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Speaker 1: I'm Francis Laqua and I'm Alecra Stratton. What, Fran can
Speaker 1: you believe it's only been eight months since the change
Speaker 1: of government.
Speaker 4: Back then it felt like a much simpler time for Cures,
Speaker 4: Darmer and probably everyone else.
Speaker 1: Back then, public support for Kissed Arma and his party
Speaker 1: was higher. The US elect felt like a distant reality,
Speaker 1: and with the clear intent to reset relations with businesses,
Speaker 1: the Labor Party's promise of tangible improvements to Britain's quality
Speaker 1: of life felt achievable.
Speaker 4: So here we are in March, popularity of the government sleeping.
Speaker 4: Of course, we have the US President Donald Trump firmly
Speaker 4: in office, which brings its own challenges, and those key
Speaker 4: election pledges, well, are they on.
Speaker 1: Track, Legra well, indeed, So we're going to try and
Speaker 1: answer that in the city this week. And to do that,
Speaker 1: we've got the team here at Bloomberg who just in
Speaker 1: the last few days have published a scorecard on how
Speaker 1: the government's doing. And we've got the two brilliant minds
Speaker 1: who put it together, Phil Aldrich, Senior UK Economy reporter
Speaker 1: and Dan Hansen, UK economist on the Bloomberg Economics team.
Speaker 1: So do we want to do methodology or not? Why?
Speaker 4: Why the score a card?
Speaker 1: Why or not not?
Speaker 2: How? We picked five key measures, basically the economic measures
Speaker 2: that the Labor government has set itself again. So those
Speaker 2: are the ambitions it as this said, it wants to
Speaker 2: have the highest growth in the G seven and they've
Speaker 2: put a nominal two point five percent and your growth
Speaker 2: rate on that. And they also have an additional one,
Speaker 2: which was raising living standards by real household disposable income.
Speaker 2: Ahead there as an eighty percent employment target. There's a
Speaker 2: pledge that we're going to have fiscal stability and economic stability.
Speaker 2: They're saying ending austerity and they want to build one
Speaker 2: point five million homes. So we just took what their
Speaker 2: ambitions were and then we said.
Speaker 1: How they do.
Speaker 4: I mean, eight months is a good timeframe because it's
Speaker 4: eight months into a five year fixed term parliament, and
Speaker 4: there's a lot going on.
Speaker 3: Obviously, when you say in a five year term, you
Speaker 3: might argue it's probably a bit unfair to give them
Speaker 3: a mark at the moment. But actually these things, they
Speaker 3: are very stretching targets. I think that's the thing first
Speaker 3: to sort of pick out with this. Perhaps raising living
Speaker 3: standard is in the very stretching target, but two and
Speaker 3: a half percent growth year is a very stretching target.
Speaker 3: Building that many homes is very stretching targets. Obviously, feel
Speaker 3: said about the employment target. These are all very as
Speaker 3: I say, stretching things to achieve, and it's important I
Speaker 3: think that the government not just held account internally, but
Speaker 3: we're here to sort of cast our eye over it
Speaker 3: and look at these things. As you've both said at
Speaker 3: the top of the show there the world has changed
Speaker 3: dramatically now they're going to have to adapt labor as
Speaker 3: well as we go forward. But I think at least
Speaker 3: the top line of this that we've Phil and I
Speaker 3: looked at the sort of living standards piece, I mean,
Speaker 3: surely it's every government's goal to raise living standard over
Speaker 3: at Parliament, right, and actually when we looked at it,
Speaker 3: we think they'll probably do it, but it's not going
Speaker 3: to be as convincing as they'd like it to be.
Speaker 3: We don't think, at least it.
Speaker 1: Doesn't really matter that it does it if they've got
Speaker 1: a numerical increase.
Speaker 3: No. I think it would matter though if they turned
Speaker 3: around in twenty twenty nine and said, yes, we've raised
Speaker 3: living stands, but it's not as fast as the last government. Okay, yeah,
Speaker 3: that was one of the big economic reasons at least
Speaker 3: why didn't do particularly well in the elections. So I
Speaker 3: think people want to feel richard, don't they. They don't
Speaker 3: want to see a number higher. You want to actually.
