WEBVTT - Andy Haldane on Britain’s Fiscal Squeeze and Growth Problem 0:00:02.720 --> 0:00:16.360 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.079 --> 0:00:20.400 Welcome to Merrin Doalgs Money. The podcast is which people 0:00:20.400 --> 0:00:23.320 who know the markets explain the markets. I am Maren 0:00:23.360 --> 0:00:26.040 Thumbset Web and this week I'm speaking with Andy Haldane, 0:00:26.280 --> 0:00:29.520 former chief economist at the Bank of England. Andy, Welcome 0:00:29.560 --> 0:00:31.040 to Merrin Talks Money, Marin. 0:00:31.120 --> 0:00:32.839 It's wonderful as ever to be joining you. 0:00:33.240 --> 0:00:35.199 Well, the UK knocks around us that are number six 0:00:35.240 --> 0:00:37.880 in the world in terms of GDP as a whole, 0:00:37.960 --> 0:00:40.559 go down to GDP per capita GDP per head and 0:00:40.600 --> 0:00:43.479 we're actually knocking around twenty six twenty seven, which I 0:00:43.479 --> 0:00:44.360 think is something of. 0:00:44.240 --> 0:00:47.000 A shock for most prints. We're poor, We're not getting 0:00:47.000 --> 0:00:49.760 any richer. Our economy is a mess even our housing 0:00:49.840 --> 0:00:52.520 market is a mess up. I find it quite hard 0:00:52.840 --> 0:00:56.120 to find those optimistic phones in my body right now. 0:00:56.280 --> 0:00:58.600 And you know, even as we are speaking. We're speaking 0:00:58.640 --> 0:01:00.960 by the way, on Tuesday the twenty first, just as 0:01:01.000 --> 0:01:02.920 I was waiting Andy for you to come on, I 0:01:02.920 --> 0:01:04.080 was having it look at what was going on in 0:01:04.120 --> 0:01:06.720 the stock market, and I see that chrish Nicholson is 0:01:06.760 --> 0:01:09.000 down thirty nine percent in a matter of minutes on 0:01:09.040 --> 0:01:11.000 a profit warning I mean, quite a bad profit warning, 0:01:11.000 --> 0:01:15.320 but nonetheless just another example to me of the extraordinary 0:01:15.600 --> 0:01:19.720 fragility of everything in the UK at the moment. So listen, 0:01:19.720 --> 0:01:22.040 I'll tell you what. Andy, Let's start with some of 0:01:22.080 --> 0:01:25.360 those miserys. Got to take this seriously. No, let's start 0:01:25.720 --> 0:01:29.680 with the UK's fiscal situation. We redo have a very 0:01:30.400 --> 0:01:33.440 major problem there and it makes it really hard for 0:01:33.520 --> 0:01:36.240 us to start doing the things that we need to do. 0:01:36.440 --> 0:01:39.000 And the classic problem that, of course, is defense. We know 0:01:39.520 --> 0:01:41.160 we have to spend more money on first, but we 0:01:41.200 --> 0:01:44.520 simply don't have the money. A fiscal situation is just 0:01:44.600 --> 0:01:45.520 too tis So let's start. 0:01:45.560 --> 0:01:45.800 There. 0:01:45.959 --> 0:01:49.080 Is there any hope that you can find in the 0:01:49.160 --> 0:01:50.480 UK's fiscal situation? 0:01:50.760 --> 0:01:53.320 There's up you hope, and I fear you punctured my 0:01:53.360 --> 0:01:59.440 balloon before I even inflirted it. There, right, the let's start. Listen, 0:01:59.480 --> 0:02:03.640 The starting is not as anyone would wish. Growth is 0:02:03.680 --> 0:02:07.720 too low, inflation is too high, and the physical position 0:02:07.800 --> 0:02:13.760 is far too precarious. That is why when the world sneezes, 0:02:13.800 --> 0:02:15.960 the UK catches the cold. And this year has been 0:02:16.000 --> 0:02:20.200 another example of that being the case. We are a 0:02:20.280 --> 0:02:25.480 high beta leveraged bet on the global economy this year 0:02:25.520 --> 0:02:32.440 has demonstrated that as if we needed proof. Nonetheless, and 0:02:32.800 --> 0:02:36.040 all matters fiscal I agree with you. We are in 0:02:36.200 --> 0:02:39.919 straightened physcal times. You know, our debt stock relative to 0:02:40.000 --> 0:02:43.480 national income has traveled over the course of this century. 0:02:43.800 --> 0:02:49.360 We have yet to run a fyscal surplus this century. 