© Financial Times

This is an audio transcript of the Payne’s Politics podcast episode: ‘Truss vs the ‘anti-growth’ coalition

[MUSIC PLAYING]

Sebastian Payne
Liz Truss closed a traumatic Tory party conference this week by taking aim at what she called the anti-growth coalition opposed to her plans.

Liz Truss
I will not allow the anti-growth coalition to hold us back (Applause). Labour, the Lib Dems, the SNP, the militant unions, the vested interests dressed up as think-tanks, the talking heads, the Brexit deniers, Extinction Rebellion and some of the people we had in the whole earlier (Applause). They prefer protesting to doing. They prefer talking on Twitter to taking tough decisions. They taxi from north London town houses to the BBC studio (Laughter) to dismiss anyone challenging the status quo (Applause). From broadcast to podcast, they peddle the same old answers. It’s always more taxes, more regulation and more meddling. Wrong. Wrong. Wrong (Applause).

[MUSIC PLAYING]

Sebastian Payne
Welcome to Payne’s Politics, your central insider guide to Westminster from the Financial Times with me, Sebastian Payne. This week we’ll be examining what was probably the most chaotic Conservative party conference in living memory, with cabinet ministers disputing government policy on benefits and tax, former ministers undermining the PM and open discussions in the bars and parties about whether Truss could even survive. Joining me to examine are two prime members of Truss’s anti-growth coalition: political editor George Parker and associate editor Stephen Bush. And later, we’ll be looking at what businesses had to say about the state of the Tory and Labour parties following their respective conferences. Why were there so many people in smart suits in Liverpool for Labour and so many unhappy people from the city at the Tories drowning their sorrows. Our chief political correspondent Jim Pickard will unpack along with our business columnist at Cat Rutter Pooley. Thank you all for joining.

[MUSIC PLAYING]

This year’s Conservative party conference should have been a triumphant moment for Liz Truss to celebrate her victory in this summer’s Tory leadership contest. But instead it became yet another damage limitation exercise for the prime minister as her party descended into yet another round of factional warfare. The prime minister told the Tory faithful in her keynote speech on Wednesday that she would be pushing ahead with an economic agenda despite dropping that contentious 45p cut in the top rate of tax, even though it would create some disruption.

Liz Truss
I have three priorities for our economy — growth, growth and growth (Applause). As the last few weeks have shown, it will be difficult. Whenever there’s change, there is disruption. And not everybody will be in favour of change, but everyone will benefit from the results.

Sebastian Payne
George Parker, welcome back to the pod. We’ve made it through party conferences. It feels like it’s been quite a long one this year, and I dare to ask how many Conservative party conferences (chuckles) you’ve covered for the FT, but this one feels like it was the most chaotic, traumatic and disunited in living memory.

George Parker
Well, we were speaking to one Tory donor, weren’t we this week, who said it was the worst conference he’d been to since the 1970s. And he’s been to even more than the me. But yeah, it was from the Conservative party’s point of view, terrible. Instead of it being a coronation of Liz Truss, which is obviously what many people would have hoped and expected in the leader’s camp — you know, she’s only been prime minister for about a month — it turned into a showcase of Tory disunity, chaos, confusion, and the mood was very bad. By the last night of conference, we’re all a bit exhausted, aren’t we. We’ve gone past midnight. We’re staring into our warm glass of white wine, talking to various members of the cabinet. But the mood was pretty bad. And I spoke to one minister on the last night who basically said it feels like we’ve already lost.

Sebastian Payne
I think that’s right. And the fact is that, we’ll come to Liz Truss speech in a moment, but every single thing that happened, the run-up to that, the fact that all the speeches were pushed to the end of the day, attendance was certainly down on past years, it had a bit of a gloomy feel to the convention hall in Birmingham, which again we’ve been to many times before. And last time we’re there you can remember even Theresa May conferences during the Brexit wars, which felt like pretty downbeat affairs, it was worse than that.

George Parker
Oh, it was terrible. I mean, it was instructive that they were using a smaller hall than normal there as well in light of the fact there weren’t so many people there. That wasn’t helped, of course, by the fact there was a rail strike timed to coincide with people’s arrival and departure from the events. But, yeah, I mean, there were plenty of people bailing out early. There were not very many MPs there, and that’s not unusual. But there were fewer MPs there this time although people who wanted to make trouble were there. I noticed Michael Gove was, as you know, was speaking on numerous fringe events . . . 

