WEBVTT - What Is 'Manchesterism'— And Will It Boost Britain's Economy? 0:00:02.720 --> 0:00:17.720 Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Marin 0:00:17.760 --> 0:00:19.800 Dogs Money Market Rap, where we break down the biggest 0:00:19.800 --> 0:00:21.720 moves in the markets this week and what has been 0:00:21.800 --> 0:00:24.960 driving them. I am Marinsum's at Web Bloomberg's UK Money's 0:00:25.120 --> 0:00:26.599 Editor at Large. 0:00:26.360 --> 0:00:28.680 And I'm joined stay we Senior report on North out 0:00:28.680 --> 0:00:30.120 of the money Distilled newsletter. 0:00:31.120 --> 0:00:35.159 Welcome back from yet another holiday, John, Thank you nice time. 0:00:35.360 --> 0:00:38.440 It was wonderful. It was great. It was actually much 0:00:38.479 --> 0:00:41.760 cooler than London as well. Really okay, a couple of 0:00:41.760 --> 0:00:44.600 degrees cooler on lying was in Greece, okay. 0:00:44.640 --> 0:00:46.320 And while you were away lots of stuff happened. 0:00:46.720 --> 0:00:49.600 It did unusually normally. I come back and I just 0:00:49.640 --> 0:00:51.680 read a big call about who nothing's changed? 0:00:52.159 --> 0:00:55.360 And true every time you sw away something happened. 0:00:55.880 --> 0:00:59.400 Every time what happened? The last name was a week? 0:01:00.040 --> 0:01:04.959 Can't probably some kind of another prime miniege. Most definitely 0:01:05.000 --> 0:01:07.800 another prime minister. What else would it be? One a week? Right? 0:01:07.840 --> 0:01:09.320 You only have to go on holiday for two weeks 0:01:09.319 --> 0:01:11.880 and you've got a couple of your belt. Anyway, the 0:01:12.040 --> 0:01:14.160 interesting stuff that has happened while you've been away to 0:01:14.160 --> 0:01:15.760 the e send that any of this stuff is actually 0:01:15.760 --> 0:01:18.319 deeply interesting, is that we have this new candidate for 0:01:18.400 --> 0:01:21.040 prime minister who's acting as though he is prime minister already, 0:01:21.080 --> 0:01:23.160 which I have said, I'm mildly irritating, but that's just me. 0:01:23.480 --> 0:01:26.639 And he has given us a speech no questions allowed 0:01:26.640 --> 0:01:29.520 at the end of about roughly what his policies might 0:01:29.640 --> 0:01:31.800 or might not be, and some people would say word salad. 0:01:31.840 --> 0:01:33.880 Some people find it very inspiring. I don't know, what 0:01:33.920 --> 0:01:40.400 did you think, John, I. 0:01:37.880 --> 0:01:41.800 I'm going to go away, mostly walked Salid. I feel 0:01:41.840 --> 0:01:43.920 that I feel that I said he was just he 0:01:44.000 --> 0:01:46.360 was repeating a lord to stuff which seems like common 0:01:46.440 --> 0:01:48.520 sense and that everyone says when they get in it 0:01:48.600 --> 0:01:50.840 pout and it's like, why can't we do this? Why 0:01:51.000 --> 0:01:54.400 isn't this easier? But actually not then explaining how he 0:01:54.480 --> 0:01:57.120 was going to do any of it, because clearly these 0:01:57.160 --> 0:01:59.240 common sense things can't be easy or else they have 0:01:59.320 --> 0:02:00.440 been done by they have. 0:02:00.400 --> 0:02:03.639 Been down already exactly. I'm particularly enjoying on social media 0:02:04.080 --> 0:02:06.680 the not the Messiah posts. I don't know if you've 0:02:06.720 --> 0:02:08.680 seen this. 0:02:08.480 --> 0:02:12.720 This is a life that's very good. 0:02:12.760 --> 0:02:14.960 And I'm also looking forward to from being properly dressed. 0:02:14.960 --> 0:02:16.720 I know I've had this conversation before. With the love 0:02:16.720 --> 0:02:19.920 of God, my politicians dressed properly world stage and all 0:02:19.960 --> 0:02:25.000 that not dignified, and I want author I want dignified. 0:02:25.320 --> 0:02:26.880 So this week we're going to do things a little 0:02:26.919 --> 0:02:29.120 bit differently. It's less of an immediate market wrap and 0:02:29.120 --> 0:02:31.240 more of a sort of deep diver and largely everything 0:02:31.280 --> 0:02:33.960 that happens in UK politics is relevant for markets, so 0:02:34.000 --> 0:02:36.200 we're going to talk about that. And we have asked 0:02:36.280 --> 0:02:38.560 onto the show one of our previous guests, Roger Lee, 0:02:38.600 --> 0:02:41.600 who's the head of equity strategy at Cavendish, because we 0:02:41.639 --> 0:02:44.640 want to talk a little bit more about what exactly 0:02:45.040 --> 0:02:48.800 is now becoming known as Manchester Rism if you haven't. 0:02:48.639 --> 0:02:49.400 Come across it before. 