0:02:50.520 --> 0:02:54.959 We're shelling out now North vendera billion pounds each year 0:02:55.360 --> 0:03:00.760 just in interest payments. So I would say there is 0:03:00.919 --> 0:03:06.639 very little, if any physical space left unless some hard 0:03:06.720 --> 0:03:10.240 choices are made about cutting spending. I think we are 0:03:10.320 --> 0:03:13.680 taxed out as a nation. We are maxed out when 0:03:13.720 --> 0:03:18.240 it comes to borrowing. So the knife must fall on 0:03:18.360 --> 0:03:21.320 public spending. If we are to chusele out some more 0:03:21.400 --> 0:03:25.079 room for defense spending, which surely we must, which surely 0:03:25.120 --> 0:03:29.120 we must in these insecure times. 0:03:28.960 --> 0:03:31.760 There is time levin kunter intruct you before on for 0:03:31.760 --> 0:03:34.399 the butt, which I'm really looking forward to, really looking 0:03:34.440 --> 0:03:37.920 forward to the butt. But you know, historically, when you 0:03:37.960 --> 0:03:41.240 look at UK tax to GDP numbers, you know, all 0:03:41.280 --> 0:03:43.120 countries and one of the odd things about countries and 0:03:43.120 --> 0:03:44.960 tax right, all countries seem to have their own limit 0:03:45.040 --> 0:03:47.920 when it comes to the percentage of GDP. They're prepared 0:03:47.920 --> 0:03:50.640 to stump up in tax and historically for the for 0:03:50.680 --> 0:03:53.040 the UK it's knocked around thirty six thirty seven percent, 0:03:53.520 --> 0:03:57.000 and we're now heading for over forty percent, which seems 0:03:57.320 --> 0:03:58.680 unsustainable anyway. 0:03:59.160 --> 0:04:02.200 Yes, yes, I think we are. I mean even the 0:04:02.920 --> 0:04:06.760 Office for Budget Responsibility in its report around the spring 0:04:06.800 --> 0:04:09.880 statement a few weeks ago pretty much set as much, 0:04:09.960 --> 0:04:15.840 albeit in slightly closeted terms, that we are reaching the 0:04:15.880 --> 0:04:20.040 point where any further rises in the tax rate risks 0:04:20.520 --> 0:04:27.800 shrinking revenues I buy, disincentivizing, whether it's working or or 0:04:27.839 --> 0:04:29.360 selling a business or wherever it might be. 0:04:29.640 --> 0:04:31.960 So we may even be there already. We don't know. 0:04:31.960 --> 0:04:33.320 We'll only be able to see over the next couple 0:04:33.360 --> 0:04:36.320 of years whether we've already raised rates to the point 0:04:36.320 --> 0:04:37.800 in the left at cut for everyone goes, well, do 0:04:37.839 --> 0:04:38.560 you know what I. 0:04:38.480 --> 0:04:42.520 Want to exactly? So you know wherever precisely we are 0:04:42.720 --> 0:04:46.039 certainly near to that point. So the name of the game, 0:04:46.640 --> 0:04:49.080 if we are to cut ourselves, some fiscal slack will 0:04:49.080 --> 0:04:50.800 be about spending. 0:04:50.400 --> 0:04:53.479 Cuts and so where do those cuts spend? Again? Where 0:04:53.480 --> 0:04:55.200 do those cuts come again? Before we get to the 0:04:55.200 --> 0:04:57.039 butt which, as I say, I'm looking forward to where 0:04:57.080 --> 0:04:59.120 would those in your mind? Where would they come? I'm 0:04:59.120 --> 0:05:00.520 one of the numbers that I give looking at and 0:05:00.560 --> 0:05:04.880 some incredulity is the fact that welfare spending is now 0:05:05.200 --> 0:05:08.000 the same slightly higher as the total income tax take. 0:05:08.120 --> 0:05:09.800 Now we can we talk about well welfare is mending 0:05:09.880 --> 0:05:12.080 or including pensions. But nonetheless, if you say to a 0:05:12.120 --> 0:05:16.800 young person to know, by the way, every penny, every 0:05:17.040 --> 0:05:21.200 penny that you pay an income tax is going in welfare, 0:05:21.360 --> 0:05:23.839 is going on some kind of benefits spend that hurts. 0:05:24.560 --> 0:05:27.040 That hurts well, I mean, the only two places where 0:05:27.040 --> 0:05:33.039 you find yourself some real money is either the NHS 0:05:33.080 --> 0:05:38.080 budget or the welfare and pensions budget. And to be clear, 0:05:40.080 --> 0:05:43.800 so the welfare and pensions in total is north about 0:05:43.800 --> 0:05:46.039 a third of a trillion pounds per year, which. 