WEBVTT - Truss's Tax Cut U-turn Could Still Lead to an Exit Ramp

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<v Speaker 1>Dave's I'm bringing my kids to New York actually for Halloween.

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<v Speaker 1>Oh are you as cities always already gearing up for it?

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<v Speaker 1>I can see that who you're going to dress up as?

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<v Speaker 1>Let's trust ultimate Halloween costume? The markets in the first

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<v Speaker 1>ten days in office, Zombie Liz. I'm Franci lackwhere here

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<v Speaker 1>in the London studio and I'm David Merritt, And I'm

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<v Speaker 1>in the New York studio. And we are making today

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<v Speaker 1>a special bonus edition of our in the City podcast

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<v Speaker 1>because the news just has not stopped over the weekend

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<v Speaker 1>from the Conservative Party conference, the termoil on the markets.

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<v Speaker 1>We thought we had to bring in the experts to

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<v Speaker 1>really unpack it this morning. So we've got Ben Sills,

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<v Speaker 1>who runs our government coverage in the whole of Europe,

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<v Speaker 1>on the line. But there's so much going on. So

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<v Speaker 1>the government abandoning its plan to bolish the top rate

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<v Speaker 1>of income tax. I don't know whether the u turn

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<v Speaker 1>of course, coming after severe political pressure, of course from

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<v Speaker 1>her own Tory MPs, means that credibility is back for

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<v Speaker 1>the government or not so much, not so much, I

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<v Speaker 1>don't think so. This is a key plank of liszt

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<v Speaker 1>trust is economic policy. She spent the last nine days

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<v Speaker 1>defending it. She was on the TV yesterday defending it again,

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<v Speaker 1>and then to suddenly come out with a statement from

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<v Speaker 1>quasi quiet hang this morning. Dropping that policy makes her

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<v Speaker 1>look like she really doesn't doesn't properly have a proper

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<v Speaker 1>grasp of how much control she has of her party fundamentally.

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<v Speaker 1>I think, you know, she and her team must have

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<v Speaker 1>been trying to assess whether they could they could hold

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<v Speaker 1>the line in their war gaming yesterday. And the fact

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<v Speaker 1>that they decided they would send her out to defend

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<v Speaker 1>it yesterday and then they had to drop that policy

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<v Speaker 1>this morning speaks of a number ten operation that's really

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<v Speaker 1>not in control of the situation at all. I mean,

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<v Speaker 1>it's it's a remarkable ben, isn't it. And the you know,

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<v Speaker 1>the markets have reacted with a little bit of a

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<v Speaker 1>bounce in the in the pound, a bit of recovery

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<v Speaker 1>for interest rates, but you know, it's not enough really

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<v Speaker 1>to put the government out of the woods. Are they?

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<v Speaker 1>People still talking about the Bank of England are propping

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<v Speaker 1>up the bond market here and all the commentary I'm

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<v Speaker 1>reading from Anus this morning saying well, you know, it shows,

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<v Speaker 1>as you said, it shows the government to be malleable,

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<v Speaker 1>she's not holding firm. But also there's just still the

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<v Speaker 1>bigger fiscal picture for Britain still. It's very precarious, doesn't it. Yeah,

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<v Speaker 1>this is only a very small part of the fiscal

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<v Speaker 1>package that she knows. This is two billion from billion

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<v Speaker 1>pound package which d I m F warned was going

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<v Speaker 1>to add to inflation pressures and complicate the life of

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<v Speaker 1>the Bank of England as it tries to tackle across

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<v Speaker 1>the living crisis. So in fundamental term, this is really

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<v Speaker 1>just to kind of drop in the ocean. What it

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<v Speaker 1>does do is show that the government is listening after

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<v Speaker 1>I mean, after a lot of time and not listening right,

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<v Speaker 1>I mean it took a while to get there, but

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<v Speaker 1>also been listening to who I mean, are they listening

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<v Speaker 1>to the polls saying that labor is doing so much better,

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<v Speaker 1>they listened to the markets or are they just worried

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<v Speaker 1>that this wouldn't have gotten through Parliament. I think the

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<v Speaker 1>biggest thing that changed from Sunday morning to Monday morning

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<v Speaker 1>was the number of senior Tories who were coming out

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<v Speaker 1>and explicitly saying they weren't going to back the policy,

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<v Speaker 1>so that so trust was facing like a serious rebellion

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<v Speaker 1>among her MPs, she would have got this measurestry parliament, right,

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<v Speaker 1>I mean, there was going to be a big enough rebellions,

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<v Speaker 1>do you think to effectively vote down her first budget? Yeah?

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<v Speaker 1>And what and what's more is that a budget is

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<v Speaker 1>effectively a confident thought on the government. And so if

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<v Speaker 1>she had lost that budget vote, the process of perhaps

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<v Speaker 1>during a line under her government would have accelerated very quickly.

