This is an audio transcript of the Political Fix podcast episode: ‘Doom, gloom and not much headroom: Spring Statement’
Lucy Fisher
Before we kick off, a quick message from me and the Political Fix team. In a few weeks’ time, we’ll be launching our first ever Q&A special episode.
You can ask us anything, such as questions about the Spring Statement or looking ahead to the local elections on May the 1st. If you’ve got a burning question you’d like me to put to our regular panellists, please drop me a line at politicalfix@ft.com. Even better, record a voice note with your name and question and send it to the same inbox and we’ll play it on the show.
We’ll launch this new semi-regular format in a few weeks’ time so watch this space.
Rachel Reeves in audio clip
Mr. Speaker, the world is changing. We can see that and we can feel it. A changing world demands a government that is on the side of working people. That is what drives me as chancellor. That is why drives the choices that I have set out today and I commend this statement to the House.
[MUSIC PLAYING]
Lucy Fisher
Rachel Reeves launched a major fiscal repair job with her spring statement this week, unveiling a spate of spending cuts in order to make her sums add up. She’s had to slash the welfare bill even further, prompting warnings that 250,000 people — a fifth of them children — will be plunged into poverty. But that may be just the start of her woes, as economists predict more pain in the autumn.
So will the chancellor have to resort to further tax raids? Welcome to Political Fix from the Financial Times with me, Lucy Fisher. With me to discuss it all are my colleagues, Stephen Bush. Hi, Stephen.
Stephen Bush
Hi, Lucy.
Lucy Fisher
George Parker. Hello, George.
George Parker
Hello, Lucy.
Lucy Fisher
Plus the FT’s economics commentator, Chris Giles. Hi, Chris.
Chris Giles
Hi, Lucy.
[MUSIC PLAYING]
Lucy Fisher
Well, before we look at the pure economics of it, of course, these fiscal events, George, have real-world impacts. Who are the losers? And, if there are any, who are the winners from this week?
George Parker
I suppose the losers, you’d have to say, are those people who are hoping to be the beneficiaries of £4.8bn of welfare benefits — disabled people, sick people, people you just mentioned. The world’s poor, they’re losers as well because Rachel Reeves announced she was switching some money from the overseas . . . More money from overseas aid budget into the defence budget.
And the winners — well, I guess if you’re an armours manufacturer in the north of England, you’re probably rubbing your hands, but apart from that I’m afraid bad news most of the way.
Lucy Fisher
And Chris, what do we know after the Spring Statement that we didn’t know before it? What are your key economic takeaways?
Chris Giles
I think the key economic takeaways is things are harder than they were before, they’re harder than the Budget, and we thought that was pretty bad. So we are paying more to service government debt, so maybe one group of winners are the holders of UK government bonds. They are gonna get a bit more money, and that’s what’s making the public finances worse.
That’s the biggest reason they’re worse, but we’re also, I think, knowing that the futures are a little bit worse. So even though the Office for Budget Responsibility, the government’s fiscal watchdog, independent, did downgrade certainly the growth rate for 2025, but also the potential for growth into the medium term. So that was difficult enough, but it’s still more optimistic than any other forecaster that it highlighted. So that’s almost certainly gonna come down again.
And if you can’t bring down the whatever the assumption for what potential growth rate is, how fast can the UK economy grow over the next five years? That is the most damaging thing for the public finances with any assumption they can change in their forecast. It’s almost certain they’re gonna do it in the Budget and therefore we are probably — not definitely, but probably looking at a pretty nasty Budget in the autumn.
Lucy Fisher
Well, I certainly want to get into that. But first, Stephen, what’s your overall takeaway from the Spring Statement?
Stephen Bush
I think my overall takeaway was actually the one bit of good news for the government, which is that they’ve got the OBR to score their planning reforms, and it’s the biggest single projected increase to GDP that the OBR has ever measured. But it’s also in terms of the scale of the problems the UK faces, in terms of the trade-offs that the government is gonna have to navigate over the next couple of years, in the grand scheme of things it’s tiny.
And it kind of sums up the problem that they have, which is even when they do something good, it’s immediately then wiped away by consequences of their own decisions, consequences of the global backdrop, and that I think was the kind of thing which kind of summed up the Spring Statement more than anything else.