0:05:46.040 --> 0:05:48.000 Three hundred and thirty something brilliant. 0:05:47.680 --> 0:05:52.080 Yeah, of which actually the larger part goes on pensions 0:05:52.160 --> 0:05:55.560 rather than welfare. Indeed, it's the pensions bit that's been 0:05:56.320 --> 0:06:00.520 rising more rapidly that rather than the welfare bit. So 0:06:00.560 --> 0:06:03.359 I would say, on the assumption, which is not an 0:06:03.440 --> 0:06:11.200 unreasonable assumption, that the NHS has some special status, and indeed, 0:06:11.240 --> 0:06:13.640 giving our health challenges, it'd be hard to take the 0:06:13.680 --> 0:06:17.200 knife to that anytime soon. I think then the acts 0:06:17.240 --> 0:06:19.440 would need to fall. If you're finding yourself a decent 0:06:19.520 --> 0:06:23.640 chunk of change, I'm talking you know, real money, tens 0:06:23.640 --> 0:06:26.880 of billions. You know, if we are on defense, if 0:06:26.880 --> 0:06:29.520 we're shy of two and a half percent of GDP, 0:06:29.600 --> 0:06:31.080 you need to get said of three and al percent 0:06:31.120 --> 0:06:35.440 of GDP. That's an extra one percent of GDP around 0:06:35.480 --> 0:06:38.520 thirty billion per year. You're not getting that out of 0:06:38.560 --> 0:06:42.400 any budget other than NHS or wealth pension. So I think, 0:06:42.480 --> 0:06:50.599 looking seriously at the triple lock, looking seriously at the 0:06:50.640 --> 0:06:55.240 allocation of welfare spending, is I think a cineque non 0:06:56.880 --> 0:06:59.080 as getting to a more defensible position. 0:06:59.120 --> 0:07:04.040 On defense, There's been talk about war bonds, defense bonds, 0:07:04.560 --> 0:07:10.400 launching a specific class of guilt for defense. That make 0:07:10.440 --> 0:07:11.680 any sense to you? I mean, I look at that 0:07:11.720 --> 0:07:12.640 and I think when I tell you how that it 0:07:12.640 --> 0:07:14.840 could really work, and it's been suggested by a few 0:07:14.840 --> 0:07:16.880 people it would really work if you said, you know what, 0:07:16.920 --> 0:07:19.320 we're going to lot to use new bonds specifically with defense. 0:07:19.320 --> 0:07:21.480 And we don't normally hypothecate in the UK, but you know, 0:07:21.520 --> 0:07:26.240 why not at this point if you made those defense 0:07:26.280 --> 0:07:28.400 guilts free of inheritance tax. 0:07:28.640 --> 0:07:31.800 So on this two things. One. I think that is 0:07:31.880 --> 0:07:34.560 an avenue, but I wouldn't pursue it as an alternative 0:07:36.720 --> 0:07:41.800 to doing something on spending. I think the market's tolerance 0:07:41.880 --> 0:07:47.520 for this the credibility of the UK's physical position. First 0:07:47.520 --> 0:07:52.000 thing is buttressing, and buttressing means this government demonstrating it 0:07:52.040 --> 0:07:58.160 has the ability to make difficult, politically difficult choices around spending. 0:07:58.200 --> 0:08:02.160 I think without that any further borrowing risks of raspberry 0:08:02.520 --> 0:08:05.760 from the markets subject to that, do I think there's 0:08:05.760 --> 0:08:14.800 something that could be separately labeled and separately marketed. I 0:08:14.800 --> 0:08:17.920 think probably yes. Would that require a tax suiteener either 0:08:17.960 --> 0:08:20.800 inheritance or maybe even a spart of the temporary extension 0:08:20.840 --> 0:08:28.520 of the iSER allowance? Yes, I think as you know, 0:08:28.640 --> 0:08:30.760 and have you spoken about extensively, I think you're right 0:08:30.800 --> 0:08:34.400 to speak about it. We have north of two trillion 0:08:34.520 --> 0:08:41.720 pounds parked up in cash earning negative real returns. Bringing 0:08:41.800 --> 0:08:44.000 some of that into the equation in a sort of 0:08:44.280 --> 0:08:48.000 patriot bond, a war bond. I think that could be 0:08:48.080 --> 0:08:52.080 quite good marketing, quite good fiscal arithmetic. So yes, I 0:08:52.080 --> 0:08:54.400 think that ought to be an option on the table, 0:08:54.679 --> 0:08:59.320 but as a compliment to rather than substitute four doing 0:08:59.360 --> 0:08:59.960 something on spend. 