Merryn Talks MoneyIs Brexit Truly to Blame for the UK’s Problems?
On this week’s Merryn Talks Money, host Merryn Somerset Webb poses the question of whether Brexit has actually harmed the UK economy as much as some may think.
The answer is discussed by her guests: Robert Colville, director of the Centre for Policy Studies, who voted for the UK to remain in the European Union, and economist Julian Jessop, who voted for the UK to leave. They agree that—in the short term—it’s hard to argue there isn’t some damage, given the friction the UK has created between itself and one of its major trading partners. Brexit has also added to political uncertainty in the country over the last few years. But what’s less certain, they say, is how much harm has been done by Brexit.
John, Well, you told them so, didn't you.
Yeah, I'm feeling really, really, really smug right now.
What did you tell them?
I said that the Bank England probably won't raise interest rates tomorrow. I got the right side of the heads of speak.
Yesterday you said the Bank of England wouldn't raise interest rates tomorrow, and tomorrow is today. Yes, well, they wait, we'll just after the decision readers story to disappoint you, but we do record this bit a day before you hear it. Not read listeners in this case. And John, why did you think that? And obviously they read your stuff so.
But they already know is the kind of gut thing. So the economy has been showing some glimmerings of slowing down a bit, despite the fact that the Bank England's kind of embardest about not being good at corn inflation the blood.
Yeah exactly.
But the path of these resistance was for holding this month.
I thought.
Do you think they might have looked at the money supply numbers?
Hmmm, probably not. He I know, I think that's.
Unfair of you. I think you know, even Bank of England governors are capable of learning, and they've been told and told and told over the last year or so, for God's sake, why don't you just look at the money supply numbers, Because there is a connection between money supply and inflation. If you increase the money supply massively, you'll probably get inflation, and when money supply starts to turn down, you will probably see inflation. For that's something that has held for quite a long time with gaps. Obviously it doesn't always work, but mostly it's a it's a pretty good indicator, that's true.
And to be a feel, I mean Melvin King, who obviously actually boys walked at the banking the way, why.
Did dedn't he might know something about this stuff.
So for all the accusations a group think, he clearly itually thinks in the completely opposite dodiation from the Cordon lawn. And so I said, no, you're really the criticism has probably stung and Kevin the basest moon. Yeah, But I mean, then you get you know, Ben by nanke coming. Then you check that they're working. And I'm not entirely sure that Ben is a massive kind of fine of money.
Superparatory, and they'll come to you soon and ask you to go in and check their working.
I do hope, so so do I hope.
They pay you all. I give you one of those defined benefit pensions r P I linked Okay, yes.
Something.
Bank of England will come in together, will check any old model you like, but we can tell you in advance they're all wrong. Right, What does this mean, John, They listen, we think, or I think, and I think you think as well, that interest rates they're not going to go down in a hurry. We're trying to get a little bit of back to the old normal. We're trying to get to a point where interest rates are higher than inflation and.
Well, yeah, high on inflation, and well usually what happens is that wages are a bit higher than inflation. In the Bank England rate certainly before two thousand and eight was always higher than inflation. So you get real wage rises and also savings, but can paid re wentze.
This is this is this is a real economy. Is when you can put your money in the bank and you can get a small, real return on it.
Yeah, and I mean that's it's because we've grown used to this, or.
Young people, yeah exactly.
Anyone under the age of about four a ish has got used to this long period where that has been completely the opposite way around. But you know, the long term average, I think the last time I checked since the Second World War was for the base rate to be kicking about five percent and mortgage.
Rates, by the way, to always kick around two percentage points above the rate of interest.
Oh yeah, so I mean, you know, the I do think that this particular at the moment, because the competition between banks is quite high and there aren't many transactions being written, you're probably actually getting a pretty good mortgage deal in terms of the typical spread over the base rate over a longer period of time. But I wouldn't, you know, if I if I was needing, they can buy a house or refinance the host just not. I wouldn't make a big bit on rates going much lower than they currently are, because you'd already sort of seeing you know, I think I'm pretty sure you can walk in a five year deal below the base rate in the moment. Basically, don't bit on rates going lower.