Sebastian Payne
Nine events in one conference . . . 

George Parker
And Gavin Williamson, the former chief whip, never far from political mischief. He was wandering around the conference centre as well. The mood was extremely flat, and it was, it didn’t even feel like a conference that most people would think of. I mean, the past conferences would start in the morning. There’d be debate. So at least a few people speaking from the floor or some sort of semblance of interaction. Instead of which, this whole thing was concentrated into two-hour sessions at the end of the day with the people in the hall being talked at by a succession of people in suits. It was very odd.

Sebastian Payne
Well, Stephen Bush, you again have the joys of this year’s Tory conference in Birmingham. Let’s look at Liz Truss’s speech at the very end because this was again, as we were saying, meant to be a big moment for her to introduce herself properly to the wider party, but also the country, and trying to add some meat on to her radical vision. And instead, we got this half an hour speech, which is about half the length of normal leaders speech. But as we heard from the beginning, it certainly wasn’t the finest, soaring oratory, but it sort of quite worked in that it did what was required to just stabilise things a little bit after this chaotic week.

Stephen Bush
I don’t think the problem with it so much was its length. It was actually with its content. Although the broad big picture argument here then there are strong anti-growth forces in British politics, wouldn’t dispute any of that. And then the broad argument that if you want lower taxes, as she does, then you need a leaner state. Well, that is a plain statement of fact. But what was missing in both cases was, well, we’ve had quite a lot of fiscal retrenchment in the UK already. At this point you need to make a specific argument for something you’d like the state to stop doing, and she did not do that. She just engaged in some sort of banalities about how you can have a leaner state somehow just by wishing. Actually, probably the best section — and she’s very much a confidence player; she liked having a fight so you could tell she kind of came to life a bit when she was talking about all these awful people who stop growth in the UK, this anti-growth coalition. But of course one problem is that the largest component of the anti-growth coalition in British politics are Conservative councillors. They are the largest party in local government in England, Conservative MPs and front benches, whether it’s Brexit, immigration, blocking planning applications in their own constituencies. Now, she’s far from the first prime minister who wants to do something radical, who faces more powerful opponents internally than externally. That was true of Margaret Thatcher with the “wets”, true of Tony Blair on public sector reform, true arguably of Boris Johnson and people who wanted to unpick the United Kingdom’s exit from the European Union. But in all three of those cases, they actually acknowledged where their opposition was. From how she was talking, you’d think the Conservatives had no majority, and the one thing stopping them doing this was these external forces. But I think the big problem with that speech was it just didn’t have clarity of thought about who its enemies were. It both wanted to rail against woke virtue signalling but have this very long thing about how she’d been written off and talked down to because she was a woman. And, it’s like, there are two perfectly good political pitches in there, but you’ve kind of got to pick one.

Sebastian Payne
And George, you know, this anti-growth coalition, which I think sort of took the meat of the speech — to give you a list of who was on that, it was the Labour party, the Liberal Democrats, the SNP, trade unions, vested interests dressed up as think-tanks, talking heads, Brexit deniers, Extinction Rebellion, people who prefer talking on Twitter to taking tough decisions, they taxi from their north London town houses to BBC studios, just anyone challenging the status quo and it’s people who, dare I say it, be on podcast (Laughter). I think, even though we all live in different parts of London, we must be a part of the anti-growth coalition. You can see the enemies she’s trying to make here, but as Stephen just very rightly articulated, it doesn’t really stack up when you’ve been in power 12 years. And I also think that whole coalition she suggested, that’s an awful lot of the country she’s actually put in there. If you take the 48 per cent who voted Remain, plus Labour voters, plus Liberal Democrats, plus Scottish unions, plus people in trade unions, it’s a big blob. And you can see Tory MPs and ministers are really trying to take this anti-growth coalition message to people through social media after her speech.