0:09:00.840 --> 0:09:04.040 Okay, and I suppose none of this would matter, None 0:09:04.080 --> 0:09:07.040 of this would matter at all if the economy was 0:09:07.080 --> 0:09:10.080 grown properly. I mean one of the this is the 0:09:10.120 --> 0:09:13.600 core problem. This is the core problem. If the economy 0:09:13.920 --> 0:09:17.319 was growing properly, you know, in real terms, by two 0:09:18.320 --> 0:09:21.160 four percent a year, if GDP PAD capital was growing 0:09:21.160 --> 0:09:24.160 at any particular speed, then we wouldn't particularly have to 0:09:24.240 --> 0:09:27.000 worry about cutting spending because these problems take care of themselves. 0:09:27.280 --> 0:09:30.240 But it's just not it's just not. So this is 0:09:30.280 --> 0:09:32.760 where we come to your butt, which is going to 0:09:32.800 --> 0:09:33.760 be just not yet. 0:09:35.400 --> 0:09:37.760 And you're right, I mean, growth is the great redeemer 0:09:39.280 --> 0:09:41.920 for debt problems, probably debt forms in particular. You grow 0:09:42.000 --> 0:09:45.679 your way rather than digging your way out of a 0:09:45.720 --> 0:09:51.040 debt problem. So that that AP's the anti honors making 0:09:51.160 --> 0:09:56.880 good on the afterd claim from politicians over many decades now, Marin, 0:09:57.320 --> 0:10:00.800 who have had growth as their number one objects. Here's 0:10:01.080 --> 0:10:05.400 the but here's the good news. Right, if you were 0:10:05.640 --> 0:10:12.000 a Martian or any other planet actually alien, looking at 0:10:12.520 --> 0:10:15.080 not the public balance sheet but the private balance sheet 0:10:15.120 --> 0:10:18.880 of the UK, you would say in aggregate, it is 0:10:18.920 --> 0:10:22.199 in rude health. Okay, I mentioned those fiscal deficits that 0:10:22.240 --> 0:10:25.920 have been running for the whole century. Actually, both households 0:10:25.960 --> 0:10:32.680 and companies in the UK are running financial surpluses and 0:10:32.960 --> 0:10:36.760 if you look at their balance sheet fundamentals, levels of 0:10:36.840 --> 0:10:41.240 debt both corporate and household are at modest levels by 0:10:41.440 --> 0:10:46.000 historical standards. So in terms of the balance sheet fundamentals 0:10:46.000 --> 0:10:50.720 of UK POC, we are poised for liftoff. There is 0:10:50.840 --> 0:10:53.959 plenty of fuel in the tank, plenty of ammunition there 0:10:54.559 --> 0:10:58.160 to be fired. Balance sheets are poised to be put 0:10:58.200 --> 0:11:05.520 to work investment spending and the like. So the you know, 0:11:06.480 --> 0:11:09.960 this is one source of optimism. If the private balance 0:11:10.000 --> 0:11:13.520 sheet was broken as well as the public balance sheet, 0:11:13.840 --> 0:11:17.400 that would be a counsel despair. As it is, private 0:11:17.440 --> 0:11:21.400 balance sheets are in pretty good shape. Not everywhere and 0:11:21.440 --> 0:11:25.360 for every company or household, but in general they are. 0:11:26.400 --> 0:11:28.679 Well, that's nice, but you have to but you have 0:11:28.720 --> 0:11:30.199 to then look at that and say find that it 0:11:30.320 --> 0:11:34.119 might be a reason why people aren't spending and investing 0:11:34.520 --> 0:11:38.600 and something has to change to incentivize them to do so. 0:11:39.120 --> 0:11:42.960 And a very high tax, very high regulation, very politically 0:11:43.040 --> 0:11:45.400 uncertain environment makes that difficult. 0:11:45.880 --> 0:11:49.520 It does, it does. So what's getting in the way, 0:11:49.840 --> 0:11:53.319 you know, why are they saving rather than spending their 0:11:53.320 --> 0:11:55.160 balance sheet? Why are they not putting it to work? 0:11:55.160 --> 0:11:56.520 I mean, part of it's the way of the world. 