Speaker 1: Feel better off than you are five years Yeah, exactly.
Speaker 3: Do you feel like there's more money in your pocket?
Speaker 1: And also I was struck at the growth event that
Speaker 1: Rachel Reeves did some weeks ago. I think you were there,
Speaker 1: phil In is it Seamen's factory where she was asked
Speaker 1: what is the metric and she chose to say increase
Speaker 1: in living standards.
Speaker 2: Yeah, it's effectively a downgrade in their ambitions because no
Speaker 2: government since records began in nineteen fifty five has failed
Speaker 2: to improve living standards, and so Dan's measure he adjusts
Speaker 2: the OBR outlook for productivity to something which is a
Speaker 2: bit more in line with the consensus forecasts, and on
Speaker 2: that measure, the forecast would suggest that they are going
Speaker 2: to have the smallest increase in living standards since nineteen
Speaker 2: fifty five, which would be a failure. Basically, if you
Speaker 2: delivered the smallest uplift in real let me stand that
Speaker 2: that's not something to celebrate, is.
Speaker 4: It, phil I think for boosting growth and living standards
Speaker 4: you give them a five out of ten. Yeah, And
Speaker 4: this is also because basically you know that you measure
Speaker 4: it by a real household disposable income for ahead, Why
Speaker 4: is it five out of ten? Why are they not
Speaker 4: doing better on metric?
Speaker 2: Because you're starting with just eight months of the five
Speaker 2: years having gone. So you've got to look at what
Speaker 2: policies they're putting in place and make a judgment on
Speaker 2: what they've been able to achieve so far. And so
Speaker 2: the outlook is not particularly good if you take that
Speaker 2: those measures just mentioned, but what they've done so far
Speaker 2: to boost growth. On the downside, one thing they're doing
Speaker 2: which doesn't help growth is the Knicks rise, So the
Speaker 2: payer all tax, which obviously everyone is saying is damaging
Speaker 2: for growth. But on the upside, they've got this longer
Speaker 2: term plan to basically invest much more in a public infrastructure,
Speaker 2: and the OBR did score that as a net growth
Speaker 2: enhancing investment. It takes time to deliver, though, and that
Speaker 2: was something missing from the last few governments. They are
Speaker 2: delivering on that, So it's a bit of a mixed bag,
Speaker 2: which is why kind of put them and bang in
Speaker 2: the middle.
Speaker 3: Basically, I think that's important the point that film's made
Speaker 3: about the timing. Time's not on their side with this,
Speaker 3: because the policies they need to put in place just
Speaker 3: will not yield results immediately. So investing loads more, building bridges,
Speaker 3: building school they take time, and the economic benefits accruing
Speaker 3: from those things take a long time to come through.
Speaker 3: Planning reform as well. It's a really positive thing. If
Speaker 3: they're successful in doing it, it will be a positive thing.
Speaker 3: But sort of the cloud hanging over it all, as
Speaker 3: Phil just said again, is this Nicks rise which happens immediately,
Speaker 3: that's happening in April, and it's that balance between this
Speaker 3: sort of near term cloud and actually this longer term vision,
Speaker 3: which I think they've said a lot of good things
Speaker 3: and some of the right things, but time is just
Speaker 3: not on their side. So you have this really tricky
Speaker 3: balance between and I think that's where the five out
Speaker 3: of ten comes from. Between this sort of doing the
Speaker 3: right things and waiting for them to read benefits for
Speaker 3: the economy. That's a really tricky place to be.
Speaker 1: How much when you were both doing this, did you
Speaker 1: think that this is about them wanting to be a
Speaker 1: two to you know? Really twenty nine it's the halfway point.
Speaker 3: I think that's a really important point. When I write stuff,
Speaker 3: I think what would an investiget from this note that
Speaker 3: I've just written, and what would they think? And it's
Speaker 3: I'd read it and think maybe twenty twenty nine isn't
Speaker 3: it given for them? In terms of if you look
Speaker 3: at living standards, if they come to the Electric with
Speaker 3: that performance on living standards, maybe twenty twenty nine isn't
Speaker 3: they given for them? I think you're right Allegra though,
Speaker 3: that this is like a ten year plan for them.
