Speaker 1Britain is on an autopilot into oblivion. As Healy knocks back the booze, punters are set to get poorer after this nothing-burger budget.
Speaker 2So is the election lectern about to reappear outside Dining Street, despite the Prime Minister's denials he will be calling one soon?
Speaker 3This was just a pretend budget, a decision to buy a bit of time to give the Prime Minister, you know, some space to decide what he wants to do.
Speaker 1We have got it into our heads, haven't we, that wealth is an embarrassment. It's actually a moral defect. There must be something wrong about you if you're making a lot of money. And so I don't think the argument is just about financing the welfare state. I think the argument is now cultural in this country. It's become about whether or not wealth is something to be tolerated.
Speaker 3The Prime Minister wants a general election. He either wants it immediately or, more likely, in May. And he wants to keep his popularity. He wants to keep his popularity going by doing nothing, really, for the next few months.
Speaker 1We're here for day two analysis of the budget. I have just asked our guest what is his title. And, of course, it's my boss. It's actually editor of the Sunday Telegraph. For the last 10 years, Alistair Heath. Thank you for joining me and Jacob. Thanks for having me. We want to begin by talking about John Healy's pint. He downed a pint to celebrate the end of the budget. What did you make of that, Jacob?
Speaker 2Well, I'm telling you, I think it's a great idea. Well, until you told me it was real, I thought it was AI. I couldn't believe that the Chancellor would do this. He didn't look a natural at it. And I think there is a problem for people like John Healy and, indeed, me, who are fundamentally uncool, trying to pretend that we're cool. When you hold great offices of state, you need to recognize that you're quite a serious individual. And downing a pint in one was great as a university trick. But perhaps isn't quite the right image for a Chancellor of the Exchequer.
Speaker 1I disagree. I think chugging a pint is a great idea. I think chugging a pint is a sign of being a real man. And I think it's not about being cool. I think to be able to do that, you have to do it quite often. I don't think anyone. Alistair, could you down a pint in one? I doubt it.
Speaker 3No. It's not really my thing, I'm afraid. Pints. I mean, I've no problem with the Chancellor doing it at all. My only slight issue is there was nothing to celebrate from his appalling, useless, irrelevant budget. But I mean, I don't have a problem with him doing that.
Speaker 1Is there anyone on the front bench who could have made a better Chancellor?
Speaker 3Well, a less bad one, you mean, perhaps. I mean, I think the problem here is that right-wing commentators always like former Labour Defence Secretaries. Yes. Because they always assume that somehow, because you are a former Labour Defence Secretary, it means you're on the right, because defence is, you know, right-tinted, effectively. And therefore, you'd be a good Chancellor. But I'm afraid to say that's not the case. OK. He's not a good Chancellor. And I, you know, I was very depressed by his budget.
Speaker 1Because he made a joke about the speculation over who would become the next Chancellor. And we were threatened with Ed Miliband for a while.
Speaker 3Yeah, and obviously Ed Miliband would have been worse.
Speaker 1Yes. He found it hilarious when he said that. He almost broke the bonds of his straitjacket. Yeah, I didn't quite see the joke, really.
Speaker 3I think my sense of humour is just, is as defective as my ability to
Speaker 1down point him on. I think you had to be in the lunatic asylum to get it. Jacob, you were in a taxi the other day and you were mistaken for a well-known public figure.
Speaker 2I was indeed, so I left here and went off for lunch. And as I was paying the taxi driver, he said, "I think I recognise you." And of course, I was feeling frightfully important and thinking, "My goodness, he knows who I am." And he said, "Aren't you David Miliband's brother?" So he thought I was Ed Miliband. Now, I've always rather liked Ed Miliband, so I didn't mind this. Though I think his politics are bonkers.
Speaker 1But it works on two levels, doesn't it? Not just the mistaken identity, but also that it's David Miliband's brother. Yes, indeed. It's not Ed himself.