0:11:56.600 --> 0:11:59.920 Let's be honest. The world is a noisy and certain place, 0:12:00.280 --> 0:12:05.760 and I totally get the desire to squirrel away some 0:12:05.840 --> 0:12:09.840 money for a rainy day. And let's be honest, this year, 0:12:09.920 --> 0:12:14.280 once again has brought a whole sequence of eight weeks 0:12:14.320 --> 0:12:18.360 of rainy days since the Ronian crisis struck. So some 0:12:18.400 --> 0:12:20.840 of that is just the way of the world. But 0:12:20.960 --> 0:12:27.200 you're right, a chunk of it is domestically induced self harm, 0:12:27.240 --> 0:12:31.880 if you like, which is uncertainty around policy, which has 0:12:31.920 --> 0:12:34.959 been very acute over the past few years. Mean, both 0:12:35.559 --> 0:12:40.319 Budget twenty four and Budget twenty five took the legs 0:12:41.120 --> 0:12:44.920 from beneath the animal spirits of companies and households, either 0:12:44.960 --> 0:12:48.120 because a fearfulness of tax rises or in some cases 0:12:48.120 --> 0:12:52.920 because of a short tax rises. So we need government 0:12:53.559 --> 0:12:58.760 and policy to sign the hippocratic of and to genuinely 0:12:58.800 --> 0:13:02.080 do no harm. I think the Spring Statement did a 0:13:02.120 --> 0:13:05.000 reasonable job on that actually, in that it was a 0:13:05.120 --> 0:13:11.520 It was a much smaller no news event, and that 0:13:11.600 --> 0:13:16.520 was better than some of its predecessors. But more than 0:13:16.559 --> 0:13:21.240 that the government. This government and previous ones need to 0:13:21.280 --> 0:13:27.080 get serious about providing the enabling environment for spending to 0:13:27.120 --> 0:13:31.040 take place, for animal spirits to be revivified, for balance 0:13:31.080 --> 0:13:34.200 sheets to be put back to work. We have a 0:13:34.400 --> 0:13:38.080 UI to discuss this previously. We have a crazy tax 0:13:38.120 --> 0:13:41.520 system in this country, not just the level of rights, 0:13:41.520 --> 0:13:46.200 which we've discussed, but it's complexity twenty one thousand pages, 0:13:48.440 --> 0:13:53.000 among if not the longest in the world. Taking a 0:13:53.080 --> 0:13:59.320 chainsaw or a pickax to that rather than the pruning 0:13:59.360 --> 0:14:02.160 shears is absolutely what was needed. And what's true of 0:14:02.280 --> 0:14:07.040 tax is also true of regulation. Again, it used to 0:14:07.080 --> 0:14:10.760 be a regulative having's sake, you know, But nonetheless, the 0:14:11.040 --> 0:14:15.400 individually well intended actions of now more than one hundred 0:14:15.400 --> 0:14:20.920 regulators in the UK, noneth less, can collectively add up 0:14:21.000 --> 0:14:24.119 to a quagmire. And that is where we find ourselves. 0:14:24.120 --> 0:14:28.120 And on both regulation, to a lesser extent, on tax, 0:14:28.920 --> 0:14:33.400 this government, like its predecessors, has talked big and acted small, 0:14:34.200 --> 0:14:37.040 and that is that will need to change if we 0:14:37.080 --> 0:14:39.840 are to have companies and households put their balance sheets 0:14:39.840 --> 0:14:40.320 back to work. 0:14:40.960 --> 0:14:43.160 Yeah, I mean, I think you're absolutely right that in 0:14:43.160 --> 0:14:45.760 many cases it's often less the rate of tax, particularly 0:14:45.760 --> 0:14:48.040 when it comes to corporate activity. And you know, starting 0:14:48.040 --> 0:14:50.080 a small business for example, or anything like that, you know, 0:14:50.120 --> 0:14:51.640 you don't tend to think about the actual rate of 0:14:51.680 --> 0:14:53.360 tax when you do that. What you do think about 0:14:53.480 --> 0:14:57.160 is the admin hurdles, the admin and regulatory hurdles, and 0:14:57.240 --> 0:15:00.840 these are so difficult. And we know, you know, in 0:15:00.840 --> 0:15:03.640 the great Taxi billionaires saga that we hear all the time, 0:15:03.720 --> 0:15:06.320 we know that actually the majority of the tax gap 0:15:06.400 --> 0:15:09.120 comes from corporates, from small businesses, and a lot of 0:15:09.120 --> 0:15:10.800 that will maybe some of it's celeberate, but a lot 0:15:10.800 --> 0:15:12.480 of it is just I can't do this admin. It's 0:15:12.560 --> 0:15:13.200 is just too hard. 0:15:13.240 --> 0:15:15.280 As someone who's their own small business for years