Lucy Fisher
So I think it’s a good moment just to pause and look a minute at what the OBR, the Office for Budget Responsibility, is — the independent fiscal watchdog, because, Stephen, what you’re alluding to here is that it makes an independent judgment, doesn’t it, on what it will and won’t model as adding to or taking away from growth, and previously it hadn’t decided to take into account the government’s planning measures. Now it has; that’s good for the government.
But there’s been another controversy this week, hasn’t there, Chris, over what it’s modelled regarding the government’s welfare cuts because it’s come up with a different answer to the Treasury.
Chris Giles
Yes, so the Treasury and the Department for Work and Pensions thought that their welfare changes would save £5bn and the OBR said it’s significantly less — £3.4bn, if my memory serves me right. The net is smaller than that. And then that meant at the last minute, the government then had to add in further welfare changes.
Now this creates a real difficulty just for the governance of the country because the OBR is just basically a bunch of nerds — quite a small bunch of economics nerds, about 40 people, 25 economists having to do detailed forecasts for thousands of different variables. It’s actually a much harder job than what the Bank of England has to do and they have hundreds of economists doing it.
So they’ve got a difficult job and there is no right or wrong and it makes it look as if some independent nerds are actually setting government policy — and not just any government policy, the most sensitive government policy, which is taxing and spending, and that is very uncomfortable. It’s uncomfortable for the government, it’s uncomfortable for the OBR itself and I think in a democratic process it feels pretty uncomfortable more widely still.
Lucy Fisher
George, I was struck that Tom Baldwin, a former Labour director of communications, someone who wrote Keir Starmer’s biography, so is very well-networked in the government, said that this had caused real irritation among ministers, that they’d come up with a figure of how much their welfare cuts would save. They announced that last week and then in sweeps the OBR with a lower figure and forces them to have to announce new welfare cuts in order to get to the total that they need in order to make their sums add up.
George Parker
Yeah, I think there was frustration with the OBR about that, but equally the whole thing was a bit of a shambles, wasn’t it? And there’s I think equal frustration, particularly in the Department of Work and Pensions, with the way it was handled by the Treasury, because in an ideal world, Liz Kendall, the Work and Pension Secretary, would have been given an envelope of cuts to make. And then she would have announced the details after the Spring Statement.
Instead of which, they brought it forward, the announcement, to before the Spring Statement, handed the OBR a whole load of detailed policy changes at the very last minute and expected the OBR to work through it and score it. For example, they wanted the OBR to be as optimistic as they were about the value of some of their back-to-work schemes and the work training and placement schemes and all the rest of it. And the OBR said, well, hang on a sec, this is too late in the day, we’ll have a look at this, but we’ll look at it ahead of the autumn Budget. And that created the hole that Chris has just described.
So it all became very disorderly, I think, in the run-up to the Spring Statement and added to a general sense that things are slightly out of control. And you saw that with a swath of really bad, negative, hostile headlines in all the papers the day after the Spring Statement, including Labour-supporting papers like the Guardian and the Daily Mirror, which both led with essentially the same headline, which was balancing the books on the backs of the poor.
Lucy Fisher
Yeah, absolutely. It was the most savage coverage from the left, wasn’t it? And George, it did present this sort of picture of these welfare cuts being a bit of a rush job the way they’ve been drawn up. And given that Liz Kendall, the work and pension secretary has been trying to present these cuts as part of a moral crusade to get people back to work rather than an economic-led project just to make some cuts, it’s sort of undermined that whole argument, hasn’t it?
George Parker
Yeah, I mean, there was real tension between the DWP and the Treasury in the run-up to the Spring Statement because, as you say, Lucy, Liz Kendall’s priority was to, yes, make savings from the welfare budget because I think there’s a general view across Parliament actually that something has to be done about the spiralling cost of disability and health benefits. But she wanted to recycle a lot of the savings into schemes that would help people get back into work.
In the end, I think she got about £1.4bn worth back from the Treasury, but from her point of view that wasn’t anywhere near enough and in the end you end up with this big headline figure of the overall upfront cost as Chris said, £4.8bn before you net off the other things. And that’s the equivalent of almost £5,000 over a million people. That’s a huge, huge amount when you consider the political fuss that was created by the removal of the winter fuel payment, which I think was about £1.2bn, something like that.
Chris Giles
Massively bigger.