Speaker 2No, no, it's not.
Speaker 1I didn't realise it was David Miliband. In the public consciousness, David was a bigger figure.
Speaker 2Bigger than Ed, unless they've got a third brother who we don't know.
Speaker 1Perhaps it's me, secretly. Denzel Miliband. Alistair, we're going to talk about the budget. First of all, the economics of it and then the politics of it. On the economics, it always takes about 24 hours to figure out what happened and what the impact's likely to be. And actually, the consensus seems to be, to quote Peggy Lee, is that all there is? Not a lot happened. I was wondering. I was watching some graphs on Sky with Ed Conway and there were a couple. I'll come back to the second one later. But the first one that amused me was if you look at the number of measures in this budget, there are the largest number of measures since 2009. But if you look at the actual spending implications of the budget, it is the lowest figure since 2009. So this was really a lot of hot air, wasn't it?
Speaker 3Well, I think that stat you mentioned is actually quite telling, which is, you know, we are now. We are now resorting to extreme tinkering. More and more and more measures that achieve less and less and less, massively diminishing returns to scale as the entire system is effectively broken. I mean, to be honest, Britain is on autopilot towards oblivion and doing nothing is effectively doing something, which is refusing to turn the ship around. It's a choice. It's a choice, yes. And this was very much a choice to do very little. There were a large number of measures. Almost all of them are bad. One or two good ones, but I'd say 95%. 95% to 99% were bad. Very bad. But despite all these measures being bad, they were not bad enough to have a truly negative effect. Nothing really is going to change. Now you have some really horrible tax increases on savers, for example. You know, if you've got interest payments, if you've got money in the bank, you get interest, you've got to pay even more tax. There's now a dual system where you're penalized for interest. Interest is taxed more heavily than labor on purpose. It's a sort of Marxist-infused. idea that, you know, income from labor is better, is morally superior to income from interest. It's a war on the rentiers. It's got balkers.
Speaker 1There's an intellectual context to this, isn't there? Yes. Which is Thomas Piketty and the idea. Yes, yes. The problem is the asset-owning class has become dominant in our society. We need to shift power back to the people who.
Speaker 3Yeah, so if you've got 500 pounds in the bank and you're lucky to make a few pounds interest, you will pay more tax on that interest than you would if you're earning money. Mm-hmm. You know, as a banker or something like that, which is obviously completely ridiculous, but there you go.
Speaker 2It's monstrous because you're actually losing money, potentially, because of inflation, and therefore you're not being taxed on an income stream. You're being taxed on keeping your capital up with inflation, and so it's actually a capital tax because you need to be making whatever it is over 3% to be keeping steady with inflation. If they were to put a tax on the amount above inflation, that would be different, but they are taxing the nominal value whilst the real value of your money is going down.
Speaker 3Yes, but basically, the top rate of income tax is now 49%, not 45%. It's 45% on labor, income from labor, about £125,000 a year, about 49% on interest payments. So we've now got a 49% top tax rate, top income tax rate, though no one's really noticed. That was one of the many bad measures in this budget, but even though nearly all of these measures were bad, because they were relatively small measures, they won't noticeably ruin or accelerate the ruination of Britain. No. That's already happening anyway because, you know, the biggest tax increases came from fiscal drag and measures that had already been announced before.
Speaker 1To explain, that's where rates are fixed. Where tax thresholds are fixed,
Speaker 3there's a lot of inflation.
Speaker 1And when your income goes up a little bit, which it does with inflation, you suddenly find yourself in that higher band paying a larger rate of tax.
Speaker 3Yes, and crucially, the OBR is saying we're all going to get poorer on average next year. Real disposable incomes are falling at the moment and will fall next year more. And, you know, by 2030, 31, people will be maybe 2% at most richer than they were before the pandemic. So effectively, another wasted decade, which is, that's a scandal made in Westminster.