Yeah, but also for a moment to just be clear that we have it. We saw a lower than expected rate of inflation this week, but inflation is still really high and the target is two percent. We're still well over six percent, and apart from anything else, if you want to be honest about inflation, or of the Bank of England wants to be honest about it. I mean, they're the big if. But you know, let's say they do want to be honest about it. You really should. You really should if you're being if you're doing this stuff properly, you should get inflation down below two percent and you should keep it there for a considerable amount of time to even things out to a long term average of two percent. And that's quite important. You know, we've had eight percent percent for a while now, so that means we really need to be knocking around one percent for a decade. I mean, to be honest, straightforward, and to compensate people, we were trying to higher lump of inflation.
Yeah, I mean, maybe you might have done the numbers on this, but we did have a lot of sub two percent, sub one percent years during the post two thousand and eight year. Because that was one argument, wasn't for reason the average if I mean that was, I mean, that was you kind of knew the Tonning point was coming because the point in which the Fed said, I say, maybe it's okay if we let inflation go up for a bit longer and be higher than usual, because that would be a fair way to do it. And that was literally twenty twenty, I think, wasn't it, when they actually were coming to the Tounning point, And they very quickly reversed that. That was within a couple of months, they said.
I really vaguely thinking of the seventies would just be here. I do not remember personally when they kept getting inflation down again but not quite far enough, and then off it went again, So it wasn't ever quite killed. See this, and I'm worried that we might do that this time.
The eye is a really interesting point because I don't no. I mean history does suggest, and history across various places, not just the nineteen seventies, suggest that winstin fleetion has got as high as it got at this time round. It doesn't easily come back to target. And I do think if you look at oil oil, it's not far off one hundred dollars a battle again, So it's not a certing. I mean, next year could get kind of messy again.
Okay, you heard it her first, And remember that John was right on interest rates. What else might he be right on. Welcome to Marin Dogs Money, the podcast in which the people who know the markets explain the markets. I'm Maren sumset Web. This week we asked the fraud question. Is Brexit really to blame for every single one of the UK problems? Robert Colville, director at the Center for Policy Studies, and economist Julian Jessip joined me to discuss.
Julian, Robert, thank you both very much for joining us today.
Thank you. So we just want to talk today about how Brexit is unfolded so far. There's a lot of talk about Brexist, this Brexit, that it caused, this is responsible for that, It's all about this, et cetera. And I'm looking at a tweet from a well known remainer after the news that civil servants were in tears after Brexit vote and the Foreign Office was in a state of mourning, which sounds terrible, right, and a Romainer wrote above that anyone who knew what it meant for people's livelihood, business, families, freedom and rights was distressed. Anyone who understood and cared knew that seventeen point four million people had mostly unwittingly voted to harm themselves and worse to harm others now and talk quite recently, you could point at all sorts of things and say, look, you know, we're doing worse than the rest of Europe in this area, in that area, GDP inflation, et cetera. And that's because of Brexit. Now those numbers don't look quite so bad in the perfectly reasonable compared to the rest of Europe. So the question that I want to ask both of you for starters, is it the case that in fact Brexit has been verging on irrelevant for the UK economy, certainly significantly less relevant than most people think.
Julian, I think.
That's for the right way to look at it. I think, first of all, it's worth saying, though that bit odd to say that Brexit has done no harm to the UK economy. After all, we have significantly increased barriers to trade with our biggest single partner. We've introduced sort of new obstacles to the free movement of people. We've increased uncertainty in the British economy, which is undoubtedly held back some investment and meant that there's been sort of additional risk premiare on British assets for foreign investors. So I think it'd be weird to say that there's been no impact against that, though I think the impact has clearly been a lot less than many people feared at the time of the referendum and onwards, and actually it continues to be a lot less than many people claim. So there are all sorts of big numbers flying around. Your economy is four percent smaller or or six percent smaller than would other ways have been, but there's simply no real hard evidence to support that. Or some of the scared stories about the impact on inflation or trade or the labor market.
Well, if you look at that business of four percent or six percent or whatever smaller than it might have been, we know how difficult forecasting GDP is, So who could possibly have known where it might have been in the first place.
Let's talk about where we know it's had a negative impact first, shall we.
You've got immigration, but of course we haven't seen any fall off in immigration. It's just a different kind of immigration, right, And some may say that it's a better kind of immigration because they're using a point system to allow higher skilled people into the country rather than we're consistently relying on low cost labor.
Is much better for productivity.