George Parker
That’s much, much bigger and affecting people who are more vulnerable in society as well. You can see why so many Labour MPs are nervous or frightened about the political backlash that’s coming down the track.
Stephen Bush
I also would say that in terms of the stuff that Liz Kendall’s been saying publicly, that’s partly because obviously all cabinet ministers when they are in negotiation with Downing Street or the Treasury have different models of how to behave publicly and how to get their preferred outcomes.
So Liz Kendall is someone who very much sees her job as someone to be constructive and helpful in public, who has already taken quite a lot of hits over the two-child limit, which is the limit that comes into child benefit, which is essentially the central driver of child poverty in the United Kingdom now is that cap on child benefit and comes in for the third child, had already had to take some very difficult, very painful choices Labour MPs don’t like, essentially then feeling that what happened was is that once again it’s like, OK, well, in order to sustain this promise we’ve made on tax, yes, Liz Kendall’s got to, as one of her allies said, eat dirt again.
And then clearly also in a way where what was happening was not a policy-driven idea of what would increase incentives with effectively going OK, what will make the OBR light turn green? And when you look at the things that they are spending more money on in welfare and the things that they are cutting, the implicit logic of both those levers can’t be reconciled with each other, which is not a good advert for the value of the independent watchdog, is not good advert for government policy, because if you’re visibly not making cuts because you think they’ll save money, but because you’ve think someone else’s forecast will declare that you’re saving money, then you’re not really at that stage governing.
Lucy Fisher
Chris, is there any way round that? Or if you have an independent forecaster, that’s what happens?
Chris Giles
Well, no, I mean, there is a way around it, but it’s a highly unpopular way, which neither party wants to do, which is to have a massive amount more leeway in your fiscal plans and your public finances, so that when interest rates go up a bit or the growth forecast falls a bit, you don’t start hitting your fiscal rules. This government is bang on the fiscal rules, so any bad news turns into policies having to change.
Now, it’s really difficult because governments don’t like running lots of leeway against them because then they have ministers coming along every two seconds — the Treasury in particular have ministers come along saying, oh, I’ve got this problem, look, there’s loads of lee way, you can just spend a bit on my pet project. So they like to use being the fiscal rules as a battering ram within government to enforce public spending discipline. But that means you’re at the whim of forecasts, which are inevitably gonna change because markets go up and down, the economic data comes in.
So the big thing that changes in every forecast is you get six months of extra economic data. And that’s why the growth — I’m doing inverted commas on the radio here — forecast for 2025 fell so much, not because the rest of this year is expected to be worse than we previously thought; it’s because the end of 2024 was a lot worse than was previously thought, and that means that 2025 on average won’t be that much better than 2024 on average, I hope that is understandable to our listeners, so it was actually a reflection of the past, not the future. But these things happen every six months.
You can get good news. I mean, what tends to happen when there’s good news is that the government spends it. We saw that with the Conservatives just before the election. Where did the national insurance cuts come from? Well, a bit of good news in the forecast and thought, well, let’s spend it. But they were doing exactly the same thing, being right up against the fiscal rules, which means you can get good news and then you’ve got a bit a windfall and you play with that and you make political capital out of it. If you have bad news, the opposite happens.
George Parker
It’s worth putting in context the £9.9bn of headroom that Rachel Reeves has started the day with on the Spring Statement, and ended with as well after her cuts, is I think the OBR said that was about a third of the average headroom the chancellor’s had since the OBR was set up, which is normally about £30bn. It’s a bit more than the Conservatives had towards the end of their time in power, but still much, much lower than most chancellors including George Osborne had back in the austerity days.
Lucy Fisher
I think it is a bit rich, perhaps, as you point out, George, that the Tories ran the headroom even tighter and yet now they’re saying, oh, it’s very unwise of Rachel Reeves to leave so little cushion. I want to come back to what this sort of narrow headroom might mean for the autumn and whether Rachel Reeves is gonna have to come for more tax rises.
Just before we move away from welfare completely, Stephen, you made the point that making policy for the OBR can lead to bad policymaking. Let’s just talk a little bit about the politics here. How is the Labour party going to react? Is this going to ferment rebellion further the way that things have unspooled this week with additional cuts to the welfare budget announced?