Speaker 1I just want to throw in here a quote from the Resolution Foundation, which I mentioned because it's one of the favourite think tanks of the Labour Party and the left. And it says that between now, 2026 or 27 and the end of Parliament, 28 to 29, typical incomes are forecast to fall in total by £1,050 or 3%. Now, Jacob, that's partly to do with the Iran war, right? That and the cost of living. It's not just government policy, but there is a difficult economic context that the government's operating in.
Speaker 2Well, I'd say it's government policy because if we had a sensible energy policy, we wouldn't be so affected by the Iran war that if we had maximised what we're getting out of the North Sea, if they'd approved Rosebank months ago, likewise, Jackdaw, if they'd started fracking, we would be getting lots of cheap energy into this country. So there are decisions that they've made that have been deliberately expensive. And this rebuilding of the grid, which is completely unnecessary if you have fossil fuels, you need normal capital investment, but you don't need to restructure the grid. It's all about policy decisions that are making us poorer.
Speaker 1Okay. And I think it's important to pick up on what you're saying, Alistair, and I think it's important to pick up on what you're saying, Alistair, to explain to people the philosophy guiding this. And it's an anti-saving philosophy, right? So Rachel Reeves wanted to go after ISIS and John Healy decided not to do that, which is a good thing. But one reason why they wanted to do it is they had this argument that that money is just sitting there and it's not doing anything. It's not doing any good for the economy. And they're obsessed with this idea that the middle classes have too much wealth that's squirrelled away. It's untouchable. You either, we're not taxing it after all, for it's not being put to work in the economy, right? So some of what they're doing is about trying to actually break down middle-class wealth and get it, in their view, working in the economy.
Speaker 3Well, this is a profoundly anti-capitalist government, right? You talked before about Ed Miliband, but Ed Miliband's won the intellectual war in the Labour Party. For the last 10, 20 years, you've had this debate, at least in the post-Blair era, you've had this debate in Labour about whether you should tax wealth or only tax income and consumption, right? Yes. The last time the Labour Party had that sort of debate was in the 70s, when they had agreed to start taxing wealth, but realised it was impossible to pull off, so they didn't do it. So once again, we're taxing wealth, the existing stock of wealth. The Chancellor confirmed yesterday that in 2028, the mansion tax will kick in on properties worth £2 million or above. And if you earn £35,000 a year or more, you will have to pay that mansion tax. If you earn less than that, it will be rolled up, and you'll effectively have to pay it if you sell your house or when you die. So all of that's coming in. You've had this increase in the tax rate on savings. You had an equal increase in the tax rate on rents. You've got a massive, massive crackdown on landlords. You effectively got rent controls through the back door coming in. Basically, judges can now effectively determine, in many cases, what rent you're allowed to charge. You've got inflation roaring and therefore eating up, the value of assets. And you've got a collapse in house prices in London Southeast. Very severe collapse in house prices in London Southeast. Probably houses often now down 10%, 15%. And of course, in central London. Did I really say that was on purpose? No, I think it is on purpose. I think there's demand destruction. There's a deliberate policy of demand destruction in the housing market. Massive stamp duty. Worn landlords. Rich people are fleeing, obviously, in quite large numbers in the UK. So I think you've got this crimping of the economy. Obviously, right. Labour didn't set out to deliberately reduce house prices because that's bad news for them when it comes to stamp duty receipts and things like that. But the policies are deliberate. The wrong wealth is
Speaker 1deliberate. The wrong expensive homes is deliberate. This is my theory, is that Labour has this list of bogeymen and they're basically the middle class. Remember Keir Starmer was once asked, what is a worker? And he said it was someone who didn't have. Savings. I mean, if that's your definition, then that's an awful lot of people.