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<v Speaker 1>And even with today's you turn, there are still a

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<v Speaker 1>lot of questions about how long she can actually survive,

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<v Speaker 1>I mean a month into her administration. But I mean,

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<v Speaker 1>can you can you recall I don't think I can

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<v Speaker 1>a kind of more tempestuous a kind of work a

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<v Speaker 1>rockier start for a prime minister, either in Britain actually

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<v Speaker 1>or anywhere. What do we think about it? Well, it's

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<v Speaker 1>difficult to imagine. I can't remember a bigger unforced error

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<v Speaker 1>by any government that certainly that I've been covering. And

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<v Speaker 1>the fact that she managed to make this error in

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<v Speaker 1>her first month in office is really quite remarkable. I

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<v Speaker 1>think it speaks to an extremely kind of dogmatic approach

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<v Speaker 1>to politics, which is not really taking much account of

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<v Speaker 1>what the political weather is like. And I think that,

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<v Speaker 1>you know, wherever we go from here, those question marks

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<v Speaker 1>about her leadership shops are not going to go away.

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<v Speaker 1>I mean, the blame game has started obviously, hasn't think

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<v Speaker 1>it was very interesting to hear her effectively blame the

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<v Speaker 1>its left for pushing forward this tax cart without consulting anyone.

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<v Speaker 1>That was remarkable itself. Do you think quart can can

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<v Speaker 1>can stay assuming that let's Trust stays as Prime Minister

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<v Speaker 1>for now, do we think that his time in as

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<v Speaker 1>chancellor might be might be limited? I would tend to

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<v Speaker 1>see Quarting as arguably a little bit stronger than Trust.

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<v Speaker 1>I think that, and that's just purely on the basis

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<v Speaker 1>of the competence of their public statements. Trust had that

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<v Speaker 1>very difficult round of radio interviews on Thursday morning, when

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<v Speaker 1>I think it was Angela Rayner from the Labor Party

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<v Speaker 1>commented that she had broken her long painful silence with

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<v Speaker 1>a series of short, painful silences. That's how style, isn't it?

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<v Speaker 1>And these people exactly so, I think, you know, in

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<v Speaker 1>a sense, maybe Trust needs Quarting at the moment. I do, yeah, Well, no,

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<v Speaker 1>I think I think that she needs him as an ally.

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<v Speaker 1>She doesn't. I mean they co authored the book together.

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<v Speaker 1>They're sort of political bad fellows. But it seems like

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<v Speaker 1>the relationship is souring. There, isn't it already? I mean,

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<v Speaker 1>in the limelight of all of this chaos, she she

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<v Speaker 1>has very few cards to play, and at the point

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<v Speaker 1>when the ship is definitively going down, I would expect

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<v Speaker 1>her to throw him overboard in a desperate and futile

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<v Speaker 1>attempt to save the ship. But until we get there,

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<v Speaker 1>I think she probably will be clinging onto him. Ben.

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<v Speaker 1>Thank you so much. Ben stills there from our government

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<v Speaker 1>be so we're delighted to be joined for the special

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<v Speaker 1>episode of the podcast. But Andrew sentence, he's a former

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<v Speaker 1>MPC member. Andrew, you wrote this brilliant piece Action at

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<v Speaker 1>the time, saying the crisis has been brewing for some

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<v Speaker 1>time before Quartank pulled the trigger. As a former MPC member,

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<v Speaker 1>how did you live through the last ten days? I

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<v Speaker 1>don't think it's been a very auspicious period for UK

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<v Speaker 1>and I'm policy and in my article in The Times,

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<v Speaker 1>I said that you know, it ranks with three previous

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<v Speaker 1>episodes that we've had which have been described as economic

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<v Speaker 1>crisis in the UK, the first with the IMF crisis

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<v Speaker 1>in six secondly the year M crisis and then the

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<v Speaker 1>global financial crisis. And I think this crisis has been

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<v Speaker 1>I suppose self induced by the government in terms of

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<v Speaker 1>their mishandling of their economic policy announcements, particularly Class equantings budget.

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<v Speaker 1>And what exactly did they mishandle Was it just the

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<v Speaker 1>wrong policy? Were they completely unprepared to govern? Well, I

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<v Speaker 1>think it's a combination of things. I think first of all,

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<v Speaker 1>they rushed at this budget statement, which I don't think

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<v Speaker 1>was necessary, but they decided that they needed to do

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<v Speaker 1>something quickly and that's something that Let's Trust has reiterated

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<v Speaker 1>over the last few days. But secondly, they didn't produce

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<v Speaker 1>any forecasts alongside their budget statement. That's quite a bad

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<v Speaker 1>thing for financial markets and people who are looking to

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<v Speaker 1>make a medium term judgment. And the package itself was

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<v Speaker 1>very large by the mid twenties. The estimate in the

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<v Speaker 1>budget statement was that it would be forty five billion giveaway.

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<v Speaker 1>Now that's being reduced with the latest statement of the

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<v Speaker 1>the suspension of the forty five percent to tax reduction,

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<v Speaker 1>but even so it's still a very big package. And

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<v Speaker 1>Andrew when you write, look at the greater had been

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<v Speaker 1>brewing for some time before the Chanceller pulled the trigger.