Stephen Bush
I think the Labour party is going to react exceptionally badly, not least because, look, the thing in every Labour government, including Gordon Brown’s during a crisis in which we did come near to the end of money, reduced child poverty, right? This Labour government is on course to become the first Labour government ever, including the ones in the 20s which didn’t have a majority, to leave, well, to end its first term of office with more people in poverty, including children, than it came into office with.
That’s the kind of thing that makes many, many people around the cabinet table, because one of the unremarked upon features of this cabinet is a lot of them are people who were what we call gifted and talented children, who had (inaudible), who came up under the last Labour government, etc, etc to have loads of their MPs, loads of their activists, this is the thing which is fundamental to them. The thing several MPs have said to me since the Spring Statement is, well, look, what is the point? Yeah, someone said to me, they said, look, why did I leave my perfectly nice job where I got to see my kids and I didn’t get death threats, if all we’re going to do is drive people into poverty?
And the activist base, I mean, a consequence of this was if the Labour party loses the next election, the Labour party is going to go mental, right? I mean it will make the Corbyn era look like, you know, sane Blairism. Loads of MPs are gonna come under a lot of pressure locally, people will leave, etc, etc. And of course, it’s going to have very painful social consequences. And it puts a huge amount of pressure on their child poverty strategy to concoct something that will make Labour MPs and activists feel that they can plausibly claim that they aren’t making the thing that, for many of them, is the thing they got into politics to fix significantly worse. I mean, it’s hugely, particularly difficult and a huge event psychologically in the life of the Labour party.
George Parker
And you only have to listen to some of the broadcast interviews after the Spring Statement where you have a minister in a studio being asked to address someone with a brain injury who’s about to lose their benefits. And it’s the presentational difficulty of, I think, as I was saying earlier, I think a lot of people agree with the idea we need to get a grip of the benefits bill, but actually on the individual cases, which after all is what individual Stephen’s saying local MPs will be dealing with in their constituency surgeries day after day, it looks so difficult to defend.
And the other thing I’ll just say is it also presents a sort of counterpoint to every example of government misconduct or greed or whatever it might be. So Rachel Reeves and her freebie ticket to Sabrina Carpenter at the O2, how can she be taking a freebie ticket to go in a VIP box when she’s simultaneously doing X and every example of government misspending or excess will be counterpointed against that.
Stephen Bush
And every bit of deregulation or, you know . . . Let’s say then the Budget does useful things about, say, removing the huge disincentive to earn above £100k because of the child benefit withdrawal. That’s something which will reduce work, has all sorts of negative consequences. Again, that becomes more painful because it’s hand in hand with these very socially painful benefit cuts.
Also, as George says, almost every Labour MP recognises that we are spending, broadly speaking, the same amount as we did in 2005 on the welfare system in order to produce more destitution. But because there’s visibly no logic to the welfare cuts other than, sorry, we made a bunch of promises on tax, we’ve been running a very loose fiscal policy, so someone’s got to take a bath and we’ve decided it’s people who only can’t bath themselves underneath the waste. Because it’s so indefensible on policy terms, it just adds to this political discomfort and unhappiness in the PIP.
Lucy Fisher
George, where does it leave the Tory party because they think there’s a gap here to argue that actually these aren’t the right welfare cuts, but much deeper cuts to the whole bloated system are due. And frankly, most of the survey’s opinion polling suggests the public, by a vast majority, thinks that the welfare system in the UK is far too generous and should be really pared back.
George Parker
Yeah, so it’s an easier thing to say in opposition than it is to say in government, of course, because you can make that point in the general, can’t you, in the round that, yes, of course, the welfare system’s bloated, it’s delivering failure, it is wasting a generation, but it’s the actual individual cases that are so difficult. And of course, in opposition, you don’t really have to deal with that because you’re talking in generalities, aren’t you?
Lucy Fisher
I think that’s right. And Chris, just a final word on the welfare side of things: we should remember that although there’s sort of around £5bn pounds of cuts coming, the overall welfare spending bill is still projected to rise from about £65bn to £100bn by the end of this decade. So it’s still going up in real terms, although the government would argue it will start to fall in terms of percentage of GDP.
Chris Giles
Yes, absolutely. So we do have in this country a problem of worklessness. I’m not gonna put any spin on why that’s the case, but younger people in particular are not working as much as they used to or as much as younger people in other countries are working.