Speaker 3: That's how they view it. But if they turn got.
Speaker 1: To get reelected standards, it's all inter linked. And then
Speaker 1: if you're tacking to the right, for want of a
Speaker 1: better phrase, to try and head off reform slash. Yeah, exactly,
Speaker 1: because a lot of those new MPs they've got are
Speaker 1: in traditional them there's nothing traditional anymore. But they're doing
Speaker 1: a bunch of shape shifting right now in order to
Speaker 1: head off that reform threat, if indeed it is a threat,
Speaker 1: because obviously there's a lot going on with the reform
Speaker 1: party right now. It's just they've got to at that
Speaker 1: twenty nine. They've got to keep a large number of
Speaker 1: the huge landslide they have right now.
Speaker 2: Yeah, they do.
Speaker 3: It's really interesting you're saying sacking to the right, defense spending.
Speaker 3: We're going to hear about potentially welfare cuts in the
Speaker 3: next week or so. You know, they aren't classic labor
Speaker 3: policies at all. One thing I have heard from people
Speaker 3: is what do they really stand for? What's the strategy?
Speaker 3: Is it supply side reform? Is it classic labor sort
Speaker 3: of tax and spend policy, And it feels like it's
Speaker 3: a bit of everything at the moment, and there's there's
Speaker 3: a real question mark about the sort of overall strategy.
Speaker 3: All of that said, you know, I think that's the
Speaker 3: score of the five out of ten. I think they've
Speaker 3: done some sensible things they're just going to say time
Speaker 3: to come through.
Speaker 4: And so that's kind of what the budget felt like
Speaker 4: in the autumn, that it was a bit to throw
Speaker 4: everything at it and see what sticks. Are they going
Speaker 4: to change? I know a lot of it is on regulation.
Speaker 4: If you look at financial and planning regulation, will that
Speaker 4: be torn up to finally unleash the animal spirits?
Speaker 2: They're talking, well bonfire are the regulations? Yeah, that's certainly
Speaker 2: the way they're going. They did always say that they
Speaker 2: were going to make us a better regulated country, and
Speaker 2: they are pushing ahead with that. I think the planning
Speaker 2: reforms we all knew that they were going to they
Speaker 2: were going to really try and push through a complete
Speaker 2: supply side delivering that. And actually one of our scores
Speaker 2: to seven out of ten is the one point five
Speaker 2: million homes. It's a stretch target. They're never going to
Speaker 2: get to one point five million, but I think they
Speaker 2: know that, but they're pushing for that. And they get
Speaker 2: one point two that would be a massive success. And
Speaker 2: so that would be huge. And what they're doing on
Speaker 2: planning just simplifying some of the environmental measures, removing the
Speaker 2: right for smaller quangos to interfere in the planning process
Speaker 2: CPO with no hope values. If your land is just
Speaker 2: a piece of derelic lands, you can't claim it to
Speaker 2: have residential value. So there's all sorts of things in
Speaker 2: a new Town's commitments. There's all sorts of things in
Speaker 2: there which everyone in the policy was says, this is
Speaker 2: what needs.
Speaker 1: To be done.
Speaker 2: Will they get it through or unchanged with no legislative adjustments,
Speaker 2: then that's a big test. But fundamentally what they've done
Speaker 2: is so far has been pretty good. So the general
Speaker 2: bonfire of regulations is some of it feels a little
Speaker 2: bit like they're just desperately trying to claw any kind
Speaker 2: of growth measure. They want to send this message that
Speaker 2: we are the growth party, and it feels like they're
Speaker 2: trying to fix the problems created by the budget where
Speaker 2: we had lingering fiscal uncertainty which raises the prospect of
Speaker 2: further growth damaging tax rises down the line. They need
Speaker 2: to get growth going. Some of these things you would
Speaker 2: not have expected, like heat throw you never would have
Speaker 2: expected that. And then the financial deregulation they're pushing card
Speaker 2: on that and other areas. You can see the idea
Speaker 2: behind it.
