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This is an audio transcript of the Payne’s Politics podcast episode: Sunak versus the strikes

Sebastian Payne
Rishi Sunak sought to deal with yet more waves of strikes embroiling the country as he was criticised for not having enough focus on resolving the pay issues.

Keir Starmer
It might not seem like it, but he’s supposed to be the prime minister. (Laughter) This morning, his transport secretary said that his flagship legislation on strikes, this is what he said this morning, his transport secretary, you might want to listen to this — (MPs shout “Hear! Hear!”) is clearly not going to help with the industrial action we’re facing.

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Sebastian Payne
Welcome to Payne’s Politics, your essential insider guide to Westminster from the Financial Times with me, Sebastian Payne. In this week’s episode we’ll be examining how the prime minister is dealing with yet more strikes and more discontent in public services and more unrest from the leader of the opposition that you heard at the top. Has Sunak worked out what his government is for and how it’s going to fend off those attacks from both Labour and the resurgent Reform party? Chief political commentator Robert Shrimsley will dissect with our deputy opinion editor Miranda Green. And later, we’ll be exploring the Edinburgh reforms of financial services announced by the chancellor, Jeremy Hunt, this week, an effort to take advantage of Brexit and the regulatory freedoms for the City of London. But will the so-called Big Bang 2.0 make much of a difference and will they improve economic growth? Political editor George Parker will explain the proposals, along with our business editor Dan Thomas. And before we get started with the podcast this week, I have some personal news, as they say. After seven fantastic years at the Financial Times — nearly all of them hosting this podcast — I am off to pastures new. From January, I’m taking over the think-tank Onward as its new director. So I’ll be with you this week and for our end-of-year wrap next week, before Payne’s Politics will re-emerge in a new guise. But for now, thank you all for joining

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Sebastian Payne
Another week and another round of strikes. This time it’s the UK Border Force staff who announced they’re walking out, followed by more industrial action on the railways by the RMT union helpfully on Christmas Eve. For Rishi Sunak, there is no clear answer on how to avert them. The government is not giving way on wage increases, so it feels as if the strikes are going to go ahead and all the disruption that will follow. But it speaks to a much wider issue about what the Sunak government is for and how the prime minister can get through all of these big challenges ahead. Speaking of PMQs, Sunak said he had no choice but to toughen up strike laws as the waves of industrial unrest continue.

Rishi Sunak
It’s accepted the recommendations of an independent pay re(view) body, giving pay rises in many cases higher than the private sector. But if the union leaders to continue to be unreasonable, then it is my duty to take action to protect the lives and livelihoods of the British public. (MPs shout, “Hear! Hear!”)

Sebastian Payne
Well, Miranda Green, welcome back to the pod. It’s literally every other day now, it feels like more strikes are announced in a different part of the economy. And it was a very helpful chart this week that showed every day between now and Christmas and every day there is some part of the British economy, or in particular, the public sector that is on strike. And even though everyone’s saying we’re not having a general strike, it sort of feels like de facto we are, in some respect. But again, how is the government coping with this? What’s their response and what can they actually do about it?

Miranda Green
It’s an enormous problem for Rishi Sunak and his government because they’ve got to square off what they consider their imperative, which is to keep down public sector pay rises to what they think is an acceptable level that won’t stoke further inflation. And so they feel if they say yes or they show a little bit of negotiating softness with one group of public sector workers, that will open the floodgates to the others who are threatening industrial action and making above-inflation pay claims. And then the Treasury’s plans essentially unravel and they lose control of the public finances in that way and stoke inflation. But of course they also have to show that they are in control of the public realm. And this is where the politics get really, really tricky, because the one thing that the public demands from a government is that it has grip and that things actually function. And we all know that because of Covid, because of supply chain problems, staffing issues, the public sector is really, really creaking at the seams anyway. And the strikes will draw attention to that issue of, is this government in control? We all know the precedent, the winter of discontent, where a government really lost control and was punished at the polls. And also, of course, we know about the precedent of a government going to the country and saying “Who governs, wanting the verdict to be? Well, it mustn’t be the trade unions”. And the public said, “Not you,” and got rid of them.