So there is a problem there. The government is addressing it, but quite bluntly. And it’s the difficult cases which always will come to the fore where people can say in abstract, like I just have, there’s a problem because we shouldn’t be doing worse than other countries, we shouldn’t do worse than we have in the past with young people and working.
And yet when you come up against someone who might have a brain injury and you go, oh no, they should obviously not be working. We should be supporting them. And then you come up to the next example. It gets very difficult very quickly. So all of this is fine and abstract, all of it is horrible in real politics.
Lucy Fisher
So George, fast forward to the autumn. Are we gonna be back in the position where another fiscal repair job is due and what’s Rachel Reeves gonna do then?
George Parker
I think the day after the Spring Statement, that seemed to be the general view that the Spring Statement was essentially, as I was writing, Rachel Reeves called it a Spring Statement, the Tories called it an emergency Budget, but really it was a holding operation for a much bigger fiscal event in the autumn. I think most people would agree with that.
So there’s the problem of the wafer-thin fiscal headroom that we’ve been discussing. And then all of the manifold sort of risks facing the British economy brought into stark relief 24 hours, or in fact just a few hours later, when Donald Trump announces 25 per cent tax on car imports into the US. So that’s obviously a problem.
There’s also, Chris alluded to this earlier, the possibility or even the probability that the OBR will eventually downgrade its heroically optimistic forecasts about productivity growth and the growth potential of the British economy and any small adjustment downwards again creates a huge problem for Rachel Reeves as well. And so people look at all this and think, well, she might get lucky, but there’s quite a good chance she’s going to get unlucky and then she’ll be back with this problem.
I was speaking to Oliver Dowden, the former Tory deputy prime minister. He said he thought that Rachel Reeves had exhausted the Labour party’s appetite for spending cuts. And given the fact the fiscal rules are supposedly ironclad and so she’s excluding the possibility of more borrowing, you come back to tax rises as the way to deal with that.
And then you get into a different world of pain, of course, for Rachel Reeves, because in her manifesto she ruled out the big three tax levers — income tax rates, national insurance contributions for employees and VAT — and something’s got to give. And it may be that she deploys the line that she’s been deploying this week, which is the world has changed, therefore we have to rip up our manifesto.
At the very least, I would be very surprised if she doesn’t extend the Conservative freeze on income tax thresholds and allowances that will give her a bit more headroom at the end of the parliament. But it’s gonna be a very tough set of choices for the chancellor in the autumn, for sure.
Lucy Fisher
And Chris, Trump and his trade war rumbles on with, as George mentioned, the threat of 25 per cent tariffs on the auto industry. How devastating could that be for the UK? Is the UK better insulated or could we be worse affected from tariffs than other countries?
Chris Giles
Well, the good news is we don’t trade that much with the US. It is our largest single trading partner, but the EU, of course, is by far the largest trading partner, it’s just 27 members. We don’t have that large an auto industry so, again, that is good news, but these are silver linings on a cloud. So tariffs are going to make the global economy weaker. As the global economy is weaker, then that is going to affect us.
The biggest thing that’s probably gonna be affecting us from tariffs isn’t the tariffs themselves, it’s the uncertainty of the Trump administration. It’s totally chaos. If you’re running a business and you’re thinking, am I going to invest, let’s say some plant in the UK, expecting quite a lot of that to be an export industry to the US? Well, the answer at the moment is no, just wait and see.
And it’s exactly the answer we saw in between the Brexit referendum and leaving the EU, that was five years or so, where there was almost no investment growth at all because companies again wanted to know what the rules are. And the one thing we can say about the Trump administration is we don’t know what rules are, he probably doesn’t know what the rule are himself tomorrow, let alone anyone else. So, and we just know they’re going to change a lot. And in those circumstances, it’s not the time to be taking big decisions.
So it’s the uncertainty aspect which I think is gonna be most damaging for the growth forecast. And so, if you have to bet now, you bet that Rachel Reeves be presented with quite a nasty number.
Lucy Fisher
Stephen, what kind of standing does she find herself in as this week draws to a close? I mean, to me, her statement was very technocratic. It lacked poetry, any sort of sense of the wider vision that, you know, everyone has been asking where that will come from, from her and Keir Starmer. She tried to make a big theme of defence, including trying to make the UK a defence industrial superpower. Was that enough?