So immigration is a really interesting place to start, because actually a lot of people I know who are quite skeptical of Brexit actually regard our sort of post Brexit migration regime as a relative success. So we have, as you suggested, reduced our dependency on on cheap labor from Europe and actually made it easier for us to bring in more highly skilled labor from the rest of the world. And if you look at the aggregate numbers then record net migration over the last year or so, it's a bit hard to say that Brexit is a major factor behind the labor shortages that we are facing. That said, undoubtedly has caused some problems in some sectors, very hard for the hospitality industry, for example, swiftly to switch from one type a worker to another, and there means some quite bigger adjustment costs in other areas as well. But overall, I would argue that this is a good example of something that perhaps shouldn't have worked in theory, but does seem to have worked in practice, which is that real wages have risen or at least not fallen by as much as they would otherwise have done. That is, forcing companies to rethink how they use labor, and it's probably one factor contributing to some slightly better news on investment recently. So I think I'd actually regard the sort of post Brexit migration policy as success rather than.
You're not doing very well on finding the negative, Julia, what about you can you can you find a genuine negative for us?
Well?
I think there's obviously been a terms of trade shock for the UK economy. As Junia said, We've imposed friction on trade with the EU, and we haven't really done much of the wonderful super diverging that was promised that would create massive growth opportunities elsewhere. I think the summary is, at the moment we have a sort of poor photocopy of EU membership as opposed to something which looks genuinely distinct. But that's partly because building something genuinely distinct was always going to be the work of many years, and divergence was always going to happen gradually, not just as we decided to do stuff, but as the EU decided to do stuff. I should say up front here by the way, that I am a Romainer. I did vote for Remain, but reached the apparently novel position that on the twenty fourth of June that you know that the people's vote should be respected and delivered, and it would be much worse to democracy we didn't deliver on that verdict than if we just decided that the idiots saw some numbers on the bus and got all confused, said dear hearts. I think what's sort of happening is that exactly the same way as we blame Brussels for everything before Brexit, people are blaming Brexit for everything after Brexits. I mean, on immigration, for example, it's certainly true that there's a change when the new agents come in, but what sends all the people from Europe home is the pandemic. That's well, that's the huge, great thing that happens. Likewise, the reason we start then in recruiting health service workers en mass from other countries is the pandemic and the trains on the health service. I mean, effectively, the sort of tetemic immigrant switches from being the Polish barrista or Polish plumber to being an Indian or Filipino healthcare or a social care worker. And that's really kept the nhs afloat.
Just to echo that, if you look at other countries. So Germany for example, is in a very similar boat when it comes to labor shortages, and part of that is that a large number of migrant workers went home during COVID, often to countries like Poland that are now doing relatively well, and they simply not come back now. Of course, Germany is still a member of the European Union, but it's got pretty much the same problem in the labor market. Other countries you can look at in Europe, like the Netherlands, for example, their core inflation rate, so that's inflation excluding food and energies, is proving just as sticky as ours for similar reasons. Again nothing to do with Brexit, because of course the Netherlands is still a member of the European Union, but they're also facing labor shortages, the legacy of high energy costs being passed through into all sorts of other bills, and a tight labor markets. So not only we not an outlier in terms of headline GDP so the overall size of the economy, but also if you look at individual things like the title it's the labor market or what's happening to inflation, there are plenty of countries in Europe exactly the same position that we are.
There are obviously individual companies which have had many logistical difficulties in importing or exporting products from the EU that the life has become unnecessarily complicated and might come even more complicated if we were to impose the full range protections read for food for example. Likewise, HGV drivers they said, to all kinds of reasons why it becomes less attractive to driver lorry into the UK if you've got these extra barriers, then to sort of keep it circulating within the European mainland. But the tendency to blame literally everything on Brexit is kind of I think it obscures both the you know, the massive events that have happened recently, the pandemic and the cost of doing crisis. But I think also crucially it attracts our attention from the long running weaknesses of the UK economy, all the things that people like us have been shouting about at the think tank I work in, or Julian likewise, scandalously bad performance on productivity in real wages for a decade or more, utter failure to invest enough as an economy, both you know, on the public and the private site like those are really really big issues which long pre day Brexit, so the.
British economy can be completely rubbish even without Brexit.
Being the point.
That's right.
I think Brexit was never a magic wand it created opportunities, but it's then up to the government to take those opportunities, and there are plenty of examples there where the government seems to be moving only slowly, if at all.