George Parker
Well, yeah. I mean, you’ve highlighted two of the big problems with that concept to the anti-growth coalition. The first one is that ignoring the fact that the Conservatives been in power since 2010. It’s not people with podcasts or living in north London town houses or the Liberal Democrats who’ve been in charge of the economy for the last 12 years. But the other thing is that, the point that Stephen alluded to, which is the anti-growth coalition will soon include, if it doesn’t already, vast numbers of Conservative MPs and councillors. What the Government’s done here with their “mini” Budget is you’ve created a huge hole in the public finances, let’s say £45bn unfunded tax cuts. Then to fill in that gap, you’ve got to prove that the economy is gonna grow faster than hitherto would have been the case. And then you’ve got to go through a whole list of policies, which might, might have a very small incremental effect on increasing growth. But all governments know what you can do to increase growth. The reason they don’t do it is this because it’s dangerous. It’s almost like there’s a shelf with a whole load of jars, with a skull and crossbones marks on, do not touch. And it’s like Liz Truss is going along picking one by one off the shelf, removing the bankers bonus cap, starting fracking again, talking about building on the greenbelt possibly, removing wildlife Habitats Directive, that’s something filling MPs inboxes already. Who’s a member of the RSPB? It’s Conservative party members. It’s like they’re going through every single policy area trying to make enemies. In the end, you create, not just this idea of the anti-growth coalition being metropolitan elite, but, as we were saying, almost the whole country.

Sebastian Payne
Well Stephen, I think one person who’s delighted on this is Michael Gove, who we’ve interviewed in the FT Weekend. And he makes the point that this strain of thinking that Liz Truss comes from is not very conservative, and they talk about Milton Friedman or Friedrich Hayek, you know, that school of thought, but they were not conservatives; they were market fundamentalists. And in a way it feels like the Conservative party selected a leader who was saying things they wanted to hear on a smaller state and lower taxes and is now having to contend with the fact they’ve actually got a series of economic radicals who are at the fringes of what conservatism normally is.

Stephen Bush
One of the misread some people outside the Conservative party — and indeed some people within it — often have about Liz Truss is, because she was famously a Remainer and a Liberal Democrat, they see her, oh, she’s someone who changed her politics to get along or you know, she’s a relative moderate. No, she is someone who was a liberal Democrat in the 90s, a time when the Conservative party, I think it is unquestionably fair to say, was still roiled with homophobia because she is an old fashioned classical liberal. And she was a Remainer because she doesn’t care all that much about our institutional relationship with the EU, which is why actually one of the pro-growth things she’s done is slightly try and move towards normalising our relationships with the EU day to day. But actually that also means they have someone who has been part of the conservative electoral coalition, very unclear whether or not in the modern British economy, when you’re also pursuing still a fairly hard Brexit, when you’ve been in power 12 years, whether or not that component of the coalition, when it’s in the driving seat, won’t drive the whole party off the cliff.

Sebastian Payne
Well, that was the feeling that we might actually get resulting from this conference if we listen to the former Tory minister, Ed Vaizey. He was quite honest about how he felt the conference had gone.

Ed Vaizey
They can’t take any successes from this week. I mean, let’s don’t beat about the bush. It’s been a terrible conference. It was a mixture of depressing and black humour. What they can take from this week, I guess, is that it was a disaster, and they cannot allow things to carry on like this. So they have to get behind their prime minister.

Sebastian Payne
Well, George, when you hear that from, not just a pundit like us, but a former Tory minister member like Ed Vaizey, it highlighted what a mess things are in. And obviously the key moment of the conference was the dramatic U-turn on the 45p top rate of tax, and it had been feeling unsustainable for a good week after it was announced. But it was only late on Sunday night, early on Monday morning, that reports started to filter out that Liz Truss was going to U-turn on this, and Kwasi Kwarteng did that at about 7.30am on Tuesday and did the usual line that well, we’re listening government; we get it. I think he was channelling Gordon Brown who said that into his premiership about the tax rate. But then you saw others like Suella Braverman, the home secretary, and Simon Clarke, the levelling up secretary, actually saying, you know what, it wasn’t the policy. It was the timing wrong. So even within this strain of the ideological debate there’s not clarity on where it goes.

George Parker|
Well, it’s no doubt Liz Truss would have wanted to do it and Kwasi Kwarteng as well, because it’s part of that whole mantra of shrinking the tax base and cutting people’s taxes. But in the end, the politics of ditching it was certainly the right one because otherwise you’d have ended up with a conference being dominated by it, infighting on that particular issue. There’s plenty of other things for people to fight about. And they decided to kill it off, which actually was good politics in the short run. But the problem is, it gives the impression that you’ve got this new administration, which can be pushed around by people who don’t like the policies they’re pursuing. And given the fact that Liz Truss has sort of a very slender grip on her own party, given the fact that we’ve seen plenty of cabinet infighting this week already, it doesn’t augur well if you’ve then got to, over the coming weeks and months, to pursue a whole series of difficult policies. The fact you’ve done a U-turn the first time you hear a bit of trouble is a very, very bad sign, I think, politically.