Stephen Bush
No, I mean, look, the central problem that she faces — I mean obviously her political position is ultra-secure, she’s there as long as Keir Starmer is in it, it’s the Labour party, so he’ll be there until he loses at least one general election — is that it’s not obvious from this Statement how they’re ever going to get out of these continual, oh god, every six months, there’s more pain in a fiscal event. Because she didn’t even have anything like, oh, I’m gonna set up a panel to look into tax reform, right? You know, there wasn’t even any kind of . . .
George Parker
No pitch rolling.
Stephen Bush
Yeah, there was no kind of, what am I going to do? Because what would be the best thing both for her, the British economy, and indeed the re-election prospects of the Labour party? It would be to get to a position where they weren’t up against the outer limit of their fiscal rule, where our debt started to fall, where interest rates would come down a bit and also where they weren’t having to have because I think In addition to the fact they are clearly exhausting the limits of the Labour party’s appetite for cuts, it is, I would say, pretty obvious if you’ve visited a prison or a school or a police station recently that we are up against the limits of what you can physically cut without having a conversation with the British electorate about its expectations of the state that no Conservative government has been willing to have, and I think it’s unlikely that a Labour government, even with this huge majority, would want to.
And there was nothing really in the Spring Statement to indicate to any Labour MP, or indeed anyone, how it is that, yeah, autumn won’t be horrible, Spring Statement 26 won’t be horrible. Autumn 26 won’t be horrible. Autumn 27 won’t be horrible. Autumn 28 won’t be horrible. Autumn 29 you’ll be updating your LinkedIn because you’re no longer a Labour MP.
(Laughter)
And that is a huge problem, I think, for them, is that it’s not clear from this how they’re gonna get off the rack. Obviously, she was a historic tax-raising chancellor in the first Budget. The difficult truth, though, is when you think about the other historic tax-raising chancellors — Rishi Sunak, 2022; Denis Healy, 76; Norman Lamont, 1993 — they all then had to do it again. The list of historic tax-raising chancellors tends to be the same guy twice.
And I think it’s highly unlikely that Rachel Reeves is not going to be the same woman twice, simply because in all of those cases, either they’d had a crisis or an irresponsible predecessor, or in some cases the irresponsible predecessor was themselves, but they were all having to fill quite a large hole. And I think it just seems highly likely that history will repeat and she will have to do another quite vertiginous set of tax rises.
George Parker
I don’t know what you think about this Chris, I mean she’s obviously got an incredibly weak economic position, but it does interestingly put her in a relatively strong position, her and the Treasury, in terms of going around Whitehall and to the various ministers saying look, things are absolutely terrible, we’ve got to do everything in our power to put up the stops on growth and all the things the Treasuries want to do for a long time like planning reform, deregulation, getting rid of quangos. There is a kind of window for her now to actually do some quite difficult things over the coming months, isn’t there?
Chris Giles
Yeah, I think and that is actually good for Britain as a whole. It might not be good for everyone in Britain because planning obviously there’s winners and losers, but for the growth rate and that’s the key underlying driver of the weakness of our public finances is that the economy since the global financial crisis in 2007-2008 has been growing far slower and productivity growth has been far, far weaker than it used to be.
If we had productivity growth at two, two and a half per cent a year as we had from second world war to 2007, roughly, then lots of these problems would go away, and you would have a Labour government that could definitively end this term with saying things have got better and look, we’ve been able to get child poverty down a little bit, every year we’ve been able to give a little bit more, and these are the proceeds of growth.
Remember those conversations, how to divide the proceeds of growth? Those are the nice days and the conversations that could be had. But we’re just not in that world and unless we suddenly miraculously and against all forecasts get into that world, things are going to be difficult because now unlike in the 90s and the 2000s, we’ve also got an ageing population. So that just adds to the . . . It’s great. I mean, ageing populations are really really fabulous, but it does add to the fiscal costs because as you get older you get more expensive for the state
Stephen Bush
The oldest of the UK baby boom in 1997 was 52, the oldest now is 78 and we have the group of people that finance ministers love most of all are 50 year olds because they are often at the top of their games, at the top of the earning potential. Their children are not sucking up quite as much time or money and suddenly all of those lucrative 50 somethings under New Labour are going to be expensive late 70-somethings under this labour. That makes it very difficult to do what Blair and Brown did successfully in the first term, which was they had very tight spending rounds.