You're absolutely right, but it's a good point to make that we see the negatives not being particularly serious and obviously there but not so much as to hamper the UK economy. But all the positives that people who were pro Brexit before the vote were hoping for, all the policies they thought might arrived, they're just not coming.
I think that's right. I don't think it's enough for somebody who supported Brexit, by the way, I did vote to leave the EU in twenty sixteen. I don't think it's enough for people like me to say, oh, well, the damage hasn't been as bad as some people feared. I think you need to show some tangible benefits, and those clearly have been slow to come. I'm very sympathetic, as Roberts said, that there are lots of smaller businesses and individuals and musicians, for example, whose life has become a lot more difficult as a result of leaving the EU. I wouldn't want to dismiss those problems, so I think we do need to show some tangible benefits sooner rather than later. There are a few things I can point to. I think the new trade deals that are being done are an important step in the right direction. We're moving faster than the EU ears on other things, for example, reform of agricultural policies, reform with some of the regulations holding back the financial services sector. So there are some things that we can point to. But I think things need to get a lot better in the next few years before those of us who did vote leave the EU can really say that things are heading in the right direction.
You need the government to do something. Is that how you see it, Robert, I think so.
But I don't think you can underestimate the level of what European dysfunction. I mean, I think in the macro picture, the extraordinary gap is between American growth and European stagnation. And obviously the fact that they didn't depend on floy the debuting selling them gas is has been a sort of contributing player in that. But it genuinely seems, you know, if you look at you and where the big companies are being created, where the growth is being created, where manufacturing going, where investment is going, like, the fact that we are struggling on those things is not a uniquely British phenomenon.
We are despite Brexit.
We are European economy and we look pretty much like many of the other European economies and I think that I think that's a really important issue to address. It may be, it hopefully could be that Brexit gives us the opportunity to do more things to galvanize that. I think one of the startly things about Brexit is we've just all completely lost interested in what Europe is doing and now completely under reporting pretty much anything that's happening in Brussels, which I think is really interesting. But you know, for example, on digital services and technology, you know our legislation is bad, their legislation looks worse.
So what do you put the big gap between growth in the US and growth in European economies and in the UK down to?
I mean, I think there's all sorts of things.
I know, it's a long list. Pull out a couple.
Yeah, US is a huge market.
I think local competition is a really important and are completely underplaced part of this. What you see in the States is a huge shifting growth from basically the places where you pay lots of tax and you can't build houses to the pla is where you can build houses and you don't pay much tax. Companies are fleeing New York for Miami, They're fleeing California for Texas, and the Sun Belt states are doing incredibly well. We don't be in Britain, don't have that dynamic of internal competition at all.
As energy pressed tax rates.
We could competition if Scotland could cut them, not keep putting them up, then you know British companies might flee to Edinburgh and Glasgow.
Well, the case for the union would be approved.
I suppose. So yeah, sorry I interrupted you. What was your second point?
Energy energy costs?
Right?
I mean, the shale revolution has absolutely smashed the cost of energy in the US. It's made in America and energy exporter, which is extraordinary. And as the cost of solar power is tumbling by the minute, it seems and guess guess where they're building solar panels.
It's in Texas and where they have a lot of sun.
Yeah.
So the price of energy in the UK is going to continue to go up and that's going to hamper us long term.
Isn't it unless we start building an awful lot more generating capacity than we have today.
Any Yes, Jillian, what do you think you see is the big problems in the UK that have nothing to do with Brexit.
Well, I think actually the comparison of the US is a great starting point. Robert's already touched on some key points. So the greater flexibility that is easier to move around in the US, partly due to the fact that it's real to be easy to build new homes and factories compared to overhear the high level of energy costs. Initially, I think some of the recent growth in the US has been flattered by a fiscal boom that is not sustainable to a big increase in government spending, a lot of which I think will turn out to be wasteful, and in the meantime it's actually starting to worry a few people in the financial market. So even though the US has the enormous advantage of still a shrewing in the world's major reserve currency, the dollar. It's credit rate has been downgraded recently by at least one of the major rating agencies, so there's at of spending boom from that government may not be sustainable, but the underlying fundamentals of the economy are still relatively sound us compared to the rest of Europe. I mean, there are a few additional things that I think are going wrong. One, obviously, is the direction of tax in the UK. It's true that our level of tax isn't particularly high compared to other countries, but the big difference is the extent which we've increased it over the last few years, and that's most obvious in the case of corporation tax. So raising our main rate of corporation tax from nineteen percent to twenty five percent at a time when our major competitors in Europe, notably France and Germany, are actually looking to lower the burden of taxation on their companies. I think that's one obvious problem. Productivity is clearly a big problem in the UK, not least in the public sector, not talked about enough. We've had very little growth in public sector productivity for decades. In the private sector productivity has only really been a problem since the global financial crisis, but going back over decades, public sector productivity has been pretty much flat.