Speaker 2But listening to Alistair has unfortunately reminded me of a conversation I had with David Gauke when he was in the treasury and I'd been in parliament a couple of years where he was advocating the advantages of taxing wealth. And he felt the capital was insufficiently taxed compared to income and expenditure. And unfortunately, it's not Labour. It's the treasury orthodoxy has come to the view that you need to attack wealth. And that's why you had the short-sighted increases in stamp duty under the Conservatives. And these policies are just a continuation of the same. We must take our share of the blame for having set this trend and thinking that government expenditure is fundamentally good. If you remember the nonsense being talked between 2005 and 2008 by the Tories, when we were saying we would share the proceeds of growth, by which we meant that we would keep on spending more money. And there's been no proper argument on the right until very recently. It's about saying, how do we restructure the state? So yes, Ed Miliband is the real intellectual of the left. I absolutely accept that, partly because there's none other to compete with him. But the Conservatives have failed to intellectualize, to think through what a conservative economic policy ought to be. And so when we were in, we tinkered in much the same way as Healy was tinkering. Not quite so many, not quite so trivial. When the chancellor is announcing expenditure of under £100 million in the budget, you know you're wasting your time listening to it. It's utterly insignificant in the scheme of government expenditure. But we went down this track, George Osborne went down this track, and I'm afraid we never got away from it. The only attempt failed. Now, I agree.
Speaker 3And, you know, to be clear, there's been a 30-year failure in British economic policy, a 30-year catastrophe, a betrayal of the British people by the three largest parties, you know, the traditional. Labour, the Conservatives, and the Liberal Democrats have all taken part in this. And, you know, 30 years ago, the economy was growing by 2.5%, 3%. That was a good, you know, a good year with 3% or more. Now, the economy is going to grow by 1% to 1.2% this year, next year. These are horrible, horrible figures, dire figures. You've got, you know, people becoming poorer, right? The average person is becoming poorer. Wages after tax are not going up. The tax burden is going to end up being six percentage points higher than it was before COVID. Well, that's the thing.
Speaker 1They're getting poorer at the same time that the size of the government is actually growing.
Speaker 2You see, the tax take isn't going to get bigger because people won't pay the tax. But it seems to me there is a limit in the UK.
Speaker 1How do they get away with that? They just leave.
Speaker 2They stop working and they leave. If you look at tax rates in the UK and tax as a percentage of GDP, where the tax rates have been 98% or they've been 40%, we have never gone above 38% of GDP in tax payments for any other country. So, I don't think there's a limit in the UK. I think it's extremely unlikely that we will do so again. You put up the tax on savings, people stop saving. They keep the money in cash. They leave it in their current account. Partly, they can't be bothered that if you're being taxed at 49% on your savings, you've then got to fill it out in your now quarterly return. Why bother? Why not just leave it in your current account and not get any interest? It doesn't make much odds to you. So, people change their behavior so the revenues don't come through. As you mentioned, they leave the country. People on £100,000 a year are asked to be paid £99,999 because of the enormous cliff edge they face at that point. And they work less because they don't want to earn the £105,000 where the next £5,000 almost all gets taken in tax. So, that limits the tax take whilst expenditure is going up. That is how you head to bankruptcy. Another graph that caught my
Speaker 1eye on Sky is one showing the deficit. And as Ed Conway pointed out, in every budget, someone always says, what's going to happen is it's going to go up for the next couple of years. Then it's going to come right down again. So, the graph they always draw is a hill. But Ed said, if you actually take the historical trend, the graph is actually an Everest that goes up and never down again. And I said, this trick really frustrates me and we see it every year. How do they get to claim that despite all of this massive upfront spending, at some point in the future, somehow the graph will start to go down and the deficit will be reduced?