ago, 0:15:17.320 --> 0:15:19.880 I've felt the full force of that, and I've been 0:15:20.080 --> 0:15:24.960 absolutely you know, I heard the howls of derision. But 0:15:25.120 --> 0:15:30.400 now having sampled this myself, I'm completely with small business 0:15:30.400 --> 0:15:34.200 owners and thinking this is an endless and rising tide 0:15:35.240 --> 0:15:40.000 of compliance, which, again you know, individually well intentioned, but 0:15:40.040 --> 0:15:46.120 the collective consequence I think is an overburdened engine of 0:15:46.120 --> 0:15:48.880 the economy because of course corporates are the engine of 0:15:48.920 --> 0:15:49.640 the economy. 0:15:50.120 --> 0:15:53.200 Yes, And it's an interesting, utter failure of the public 0:15:53.200 --> 0:15:57.360 sector to understand the extent of the friction that is involved. 0:15:57.360 --> 0:15:58.760 I mean, we always say when it comes to you 0:15:59.040 --> 0:16:01.520 right about investing well by investing in personal finance a lot. 0:16:01.720 --> 0:16:04.560 And one of the things that prevents people investing prevents 0:16:04.600 --> 0:16:08.640 them sorting out their personal finance. It's friction. It's admin. Literally, 0:16:08.680 --> 0:16:12.720 there is nothing in the world that people hate more more, 0:16:12.760 --> 0:16:17.280 I guess, But in general admins admin is everybody's personal. 0:16:17.000 --> 0:16:21.320 Health, yes, and an overly complex admin of that the 0:16:21.440 --> 0:16:23.720 users for every report. So there's lots that could be done. 0:16:23.760 --> 0:16:26.240 I mean the good news is because there's a risk 0:16:26.280 --> 0:16:28.600 there of is disappearing down a plocol Again, I blame 0:16:28.680 --> 0:16:34.760 you fixable with the political will and a degree of 0:16:34.760 --> 0:16:38.840 political skill. These are fixable problems. They are not intractable. 0:16:38.960 --> 0:16:44.760 They're difficult, but they're not intractable problems to solve. And 0:16:45.400 --> 0:16:51.560 in the spirit of adding in a further dose of optimism, 0:16:51.800 --> 0:16:56.480 whisper it quietly, but UKPLC might be the most innovative 0:16:56.720 --> 0:17:03.400 nation on the planet. Absolutely. Look at the pipeline of 0:17:05.400 --> 0:17:11.920 venture capital backed businesses that are growing like topsy and 0:17:12.160 --> 0:17:14.960 we rank you know, this will be businesses you know, 0:17:15.080 --> 0:17:18.880 north of twenty five million a year revenue. So not 0:17:18.880 --> 0:17:24.520 not yet unicorns, not yet with wings, but nonetheless the 0:17:24.560 --> 0:17:30.719 cults and thoroughbreds that are rising at real pace, the 0:17:30.760 --> 0:17:36.680 businesses we know are the wellspring of job creation, of 0:17:36.880 --> 0:17:42.439 value creation on our productivity generation. If you rank the 0:17:42.520 --> 0:17:46.640 UK on the absolute number of those cults and thoroughbreds, 0:17:47.000 --> 0:17:50.760 short of unicorns, but nonetheless with the potential to grow wings, 0:17:51.400 --> 0:17:54.879 we rank third behind the US and China in numbers, 0:17:55.840 --> 0:17:58.439 not a per capita basis. Just guess what a lot 0:17:58.480 --> 0:18:00.000 more people in China and the US and there are 0:18:00.080 --> 0:18:04.600 the UK. We are towards the top of the pops. 0:18:04.640 --> 0:18:08.920 So when it comes to potential scale ups the unicorns 0:18:09.000 --> 0:18:16.080 prospectively of tomorrow, we are an innovation nation. We are 0:18:16.119 --> 0:18:18.760 smashing the lights out relative to the rest of Europe 0:18:18.800 --> 0:18:26.439 and arguably even relative to the US. The key metron is, 0:18:26.480 --> 0:18:31.080 of course, to nurture those cults and thoroughbreds, to enable 0:18:31.119 --> 0:18:32.119 them to grow the weeks. 0:18:32.240 --> 0:18:34.600 Because now this is slightly the problem, isn't it that 0:18:35.119 --> 0:18:37.840 we can we can be first in terms of exciting 0:18:37.840 --> 0:18:41.080 companies and we're still twenty seventh in terms of GDPKO capita. 