Why is it the public sector of productivity is so far we might as well have our own answers, But what's your answer?
I hate to pick on the NHS. Sounds like a broken record, but I mean, the NHS is the biggest single part of our public sector, one of the biggest parts of the economy overall, and very hard for state monopoly to improve productivity because there isn't enough internal competition that'll learn competition with the private sector. So I think you need to look at the NHS, and myself and others, of course, have been advocating looking at best practice in the rest of Europe and in Asia, which typically involves more private sector involvement, both in terms of finance and provisions. So the NHS would be an obvious place to start. But inevitably, the public sector is not subject to the same sort of competitive and market pressure as the private sector is, so there's a problem there. I think partly also, you could make a reasonable agment that we haven't been investing enough in infrastructure, some of which I think always has been provided by the government in general. Of course, I think the private sector can do these things better. But even as a free market here, I recognize there are some sort of public good aspects here, or some very large projects that only really the private the public sector can afford to do a reasonable cost. So I think under investment is a factor.
And that's true at the corporate level as well, right, And it's not just the public sector that has underinvested.
Companies have massively underinvested too.
Yeah, in the private sector, it's because you know, the framework hasn't been there. So that's a government problem of taxes and regulations being too high and also inconsistent and constant chopping and changing in the tax regime is not helpful. So not just a question of luring taxes, it's also about simplify buying them and a bit more predictability. In contrast, for example, to the windfall tax on energy companies constantly being tweaked and increased is devastating investment in the North sol and gas sector. So it's partly about getting the right framework, which is a problem of government and in the public sector of course, by definition that's a problem of government, and there are lots of things I could point to. For example, we've got fiscal rules that deter investment by the public sector, even investment that could be a good thing is sometimes hard to get past the treasury, and we're seeing that with the roofs in schools and other public sector buildings being a good example of something where maybe something should have be done.
Earlier, you mentioned tax and tax work's going in the wrong direction, which they obviously are, and they're heading to levels that the UK's find very hard to sustain as a percentage of GDP in the past. But it's hard to see what the choice is within aging population and new zero and all the other various obligations that fall upon state and the things people expect from the state now, which seems to be more and more and more they expect the state to be involved in almost everything. With that dynamic, it's sort of hard to see how the tax regime could go in the other direction, however much the Lakes of US may think it should now.
I'm sympathetic to that point, and I certainly think tax revenues need to rise in order to fund the public services. That we want, particularly as you say, with an aging population and other increasing demands. But that's not the same as saying that tax rates need to go up. And that's a mistake that I think a lot of other commentators of the orthodox commentators tend to make, is the only way to increase tax revenues is to raise tax rates, Whereas, of course, if you can get a bigger economy through a combination of mainly supply side reforms but also a few judicious tax cuts that improve the supply side performs, the economy can actually end up with a bigger economy, a bigger pie to tax if you like, bigger tax base, and therefore end up with more revenues. So I think the mistake a lot of people make is to assume that the only way to increase tax revenues is to raise the tax rates on individuals or companies. And we know that often doesn't.
Actually we know it doesn't work. We only have to look at the Scottish revenues from income tax. So which taxes would you cut you in to improve the supply side.
Well, again, that's a very good question. I think one of the problems over the last few years, and I think maybe this was particularly a problem in the Tory leadership campaign last year, was that there was a competition to announce that the biggest cuts in taxes without particularly thinking about which taxes the cut and why. And I certainly think at the moment we should focus on tax cuts that would boost the supply side performance the economy rather than just stimulating demand. But it's not difficult to think of examples there. I mean, corporation taxes is one. Sorting out investment allowances and getting rid of the windfall tax on the energy sector would be another, as far as personal taxes that conserve and I think the focus should be on tackling some of the distortions caused by very high marginal rates of tax So not so much the average tax rate, but the fact that as some people move up just a little bit in the income scale, they suddenly get hit with punitive taxes, which must be bad for the incentive to work or to set up a company, so discouraging labor supply, it's deterring entrepreneurship. I'm sure there are the smarter things you could do within the income tax system, in particular to make sure that work does pay and that entrepreneurs get more of the reward for what they're.