Sebastian Payne
Well, this is the big problem, Robert Shrimsley, is that these strikes, the fact is where inflation is at the moment, giving massive pay rises is going to be almost impossible because to quote Liam Byrne, there is no money left. And also you risk creating a wage-price spiral if you keep giving people above-inflation pay rises. But as Miranda said, it does feel as if people are not going to blame the Labour party for this. And you heard Rishi Sunak at the top there, talking at PMQs, and it’s the old lines about the union paymasters and it’s all their fault. But fundamentally, if things aren’t working in the country, people blame those who are in charge.

Robert Shrimsley
That’s absolutely right. There are a couple of points you touched on. One of them mean just settling the nurses’ pay claim could cost an extra £10bn, which the government doesn’t have. Also, there is an argument that a lot of people in the private sector are going to get less than inflation pay rises this year. I think the average at moment of about 6 per cent. So you can see how the government can play that argument. And it’s also true that public sympathy for strikers dissipates the more difficult things become, and the government . . . 

Sebastian Payne
We’ve seen a bit of that this week in the polling with the RMT.

Robert Shrimsley
Absolutely. There are some of the political calculations the government is making that you can see where they’re coming from. And this government has always been a Margaret Thatcher tribute act. So the idea of some strike, some trade union legislation is terribly appealing. But I think they’re making a couple of errors. One of which I think is that they are not dividing and ruling the different strike action. There isn’t just try and lump it all together and say, “Look, union militancy everywhere”. Instead of actually saying, “Well, look, the public probably are not on the side of the train drivers. We can have a good old go at the RMT. We can play as tough as we like and punish them with our transport minimum standards legislation that we’re going to introduce”. Nurses, health workers, there’s probably a bit more public sympathy for. And even more important, given the huge staffing crisis that you have in the NHS, you actually have to put more money on the table and better conditions in order to get the NHS functioning again. So I think although I understand the politics behind this, I think they could be politically more acute in the way they separate the different strike actions.

Sebastian Payne
Let’s just hear from Mick Lynch, who’s the general secretary of the RMT union who has done a lot for his cause. He’s been very coherent in public and the argument he’s making is it’s not just about this moment. It’s about the general state of public services and the economy.

Mick Lynch
I don’t want a general strike, but I think the way that everything is going at the moment, with the suppression of wages, the stresses and strains that many workers are suffering in the health service and education. I think the trade unions have got to maximise their leverage, and it would be daft if they didn’t co-ordinate and synchronise their action.

Sebastian Payne
So, Miranda, this is again comes back to the point about where public sympathy is, because I think people would agree with Robert. When you look at the conditions that nurses have had to work through, not just the pandemic, but the huge backlog and unbelievable pressure on hospitals at the moment. But it does strike me this kind of much longer thing, trying to make it about Tory austerity and has stayed in the public realm has been. Do you think there’s sympathy for that among people?

Miranda Green
It’s an interesting point. I think Mick Lynch there is straying on to territory where he might start to sacrifice some public sympathy, actually. As Robert said, the feeling that people have about solidarity, that they might feel even to use that sort of word from the left with NHS workers or even with teaching staff in schools, should that start to bubble up in the new year? That is rather different. Personally, I’m trying not to take the Border Force strike personally because I’m trying to get back into the country on the 23rd of December. So we’ll see how that goes. That feeling that the public is under attack from the unions could creep in the more that they try to claim that the strikes are a sort of political campaign. So I think the union voices have to be quite careful on that actually.

Sebastian Payne
Now Robert, the response from Rishi Sunak’s been talking about this anti-strike legislation, which was something Liz Truss talked about an awful lot during her very brief premiership. And the issue with this is that first of all, it’s not a Tory manifesto commitment, so it will get absolutely held up and pulled to pieces within the House of Lords. The second thing is, by the government’s own admission, it can take a long time to pass. There’s been some reports on Thursday that they could introduce it in the second week of January, but it’s gonna take a long time and if we do end up going through this cycle again next winter, when we go into pay settlements and inflation is still running high, what’s the point of doing it, you know? Can you see any political advantage about trying to push this through; maybe Labour oppose it, and then maybe in fact, you can gain some benefit from that?