0:18:41.480 --> 0:18:44.399 How do we keep those companies here? I mean, you know, 0:18:44.440 --> 0:18:46.560 twenty years ago, companies of that size that you're talking 0:18:46.560 --> 0:18:49.040 about WUD already have listed and the wealth would already 0:18:49.040 --> 0:18:51.959 have been shared around. That's not the case now. So 0:18:52.000 --> 0:18:53.879 how do we keep those companies here? How do we 0:18:53.960 --> 0:18:56.879 encourage more of them? And crucially also from from our 0:18:56.920 --> 0:18:58.919 point of view, how do we get those companies to 0:18:59.160 --> 0:19:02.320 list and make the UK stock market part of the equation. 0:19:03.040 --> 0:19:07.280 Yeah, yeah, so lots in there. Let me pick off 0:19:07.280 --> 0:19:11.440 some bits of them. So obviously, the better the enabling environment, 0:19:12.800 --> 0:19:15.120 all the stuff you mentioned earlier on, the more likely 0:19:15.119 --> 0:19:17.159 it is that they will grow, the more likely is 0:19:17.200 --> 0:19:20.200 that they will stay. So that's a kind of prerequisite 0:19:20.280 --> 0:19:24.400 I think for growing our own given that the sea 0:19:24.520 --> 0:19:31.639 corn is plentiful and strong. When we look at you know, 0:19:32.080 --> 0:19:34.240 the UK scale up problem is not a new problem. 0:19:34.440 --> 0:19:39.280 It just happens that we've got a particularly good crop 0:19:39.600 --> 0:19:45.080 just at the moment. The obstacles are partly financial and 0:19:45.240 --> 0:19:51.680 looking for ways of you're widening that pool of BC 0:19:52.000 --> 0:19:57.760 or PE or indeed public listing of companies. Smoothing the 0:19:57.800 --> 0:20:02.360 passage of that I think is really Importantn't the engine 0:20:02.359 --> 0:20:07.399 of that Again, there's not surprised to anyone needs to 0:20:07.440 --> 0:20:11.440 be our own patient capital investors, pension funds, insurance companies 0:20:11.920 --> 0:20:16.119 investing more in UKPLC. We are the only pension fund 0:20:16.480 --> 0:20:20.440 on the planet that does not have a home bias 0:20:20.520 --> 0:20:26.679 towards our own companies and that is ridiculous and that 0:20:26.760 --> 0:20:28.760 needs to change, and that. 0:20:28.680 --> 0:20:32.880 Then provides mandate that change. Sorry, would you mandate that change? 0:20:33.359 --> 0:20:36.879 No, I wouldn't mandate it, but I would, you know, 0:20:37.160 --> 0:20:44.280 I would expedite our facilitation of that by you know, 0:20:44.800 --> 0:20:48.320 that means looking at regulation. You know, is what used 0:20:48.359 --> 0:20:51.080 to be called SOMCT what's now called somcy UK. Is 0:20:51.080 --> 0:20:55.359 that getting in the way of us putting those moneys 0:20:55.400 --> 0:20:59.080 to work? Is it the risk of version of pension 0:20:59.080 --> 0:21:02.399 fund trustees that's getting the work in the way of 0:21:02.520 --> 0:21:07.640 putting those moneies to work? Can we provide more tax 0:21:07.640 --> 0:21:11.520 effient wrappers to enable people to put their money towards 0:21:12.119 --> 0:21:14.240 UK companies rather overseas ones. 0:21:14.320 --> 0:21:15.960 I would, oh, yes, we can do that, We should 0:21:15.960 --> 0:21:16.119 do that. 0:21:16.359 --> 0:21:18.639 I would work all of these channels, to be honest, 0:21:19.560 --> 0:21:23.240 because as you know, this is many trillions of pounds 0:21:24.680 --> 0:21:29.880 parked up in either overseas equities or in cash, none 0:21:29.880 --> 0:21:32.640 of which which is starving UKPLC at the financial fuel 0:21:32.680 --> 0:21:35.000 it needs and all those celts and Thoroughbreds to grow 0:21:35.040 --> 0:21:39.880 into unicorns. So parlus is financial and fixable because here's 0:21:39.920 --> 0:21:45.440 the aerony. The money is there. The money is there, right, 0:21:46.000 --> 0:21:49.280 But the plumbing to get that money into our businesses, 0:21:49.520 --> 0:21:55.040 which is the same thing as saying growth tomorrow, isn't there. 0:21:55.359 --> 0:21:58.639 So that's a replumbing problem. We can solve plumbing problems. 