The NHS actually got worse under . . . in New Labour’s first term in office, but the economy grew brilliantly and everyone was happy and it doesn’t seem likely without wanting to talk the country down that the economy is going to grow brilliantly and we’re all going to be happy.
Chris Giles
This is getting a wee bit gloomy this time. (Laughter)
Lucy Fisher
I was gonna say. So before we round up, can I ask each of you to give me one reason to feel optimistic about the UK’s prospects? Chris?
Chris Giles
I think the best reason to feel optimistic about the UK’s prospect is we have been having such a bad time compared with the best places in the world for quite a long time that we can catch up. You know, it’s not only that we’re not right at the frontier, we have to invent new things. We just have to be able to do things as well as America in certain circumstances, Korea and others, Germany and others, France and others. We just need to be able to find ways of improving ourselves.
Lucy Fisher
George.
George Parker
Well, I think also we should point out that we are good at many of the things we need to be good at in the 21st century. And we have, sitting in London here, the best city in the world. And if you’re looking around the world as a place to invest, the UK, I would have thought, is not such a bad place to be. So I’m a little bit more optimistic.
I’ve always liked to think of Nick Macpherson, Lord Macpherson, who was the perm sec at the Treasury for over a decade, who has said, you know, economies grow, they always do. So fingers crossed.
Stephen Bush
And the other thing to remember is that productivity growth is something that we don’t have a great historical understanding of, but we do know that it does tend to revert to the mean, right? And it’s always — although I would be very surprised and I think we’d struggle to understand why it happened — it is of course always possible that a reversion to the mean on productivity happens.
The potential of machine learning is continually outpacing our expectations, so it is always possible that there is a sudden productivity gain from the adoption of AI. One of the things which helped New Labour out was that the home computer dropped significantly in price throughout the 90s and noughties, which did also help at the margin. So, you know, something could turn up. (Laughter)
Chris Giles
I’m sure the government would say it’s entirely due to their growth policies, but that is unfortunately what the OBR has assumed every year since 2010, that something would turn up to raise productivity back to the historic trend, and it hasn’t happened.
So this is the decision the OBR has to take over the summer is, do we now become, because we’ve been overly optimistic on the most important variable in our forecast for 15 years, do we now tone it down a bit? And the answer is, they might do, then it might come back and they’ll just look too pessimistic. And it’s like sods and loins in that sense.
Stephen Bush
The other thing which could actually turn up is Labour, both through what they’re deliberately doing on energy policy and through innovation in the sector. If . . . You know, the UK has a very expensive energy at the moment. We are a country that has used a lot of gas at a time where an external shock, ie Russia’s invasion of Ukraine, has driven up the gas price.
If the price of UK electricity were to significantly fall, if the price renewables were to continue to fall, then you can see how that would help the UK to the upside.
George Parker
How about you, Lucy?
Lucy Fisher
Well, I think we’ve got a lot to be positive about in terms of the bones of our economy and advantages like English language, the rule of law and our legal system that still makes us a very attractive place to do business, our R&D sector. I’m still sort of optimistic about the ability of AI to massively improve things.
I believe in Amara’s law; we overestimate the effects of technology in the short term and underestimate it in the long term. And I think that’s definitely true if you think of something like the internet and the way it has completely revolutionised everything. So I feel a bit more optimistic, I think, than you guys, but perhaps that’s foolish of me to admit.
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Right, we’ve just got time left for stock picks. George, who are you buying or selling this week?
George Parker
I think I might have to sell Darren Jones, the Treasury chief secretary, who’s got a difficult few months ahead of him actually. He’s the man in charge of the spending review, which comes to a head in June and is gonna be the target of a huge amount of sniping by his ministerial colleagues as he turns the spending screws. But the reason I’m selling him this week is in trying to explain the government’s welfare policies, he made a horrendous analogy.
I can see what he was trying to do, but he made a comparison to his children and their pocket money and how they could earn a bit of extra money by going to get a Saturday job, which inevitably attracted a whole lot of criticism. He seemed to be equating his children’s pocket money to people receiving disability benefits. He subsequently apologised, but you can ill-afford that kind of clumsy misspeaking, to put it mildly, in a difficult time like this.
Lucy Fisher
Stephen, how about you?