Sebastian Payne
And then the next, of course, big debate, Stephen, is going to be benefits and whether you operate them in line with inflation. And this is something that Liz Truss has sort of said everything’s on the table because following the tax cuts and the market disruption, there is this widespread feel they’re all going to need to be spending cuts. And of course, the politics of cutting taxes for the wealthiest and then not raising benefits is absolutely awful. Yet this seems to be this big debate between people in the cabinet like Penny Mordaunt come out saying she does want them upgraded, Jacob Rees-Mogg agreeing and others saying less so.

Stephen Bush
Yeah. So you have Suella Braverman coming out and saying people live the life of Riley, essentially. The big problem, right, is that since 2015, when the Conservatives won an election on a platform promising £12bn of nebulous benefit cuts, they have basically managed to cut about 2bn because we now have a point where we have some of the least generous benefits in the OECD. A good proportion of those are in-work benefits so it is both incredibly socially painful for the people who receive those cuts but politically it’s painful to cut working tax credits in any democracy. So I think speaks to the bigger problem here, which is that these tax cuts, if they are to continue, require you to find the guts of £40bn of spending cuts at least by 26-27. That’s assuming that you can hold the line on the very real spending cuts that inflation forces on departmental budgets anyway. All of which I would say seems unlikely, right? There’s a great chart on an FT piece about, you know, the impact of austerity on, which shows brilliantly, right? This chart goes down very sharply until about 2013 and then it essentially starts to gradually flatline until it goes back up again in Rishi Sunak’s first real-term spending increases for departments. Now, I personally don’t think that’s because David Cameron and George Osborne suddenly became politically weak and politically cowardly in 2013 because actually, there just was more to cut in those first three years. That creates a big problem for the Tory party.

George Parker
There was a good reason why Boris Johnson refused to use the word austerity. He always said the A-word. He said, we’re not gonna talk about this. There’ll be no return to austerity. That was the compact between the Conservative party and the British public at the 2019 election. Which brings us on to another problem and just doesn’t get it articulated by people like Michael Gove, by people like Nadine Dorries, who backed Liz Truss for the leadership and saying, you’ve not got a mandate to do this stuff. We were elected on a totally different platform back in 2019, and you can’t do that. And the problem is, you know, you see all these economic escape routes being blocked off one by one if they can’t go off the benefits, and I agree with Stephen, where are you gonna get the money from? The problem is that they’ve created this huge fiscal hole by doing a couple of really big tax moves, which people didn’t care about, frankly. The national insurance rise had already gone through. It had been passed as a health and social care levy, which people broadly bought into at the time. And the other one, the corporation tax rise, which was seen as a plan to be, a plan which they want to reverse, speak to business people and say it would be nice to have. But actually we’re more concerned about the taxes you have to pay before you make a profit, not the ones you make after you make a profit. So they created it — it seems to me, at least a £30bn hole — completely arbitrarily in the hope that it will somehow boost growth.

Sebastian Payne
And then, Stephen, the way they would respond to this if we had someone from Liz Truss’s government here would be saying it’s all about the supply side reforms now because this has been the second component because we have the tax component and we’ve also, of course, got the fiscal component. We had another Tory conference this week, when the FT reported they were gonna bring forward the OBR’s assessment and how’s it going to work from the 23rd of November. And in fact, they now actually might go back from November the 23rd. We might get something interim next week, but it’s not entirely clear. But on the supply side of reforms, if you a backbench Tory MP like Grant Shapps or Michael Gove or Mel Stride, who’ve all been out and about campaigning against what Liz Truss has been doing. You’re going to look at these contentious things, be it immigration, planning reform, child care, and you will know that you can rally together 40 MPs pretty easily because all of them require difficult decisions and don’t see any impetus to actually go with what the government is doing because they don’t think it’s gonna supply the kind of growth that would be needed to make these tax cuts work. It’s not gonna get through Parliament before the next election and in this point of the mandate is becoming very, very clear.