Robert Shrimsley
I don’t think it’s an intolerable idea to say we require a certain minimum service provision in key infrastructure. Britain would not be the first European country to do such things.

Sebastian Payne
And it exists already for some sectors.

Robert Shrimsley
Exactly. I don’t think particularly around the rail network and around transport. I think the public support for the way these things work is that essentially you set them up in such a way that if the unions do not provide or guarantee a certain minimum level of service, they lose the protection they have from litigation for the disputes. So it’s very, very serious for the unions. If you do this and they take it seriously, I think there’s probably something reasonable there. Once you get beyond that, though, you also have to start asking, well, what’s the quid pro quo for strikers who want to withdraw their labour to get decent standard of living, decent working conditions? You have to have some kind of settlement system, be it the pay review bodies or some other system of binding arbitration so that they can get a fair hearing. And even the pay review bodies which do exist for things like the health service, you know, they work to parameters already set by the Treasury. So I think the difficulty with all of this is it might help for next year. If the public gets really angry with certain unions, it will look like a government response that will help them say it wasn’t as it was then. None of this answers Miranda’s first and absolutely crucial point, which is that in the end, you are the government, and if the country isn’t running properly, the voters are not gonna reward you for this.

Miranda Green
And in addition to that, Sunak’s government is already having to ditch legislation which they were hoping to put through, and which the Conservative government on (unintelligible), that two or three leaders that we’ve now had since the last election, but also promised. The schools bill is one that’s fallen under a bus in the last few days. So, you’re then gonna get into a process where you’re demonstrating your political priorities in the run-up to a general election and are they the ones you really want to be front and centre? How relevant will they look to the public if this is after the event, after this winter is over, and after this round of strikes is finished?

Sebastian Payne
Well, this brings us to this much wider question about what the Sunak government is for. Because when it came in, Robert, it was dealing with the fiscal blackhole, our old friend that was created by Liz Truss. And, I think most people agree that they dealt with that pretty much as well as they could. You know, the Autumn Statement went down relatively well. It calmed the markets and obviously, Conservative MPs were not happy but they didn’t actively sort of kick off against it. So they’ve got through that. Now they’re on to all these strikes, which is obviously that’s gonna keep rattling through to the rest of this year and it will be very painful, as Miranda said. And I do hope you can get back (Miranda laughs) in the country, by the way, for all of us.

Miranda Green
Thanks so much.

Robert Shrimsley
Is anyone Miranda seeing on the 24th, she sends her apologies now.

Miranda Green
(Laughs) My mom and dad, it’s quite serious.

Sebastian Payne
Most importantly. But what we’ve seen this week, Robert, is that it looks as if essentially Downing Street is going through the Queen’s Speech. We set out the legislative agenda under Boris Johnson, which was obviously two prime ministers ago, and lots of stuff is being ditched. So we’ve been, some reports that Dominic Raab’s British Bill of Rights, which has been this big hobbyhorse to overhaul the Human Rights Act, is potentially going to be delayed. And it feels to me as if the classic Tory “barnacle-off-the-boat” strategy, which is to strip aside stuff that’s gonna be problematic or messy or time-consuming before the next election, is already starting to happen. And that’s why, really, they’re going for this anti-strike law because they know that is a barnacle.

Robert Shrimsley
Yeah, although some of the barnacles are getting stripped off, like housing targets, could actually be quite useful in the country. So, there is a case for the defence with this government — for all its flaws, which is, that it’s had a pandemic and it’s had a European war and energy price spike to deal with, and it’s simply is in crisis-management mode, because that’s where we are as a country and indeed as a world, and you have to allow for that fact. And the truth is, Rishi Sunak will do another great big relaunch planned in the new year and speeches and policy notes, but they won’t matter because we’re fundamentally managing a series of crises. The purpose of government is to manage the situation we’re in as well as we can. I don’t think, given where we are in the parliamentary cycle, given where he is and the number of mutinous MPs he has, that he can hope for anything more. And in terms of the voters, the best he can offer them say, “Look, we got dealt an absolutely terrible hand of extraneous crises. Do you really think Labour would do any better?” That’s as good as it gets, I think.