0:02:49.440 --> 0:02:52.960 This apparently is the governing philosophy which is associated with 0:02:53.160 --> 0:02:55.440 Andy Burnham, who as you know, is the former mayor 0:02:55.480 --> 0:02:57.959 of Greater Manchester and seems to be looking to move 0:02:58.000 --> 0:03:02.080 a lot of government function to Manchester. So whether you 0:03:02.120 --> 0:03:03.920 agree with all this or not, it is an idea 0:03:03.960 --> 0:03:05.480 that people are talking about, is that we think it's 0:03:05.560 --> 0:03:08.840 worth unpacking a little bit. So Roger, very kindly, thank you. 0:03:08.919 --> 0:03:11.720 Roger has come into the London studio to explain how 0:03:11.840 --> 0:03:15.000 he understands Manchesterism. I don't think this is going to 0:03:15.040 --> 0:03:16.720 take off because it's quite a difficult word to say, 0:03:17.080 --> 0:03:18.679 what it is, where it comes from, and what it 0:03:18.720 --> 0:03:21.079 could mean for investors and the UK economy. 0:03:21.200 --> 0:03:24.200 Roger, welcome back, thank you and thank you for having 0:03:24.240 --> 0:03:24.560 me back. 0:03:24.639 --> 0:03:25.840 Well, you're not going to be saying that when I've 0:03:25.840 --> 0:03:27.760 asked you to explain what Manchesterism is. 0:03:29.000 --> 0:03:31.639 If I can say it, or you'll edit it out appropriately. 0:03:32.360 --> 0:03:35.960 What is Manchesterism? Given that we've only been fully aware 0:03:35.960 --> 0:03:37.880 of it for the last twenty four hours, obviously whatever 0:03:37.880 --> 0:03:40.360 I'm about to say is clearly subject to change. But 0:03:41.000 --> 0:03:45.080 my understanding, and I think most commentator is understanding of Manchesterism. 0:03:45.120 --> 0:03:50.600 It's just it's an extension of state intervention. It's an 0:03:50.640 --> 0:03:54.000 extension of state intervention, but this time, instead of it 0:03:54.120 --> 0:03:59.520 being the state intervening in the economy at a national level, 0:04:00.080 --> 0:04:03.720 it's an attempt to intervene at a local level. And 0:04:03.840 --> 0:04:07.440 the hope is that the outcome of that will be 0:04:07.440 --> 0:04:10.360 better than the outcome when the state has tried to 0:04:10.400 --> 0:04:12.400 intervene in a national level. And then Andy Burnham was 0:04:12.440 --> 0:04:14.440 quite explicit of this. I mean there's a direct quote 0:04:14.480 --> 0:04:18.240 from him where he says that intervention at a national 0:04:18.240 --> 0:04:21.479 state government level has not worked and earn this needs 0:04:21.520 --> 0:04:24.480 to be applied more locally. And I think that really 0:04:24.560 --> 0:04:28.560 is the point here, is that we're not changing any 0:04:29.360 --> 0:04:33.840 philosophy here in terms of an economic philosophy. This is 0:04:34.040 --> 0:04:40.200 merely more state of intervention applied differently, and I think 0:04:40.279 --> 0:04:43.840 that is absolutely the key to understanding what manchester Ism 0:04:43.960 --> 0:04:48.800 is now. I think it's as I say, I stress, 0:04:48.880 --> 0:04:52.400 it's an extension of what we have already seen. And 0:04:52.400 --> 0:04:54.040 I think John was mentioning this. So a lot of 0:04:54.080 --> 0:04:56.400 these ideas are floated around. You could cut and pay 0:04:56.520 --> 0:04:58.919 and you'll have seen these comments from other commentators, but 0:04:59.000 --> 0:05:02.359 you could cut and pay George Osborne's the Northern Powerhouse. 0:05:02.400 --> 0:05:06.520 You could cut and pace leveling up his attack on 0:05:06.560 --> 0:05:09.480 the civil service. That could have been Dominic Cummings standing there. 