Stephen Bush
This is the big problem, right? Although the last election was a landslide defeat for the Labour party, the majority over all the parties is not that large in historic terms. You only need 40 or so MPs to go missing, to suffer a defeat. That is essentially means that any single component faction in the Tory party can defeat you. And it’s very hard to find a supply side reform that both move the dial in a meaningful way in terms of growth and doesn’t alienate people who are opponents of either Liz Truss or the organised ideological factions within the Conservative party. So I mean this the thing is, is over those reforms, broadly speaking, they’re all fine, right? They’re nice to have, but they are teeny tiny multiples of growth. This Parliament has already rejected a serious attempt at planning reform with a powerful prime minister in the shape of Boris Johnson. Now the hope in Liz Truss’s campaign team was in what you could do is you could cut off that planning form into little bitty bits and then essentially get MPs to sort of eat it by stealth. As you say, you have these enemies of Liz Truss on the backbench who will be looking down on actually remember that planning reform you hated. It’s actually still in the investment zone. It’s still in that. It’s still in this, and yeah, I think it does mean that unless some events changes her fortunes sort of externally, the life of this government will be of either retreat before defeat in the House of Commons or defeat in the House of Commons.

Sebastian Payne
And finally, George, this is the question everyone really wants to know following the events of this week: is Liz Truss going to survive or is there anything that can change the paradigm for Liz Truss? Because at the moment her party is against her. Her ministers don’t have any discipline. It’s unclear how she gets those supply side reforms through. And there is this general feeling that her premiership is really over before it started, that people have taken one look at her and decided that they don’t want what she’s selling.

George Parker
We did find plenty of Tory MPs at the Tory conference who think that she can’t survive. Just look at the YouGov poll that’s been published this week on her favourability ratings, -58 I think it was — only 14 per cent of voters have a favourable impression of Liz Truss. And as we know, first impressions really count. As we’ve been discussing, the economic escape routes for her look fairly limited. So things are really, really tough for her, and you can see plenty of reasons why she won’t make it through to the election. What she needs is a series of external, positive economic shocks, let’s say the end of the war in Ukraine, or for some reason the gas price comes down or the American economy picks up more quickly than we thought. And the economy starts to turn around here. And she can say, haha, the bold, difficult decisions I took at the start of my premiership, are starting to pay off. You can see her constructing a narrative around that. But all those are very, very big contingent things and they are basically outside of her control.

Sebastian Payne
And last word, Stephen . . .

Stephen Bush
The one thing that did happen this week which helped Liz Truss was how well Suella Braverman did. Because if you’re an MP on the left of the party or a sort of ideological supporter of Rishi Sunak — and don’t forget that his base of support basically goes to quite different groups — you’re looking at this going, this can’t possibly get worse. And then you see Suella Braverman being cheered to the rafters and you go, oh, it turns out it can. And if you’re on the right of the party, you’re thinking, why should we let them stitch up a coronation? We could have another shot at this. And I think then the one thing that means that she might get to lead the party into the next election is a situation in which MPs — and don’t forget the majority of MPs are from the left or centre of the party — think, OK, as bad as things are, we don’t think we can reliably get a soft landing of our own.

Sebastian Payne
And it’s essentially deadlock in terms of ambitions and processes. Well, no one wants to make things worse where they are now. So I think you’re right, it just stumbles on. I think Liz Truss will continue to see if she can try to improve through the situation. George and Stephen, thank you very much.

[MUSIC PLAYING]

Sebastian Payne
Businesses are typically omnipresent at party conferences, wining and dining politicians to lobby for their corporate causes. But for the last decade and a little bit beyond, the Conservative party has been their natural home. But something palpably shifted at this year’s conferences, in part was thanks to Liz Truss’s radical economic agenda, but also the sense the Labour party might be heading back to power for the first time in over 12 years. But Jacob Rees-Mogg, the business secretary, who delivered a keynote speech in Birmingham, argued there was still overwhelming support for Liz Truss’s speech and her agenda.

Jacob Rees-Mogg
She set out clear conservative policy. She is pro-growth, and we have helped people with their energy bills. We have shown that we are a tax-cutting government that believes people spend their own money better than the state spends it for them.

Sebastian Payne
Well, Jim Pickard, welcome back to the pod. So let’s just look back at both conferences. And we’ve had the absolute pleasure of attending the gatherings in Liverpool and Birmingham together . . .

Jim Pickard
And we’re still standing . . . 

Sebastian Payne
Well, some of us are. What was the feeling from the businesses and the business groups you spoke to at those conferences, and how does it differ from previous years?