Speaker 3The trick works. It even fooled the IMF. The IMF the other day said they're putting out this great program to reduce the budget deficit over the next few years. So, everyone buys this nonsense. And the national debt just keeps getting bigger and bigger over a long period
Speaker 2of time. But the ABR also produces figures that it knows are not true because by statute it has to. In the last 16 years, the ABR, it hasn't quite existed that long, but the ABR has assumed every year since it's existed that the fuel duty escalator will apply because that is government policy. At every budget, the fuel duty escalator has not been applied. So, the ABR's figures are automatically wrong because they are not allowed to make judgments against government policy. But Tim,
Speaker 3I'll give you a good example of what you're talking about. So, public spending as a share of GDP is going up this year and will go up again next year. And then it's due to fall quite severely over the next two, three years after that. So, you're talking about a massive cut to public spending as a share of GDP of at least 1%. And that is even before we increase expenditure on defense, which we keep being told is going to happen. These figures are fantasy. They're bogus. The government is assuming there's going to be severe cuts in certain areas and overall large cuts. This is not going to happen yet. Our entire financial stability – the fact that the gilt markets are relatively calm at the moment – is predicated on pretending that this ludicrous lie is true. None of it makes any sense. And seriously, the defense expenditure that's going to have to come through will blow all of this stuff away in any case. So, we face a really big issue here, which is the reason why I think this budget was basically what the Americans call a nothing burger. This was just a pretend budget, a decision to buy a bit of time to give the prime minister some space to decide what he wants to do.
Speaker 1The deficit is like in Family Guy when Peter talks about tomorrow, Peter. I'm not going to do that today. Tomorrow, Peter can handle that. Let's talk then about the politics of it, because one thing that was missing in it was welfare reform. And there is an argument some are making that everyone acknowledges this was a breathing space budget, not for the public, but for the government to buy them time. And one argument is, is that the government is not going to be able to do that. One argument is, is they're not going to hold an election. It's just that the major spending decisions are going to be made next year in the spending review. And they will be informed by two reports coming out in November, one from Stephen Timms and one from Alan Milburn on the future of welfare. So, the most friendly argument towards the government is nothing much happened because actually the really big stuff is planned for early next year. Would you buy that argument?
Speaker 3No. I think this budget was a very clear signal that there's going to be an early general election, especially when the budget is taken. together with the Prime Minister's comments on effectively rejoining the EU and reintroducing freedom of movement.
Speaker 1Which I just want to add, John Healey has not contradicted, but when he was asked, do you think we'd be growing quicker if we were in the EU, he demurred and said he wasn't sure that was the case. Yeah, and obviously we wouldn't be. I mean, it's a complete farce. It suggests that they've not discussed this. This is not some grand strategy among the front bench. This is just Andy going around saying stuff that comes through his head.
Speaker 3But the Prime Minister's a Prime Minister. He's a boss and he seems to believe that rejoining the EU is the answer. So my take is, the Prime Minister realises that Britain's broken. He realises that we're getting poorer. There's basically no economic growth. Nothing works. We're in total crisis. But his solution is the opposite. His analysis leads to very different conclusions to my own analysis. I think we are too socialist. We're too regulated. Taxes are too high. He thinks we're not, we're not socialist enough. We're too capitalist. We're too free market. We're too deregulated. There's too many private companies. There's not been enough nationalisations. And, crucially, we left the EU, which he thinks was a disaster. Why does he think it's a disaster? For no particular reason, but he needs some sort of panacea, some sort of dream economic solution to cling to. It's his five-year plan. So his solution is, we rejoin the EU, we nationalise everything, we regulate a bit more, perhaps we get rid of stamp duty and council tax and introduce, a revolutionary wealth tax, a proportional wealth tax. We change everything. And out of this socialist nirvana comes utopia. It comes much higher economic growth. So that's if he has any kind of belief, any kind of vision, that's his vision. He wants to go down in history as another Lloyd George, another Clement Attlee, another Tony Blair. In other words, a man of the left who will change Britain forever and put us on a new course. But this budget doesn't do that. So this budget cannot do that. And no budget could. It could have done that. Because to do what I'm saying, you need to repudiate the referendum. You need to put