0:05:09.960 --> 0:05:13.640 A lot of this is not different. It's just expressed 0:05:13.640 --> 0:05:17.760 perhaps in a more charismatic, authentic way, but it really 0:05:17.839 --> 0:05:20.200 is just an extension of the state intervention that we've 0:05:20.240 --> 0:05:24.520 seen really since the financial crisis. And if I may 0:05:25.360 --> 0:05:30.240 just step back a bit and why I am not 0:05:30.360 --> 0:05:32.560 only convinced that it is merely an extension of the 0:05:32.600 --> 0:05:37.000 existing state interventionism that we see at the moment, or statism. 0:05:37.400 --> 0:05:40.839 It won't work. But let's put this into some sort 0:05:40.839 --> 0:05:44.479 of historical context. Marrin if I may, now, I wish 0:05:44.560 --> 0:05:48.480 i'd written this, I haven't. It's I think it's smile Ferguson. Now, certainly, 0:05:48.520 --> 0:05:51.440 Professor Ferguson, I think he had this great insight and 0:05:51.480 --> 0:05:55.760 he talks about the great arcs of politic political thinking 0:05:55.760 --> 0:05:59.400 in the UK, and he talks about, you know, we 0:05:59.480 --> 0:06:02.360 came off the Second World War. We'd had this titanic 0:06:02.480 --> 0:06:08.960 victory and basically delivered by a state controlled economy. The 0:06:09.040 --> 0:06:13.240 state had beaten the enemy, and then obviously in the 0:06:13.240 --> 0:06:16.000 immediate post war period, the state then decided it was 0:06:16.040 --> 0:06:18.479 going to protect its individuals and establish a welfare state 0:06:18.520 --> 0:06:21.680 and social services. Now, so this idea of statism, the 0:06:21.760 --> 0:06:28.000 idea that the state can deliver everything, was enshrined really 0:06:28.040 --> 0:06:30.880 in those post war areas, and that carried on all 0:06:30.960 --> 0:06:34.240 the way through through the sixties. We had this one 0:06:34.360 --> 0:06:38.040 nation conservatism and that was not arguably it wasn't actually 0:06:38.040 --> 0:06:40.080 that different to what the Labor Party were crowsing in 0:06:40.120 --> 0:06:42.880 the sixties and of course this came to a fruition 0:06:42.960 --> 0:06:45.480 in the nineteen seventies where we had where we obviously 0:06:45.560 --> 0:06:48.520 had a lot of state intervention. This idea then in 0:06:48.560 --> 0:06:50.880 that Ted Heath had in the early seventies that he 0:06:50.960 --> 0:06:54.919 couldn't allow unemployment to go over a million people, and 0:06:54.920 --> 0:06:58.080 so therefore he ended up buying the Clyde Shipyards and 0:06:58.240 --> 0:07:00.560 bailing out rolls, rocks, et cetera, et cetera. And of 0:07:00.560 --> 0:07:07.120 course this culminated in the grim economic reality that we 0:07:07.160 --> 0:07:11.160 could not afford this level of state intervention, and it culminated, 0:07:11.200 --> 0:07:13.720 of course in nineteen seventy six with an IMF intervention, 0:07:13.800 --> 0:07:17.239 which was the largest bailout the IMF had ever done 0:07:17.440 --> 0:07:20.760 at that point. And then of course we start the 0:07:20.800 --> 0:07:25.200 next great arc, which obviously is the competing theory that 0:07:25.280 --> 0:07:29.360 actually it's not the state that delivers growth, its free markets, 0:07:29.440 --> 0:07:32.680 obviously founded by Anthony Fisher at the IEA, championed by 0:07:32.760 --> 0:07:36.480 Keith Joseph and obviously the greatest exponents politically with Missus 0:07:36.480 --> 0:07:41.080 Snatcher and Ronald Reagan. And then that overarching philosophy then 0:07:41.240 --> 0:07:44.760 was applied through the eighties and obviously then through the nineties, 0:07:44.840 --> 0:07:48.600 and that begrudgingly was adopted by New labor perhaps or 0:07:48.640 --> 0:07:52.560 they accepted the need of that in the two thousands, 0:07:52.560 --> 0:07:56.120 but that came to a crushing hold in the financial crisis, 0:07:56.160 --> 0:08:02.560 because it was quite clear that free markets, unbridled free markets, 0:08:02.720 --> 0:08:06.920 unregulated free markets in the financial system effectively bankrupted the world, 0:08:07.240 --> 0:08:10.480 and the state in the UK and in Europe and 0:08:10.520 --> 0:08:14.800 in the United States then had to intervene again. And 0:08:14.840 --> 0:08:17.800 so we start the next great arc of history, which 0:08:17.840 --> 0:08:20.000 is what we are seeing now, which is the ever 0:08:20.200 --> 0:08:23.440 increasing role of the state in our lives, to the 0:08:23.520 --> 0:08:27.480 extent that the state thought it control a virus, to 0:08:27.600 --> 0:08:33.120 what we have now is the state will deliver growth. 