Jim Pickard
So I think we need to go back a step to the “mini” Budget, which preceded party conference season, and that is the moment where Kwasi Kwarteng, the chancellor, set out a whole series of regulatory reforms, massive unfunded tax cuts, and at the time the business world applauded that. And I think the thing was, they loved the pro-growth rhetoric. They loved the deregulation. They loved the plans to loosen the planning system, create investment zones. And so when they did that “mini” Budget, they got quite a positive reaction. But I think a lot of those business groups saw what happened with sterling falling, gilt yields rising and slightly got cold feet because they realised that the fiscal implications of this and the implications for sterling and for interest rates and for mortgage rates could quite easily end up overshadowing the positive as they saw benefits on the deregulatory side of the “mini” Budget. So when we went to the Labour conference up in Liverpool, there were a lot of business people there. I think it was positive in the sense of Labour people have loads of time on their hands because they’re not running a country so they have loads of time to engage with business and other lobbies from, from all over the place. And business came away quite happy. The level of attendance was higher than usual. The seniority of business people going to Labour conference was higher than usual. And then we had Tory conference where, you know, there were big attempts by Tory ministers and No 10 aides to engage with business, but there was a feeling that things were a bit frenetic. Some of the meetings were a bit disappointing because by contrast Tory ministers do have a country to run, and they have an awful lot on their plate. And so, for example, business leaders on Monday morning were a bit disappointed when Kwasi could only make a short appearance at that business breakfast. To be fair to Mr Kwarteng, he had things to deal with, like reversing the 45p rate, which was simultaneously happening. So it was a very different vibe. And just finally, there was also a sense, I think a lot of business delegates in Birmingham, the Tory conference, where they were coming back to their masters in London and saying, we need to spend a little bit more time engaging with Labour because you might not notice, but they’re 30 (laughter) points ahead in the opinion polls.

Sebastian Payne
Well some of the business leaders I spoke to in Birmingham, they were pretty disappointed more so than previous years, of course, where the Tories have also had a country to run. When, for example, you know, as you said, there were many CEOs going away, telling their corporate affairs teams to go off and focus on preparations for Labour government. But there was this sense that business day, the business supper, the business breakfast, all these things cost thousands of pounds for businesses to attend. There seemed to be this slight feeling that they felt they hadn’t been that well treated. And the BBC has had reports, as well as the FT, about the fact that many leaders felt that they’d paid £3,000 to attend a sort of dinner. The food was pulled away before they left. They were left a bit disappointed by the speeches. Was that just the sense a lack of care the Tories have that we don’t really need to care about business because they’re always on our team?

Jim Pickard
I mean, you’re right about that sense of a lot of people complaining about their teams in Birmingham. We got one senior lobbyist quoted in an article we ran the other day saying, it seems like they’ve forgotten their manners. It’s like a family wedding where there’s been a tremendous row, and they can no longer be polite to the guests. To defend this Liz Truss government again, there’s a massive difference between Labour in opposition and the current Tory administration, which is firefighting the crisis in financial markets. You know, the unsavoury reaction to the “mini” Budget. The fact that they have to deal with all these other things like war in Europe and, I don’t want to overdo the defence of them, but they have a lot on their plates and business noticed that. And business also noticed the opinion polls, and business also noted that they need to really get close to Labour pretty quickly.

Sebastian Payne
Well, of course, one can say they’ve got a lot on the plate because the “mini” Budget was potentially their own fault . . . 

Jim Pickard
Of course.

Sebastian Payne
 . . . And they mis-calibrated it. Well, Cat Rutter Pooley, it’s an absolute delight to welcome you to Payne’s Politics. Tell us what your sense is from both the city of London and the wider business community about how the Truss government is treating business. Is it better, worse or different from the Boris Johnson and previous Tory administration?

Cat Rutter Pooley
I think it is clearly different because under the Boris administration there was a definite sense that business was not the top priority. It wasn’t welcome. That has changed. Where the differences coming now is that it hasn’t quite played out how business expected it to. So we did get a big welcome from the business groups when these policies were first announced in the “mini” Budget. They were getting a huge number of things that they wanted on tax cuts and some other stuff like the bonus cap that they didn’t so much more a bit surprised, but it showed the sense of direction. It showed a friendliness, and the government really has put business at the heart of its programme, at the heart of its growth programme. The problem is that if everything else goes badly, the markets fall apart, you know, currency goes to pot, then that’s what business hates more.

Sebastian Payne
Exactly. It’s this point about certainty and stability, and I remember when the “mini” Budget was first announced Cat, there was lots of very positive quotes from, you know, the CBI and many groups saying, this is great, we like the better environment. Not increasing corporation tax next year, that’s exactly the sort of thing that we want. And all that kind of U-turn as we’ve seen the market instability. And of course this point about confidence, the U-turn on the 45p, which we talked about earlier in the podcast and what a big political moment that was. But economically for business, it gives the sense, well, if they’re gonna U-turn on that, what else might they U-turn on?