Sebastian Payne
You have to have the green shoots that Norman Lamont talked about in the run-up to the ‘92 election to say, “Okay, inflation is coming down, we’ve got the economy back on track, we’ve got through the strikes, we’ve got through the pandemic. Don’t let Labour mess it up”. But the flip side is, Miranda, if they actually say, “well actually, you know what, okay fine, thank you very much, but we want some change”, which is what happened in 1997. Now, I just want to pick up on something you’ve written about your column this week, Robert, because the Reform Party, which was the artist previously known as (laughs) the Brexit Party, even more previously known as Ukip. They’re polling quite high again in the polls, about nine per cent as of this week. And, if that was replicated, the general election would harm Labour and the Tories. But certainly, it would stop the Tories from winning because they would take enough votes away to allow Labour to win. You’ve made the argument that we should stop thinking about Reform Party so much. Give us your your pitch on why that’s the case.

Robert Shrimsley
Well first of all, I mean, I’m not very excited by one poll showing how the Reform Party...

Sebastian Payne
Finely so, finely so.

Robert Shrimsley
I don’t think many people know what the Reform Party is. It just sounds like something that might be good. I think that in the end, the Conservatives’ biggest problem is and has always been, apathy rather than defections. Even in the 1997 Blair landslide, the Conservative Party lost more votes to abstention than they did switching to Tony Blair. The Reform Party, its main appeal is a vehicle or receptacle for those disgruntled Tory voters who don’t want to go to Labour party but have had enough with the Tories. And my view is, those people will be like that anyway. The bigger problem is this, there are issues that are being raised. The most obvious one is the issue of the small boats and the asylum seekers, where the government has to get a grip of things because this is a significant political problem and a real problem. And, if it doesn’t show signs of addressing it, it will have a problem. You cannot appease that hard right fringe of the British public, because even if you halve the number of people coming in on small boats, which should be a major policy success, it won’t be enough for all this. And even if you completely choked off all illegal entry, they’ll stop going to legal migration, saying the numbers are too high. So the real truth is, successful political parties go to where the votes are, and the votes that they need to hold onto and stop losing are the ones in the political centre. The people who are looking at Labour Party and saying, “I’d be all right”, it seems okay, they may not vote for it, but they’re not frightened of it. And so I think the Conservatives need to worry a bit more about that and a bit less about the hard right.

Sebastian Payne
Well, let’s have a listen from Nigel Farage, who doesn’t actually have a formal role in Reform UK, but has been popping up to talk particularly about the issue that really brought him to the fore of British politics and that is migration levels.

Nigel Farage
Immigration still running at record levels and they’re making it clear it was there in the budget. They intend for it to continue with about a quarter of million net every single year. The English Channel, where they’re not prepared to lift a finger, and take us out of the ECHR and get Brexit done properly.

Sebastian Payne
So Miranda, when do you sort pull all that together. And of course, it’s a delight you were back to the Brexit betrayal narrative, despite the fact we’ve left the EU for several years now. But, you can see why there’s a certain class of voter who listen to that, see it on their social media feed, say, “you know what, actually, this is not what I voted for” and you know, they might see Suella Braverman talking about the small boats issue. And I think for me, small boats is about competence and it’s about control because that were the two key messages behind the referendum, behind 2019. It was saying to people, we are running your country and this is what we’re doing. In that clip, Nigel Farage said about a quarter of a million in a year. I think net migration was actually more than double that in the last year. So, you can see why there are a certain set of voters who will be open to that message, even if Robert says they’re not the vast bulk of the British public.

Miranda Green
What was so clever about that Farage clip and he is a brilliant communicator, is that he literally ran together a little list of hot button issues. So even if you don’t react to one of them, if you’re in that group of voters, you might react to the second or the third thing that he mentioned in one sentence. And you know, where is Robert’s analysis before you played that clip is absolutely correct about what the Tory party should do and how it should react to this. If it wants to chase where the group of voters who will win you a general election sit in the centre. The problem is, that the Tory party in recent years, all the way back to the 1990s, has not reacted to this threat from the right in the rational way. Because leader after leader has decided to throw red meat to the right to try and quell those voices in their own party, and to try and tempt those voters on the right back into the Tory fold when it comes to polling day. So, the problem is the precedent is there quite strongly for Rishi Sunak and his team not to listen to Robert’s wise advice (laughs), sadly. But to once again, listen to those on the backbenches who have particular issues that they are very upset about, and which Nigel Farage then stokes through his platform that Tice and the Reform Party and then there is a receptacle for those votes. It could be very, very inconvenient to them at election time, and they will be more likely to be reminded of that threat on the right and the need to unite the right. Then they will be reminded of the need to speak to the media and voter in the middle.