0:08:34.040 --> 0:08:36.920 And so what we are seeing here I think I 0:08:36.960 --> 0:08:40.520 would suggest is perhaps I don't know whether it's the 0:08:40.559 --> 0:08:47.079 final but it's certainly the latest iteration of statism in 0:08:47.160 --> 0:08:51.240 practice as part of this great arc of politics, this 0:08:51.559 --> 0:08:56.840 competition between these two competing ideologies. I think that is 0:08:56.920 --> 0:08:59.319 the context of what we're looking at. It is the 0:09:00.000 --> 0:09:05.840 eatst iteration of statism in an attempt to drive growth, 0:09:06.679 --> 0:09:10.640 and the evidence would suggest that that growth is going 0:09:10.679 --> 0:09:11.360 to be elusive. 0:09:11.920 --> 0:09:15.120 Yeah, to us, that sounds like doubling down on stuff 0:09:15.120 --> 0:09:18.920 that already hasn't worked in that I think we would 0:09:18.920 --> 0:09:20.840 say being more of a free market I'm sorry speaking 0:09:20.840 --> 0:09:22.720 for you again, John, we've being more of a free 0:09:22.760 --> 0:09:25.720 marketeered mind. We would say that if you were to 0:09:25.760 --> 0:09:29.600 remove all the state sponsored policies that are paralyzing the 0:09:29.640 --> 0:09:31.520 private sector, you would get your growth. 0:09:33.679 --> 0:09:37.480 It's genuinely accepted by most economists that you need three 0:09:38.000 --> 0:09:42.640 economic pillars to grow an economy. You need low regulation, 0:09:43.800 --> 0:09:48.160 low tax burden, and low energy prices. We, of course 0:09:48.160 --> 0:09:52.480 in the UK have got the complete opposite of those three. 0:09:53.040 --> 0:09:56.400 And so then why are we surprised when we struggle 0:09:56.440 --> 0:10:01.360 to grow, we increase the regulatory burden, we increase the 0:10:01.440 --> 0:10:05.640 tax burden, we increase the energy burden, and why are 0:10:05.640 --> 0:10:08.439 we surprised that growth slows even more? Who then look 0:10:08.440 --> 0:10:11.840 at the United States, who are doing what would genuinely 0:10:11.880 --> 0:10:16.080 be accepted as pro growth supply side and fiscal economics. 0:10:16.520 --> 0:10:20.760 They're reducing the regulatory burden, they're reducing the tax burden, 0:10:20.800 --> 0:10:22.320 and of course they've got some of the lowest energy 0:10:22.360 --> 0:10:24.800 prices in the Western world. And there is no surprise 0:10:24.880 --> 0:10:28.000 therefore that they are growing quicker than anyone else in 0:10:28.000 --> 0:10:30.480 the Western world. So what Andy Burnham is doing, I'm 0:10:30.520 --> 0:10:34.320 afraid is we are having another go. And I think 0:10:34.440 --> 0:10:37.840 this is an idea to me anyway, that this is 0:10:37.960 --> 0:10:44.280 statism applied harder and applied differently, and I fear the 0:10:44.320 --> 0:10:46.640 outcome will be exactly the same as other forms of 0:10:46.640 --> 0:10:48.640 status and that we've seen over the last few years. 0:10:48.920 --> 0:10:51.719 Just be clear, it's not someone. It's devolution on this 0:10:51.840 --> 0:10:56.360 sell of the idea of pushing poles more locally. That's 0:10:56.400 --> 0:10:58.920 the issue so much. It's just this is basically just 0:10:59.520 --> 0:11:03.120 and de way of painting. It looks like he's going 0:11:03.120 --> 0:11:05.079 in a different direction. Bactly, he's just doing the same 0:11:05.120 --> 0:11:07.880 thing as Stalin has already been doing. 0:11:08.360 --> 0:11:10.320 Yes, it's an extension of that. Again, I don't mean 0:11:10.360 --> 0:11:13.000 to be flippant, but he is literally moving the desks around. 0:11:13.040 --> 0:11:15.959 Yeah yeah, Now's just the thing. 