Cat Rutter Pooley
To an extent, we haven’t had the really important stuff for business. So what should have come across and what should have been the outcome of the “mini” Budget for business was that, yes, we’ve got the City back in favour. We’ve got the tone right. We’re repairing those bridges. We’re putting business front and centre. Great. What they actually want from a growth perspective is to have the right regulatory environment. That’s the stuff that we’re gonna get the actual detail on further down the line. The problem is that if you haven’t got a stable government, a predictable government, then you don’t know what regulations you’re gonna end up with.

Jim Pickard
And I think there was some whack made a comment along the lines of just because this lot love markets doesn’t mean that markets love them. And on the specific tax cuts that ought to benefit the business, or Truss and Kwarteng felt that they would be applauded, actually the 45p rate was not overwhelmingly welcomed by people who would benefit from it because a lot of them look at the public realm and think, well, actually, we’d kind of rather just have better public services and maybe pay slightly more tax. And on the corporation tax point, ever since Truss has said that she didn’t want to put up corporation tax from 19p to 25p, which she said she was going to do, a lot of businesses have said we’re all for tax cuts, but we would rather have targeted ones such as business rate reductions or breaks for investment allowances, that kind of thing. Think about corporation taxes are only levied on your profit, and they would rather as a sort of fair system before that.

Cat Rutter Pooley
These people are used to being the bad guys. They’re used to being the bogeyman. We’ve had a decade of that. They’re not naive. They’re very savvy political operators. They know that having things which benefit the people at the top, and which can only be kind of positioned as that, looks really bad. It’s one of the reasons why they didn’t really want to get rid of the bonus cap. They don’t want to be seen to be benefiting at the expense of other people.

Jim Pickard
An extraordinary moment a couple of days ago where I think the head of Shell said that he could see how a higher windfall tax was inevitable and he could kind of see the moral case for it.

Sebastian Payne
Yes. And I remember talking to one senior Tory donor in the conference in Birmingham, and when he was talking about the 45p rate at the tax, he said, many of the people in the 1 per cent don’t actually want the world focusing on them. They’re very happy to pay a bit of extra tax and possibly shuffling some of it around the world to maybe not pay the tax in UK jurisdictions. But by having a big debate about that which is created by this policy, is the opposite of what they want. And I want to come back to Cat’s point about fairness because some people in the business community have said that actually, this idea of Liz Truss that you have to go for growth come what may — that has a trade-off with fairness. And Tony Danker, who’s head of the CBI lobby group, had this to say.

Tony Danker
I don’t accept that you have to trade off growth with fairness. I think you should have growth and you should have fair distribution of wealth. And I think that’s the economy we should be trying to build. So, yes, I’m absolutely, as are most of the businesses I speak to, worried about the cost of living crisis almost above everything.

Sebastian Payne
Is that possible, though, Cat? Because obviously the government spend is £100bn plus energy package to help with the cost of living crisis. The supply side reforms are going to try and push for growth. But what else is it that people who’ve got this sort of thinking of Mr Danker would like to be seeing from the government that they’re not right now?

Cat Rutter Pooley
The trade off isn’t necessarily growth v fairness. Everyone agrees that we need to get Britain growing. The problem is that you need the broadest ability to be able to do it. That’s what Tony Danker and the business community wants. They want to grow. Then you can have the redistribution argument. Unless you have the support of the markets, you can’t get the growth going in the first place.

Jim Pickard
And I think the point that a lot of people ignore, especially in the Truss camp, is they seem to act as if their policy is the only one that will lead to growth. The issue with it is, yes, in theory, these reforms could lead to higher tax take in the future. But you have a time lag. You can’t announce low rates of income tax. And then suddenly, the scrapping the 45p rate when they had that, and suddenly you have enormous rise in tax receipts. There’s a lag, and this is the thing that the markets took fright at, was the idea that you cut £45bn of tax a year and somehow that would magically refill like a porridge pot almost instantly, and it would take years for that to happen.

Sebastian Payne
Well, for those listeners who buy the FT Weekend, they read the Lunch that I did with Michael Gove, the former levelling up secretary. He makes the point that it’s not exactly as if a Marxist cell has been running the country for the past 12 years. And it might have occurred to George Osborne, Philip Hammond, Rishi Sunak, Sajid Javid, the former chancellor, that they wanted growth as well. And you can see politically why it works, Jim. But if it was a magic wand to growth, why wouldn’t these previous Tory chancellors have done it?