Stephen Bush
So I was also going to sell Darren Jones, but I’m going to do a left field selling of another finance-related (inaudible), which is I’m gonna sell Mel Stride, which is . . .
Lucy Fisher
Just remind people who’s she, sorry, he is.
Stephen Bush
So, Mel Stride is the shadow chancellor, right? Now paradoxically, I think this is a good example of how when an opposition is more effective, it can sometimes make the government’s life easier, right?
Because what is the thing we still hear when you talk to Labour MPs, because actually they are the one group of people that are going, oh, why can’t we be more like Germany? What about loosening the fiscal rules? Why is that still in the air in Westminster? It is because of the astonishing failure of the shadow chancellor to land the fact that we have some of the highest borrowing costs in Europe?
And I think the interesting thing about the next two years, right, is that the Conservative party, we shouldn’t forget, is still third in most polls, right? In this terrible set of circumstances, in a time when people are very angry with the Labour government, the main opposition is not convincing at all, and there is going to start to be more and more chatter about how something needs to give, it obviously won’t be Kemi Badenoch (overlapping speech).
Chris Giles
We know! (Laughter)
Stephen Bush
I do just think that, yeah, like, look, ultimately, it should be more of a conversation point than UK guilds are where they are. He shouldn’t be someone who, on this podcast, we have to prompt people to remind him who he is.
Chris Giles
Or what gender.
Stephen Bush
Yeah, what gender.
Lucy Fisher
That was my cheap joke.
Stephen Bush
But, you know, the problem is, it’s a fun joke, but it’s good joke for a reason. And so, yeah, seeing as, you can’t all sell Darren Jones, I’m gonna sell Mel Stride.
Lucy Fisher
Chris, how about you?
Chris Giles
I’m going to go slightly more obscure and go Richard Hughes, who’s the chair of the Office for Budget Responsibility because I think his job over the next six months is utterly miserable. So if he decides to say, no, actually the forecasts are fine and we’re gonna be just as optimistic as we are not, then he might well be described as a bit of a Labour patsy by the opposition because everyone’s saying, well, no one else thinks they’re gonna be that optimistic.
And if he downgrades it and makes life really difficult for the government, then that is misery because they’ve got to sit in these meetings and they’ll have the Treasury bashing them over their head so it’s just not gonna be much fun over the summer for poor old Richard.
Stephen Bush
Lucy, who are you buying or selling?
Lucy Fisher
I’m going to look across the Atlantic to a story I have been obsessed with this week, which is the adding of an Atlantic journalist into essentially the digital war room of the US administration. I’ve just been injected into my veins, this story. Mike Waltz.
Chris Giles
It’s never happened to you, then.
Lucy Fisher
I’ve been waiting by my mobile, ready to accept the invite. You know, just every element of it — the fact they were using a commercial app, Signal, to organise or at least discuss the highly sensitive bombing of Houthi positions in Yemen, the fact that the White House tried to blame it on Mike Waltz, the national security adviser’s staff, but he himself came out and admitted that he did it. It’s just . . .
George Parker
And then he said there were no military sensitive details on the thing and of course there were which . . .
Lucy Fisher
And of course there were. To which then more detail came out. Yeah, I’ve been very distracted from the Spring Statement by that.
George Parker
So who are you selling? Mike Waltz?
Lucy Fisher
I’m selling Mike Waltz for adding a journalist to the digital war room. Well, that’s all we’ve got time for. My thanks to Chris Giles, George Parker and Stephen Bush.
George Parker
Thanks, Lucy.
Stephen Bush
Thanks, Lucy.
Chris Giles
Thanks, Lucy.
Lucy Fisher
And that’s it for this episode of the FT’s Political Fix. I’ve put links to subjects discussed in this episode in the show notes. Do check them out, they’re articles we’ve made free for Political Fix listeners.
There’s also a link there to Stephen’s award-winning Inside Politics newsletter, you’ll get 30 days free. And don’t forget to subscribe to the show. Plus, do leave a review or a star rating. It really helps us spread the word.
Political Fix was presented by me, Lucy Fisher, and produced by Lulu Smyth. Manuela Saragosa is the executive producer. Original music and sound engineering by Breen Turner. Rod Fitzgerald and Andrew Georgiades are the broadcast engineers. And Cheryl Brumley is the FT’s global head of audio. We’ll meet again here next week.
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