Sebastian Payne
And just finally, Robert, where do you think Rishi Sinak feels about this? Because this comes back to where we started the conversation that we didn’t really have much sense about what he’s doing because the anti-strike law that might signal right-wing instincts, but I think that’s about surviving. The Autumn Statement was about surviving. It’s not the kind of budget he necessarily wanted to do. So, when you look at how to deal with the reform threat, which I think is going to be a big part of the political conversation in 2023, how is he going to kind of react to that, do you think? Do you think he’s going to listen to your obviously very sage words, or do you think he’s actually going to do the classic Tory “they wish to throw some red meat” and then the populist right on some even more red meat?

Robert Shrimsley
There’s a question of what he will do and what he should do. I don’t think Rishi Sunak has done anything yet, which suggests to me that he has the kind of inner strength or political conviction that says, I’m going to stand up to these. But because we’ve been victims of a 25-year shakedown, where the right in his own party and the right outside the party say, “you’ve got to do this or we’re gonna to lose support”. And they do it, and they all you’ve got to do that, I’m gonna to lose support. The Conservative Party and Rishi Sunak now, is allowing the agenda to be set by people who are not in their party and they’re allowing the agenda on migration and on asylum seekers and other things. And, the European Court of Human Rights, big hot button issue in the pubs, to be set by people outside his party. And if you think about what someone like Boris Johnson would have done, who for all his other failings, was an effective political campaigner, he would not let this conversation be set by them. I think he would be saying, we’re making great srides in immigration, we’re doing this. And you know, we’re proud that we’ve let people in from Ukraine and we’re proud we’ve let people in from Hong Kong. And you would not let the whole conversation be set by people who wish to do your party harm. You have to acknowledge the small boats issue, it’s real. But you try to move the conversation on instead of being in a constant crouch, sounding more and more extreme and rabid about it. Because you think that’s what you need to be. You make undeliverable promises and you lose out.

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Sebastian Payne
Miranda and Robert, thank you very much. Now on to something very FT, a little bit more niche, but important for the future of the economy: financial services reform. Since leaving the EU, various Conservative governments have been eager to show the benefits of Brexit. And one area that’s often talked about is liberalising things within the City of London. This finally came to fruition when the chancellor, Jeremy Hunt, announced the so-called “Edinburgh Reforms” in Edinburgh this week that would make things easier for the City and try and regain its competitive edge after this slow drip, drip of talent and resources out of London. Speaking to the FT’s global boardroom, Hunt explained why this is so important for the future of the City.

Jeremy Hunt
I think it’s pretty significant and I think what it shows is the UK is being nimble in constantly asking, in constantly changing global markets what we can do to make our regulatory regime competitive, being prepared to ask big questions on things like ring-fencing, for example.

Sebastian Payne
Well, George Parker, welcome back to the podcast. Now we’ve been talking for some time about the sort of benefits of Brexit with regards to regulatory flexibility and those codenames. Mifid II and Solvency II have been discussed by I think pretty much every chancellor since we left the EU. Can you tell us the thinking behind this in the Treasury and the history of how we got to this package announced by Mr Hunt on Friday?

George Parker
There’s been really, I suppose, the flagship policy, as far as they were concerned, in terms of illustrating the opportunities of Brexit and Brexit freedoms that we’ve been able to design. What Jeremy Hunt has called an agile, bespoke regulatory regime for one of our most important industries, if not our most important industry, the financial services sector. So that’s what’s as laid behind it.

There’s been a lot of overheated rhetoric about how important these reforms would be or how big they would be. Kwasi Kwarteng, the previous chancellor, referred to this as Big Bang 2.0, a reference back to the far more substantial reforms that Margaret Thatcher’s government introduced to the City in London in 1986. That’s now been dropped as a phrase, and it’s now, as you said, the rather more prosaic Edinburgh Reforms.