Jim Pickard
And the anti-growth coalition might observe, ironically, that the Tory government and Tory Lib Dem government of the last 12 years has achieved growth somewhere between 1 and 2 per cent, which is lower than those Trotskyite-Marxist-Labour people achieved in the previous decade, of course.

Sebastian Payne
And finally, Cat, what’s the general view in the City and business community about Labour because obviously during the Jeremy Corbyn years, John McDonnell, who was then the shadow chancellor, did his own version of the famous cocktail circuit, the 1990s, where Labour was seen to be wining and dining city figures, trying to reassure them about the prospects of them getting into power. John McDonnell tried a bit of that, but I think there was always this general sense they were gonna be too radical. You couldn’t quite trust them. Now you’ve got Keir Starmer and Rachel Reeves and their number one watchword, as we talked about in the podcast last week, is calm competence. And given the chaos we’ve seen the last week, do you get a sense that businesses just feel, in fact, actually we take a risk with Labour and try that over everything we’ve had with the Tories.

Cat Rutter Pooley
Business sees which way is the wind is blowing. And they clearly have good links on both sides. They’ve got a much more hospitable environment in Labour than they did a couple of years ago. And the thing is, what we get is a sensible approach from Labour in that they’re not proposing whacking most companies with big tax rises. There’s the windfall tax, but that’s an isolated, sector-specific issue. They’re not talking about hitting small business across the board, and that makes a real difference tonally in terms of where they’re coming from and how they engage with business.

Sebastian Payne
And I think Rachel Reeves, the shadow chancellor, is a former Bank of England economist that has talked quite a lot in her public pronouncements about having a fully costed budget and one that is in some ways quite small-sy, conservative. You know, yes, there are some sort of quite radical ideas of a partisan agenda, but on the economy it doesn’t feel as if it’s really pushing the boat out that far to the left.

Cat Rutter Pooley
No. And clearly that’s going to be very palatable to business community, but they’re also just gonna work with whatever they’ve got. At the moment, it’s someone who, because they’re not a government, doesn’t have the opportunity to mess things up as much, versus the Conservatives who are all over the place. Business knows what they would prefer in that situation.

Sebastian Payne
Well, finally, Jim, this is the point, isn’t it? That Labour’s in opposition. It’s very easy to critique everything that’s been going on with the government and your point about where growth has been over the past 12 years as well. But obviously if Labour does get in at the next election in 2024, we assume things are going to be pretty difficult for them as well, and they’re gonna face some very unpalatable choices. What’s your feeling from the top of Labour about where the economy is, their views towards business? Can they see an opportunity here that they want to walk into and can they?

Jim Pickard
Well, what we’re not gonna do is go back to the era of Jeremy Corbyn and John McDonnell, where some of their economic policy was within the traditions of social democratic parties across Europe, like the nationalisation of water, energy wasn’t that radical or insane. You know, there’s a perfectly reasonable case for it. Where did go a little bit overboard from the business community’s perspective was the idea of literally taking 1 per cent of every big company shares every year. So over the course of a decade, the state would be stealing 10 per cent of every big company in Britain. Those were things that were not palatable with the business community. This law under Keir Starmer and Rachel Reeves would be much more mainstream. But look, whoever’s in government in a couple of years time could be facing the most awful cataclysm of economic factors if Russia doesn’t end the invasion of Ukraine or Ukraine doesn’t defeat them. If mortgage rates keep going up — now we’re talking about 6 per cent, two-year fixed today — if these things continue, if these rising mortgage rates precipitate a correction in the housing market, if that has spilt off into the financial markets, whoever is in charge, Labour, Conservative or anybody else, they’re gonna be facing an absolute headache, I suspect.

[MUSIC PLAYING]

Sebastian Payne
Well Jim and Cat, thank you very much for joining us. And that’s it for this week’s episode of Payne’s Politics. If you like the podcast, then make us happy and subscribe this weekend. You know where to find us through all the usual channels to see the episodes every Saturday morning. We also like positive reviews and nice ratings. Payne’s Politics is presented by me, Sebastian Payne, and produced by Anna Dedhar and Howie Shannon. The sound engineers were Persis Love and Jan Sigsworth. Until next week, thank you for listening.

[MUSIC PLAYING]

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.


Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Comments

Comments have not been enabled for this article.