0:11:16.040 --> 0:11:18.880 Britain is heavily centralized and I think this is the 0:11:18.920 --> 0:11:21.080 point lots people make is the likes of compare to 0:11:21.080 --> 0:11:25.160 other countries. So much of the taxi because administered centrally, 0:11:25.960 --> 0:11:29.840 wouldn't to be a good idea if local regions had 0:11:30.000 --> 0:11:33.840 more ability to can take account of what's going on 0:11:34.320 --> 0:11:38.120 in their areas and administered according it has. 0:11:38.200 --> 0:11:41.360 Devolution actually worked in Manchester and we hear a lot 0:11:41.400 --> 0:11:44.400 about it relatively fast growth rate and everything that's been 0:11:44.440 --> 0:11:47.120 done there, but it's also got massive amounts of debt. 0:11:47.480 --> 0:11:49.400 Is that growth or is that debt? 0:11:49.880 --> 0:11:53.640 I don't know the Manchester economy well enough mirror. It's 0:11:53.720 --> 0:11:56.480 quite difficult to unpack whether devolution in Edinburgh, Wales has 0:11:56.480 --> 0:11:59.240 worked at alone, with a devolution in a metropolitan area's 0:11:59.280 --> 0:12:01.959 work and telly where it has worked, we will talk 0:12:02.120 --> 0:12:04.320 about where it has worked. So if anyone asks you 0:12:04.360 --> 0:12:07.720 where has devolution worked now, devolution tends to work from 0:12:07.760 --> 0:12:09.920 an economic perspective or where they have what they call 0:12:10.120 --> 0:12:13.800 as competitive federalism, And some people talk about this as 0:12:13.880 --> 0:12:17.359 competitive devolution, but I think the economic term is competitive federalism. 0:12:17.559 --> 0:12:20.440 This is some very clear examples of this. Florida and 0:12:20.480 --> 0:12:22.960 Texas in the United States would be seen to have 0:12:23.400 --> 0:12:27.400 very successful economies relative to the other United States because 0:12:27.440 --> 0:12:29.880 they are able to effectively set their own tax rates, 0:12:29.880 --> 0:12:34.360 both corporate and personal, and they have well known attracted 0:12:34.440 --> 0:12:37.200 a significant number of inward investment as a result of that. 0:12:37.640 --> 0:12:40.600 A bit closer to home, Switzerland is a classic example 0:12:40.720 --> 0:12:45.240 of competitive federalism amongst the cantons. Now, of course there 0:12:45.320 --> 0:12:48.040 is the famous canton which is perhaps the most attractive 0:12:48.400 --> 0:12:52.120 for inward investment, and that's Zug. And I have to 0:12:52.160 --> 0:12:57.320 confess I'm not totally sure where Zug is, but it does. 0:12:57.880 --> 0:13:02.480 What is a common feature of this competitive federalism is 0:13:02.600 --> 0:13:08.120 that devolved regions are able to set a regularity burden, 0:13:08.320 --> 0:13:11.640 and most importantly they're able to set a fiscal tax burden. 0:13:12.120 --> 0:13:16.640 And so the competitive federalism comes as being a great example, Florida, 0:13:17.160 --> 0:13:21.800 Texas being example as well of setting low taxation and 0:13:22.320 --> 0:13:27.320 low regulatory burden. Now, if devolution and we stressed our again, 0:13:27.360 --> 0:13:30.559 so I'm not being dismissive about if devolution was let's say, 0:13:30.960 --> 0:13:35.200 we were going to set up Whales as the zug 0:13:35.520 --> 0:13:39.360 of the UK and the Welsh National Assembly were going 0:13:39.400 --> 0:13:41.959 to slash corporation tax to zero, and they were going 0:13:42.000 --> 0:13:45.240 to slash personal income tax to fifteen percent, and they 0:13:45.240 --> 0:13:48.559 were going to remove a lot of the corporate regulatory 0:13:48.559 --> 0:13:50.880 burden that the rest of the UK suffers from. I 0:13:50.960 --> 0:13:55.520 could strongly predict that the Welsh economy would grow very quickly. 0:13:57.880 --> 0:14:01.760 I didn't sense in Andy Burden speech that was the 0:14:01.800 --> 0:14:06.120 direction of travel, because he actually talks about tax raising 0:14:06.920 --> 0:14:13.040 powers amongst the regents tax raising I don't sense that 0:14:13.120 --> 0:14:16.760 the good Burghers of Zug would be talking about tax 0:14:17.120 --> 0:14:18.559 raising powers. 