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<v Speaker 1>Maybe what's the way forward for him now? Well, I

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<v Speaker 1>think being the chance of the check that means you

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<v Speaker 1>have to be the guardian of the stability of the economy.

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<v Speaker 1>And I think the new government has got ahead of

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<v Speaker 1>itself and it seems to be thinking that it's got

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<v Speaker 1>some sort of magic wand to create economic growth. Now,

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<v Speaker 1>those of us who have been observing the UK economy

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<v Speaker 1>for many decades would say, you can't way for magic

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<v Speaker 1>wand to create economic growth in the short term. If

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<v Speaker 1>you can do something positive, you can maybe help to

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<v Speaker 1>create better economic growth over a period of five to

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<v Speaker 1>ten years um, but that you know is a long period.

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<v Speaker 1>And the Chancellor and the Prime Minister seemed to think

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<v Speaker 1>that they can make a way for magic wand and

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<v Speaker 1>create better growth over want to two years and that's

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<v Speaker 1>totally unrealistic. But so what is realistic given the U

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<v Speaker 1>turn from the government to the Bank of England now

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<v Speaker 1>pull its own new turn on guild sales. Well, I

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<v Speaker 1>think the Bank of England should stick to the job

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<v Speaker 1>that it's meant to do, which is to keep on

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<v Speaker 1>top of inflation. I mean, in the background to all this,

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<v Speaker 1>we've got a massive inflation problem. Inflation is nearly ten

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<v Speaker 1>percent in the UK and could still get higher. Whether

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<v Speaker 1>it's going to be damp and down by the government's

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<v Speaker 1>energy price package remains to be seen. So we've still

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<v Speaker 1>got a major inflation problem and that should be the

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<v Speaker 1>main issue for the Bank of England. And I think

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<v Speaker 1>the expectation is that the Bank of England will increase

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<v Speaker 1>interest rates quite substantially at its next meeting, possibly by

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<v Speaker 1>seventy five to a hundred basis points. Market expectations even

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<v Speaker 1>beyond that at the moment. But actually look if you

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<v Speaker 1>look at q T right, and this is something that

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<v Speaker 1>market participants are watching very closely. Given last week's market meltdown,

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<v Speaker 1>which prompted the announcement of a pause of QT until

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<v Speaker 1>the end of the month, is a further delay now

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<v Speaker 1>the most sensible option. We'll have to see how much

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<v Speaker 1>these special operations that the Bank of England as announced,

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<v Speaker 1>how long they will take to work through. I think

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<v Speaker 1>though they have announced these measures, they've actually not had

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<v Speaker 1>to spend as much money in supporting the bond markets

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<v Speaker 1>as they originally said, So we just have to see,

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<v Speaker 1>but I think the Bank of England shouldn't be thrown

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<v Speaker 1>too far off course from its general policy of combating inflation,

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<v Speaker 1>which has Ultimately it's probably as I'm very objective as

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<v Speaker 1>the Bank of the country's inflation watchdog, and that's what

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<v Speaker 1>it should be doing. Andrew, would you call the you

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<v Speaker 1>turn from the government humiliating and what does that mean

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<v Speaker 1>for austerity coming our way? Well, I think any you

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<v Speaker 1>turn from a government, you know, when it's been in

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<v Speaker 1>office for less than a month, is probably humiliating. But

0:12:27.920 --> 0:12:31.600
<v Speaker 1>they can recover from that if they learn the lessons.

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<v Speaker 1>And I think we've seen in previous economic crisis that

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<v Speaker 1>the UK has faced that economic policy has to be

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<v Speaker 1>adjusted and so they may not be able to stick

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<v Speaker 1>with the same degree of tax reductions that they've committed

0:12:51.920 --> 0:12:55.720
<v Speaker 1>themselves to. And also there's a there's a big issue

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<v Speaker 1>about whether to keep borrowing on track. They're going to

0:12:59.440 --> 0:13:03.800
<v Speaker 1>have to be quite severe with public expenditure. So I

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<v Speaker 1>think there's some very big challenges for the current List

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<v Speaker 1>trust government down the line, and we'll have to see

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<v Speaker 1>how they respond. Andrew sentence, Thank you so much for

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<v Speaker 1>joining us, Thanks for listening to this week's in the City.

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<v Speaker 1>We'll be back next week and in the meantime. If

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<v Speaker 1>you like our show, please head over to Apple Podcasts

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<v Speaker 1>or wherever you listen to podcasts, rate review, and subscribe. Also,

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<v Speaker 1>be sure to sign up now for a newsletter to

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<v Speaker 1>read out with a Legra Stratton on Bloomberg dot com

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<v Speaker 1>Slash Newsletters, or check out the show notes for a link.

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<v Speaker 1>This episode was hosted by me Francine Laqua and in

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<v Speaker 1>part by My Lovely co host David Merritt. It was

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<v Speaker 1>produced by SUMMERSAIDI Special thanks to Ben Sills and Andrew

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<v Speaker 1>Sentence