So there are a load of things that Jeremy Hunt has announced which can only be done because we’re outside of the European Union. But some of the most significant reforms in this package are actually the rolling back of some of the things we did unilaterally as a country after the 2008 crash, a recognition that we actually needed to go further than the European Union because of the huge weight of the financial services sector in the UK.

So whether that was the ring-fencing of banks to keep their investment arms separate from their retail arms or so-called senior managers’ regime, which Dan can talk about in a minute, which put the fear of God into some bankers because they would be held responsible for things happening on their watch. Those were things we introduced as Britain, regardless of whether we’re in the EU. So there’s a mix, really, of stuff we can only do because we’re outside the EU, but things we could have done anyway as a sovereign country.

Sebastian Payne
And a lot of this, of course, is sort of the politics of the moment that we wouldn’t have done those things because we were in the EU. And I think, you know, you can liken this to the fact we did our own vaccine procurement that, you know, as everyone has made time and time again the point, you could have done this within the EU but the politics, that moment, we do it differently. So it’s sort of a combination of that. But Dan Thomas, it’s great to have you back on the podcast. So can you talk us through the various bits that Jeremy Hunt has announced and your take on them?

Dan Thomas
There’s a vast package of financial regulatory reform here. I mean, it’s very difficult just to hone in on one part of it, really, because it’s so broad. I mean, really what they’re doing here is they’re taking all the financial services rulebook, a bit of which was brought in alongside the EU. As George says, they’re taking upon testing each and every one of those rules to see if it is fit for purpose for the UK going forward. And you know, this seems incredibly sensible. UK is not the EU. We have different strengths and we have different opportunities for the future and this is all about trying to gain that competitive advantage, particularly those opportunity areas. And there is a potential Brexit dividend here. As you know, if we can grab that market leadership in interesting growth areas like fintech which we’re already very, very strong in; green finance and crypto, all of which is in today’s package.

And it’s also about keeping those core areas that our readership really cares about and makes, you know, a great deal of the City’s revenues in banking, asset management and insurance, making sure they’re as competitive as possible as well. So that is about reducing the burdens and the more onerous rules that have held back banks, have to have cost them money, have made them less competitive, particularly compared to the US as well. So there’s a broad sense of welcoming a lot of these things, although there is a sense of when is it gonna happen, because other people are moving at pace as well.

Sebastian Payne
Now, George, because a lot of these rules were put in after the financial crash to try and avoid similar things happening again and over-risking, is there an element of concern here about this? You know, you could say this is relaxing rules, liberalisation, whatever term used, but the bankers’ bonus cap was introduced as a specific reason to try and stop people getting massive incentives to overleverage themselves and make risky decisions that could lead to the sort of behaviour we saw in 2008. So it feels like this is not entirely just something you can do and unleash great amounts of new capital with no potential risk.

George Parker
That is the concern. Dan and I interviewed Andrew Griffith, the City minister, on Thursday, and he said that that wasn’t really the case. We would be in a race to the bottom, that Britain would remain very well-regulated. But this was the right time to look again at those rules that were introduced after the financial crash. I covered the creation of those rules after the crash, and they weren’t sort of drawn up on the back of a fag packet. They were the result of intensive parliamentary scrutiny. There was an independent banking commission led by Andrew Tyrie. All these ideas were bashed around and eventually produced reforms which were, came into effect around about the middle of the last decade. I think there is some concern that, you know, we are forgetting the lessons we learned in 2008. There are a whole load of things in there which, you know, suggest that we’re dialing up the risk a little bit more.

So the regulators themselves are being told that they now have a secondary objective, as well as maintaining financial stability, promoting growth and competitiveness. There are people like Adair Turner, who is from the Financial Standards Authority, who say that that’s not a desirable thing. And how do you actually strike that balance between promoting stability and promoting growth? They don’t necessarily mesh. So there are a whole load of other things. Now, Andrew Griffith would say that we’re not doing extreme things here. We’re just tweaking the rules a bit, it’s a tweak to the rudder I think is how he put it to us. But nevertheless, there will be people who worry that we’re in the race for growth and the race to prove that there’s a golden future outside the European Union, that we’re dialing up the risk a bit too much.