0:14:37.560 --> 0:14:39.480 We did. We often talk about this in the context 0:14:39.520 --> 0:14:42.800 of Scotland, saying they have all these tax powers and 0:14:43.640 --> 0:14:46.840 wouldn't it be great if they used it to compete 0:14:46.920 --> 0:14:49.080 with the rest of the UK on taxes, et cetera. 0:14:49.200 --> 0:14:51.200 But they don't seem to want to do that, So 0:14:51.320 --> 0:14:53.720 federalism doesn't seem to be natural to the UK. 0:14:53.880 --> 0:14:56.960 Well, yes, this is the other interesting and again s 0:14:56.960 --> 0:14:59.040 got job. There weren't any questions yesterday because if you're 0:14:59.120 --> 0:15:02.920 if you are thinking about devolution in terms of establishing 0:15:03.440 --> 0:15:09.080 competing metropolitan regions, then that sounds like awfully similar to 0:15:09.120 --> 0:15:14.520 Singapore on Thames. That was the fantasy or the objective, 0:15:14.560 --> 0:15:17.680 depending on where you sit in the Brexit debate. Of course, 0:15:18.040 --> 0:15:22.600 this idea of competitive federalism devolution really only works outside 0:15:22.680 --> 0:15:25.720 the EU anyway. I think there's a couple of observations here, 0:15:25.840 --> 0:15:28.320 a couple of risks that I'm not sure he addressed. 0:15:28.400 --> 0:15:31.000 The danger is as if you are literally just moving 0:15:32.000 --> 0:15:37.560 desks from Whitehall to town Hall, then you double up 0:15:37.600 --> 0:15:42.280 the bureaucratic burden. There is a cost to devolution, So 0:15:42.600 --> 0:15:45.480 how is that going to be paid for? There must 0:15:45.640 --> 0:15:50.280 be extra layers of regulation that will be applied. Here 0:15:50.320 --> 0:15:53.840 he's already talking about trying to get value for money, 0:15:54.000 --> 0:15:58.400 broader value criteria for assigning government contracts, and that sounds 0:15:58.440 --> 0:16:02.920 to me like more regulations. Where we're actually heading here 0:16:03.680 --> 0:16:06.480 where I said at the outset, we're actually increasing the 0:16:06.480 --> 0:16:08.680 amount of regulatory burden. We're probably going to have to 0:16:08.720 --> 0:16:12.280 increase the fiscal burden to pay for it all, and 0:16:12.320 --> 0:16:15.080 that will weigh on growth. And then there's the third 0:16:15.160 --> 0:16:17.160 element of this that I don't think has been properly 0:16:17.400 --> 0:16:21.320 talked about, is that yet again the market is faced 0:16:21.360 --> 0:16:26.560 with this fiscal uncertainty over what Burnham is going to 0:16:26.600 --> 0:16:28.720 do in his first budget. And this is the third 0:16:28.800 --> 0:16:32.920 time in this administration the market and corporates and individuals 0:16:33.640 --> 0:16:36.560 have had to second guess. And we've already seen them 0:16:36.640 --> 0:16:39.080 sort of the number of commentary about which taxes are 0:16:39.160 --> 0:16:42.320 going up and where the tax burden is going to fall, 0:16:42.440 --> 0:16:48.000 and so we end up with just more of the same. 0:16:48.960 --> 0:16:52.720 And that's really I'm afraid the prognosis I hope it works. 0:16:52.760 --> 0:16:57.480 I sincerely hope it does work. I hope this will 0:16:57.520 --> 0:17:00.240 be the exception to the rule. But I struggle to 0:17:00.320 --> 0:17:04.080 see where this sort of devolution has worked in the past. 0:17:04.440 --> 0:17:10.119 France has thirty five thousand mares, and France is faced 0:17:10.160 --> 0:17:13.520 with a fiscal potentially a fiscal certainly fiscal issues, shall 0:17:13.520 --> 0:17:16.120 we say not a crisis. Germany obviously has an ex 0:17:16.280 --> 0:17:19.560 very extensive federal system, and Germany is growing less than 0:17:19.560 --> 0:17:23.480 the UK is. It is difficult to cite examples where 0:17:23.480 --> 0:17:30.280 this devolution has worked without significant fiscal, tax and regulatory adjustments. 