Speaker 4: I also see a one out of ten.
Speaker 2: There is a one that's terrible, one out of but yes,
Speaker 2: employment only gets a one out of ten. That's because
Speaker 2: they said this eighty percent employment target, which would require
Speaker 2: two million people currently aged between sixteen and sixty four
Speaker 2: to be moving into work now effectively to get tricky unemployment. Yeah,
Speaker 2: and then the next exactly in the next cut, so
Speaker 2: that if you were saying, what policy have they done
Speaker 2: to help that, they've done a policy so completely antithetical
Speaker 2: to that. They've said, well, there's two things. They've raised
Speaker 2: the minimum wage and so you can't pass this cost
Speaker 2: down in slower wage growth towards that, and obviously people
Speaker 2: just above the minimum wage are also going to have
Speaker 2: big increases in there wages to keep the differential going.
Speaker 2: And at the same time, you've passed a cost on
Speaker 2: to the employers. They can't pass much down through lower wages,
Speaker 2: so they've got to do more unemployment. You could just
Speaker 2: see economically, that's how it's going to have to go.
Speaker 2: So you give them kind of nothing on policy leaders
Speaker 2: to increase employment, and not an awful lot on anything else.
Speaker 2: The ege percent also is so stretching. Only five countries
Speaker 2: in the world have it, and it seems incredibly unlikely
Speaker 2: we're going to get there. But if you know, again,
Speaker 2: if it's a stretch target and we get to sort
Speaker 2: of seventy eight, that we'd all be celebrating.
Speaker 1: I think in business, what do they call them, big
Speaker 1: hairy audacious targets? What's those bat hags? We have them
Speaker 1: in government all the time, So big hairy audacious goals.
Speaker 1: There's a thing, right right, No, it was a Richie
Speaker 1: Scenac thing, may even have been a Matt Hancock thing,
Speaker 1: which was you have these targets and then if you
Speaker 1: fall slightly short, then you've done better. I think they
Speaker 1: work in business. I'm not sure they work in politics,
Speaker 1: where your opponents can say you felt short. Started this
Speaker 1: podcast by saying, you know, I think I get it
Speaker 1: in business, I don't get it politics. Do you think
Speaker 1: they regret the national insurance increase on employees?
Speaker 2: They figured that they didn't have any choice.
Speaker 1: The reason I'm asking is it does seem to be
Speaker 1: the kind of lead weight that's weighing on everything else.
Speaker 3: I think personally, they found this black hole. Yeah, it
Speaker 3: was later in July, wasn't it found this black hole?
Speaker 3: It feels to me like they could have turned around
Speaker 3: and said this is consistent with the Knicks cuts being unaffordable.
Speaker 3: Even if they'd done half of it on employee, and
Speaker 3: I know you're right, Phil, they would have broken their
Speaker 3: manifesto pledge. But they didn't know this black hole existed.
Speaker 3: What we're turning around and saying is this employee Nicks
Speaker 3: cuts just not not affordable. And then they could have
Speaker 3: split it between even if they wanted to do a
Speaker 3: bit on employer next, it just wouldn't have been as bad.
Speaker 2: So you've got the two issues, which is the business community.
Speaker 2: It feels totally betrayed, very very angry. These taxes are
Speaker 2: going to be passed in large part through to prices
Speaker 2: and to you know, employ smaller wage rises and higher unemployment.
Speaker 2: So there's some damage coming down the line from this.
Speaker 2: To repair the public finances, there was always going to
Speaker 2: be difficult decision. They tied their hands too much beforehand,
Speaker 2: and they left themselves so little fiscal headroom. There's belief
Speaker 2: that they were establishing economic stability with this with the
Speaker 2: October budget has been proved demonstrably not to be the case,
Speaker 2: because they're coming back in six months and they're having
Speaker 2: to do welfare cuts, they're having to do public spending
Speaker 2: cuts because they just need to re establish them.
Speaker 4: He so Dane, what's the way forward for them?