Sebastian Payne
Well, you both interviewed the city minister, Andrew Griffith, who said that, you know, no one is going for a race to the bottom here. What’s your sense on how businesses feel about this? Are they worried? Do they want this?

Dan Thomas
To a degree. I mean, George is right. I mean, the City doesn’t want wholesale deregulation. It doesn’t want this Singapore-on-Thames, which gets talked about. He wants good regulation. He wants, you know, agile regulation and regulation which can suit these, you know, emerging growth areas like fintech, for example. And part of that is about putting the emphasis onto the regulator. The secondary objective around growth is pretty important in that context because it gives them a responsibility to try to be a little bit more mindful about how to get companies, you know, growing in this country and so on. And that is important, I think. I think people do recognise that as a good facet of this. They don’t want to strip it all back. And a lot of these companies, a lot of these banks, some of these asset managers, you know, have spent lots of time, lots of money already putting in place the structures and then the compliance and so on to meet these rules. And they’re probably not gonna remove those, to be honest. They’re probably gonna stay anyway. The broad sense is this is good. I think people are listening to the government and are mindful of the fact that government is now saying, “Look, we are gonna be balancing this, so don’t worry too much”. They’re very hopeful that the regulator in particular will become just that, a little bit more sensitive when they’re asking to do, move people around, expand some new business areas and so on.

Sebastian Payne
But there’s clearly, George, even in the Treasury, a sense the risk about is the fact that, as you said, Kwasi Kwarteng was talking about the Big Bang 2.0 and it’s got the more prosaic name of Edinburgh Reforms suggests that they don’t want this to look and feel like a wholesale change. As you said, the tilting of the rudder feels like where they’re going here. But I remember we wrote a story about Liz Truss’s plan. She actually was looking at scrapping many of the financial regulations in the City or merging them with different mandates and it really feels as if that Jeremy Hunt, much like with the Autumn Statement, is taking a much more lower-key cameo role with this sort of thing, which of course might ask the question, is it gonna make that much difference at all?

George Parker
Well, I think the idea of trashing the institutions which buttress the financial system — I think that phase has passed, thankfully. We discovered to our cost the danger of undermining regulators or the Bank of England. And so, yes, I think you’re right that Jeremy Hunt does want to reassure people this is a sort of solid, sensible set of incremental reforms rather than a blowing up of the whole system. But as Dan says, I think there are things in here which I think will be slightly less onerous, slightly less bureaucratic. There’s a whole load of consultations flowing from this. So we don’t know quite how they’re gonna look at the other end of the process. But Andrew Griffith told us that he wants all of this done in 2023. So they are, to use Whitehall jargon, moving at pace to deliver on this. So I think around the edges, I think it will be generally a positive thing in terms of growth and making the City of London slightly more agile.

Sebastian Payne
But that I guess the fundamental question is, as I said, you know, there’s been this kind of small drip, shall we say, of talent and capital going out of the City of London since 2016. Not a big tide by any means whatsoever, not what was predicted by some people in the run-up to the referendum. But there is that general sense, at least I pick up, that maybe this City has lost its competitive edge. Is this going to help regain it?

Robert Shrimsley
That’s a big question, isn’t it? It is the Big Bang 2.0, you know, as big as they hope and it’s difficult to judge right now. I mean, the thing is that, first of all, as George says, the timing thing is crucial. The EU is currently going through a series of conversations around reforms so they’re already reforming Mifid 2, they’re already reforming Solvency 2, they’re already reforming a lot of these areas that we are only just getting to. There’s a chance that we’re actually behind the curve on this, so we’ve really got to step up the pace. As one executive told me today that he hopes that the Edinburgh package arrives before Scottish independence, which really drives home the fact that people are worried about the time, the system and losing our competitive advantage. Even more so, (unintelligible) because as you say Seb, jobs have undoubtedly left to the big financial capitals of the EU. Clearing has moved away. There was a point where France’s stock exchange exceeded ours early this year, and these are all kind of warning signs. So there is that feeling that something needs to change and needs to change quite fast in order to make sure the UK doesn’t become some sort of financial backwater for a global market.

