it was so tight was because it didn't really have very much to say because the campaign was just, "We're not going to put up taxes. We're not going to do anything. We're just a safe pair of hands, but change." Like, a lot of people would have felt very uninspired by that campaign. So, I think you could have done more if you were willing to take a few more risks, but it's easy for me to say 'cause it wasn't my job on the line. It was Morgan McWeeny's job on the line. But it's certainly the case that in deciding to do what they did, they screwed themselves for government. They made it so much harder for themselves. It was always going to be the case that they were going to have to put taxes up because of the mess that Tories left the economy in. And by ruling out all of the taxes where we get the most revenue from, they were just always going to make it much harder for themselves. And I think it's such a, a cardinal error that so many parties make of just,
Short-termism.
Of pure short-termism.
I was going to say, yeah. So, what do you think the political or electoral consequences of all of this are? I mean, we've spoken about Reform coming down the track, a government potentially just lurching its way forward. Do you see kind of the economic picture getting any better as a consequence of what Rachel Reeves may have to do? Um, that could inspire some more confidence for that second term that I think the Labour Party is so desperate for.
Yeah, I mean, I don't think the budget is going to do that. Um, I mean, it might help a little bit if it reassures bond markets and brings down that sort of debt that we're paying. Um, but on the whole, it's, we're, we're, we're very dependent on intern, on international circumstances, like, does the AI bubble burst?
Trump's tariffs?
What happens with Trump's tariffs? What happens in the Middle East? What happens with the UK? Like, there are things that could happen that would be positive that would, um, you know, help to build on a, what is a very fragile recovery in, in the economy at the moment. Uh, there are things that would make it a lot worse. It's just not a lot the government can do about it. It's very, in, we're in such a fragile position that we're very dependent on external events at the moment, as are governments across Europe. Um, if things go in the right direction, then you could start to build on that and start to create the narrative you want. If you get whacked with another recession, it's going to be very, very difficult to, to find a way out. I think the May local elections are going to be really critical. I think both the Tories and Labour are going to do very badly if things don't change in some dramatic way before then. And that's going to be a moment where both parties, the members and MPs of both parties look at their leadership and think,
"This isn't it."
We're halfway through the term, you know, not quite halfway through, but we're, we're,
"What do we do?"
Couple of years through this parliament. If we're going to have change, this is the time to do it. Do the Tories get rid of Ben? Do, do Labour challenge Starmer? I think, I think next summer is going to be a kind of really pivotal.
Blood.
Either a blood, either way, it's going to be a pivotal moment in this parliament where either you're going to get one or both parties trying to change leaders, or they're going to say, "We've made our bet. We're going to stick with this lot through to the election."
Yeah.
Um, it's going to be very interesting. Do you think that, um, country before party means doing something like having a really tough budget that maybe dents that specific leadership but creates a space for that party to still be able to inherit something worth fighting?
I mean, the argument is it's country before party, but it's also for, for the sake of the party. Like, this is the, this is, and this is what I was trying to get to in the piece I wrote about it. The calculation you have to make if you're Rachel Reeves, Keir Starmer, right now is, if we just survive this and get through with the minimum level of fuss, but don't do anything about fixing any of the long-term problems, we're still, we're probably not going to be able to win an election because we're not going to, we're going to get to 2029 and nothing's going to be any better. We'll have survived this one, one, one moment, but, but we haven't got anything to build on. But to do the riskier budget, to do the long-term stuff that might be unpopular now, might kill you now.
Yeah.
So, like, how do you trade off that need to survive the short term with the need to survive the long term? Um, and there's no right answer to that. That's a, that's a gut judgment call as to how far you can go. Um, but it, but it's a real shame that Labour's already in such a fragile position that that's the judgment call they have to make, rather than being in a sort of strong position where you can say, "We need to do this sort of tough thing. We're going to use up our political capital now." They've already used up their political capital for nothing, and now they can't use, and now they can't use it when you need it.
Yeah.
Do you think this hampers the future of the Labour fight? I mean, what we've seen with the Tories is that they ran out of steam largely, probably from the previous parliament to now.
But they've got kind of a damaged reputation, especially around the economic.
Yeah. Exactly. And I wonder whether,
Labour has to make all of these considered and political decisions which inform the economic. Do you think there could be a time where, I mean, our generation, I think, are significantly more left-wing, and populism is an increasingly attractive alternative. Do you think it has consequences for the Labour party in the next 10, 15, 20 years, or do you think Labour can surface? But obviously, who, who knows what's going to happen next week, let alone in 10 years' time. But what we can see is that the public, there's far less political loyalty than there used to be. People don't think of themselves, increasingly less likely to think of themselves as being, uh, attached to a party. Their identity being attached to a party. Membership has dropped for Labour and the Tories hugely over a very long period of time.
Um, and so if you do trash your brand, you don't have that kind of respite maybe the Tories had in 1997, or Labour had in 1979, where you're given quite a long time to recover, but you can still come back and win. If you trash your brand, that might be it. Now it's more, much more existential. And you've got, you know, the Greens pushing hard, you've got the Lib Dems doing, uh, quite well in the polls, you know, new parties can emerge. We might end up having a PR system if the next parliament, if the next election is up so messy that it's the only way of, um, figuring out what, um, if smaller parties are able to gang together and push that through. So, like, who knows? But it's certainly the case that you've got a lot less margin for error than you used to have. Um, and we're seeing that with the Tories at the moment, and Labour could easily find themselves in that position. It sounds though that you are very skeptical of, like, an Andy Burnham figure type figure though for Labour in terms of, sure, Burnham is a great communicator. Polls tell us as such. He's got that nice little sheen from being in the mayoral and being able to kind of plot that line,
And blame Westminster.
But how, ultimately, you know, he said in his new statement piece, um, he didn't want the government to be hooked at the bond markets. But what does that actually mean though, in practice? I mean, this is the problem with, like, yeah, of course you can change leader. And Starmer is flawed as a leader, certainly, um, but it doesn't fix any of the problems by itself. They've got to have some actual solutions to problems that the current lot aren't doing. I mean, everything Burnham has said either isn't doable in the current economic circumstances or doesn't really address the problems [clears throat] that we have. Um, I also think by moving so quick, so early, and so aggressively, he's pissed off a lot of people and probably made it hard for himself.
That's why he kind of rode back at conference a bit.
Um, but do you not think there's a, a call for a renewed vision for social democracy despite the limitations that we've just discussed?
I mean, his reimagination as to what Manchesterism,
looks like and how society can be organized. Do you not think there's, to a point, popular appetite for something slightly different than just what?
There's certainly an appetite for it. I'm just not convinced he can do it. Like, I think what, what they've done in Manchester has been good. Um, although you can point to problems as well, but it, but it's so different doing, you know, given the very limited powers he has as Manchester Mayor and the small number of things that he's done compared to the decisions that you have to take running a country. Um, and the scale of the challenge that every, as we've been talking about, every government in Europe is having at the moment. I, I don't see them having the solutions. I'm not sure anyone has the solutions to those problems. Like, it's, it's easy to say we need a better vision for social democracy, but, but what is it in a world where we are in hawkable markets, whether we want to be or not, um, and where, um, we're so financially constrained?