0:17:30.640 --> 0:17:34.159 Yeah, and a willingness to compete. I want to come 0:17:34.200 --> 0:17:36.520 back in a minute to the guilt market and the 0:17:36.560 --> 0:17:38.840 extent to which you think we can continue to bear 0:17:38.880 --> 0:17:41.239 this increase spending in the UK. But before that, one 0:17:41.280 --> 0:17:43.000 of the things that keeps popping into my head whenever 0:17:43.000 --> 0:17:46.320 we'd hear about Manchesterism and about the you had London 0:17:46.359 --> 0:17:49.280 can't be allowed to continue to be this giant, successful 0:17:49.520 --> 0:17:51.840 money producing how that than the South of England without 0:17:51.880 --> 0:17:54.480 everywhere else being pulled up along with it. What perhaps 0:17:54.520 --> 0:17:57.240 into my head is the what they call the Birmingham problem. 0:17:57.320 --> 0:18:00.679 Back in the nineteen sixties, when it was Birmingham that 0:18:00.800 --> 0:18:04.520 was considered to be far too successful, not okay, expanding 0:18:04.600 --> 0:18:07.520 too far, drawing in too many people, creating too many jobs, 0:18:07.520 --> 0:18:10.240 simply not okay. So instead of saying, let's look at 0:18:10.240 --> 0:18:12.760 Birmingham and see why they're doing so brilliantly and try 0:18:12.800 --> 0:18:14.480 and do the same and the rest of the country, 0:18:14.600 --> 0:18:17.400 the government put in place a series of policies deliberately 0:18:17.560 --> 0:18:21.800 designed to prevent Birmingham expanding any further. So there were 0:18:21.880 --> 0:18:24.240 various acts and policies. It means you couldn't get can 0:18:24.320 --> 0:18:26.560 get planning permits if you wanted to expand in the region, 0:18:26.600 --> 0:18:29.320 for example, then more commercial buildings allowed in the city center. 0:18:29.640 --> 0:18:32.719 So the instinct then, which seems feels a little Burnham 0:18:32.760 --> 0:18:35.040 to me, the instinct then was not to say, what 0:18:35.080 --> 0:18:37.560 are they doing, well, let's do that everywhere else, but 0:18:37.720 --> 0:18:42.080 to say this must be stopped. There. 0:18:42.280 --> 0:18:46.000 Of course, arithmetically two ways to reduce it equality, aren't 0:18:46.000 --> 0:18:49.520 they are the numerator or the denominator. 0:18:49.840 --> 0:18:51.200 That's toll popy evolution. 0:18:54.840 --> 0:19:02.080 I think again, what I'm concerned about and very curious, 0:19:02.160 --> 0:19:06.080 shall we say euphemistically about Andy Burnham's speech, was his 0:19:06.160 --> 0:19:09.840 nostalgia is clear nostalgia for the nineteen seventies. Now, I'm 0:19:09.880 --> 0:19:12.120 old enough to have lived through all the way through 0:19:12.160 --> 0:19:14.000 the nineteen seventies. I was quite young at the start, 0:19:14.160 --> 0:19:16.440 he used to say. But I do find it rather 0:19:16.560 --> 0:19:20.399 curious that Roburnham seems to have this nostalgia for the seventies, 0:19:20.440 --> 0:19:24.879 which was of course categorized characterized rather by a period 0:19:24.920 --> 0:19:28.399 of stagflation, the only time we've ever experienced real stagflation 0:19:28.480 --> 0:19:31.240 in the UK. It was the first time we've ever 0:19:31.320 --> 0:19:35.040 experienced mass unemployment since the Great Depression, and of course, 0:19:35.080 --> 0:19:37.720 as I've just mentioned, it's the first time and that 0:19:37.880 --> 0:19:40.600 the UK had to be bailed out by the IMF. 0:19:41.160 --> 0:19:46.480 It just seems to me odd that the seventies isn't 0:19:46.480 --> 0:19:51.920 the usual template for economic renewal and regeneration. In fact, 0:19:52.440 --> 0:19:55.959 most people would say it is the example of not 0:19:56.240 --> 0:19:59.600 what to do, and of course actually using that as 0:19:59.640 --> 0:20:02.680 the EXAs, I find that curious. 0:20:03.040 --> 0:20:06.240 Yeah, okay, so let's talk markets. Then we're already in 0:20:06.240 --> 0:20:08.120 a big part of trouble debt wise in the UK. 0:20:08.280 --> 0:20:11.159 Spending simply doesn't seem to come down every time we 0:20:11.240 --> 0:20:13.280 get new fiscal rules, which we seem to get all 0:20:13.320 --> 0:20:15.800 the time. It's obvious from the beginning that they're not 0:20:15.840 --> 0:20:19.000 going to be kept, because it's always we spend upfront 0:20:19.000 --> 0:20:21.200 and promise we'll cut it later. We'll cut it later. Everything. 