up income tax. To go to Jacob's point about increasing the tax take, I think you can increase the tax take, but you need to put up the basic rate of income tax by, say, three points. I think you need to put up VAT by eventually five points. Eventually we need 25% VAT for this kind of socialist vision. You know, you need to put up corporation tax. You need to do all that stuff. And for that, you need a new mandate. And for that, you need a general election. And as it just happens, the stars are aligning for the prime minister, I think. Why do I say that? Because Labour is quite substantially ahead now in the opinion polls, maybe five points according to some polls, maybe more even. Reform are in crisis. They've fallen back to, say, 20%. The Tories have returned roughly to where they were the last general election, which is just not enough to win an election. The Lib Dems are in crisis and the Greens are imploding. So in poll terms, this is good for Burnham. His bounce has succeeded and this budget is designed to keep the bounce going a bit longer. Secondly, there's a lot of things that are going to get worse by the end of next year. So the cost of living crisis will get worse. People will feel poorer because they are getting poorer. There's probably going to be another attack on Iran. So you can blame Trump for that stuff, which is good for Burnham. The new changes to the way we vote are at the moment in the House of Lords and will become law quite soon. Votes at 16, making it easier to vote. You will no longer need photo ID. There'll be a crackdown on some donors, which could hurt reform. So all of that stuff's quite imminent now. And then, of course, if you have a general election, you can defer decisions on welfare reform, which could be quite toxic for the Labour Party. I mean, I suspect many Labour MPs would refuse to vote for the sorts of policies that Alan Milburn is going to call for. Defence. How on earth do you square that circle? You need massive, massive tax increases within the Labour world where you can never cut spending. You're talking about £25, £30 billion a year in tax increases just to pay for defence, probably. So how would you do that? And if you want to put up income tax or change the system to fund local government, you need a general election. And crucially, if you want a real care service that's free, completely free and that costs a fortune, you need to put all that in a manifesto because you need very large tax increases. So all of that stuff put together, combined with this nothing of a budget, makes me think that, you know, the prime minister wants a general election. And he wants to keep his popularity going by doing nothing really for the next few months, blaming Trump for all the problems and deferring all the difficult decisions on welfare, defence and tax until after that election.
Speaker 2Jacob. I think on the constitutional point about an election, the king is abroad at the moment. If he wants one immediately, he can have it. I checked this. The councillors of state are not permitted to grant dissolution except by instruction from the king. And the Act, which is in the 1930s, that provides for this allows the message to be sent by telegraph. So rather splendidly, even with the king abroad, it would be possible to get a dissolution. People were worrying about that. I think the problem is, Alastair, as always, makes a compelling analysis. I might quibble on whether you can get above 38% of GDP because when the base rate of tax was 33%, you still didn't get above 38% of GDP in tax. I just think people changed their behaviour to avoid it. But let's leave that to one side. The problem with the do nothing budget is that people have noticed. And that I wonder whether the popularity that the prime minister's got will survive. And the difficulties of reform make this a huge risk. Say we were to have an immediate election, the 10th of December, which people have been gossiping about. The first two weeks of an election campaign could be taken up totally with reform candidates who have done stupid things. Reform's process of vetting is hopeless. And reform people admit that. Suddenly, people on the right think, well, the only thing to do is to vote conservative. And the two blocks of left and right have remained amazingly consistent in polling times. It's all about how do you consolidate your wing of politics. If reform continues in its current difficulties, and I'm not sure it will, because I think Nigel Farage is a formidably able politician and may well be able to turn it round. But if reform were to continue along that route, where else do people go? They go back to the Tories. And that means if you look at the volatility of opinion polls, that Burnham should be very nervous. But what happened in 2017, Theresa May had a 20-point lead in the polls. She had some of the best local election results in recent times for the conservatives. And then she lost the slim majority that she had. So there may be a certain caution, thinking we've got a majority of 160. We can ignore our manifesto commitments. Actually, we can put up tax if we want to. We can say times have changed, that when we made that promise, there was no war in Iran. You can always use a war to change manifesto commitments.
Speaker 1Then why not do that now?