Sebastian Payne
And George, I guess there’s been so much effort by several conservative governments to show the benefits of Brexit, of which you know, the FT’s are much of reporting analysis that would suggest that there’s been a negative economic effect from leaving the EU. But this is something that’s been talked about for a long time. It’s probably not going to shift the dial though on people’s opinions because it’s not a clear thing, you know, when talking about these very small specific measures. And I think a lot of listeners will think, well, actually, this is just tinkering around the edges. But you can imagine at the next election, this is the kind of thing the Tories will be saying. This is something we couldn’t have done if we’d stay within the EU. Do you think it’s going to be able to give them that political argument?

George Parker
Well, I think they’ll need to be able to say something about the benefits of Brexit. So I suspect they will use the vaccine rollout, which as you said earlier Seb, is something which we conceivably could have done ourselves within the EU. And they’ll be pointing at these city reforms as two concrete examples. Whether these things amount to any sort of significant boost to British growth potential is another question of interest to see how the Office for Budget Responsibility score some of these changes. What we do know is that overall, from the OBR’s forecast, at least, the British economy boom will be smaller than it otherwise would have been because of Brexit and the additional burdens. The City of London is slightly different because it operates in this very globalised market competing with Hong Kong and Singapore and New York obviously has as well as financial centres in the European Union. But for large swathes of the British economy, the idea of divergence from EU rules is exactly the opposite of what lots of people do. We had a story in the FT this week about a company in Kent, which is basically moving its operations to the European Union because it’s concerned about the fact that we’re diverging from EU rules. It makes trading with the European Union our biggest market harder. So the City of London is slightly different. And I think it’s one of the reasons why the government’s put this announcement up in lights. But overall, the upsides of all this are pretty marginal in terms of the greater scheme of things, in terms of overall growth potential.

Sebastian Payne
And finally, Dan, last time we talked about how businesses are feeling towards the various political parties, which top the CBI conference where everyone was kind of lapping up Labour. They can’t see Keir Starmer what he was saying. And the Labour Party held its business conference this week in Canary Wharf, which I think Keir Starmer hailed it as the biggest-ever Labour business conference. When you see this, and he put it in the context for the other stuff , do you detect any mood shift change of businesses towards the two parties, or is it still very much, everyone is still focused on buttering up Labour ahead of that glide path towards power? Some may see it.

Dan Thomas
That glide path. Yeah, I don’t think it’s quite clear for everyone. But first of all, on the point on Brexit and I think people have this in their minds when they are looking at this package that the one thing the City of London has been calling for for the last two and a half years, has been equivalence, some sort of equivalence decision agreements with the EU. And that, you know, is nowhere to be seen and is unlikely to be even on the table until the Northern Ireland Protocol gets sorted out. So, for every good piece of policy making in this series of documents, ultimately, if they just agreed equivalence, they would go quite far to solving quite a few problems as well. So that is one thing that I think the people in the City of London are very mindful of as they approach Labour, The Conservatives. Undoubtedly, I thought the conference that Labour had with business was really interesting. Some really big-name executives turned up and were very willing to go on the record as being supportive of what Labour was doing. And Labour, you know, are very much presenting themselves as the sensible, sober voice in the room right now. If you know, Jeremy Hunt can put together a very coherent sense of the future of the City of London, I think that’s what people will want to hear. And that could sway certainly the big moneybags in London to get back behind the Tories.

Sebastian Payne
Well, George and Dan, thank you very much for joining us. And that’s it for this week’s episode of Payne’s Politics. If you’d like the podcast, then we’d recommend subscribing. You can find us through all the usual channels, receive episodes as soon as they’re released. We also have positive reviews and nice ratings.

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Sebastian Payne
Payne’s politics was presented by me, Sebastian Payne, and produced by Anna Dedhar and Howie Shannon. The sound engineers were Breen Turner and Jan Sigsworth. And I’ll be back next week for sadly what will be my last episode of Payne’s Politics, where we will wrap up what has been a totally extraordinary year in British politics. But until then, thank you very much for listening.

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