Speaker 3: There are sort of three elements in this upcoming fiscal
Speaker 3: event that we're going to sort of I think they
Speaker 3: are worth watching. One is how much is the OBRE
Speaker 3: going to change its forecast, because that, I think at
Speaker 3: least is a source of some of the concern around
Speaker 3: the UK's fiscal position. The optimism in the obr's forecast,
Speaker 3: so when investors look at it, they're like, you know what,
Speaker 3: you're going to borrow a lot more than the obl
Speaker 3: says you're going to borrow it as gross not going
Speaker 3: to be as strong. The second thing is obviously how
Speaker 3: big of the fiscal hold does that leave and how
Speaker 3: much does Rachel Reeve think she needs to repair the
Speaker 3: public finances because as Phil's just said, ten billion pounds
Speaker 3: in terms of headroom is just peanuts, and we are
Speaker 3: now in a much more volatile world than we were
Speaker 3: in October, in a much more volatile world, so we
Speaker 3: need much more head room. And then three is it's
Speaker 3: the policy leaver that you pull, so is it benefits spending?
Speaker 3: Do you run the gauntlet on spending cuts again and
Speaker 3: do what Jeremy Hunt did and pencil spending cuts in
Speaker 3: at the end of the forecast.
Speaker 1: Not many options for them.
Speaker 3: This is the issue that on departmental spending, the plans
Speaker 3: are already so tight they can't go further benefits spending year.
Speaker 3: There's some stuff you can do there, but it's not
Speaker 3: very labor like. And then you've got tax risers, which
Speaker 3: they just don't want to talk about. The last one
Speaker 3: is more borrowing, but they know what's going to happen
Speaker 3: in terms of how the market is going to respond
Speaker 3: to that.
Speaker 2: So I do I envy them.
Speaker 1: Used to work in the treasury, didn't you Dad did?
Speaker 3: What would I do? I'd raise taxes?
Speaker 1: Would you have done it in July? Well, in the
Speaker 1: last fiscal.
Speaker 3: I say that as a as a sort of yeah, well,
Speaker 3: I don't say that as a politician. I say that
Speaker 3: as a being just completely analytical about it. And there
Speaker 3: are things they can do, like you know, the freezers
Speaker 3: on the personal allowances they can continue to put and
Speaker 3: that raises them and it people don't feel that in
Speaker 3: their pocket right now. It's one of these. It's a
Speaker 3: bit like cutting spending in the future. You know, it's
Speaker 3: one of these that you just delay the difficult decision,
Speaker 3: but actually it feels like taxes are the only thing
Speaker 3: that really you can do. The other thing you can do,
Speaker 3: of course, is decide to completely change what public service
Speaker 3: provision looks like. Think about the NHS, think about not
Speaker 3: education or they've chosen on defense, but the NHS in particular.
Speaker 3: Does the NHS have to just look different going forward?
Speaker 3: There is a huge question around that. But as things stand,
Speaker 3: if they're not willing to really change how things look
Speaker 3: in the NHS, then it everyone's just going to have
Speaker 3: to pay more tax And I know that's not a
Speaker 3: particularly positive message, but that's the world we find ourselves in.
Speaker 3: And that's not just a UK specific thing either. That's
Speaker 3: a European that's a European European question that is hanging
Speaker 3: over every government now with what's going on with defense spending.
Speaker 3: It's a really tricky situation. But I think the world
Speaker 3: has changed dramatically since October and I think it's going
Speaker 3: to be really interesting to see how Rachel Reeves perceives
Speaker 3: what needs to be done with the UK fiscal policy
Speaker 3: to make sure it's able to stand up to this
Speaker 3: volatility and shocks.
Speaker 4: Phil, Dan, thank you so much, Thanks very much, no
Speaker 4: problem at all. Thanks for listening to this week's In
Speaker 4: the City from Bloomberg. This episode was hosted by me
Speaker 4: Francis Laqua and Allegra Stratton. It was produced by Sersaudi
Speaker 4: and Moses and App with sound design by Blake Maples.
Speaker 4: Brendan Francis Newnam is our executive producer. Special thanks to
Speaker 4: Phil Aldrich and Dan Hansen. Please subscribe, rate, and review
Speaker 4: wherever you listen to podcasts.