Speaker 2Yes, because I think he's keeping his options open and has probably boo-booed. I mean, I think this is a boo-boo budget that failing to do anything, your point has absolutely spot on. Doing nothing is leaving the autopilot heading towards disaster. And that is being noticed, that voters have seen that they've done nothing and they're going to see their living standards declining, which they're noticing already because they're already getting the letters saying their gas bills are going up, et cetera, et cetera.
Speaker 1Well, even with the current Ofgem price cap, they're looking to pay an average of £1,723 a year, in which case £100 off that bill is really no help at all, as far as I can see. I think the other thing we must mention also is Poundland struggling, which is a fascinating and very troubling development. And the chancellor has spoken to Poundland to try to see what can be done to save its workforce. I think Poundland's model of providing good, cheap goods to people, I sound like an advert, but is exactly what you need in a cost of living crisis, right? But these businesses are being undermined by tax increases.
Speaker 3Yeah, but if you go to a local retail park and you suddenly find the retail park is now full of discount stores and the German retailers have exploded in size, you've got companies like B&M, you've got obviously Allian Liddle on the German side, you've got supermarkets like Tesco going back to their old roots of being effective discounters, and you've got Sheen and Temu from China. So I think there's extreme competition now in the retail market. But they presumably cannot have
Speaker 1the price of labour going up. No, no, that's right, there's extreme competition.
Speaker 3You've got real wages declining and the money people have left over going down because of tax increases and inflation. Yes, you have minimum wage increases, which by the way have been far too substantial and have increased unemployment. But there's just not enough money left in the economy to keep all these companies going, so you can have more and more companies going bankrupt.
Speaker 2Yeah, and the OBR itself is forecasting that the changes to the labour market with the Employment Rights Act and with the minimum wage is pushing up unemployment. So the government's own forecaster is accepting that. I think it's always very difficult with an individual company because Poundland ought to be in the sweet spot retail that squeezed consumers going to save money. And if Poundland isn't managing to do well in those circumstances, there's a problem with Poundland rather than with the specifics of that model that Aldi and Lidl and so on are doing better. And it may be simply that they've out-competed Poundland.
Speaker 1Yeah. I think it's important through all of this to remember that people swim in the soup of ideas. And Andy Burnham, he may be an element of the chancer about him, but he is someone who has marinated in the popular ideas of the left for the last few years, probably even more so for having been outside of Westminster and being in a job, mayor of Manchester, where you are flattered by think tanks and flattered by left-wing people. And they have been telling him, and I read your column and I thought it was absolutely spot on. That the problem is a crisis of capitalism. And the problem is there's been too little government, not too much. But the irony is, is that if you look at the Western world and where the problems are greatest, it's very often where government is biggest. No one has a more generous welfare state than France. And yet France has had violent riots about inequality. And some people have been sharing Alexis de Tocqueville's observation when touring America in the 19th century, that actually a society that's more equal is more obsessive. I think that's the best about inequality, because you notice the small differences between people. And it does feel as though some of these social democratic states have reached that point of almost cannibalizing themselves. They don't know what to do anymore. And so the solution becomes, let's nationalize the trains. But it has no relationship to the actual problem, which is the challenge of creating wealth in the 21st century and in a digital world. That's really what a budget ought to be 90% about.