0:21:59.080 --> 0:22:02.000 We can solve let it go well with the political 0:22:02.000 --> 0:22:03.399 will be going to solve plumbing problems. 0:22:03.520 --> 0:22:04.200 It's the most. 0:22:04.080 --> 0:22:07.719 Important there political will, I'd be far less optimistic. But 0:22:07.760 --> 0:22:09.960 the money is that it's even here at home. It's 0:22:10.280 --> 0:22:12.919 here actually here at home as well. So we have 0:22:13.040 --> 0:22:16.600 the businesses, we have the money to finance the businesses, 0:22:17.200 --> 0:22:22.600 We replumb the system, and hey, presto, you get business 0:22:22.680 --> 0:22:25.879 led growth, which of course is the only source growth 0:22:26.000 --> 0:22:31.640 of growth. You can have that sustainable over the longer term. 0:22:31.720 --> 0:22:33.840 So these are the reasons if you peer in the 0:22:34.280 --> 0:22:38.600 balance sheet fundamentals, we have the businesses to enable the growth. 0:22:38.920 --> 0:22:42.040 We have the money to enable the businesses to grow. 0:22:42.640 --> 0:22:45.960 This is a plumbing problem that's eminently tractable, merrior In 0:22:46.040 --> 0:22:48.200 and if we did that, we could be smashing the 0:22:48.280 --> 0:22:50.399 lights out, not just at a startup at Scaler, but 0:22:50.440 --> 0:22:54.199 at gdpeop Ahead and all the rest. So this is 0:22:54.240 --> 0:22:58.280 my frustration but also my excitement about what's possible. 0:23:13.880 --> 0:23:15.879 And you let me ask you about your one of 0:23:15.920 --> 0:23:18.879 your other areas of expertise. Interest rates. Now, there was 0:23:18.920 --> 0:23:22.640 an expectation before the war in Iran that rates would 0:23:22.640 --> 0:23:24.639 gradually be falling and that that would be good for 0:23:24.720 --> 0:23:27.000 all sorts of reasons, but that no longer looks like 0:23:27.000 --> 0:23:29.360 it's very likely. Where do you see where it's going 0:23:29.359 --> 0:23:32.119 from here? And lastly, i'm asking asking a lot of 0:23:32.720 --> 0:23:33.879 the property market here. 0:23:34.240 --> 0:23:39.600 Yeah, oh very good. The well look my like everyone else, 0:23:39.760 --> 0:23:43.679 My story reputation at the start of this year was 0:23:43.720 --> 0:23:48.520 that inflationing pressures were abating, and they really were about it. 0:23:48.880 --> 0:23:53.800 They've been abating for the better part of six to 0:23:53.920 --> 0:23:58.280 nine months by the start of this year. And if anything, 0:23:58.280 --> 0:24:00.440 I'd been a bit critical of my former employers, the 0:24:00.440 --> 0:24:03.240 Bank of England, for not lurering rates faster than they had, 0:24:03.600 --> 0:24:09.280 which I thought was justifiable, given that inflationary pressures had 0:24:09.280 --> 0:24:14.800 peaked out and were falling. Now the world has changed, 0:24:16.720 --> 0:24:20.440 and we saw financial markets run very quickly to the 0:24:20.560 --> 0:24:23.960 side of the boat with an expectation of now rate rises, 0:24:24.040 --> 0:24:26.399 not in the UK, but in the US and the 0:24:26.440 --> 0:24:31.480 EU area as well. That looks to me like a 0:24:31.560 --> 0:24:38.160 very significant overcorrection. Why do I say that. I suspect 0:24:38.240 --> 0:24:44.400 lots of people were repeating the Ukraine Russia playbook and 0:24:44.440 --> 0:24:48.640 this is not that this differs from that into very 0:24:48.720 --> 0:24:53.040 fundamental and significant respects. First, the scale of shock, at 0:24:53.160 --> 0:24:55.920 least so far tempting for in saying this. The scalsure 0:24:56.080 --> 0:24:58.800 so far is nothing like on the same scale. You know, 0:24:58.840 --> 0:25:01.040 that was a shock that the cost of living of 0:25:01.200 --> 0:25:05.240 north of ten percent in the UK at current energy prices. 0:25:05.560 --> 0:25:09.119 We're being short to possibly thing of two or three percent, 0:25:09.560 --> 0:25:15.359 So much smaller shock. What's more, that smaller shock to 0:25:15.600 --> 0:25:21.320 costs is breaking on an economy that's very different, a 0:25:21.359 --> 0:25:24.359