0:20:21.200 --> 0:20:23.080 I'll be fine later, we'll meet those fiscal rules. So 0:20:23.119 --> 0:20:25.760 I think we already knew that Rachel Reaves wasn't going 0:20:25.800 --> 0:20:28.560 to comply with her own fiscal rules, and now we're 0:20:28.560 --> 0:20:32.000 worried that Burnham might introduce some new fiscal rules, or 0:20:32.040 --> 0:20:34.399 change the terms of the existing physical rules, or have 0:20:34.480 --> 0:20:37.200 more exemptions, whatever it is that he does. But one 0:20:37.240 --> 0:20:39.600 thing that I think we're all reasonably clear on is 0:20:39.640 --> 0:20:44.280 that this spending binge is not ending. How much more 0:20:44.480 --> 0:20:47.160 will the market tolerate? Where does this come to any 0:20:47.200 --> 0:20:47.720 sort of end. 0:20:49.119 --> 0:20:51.040 That's a sort of really interesting question. I'm going to 0:20:51.080 --> 0:20:54.320 start by making a positive comment about burnham speech. I think, 0:20:54.520 --> 0:20:57.560 as again in we do try and be balanced, we 0:20:57.600 --> 0:20:59.960 do try and be objective, but we also can't ignore 0:21:00.200 --> 0:21:04.560 the historical and economic facts. But clearly one of the 0:21:04.680 --> 0:21:07.199 very positives that the market took from this is the 0:21:07.200 --> 0:21:09.440 Burdam said on a number of occasions that he was 0:21:09.480 --> 0:21:12.199 going to stick to the fiscal rules. So that is 0:21:12.240 --> 0:21:17.320 a very clear and demonstrable positive that the market took 0:21:17.600 --> 0:21:22.040 at face value. Now you and I have seen various 0:21:22.040 --> 0:21:25.440 commentaries subsequent to that about whether the fiscal rules will 0:21:25.480 --> 0:21:28.200 be extended over the ten year time horizon that he's 0:21:28.240 --> 0:21:30.920 talking about. I don't know whether that's he certainly didn't 0:21:31.200 --> 0:21:34.119 hint at that in the speech, so that's just purely speculation. 0:21:35.040 --> 0:21:38.880 I think any change to the fiscal rules would probably 0:21:38.960 --> 0:21:42.200 be received badly by the bomb market. Not that there 0:21:42.240 --> 0:21:47.800 isn't merit in extending the time horizon of the fiscal rules, 0:21:48.160 --> 0:21:51.360 it's just that we're coming at this from a position 0:21:51.480 --> 0:21:54.399 where I fear the credibility of the UK's fiscal position 0:21:54.520 --> 0:21:57.159 is very poor. And that's not me saying that. That 0:21:57.320 --> 0:22:00.320 is evidenced by the fact that, Okay, borrowing costs still 0:22:00.320 --> 0:22:02.680 the highest in the G seven. So I think we're 0:22:02.680 --> 0:22:07.040 coming at this from position of weakness in terms of 0:22:07.119 --> 0:22:10.000 our international credibility if you just basically just look at 0:22:10.040 --> 0:22:12.080 the bond spreads at the moment. So I think any 0:22:12.119 --> 0:22:15.600 sort of changes the fiscal rules could would probably be 0:22:15.640 --> 0:22:20.119 taken badly. So where are we as we stand at 0:22:20.119 --> 0:22:22.040 the moment, And again we come back to this thorny 0:22:22.080 --> 0:22:24.919 subject of the deficit, which is such a mystery to 0:22:25.000 --> 0:22:27.560 a lot of people, but is just it's just so important. 0:22:27.600 --> 0:22:29.760 And of course the deficit is the difference between what 0:22:29.800 --> 0:22:32.840 the government spends, which is about one point four trillion 0:22:33.400 --> 0:22:35.560 pounds a year, and what it generates, which is about 0:22:35.600 --> 0:22:38.040 one point three trillion in an ideal world. And then 0:22:38.080 --> 0:22:40.840 we take the difference of that and use that as 0:22:40.840 --> 0:22:43.360 a percentage over the size of the UK economic which 0:22:43.359 --> 0:22:46.159 is about three trillion pounds. So the numbers actually are 0:22:46.200 --> 0:22:50.639 quite simple. The makeup of those numbers is incredibly complicated. 0:22:51.160 --> 0:22:53.920 So where we are at the moment, in an ideal 0:22:54.000 --> 0:22:58.520 world economy runs with this deficit at about three percent 0:22:58.560 --> 0:23:01.399 of GDP. So again, just doing the maths, three percent 0:23:01.520 --> 0:23:04.520 of a three trillion economy is about ninety billion, and 0:23:04.600 --> 0:23:07.639