Speaker 3Right. A, Tim, I agree with everything you said. And B, I'll go further and say that Britain is too equal now, much too equal. And that is now one of our great problems. There's something called wage compression, which we suffer from in Britain, which is that many, many people are paid very similar wages, but for very different roles. Why? Because the minimum wage is now so high that middle earners only earn slightly more than the minimum wage in many cases. And that's and also you've got very high. You've got a very high welfare payments, which create effectively a kind of base, base income, base universal income, basically. And if you take the top 10% or 20% of the population in this country, they don't earn enough. If you're the top 10% or 20% in America, you're much, much better off than you are in the top 10 or 20% in the UK. That means that the best and brightest over there are much more encouraged, you know, the gains from studying in America are now much higher. The gains from setting up a business are much higher. The gains. When it comes to moving to America are very high for people. We are too equal, right? The pro for years and years and years. The BBC was leading a campaign to say, you know, inequality is bad. You know, inequality is terrible for people's mental health. It's just awful. And, you know, let's let's have more redistribution and more taxation. I always opposed that, of course. But but now we've reached the end of the road on that. We're so equal that that is one of the reasons why our economy is petering out and is barely growing. And in fact, there'd be the only reason there's any growth almost in this country is because of the AI boom. Yes. And these American AI companies are spending a lot of money boosting GDP in the UK. This has nothing to do with UK economic policy. The UK will be even more sluggish without this sort of foreign investment.
Speaker 2This is a huge Brexit benefit because we've regulated AI in a way that they can actually do it rather than in a way that stops them doing it. And Alistair is absolutely right. Everything balances at zero. We had a big decline in inequality following the crisis of 2008 when the economy collapsed. Yeah. This is not a good thing. Inequality is irrelevant in a growing economy. As long as everybody's getting a little bit better off, whether somebody is 100 times better off than I am, it's neither here nor there or a thousand times. It's completely irrelevant. And governments, including conservative governments, thought that inequality was a policy objective. It isn't. It is not a good thing. It is a good thing, axiomatically, to have a progressive taxation system. We don't want a regressive one. But why is it good in principle to tax people at 45% rather than at the 20% rate? In my view, it isn't. Taxation is about raising the money you need, not to try and make some people poorer as a policy objective so that the difference between the poorest and the richest is narrowed as a policy objective.
Speaker 3But, Tim, if you're right, that means we've gone backwards, right? That the entire Thatcher legacy has been destroyed and squandered as a result of 30 years of cross-party failure and a sort of flawed intellectual battle which has led to left-wing ideas basically triumphing in Britain. And that's. We're on a very bad place as a result of all this.
Speaker 2Well, except I think the country is ready for fundamental change. People who are working and are going to see their standard of living go down next year as their effective tax rate goes up as a result of thresholds not increasing and see their next-door neighbor carrying on with exactly the same lifestyle as benefits go up and are kept steady in real terms, they'll head up with this. And they think it's unfair and it's unreasonable. The people in the southeast who vetted labor. Who have seen their property prices come down. Or Lib Dem. The people in Piddington who suddenly discover with a Lib Dem counselor, a Lib Dem counselor, and a Lib Dem MP that they're going to have thousands of illegal migrants living with them are realizing that if you vote for socialist things, left-wing things, you get a very unpleasant life in the end. And this is going to have a crux point. And that is going to make people come back to conservative ideas. Whether it's a conservative party or a form, I don't know. But people are. They're coming back to conservative ideas because they're fed up with this neo-butskillism that we've had in recent years.
Speaker 1I want to conclude with an email from A. Anderson in St. Ives, Cornwall, who is an independent small business owner and I think captures this very well. They say, quote, Let's strip away the treasury jargon and put the £100 house energy payment into common man terms. This is the UK's most expensive payday loan and it's one the public never actually asked for. The government hands out a flashy £100 token up front via council tax, but funds it by doubling the bank's surcharge to 6%. Any business owner with a modicum of financial intelligence knows that banks won't absorb that in a vacuum. Over the next 36 months, they will logically protect their net interest margins by squeezing savers and hiking interest rates on mortgages, credit cards and commercial credit lines. The ultimate irony of this populist tactic is that while voters think they are £100 ahead today, they are being locked into a predatory. high-interest contract that will quietly extract thousands of pounds from their pockets over the next three years. Worse still, it completely fails to fix our true long-term commitments like social care and our military, which are being starved of funding while our sovereign borrowing yields spike. And on that very happy note, I can tell you that we will be back tomorrow at 5pm. Thanks for watching.
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