Doing, Robert, when you look at the UK economy and you think about the things that could have been done since Brexit to give us more of a chance of growth, is there anything that you think we've really missed a few big things we could have done that we haven't done, so I might still do.
Yeah, So obviously I agree with them Julian on marginal tax rates. And when we've done a lot of work on this stamp duty in both its forms is just a classic transaction tax which is up the economy, both on houses and shares. There are loads of points within the tax and benefits system.
I mean.
The big thing, which will not surprise anyone who's ever read anything I've writtenently is housing. We have underbuilt by more than four million houses since the Second World War compared to our European competitors. And this is awful for people's life chances, but it's also awful for the economy because we find it increasingly hard to match the most talented people to the most productive jobs because they can't afford to move to where those jobs are. And the in fact we've moved rather than to the accelerating house building, we've moved in the opposite direction because of resistance from effectively toy grass roots. The other big thing is regulation, and again this is an area where the sort of Brexit focus is actually slightly distracting. So we've been doing an exercise at the CPS to look at the burden of regulation, but in particular how regulation is made, and what you find is that a decreasing amount of our regulation untilards the end of OU membership came directly from Brussels. Now that may be a statistical trick, because Brussels stopped relying on directives which you need to do domestic impact assessments for, and started relying more on regulations which we're sort of transposed directly into Member States law without anyone needing to do any any numbers. But broadly speaking, this focus on retained EU law, I mean actually there's only one government department which has a full list of all of the regulations it imposes on the economy and on businesses and on consumers. There is no attention paid within Whitehall comparative to the attention paid to spending within Whitehall is astronomically more significant than the attention to pay to the impact of regulation. There are regulatory impact assessments, but they are basically filled out by the most junior person in the office and what the decision has already been made. And there's none of the sort of institutional resistance to regulating that there is to spending. There's no equivalent of the treasury putting its foot down, and indeed, both politicians and the public seem to constantly demand extra regulations. The cry is always something must be done. So I think in a Brexit is really a wonderful opportunity to take stop and try and do something things differently, not in a born parre of the regulation is kind of way, but just in it like being a lot more strategic and surgical and analytical about the impact the decisions government is making and the impacts they have on businesses and consumers. And that's something we really are only in the pitthills.
Of I think.
And how would that happen?
That sounds expensive, boring, the kind of thing people aren't going to notice.
I mean, I think you sound absolutely I just cannot see how that would happen.
Well, broadly, there is a problem, and this ties in with what Julian was saying the problem is the most pro growth things you can do in this country are often among the least popular, and vice versa. So if you look at that, if you look at the tax regime, taxes on investment and on business are the worst for growth, according to quite a lot of modeling that's been done in which we've cited in miss papers. But they're enormously popular. That's why corporation tax went up, because it was the easiest way of getting money rather than hitting people directly. The most economically progressive tax his country would be basically to have a very very well, not even just an increased THEOTY, to have a much more broadly based sales tax a VAT with all the exemptions stripped out, and then to compensate people for the losses in other ways. But you know, the politician who stands up and says, hey, I'm going to put VT on children's clothes and your heating bills is not going to have a job for very long. And house building would be another example of that. I think, you know, a large part of the problem is that we just don't want it enough.
We just don't want what enough growth.
And this is this ties in with the aging population, the number of people over sixties and who own their own homes outright, it's extraordinary home absolutely, and.
That the cohorts own their houses outright and have a defined benefit pension to pay the cost on those houses is a really interesting dynamic because it's an experience that young generations don't have and never will hurt.
There is a huge and enormously electricly powerful cohort because of the rates at which they vote, who are essentially immune from economic pressure. Like a lot of these people are people who delivered Brexit in the first place, because contrary to the quote you gave earlier, it's not they didn't read the warnings about how this would devastate the economy. It's just they were going to be fine basically whatever happened, so they could afford to take the.
Risk, which is why their wealth tax is so popular among younger voters.
Yes, yes, and so very unpopular about the ones, although, of.
Course, as you said earlier, there are so many wealth tax already. Both of those stamp duties are wealth taxes, but unrecognized as.
I actually we actually take more taxes from property than the most other other countries. It's just we do it in a very very ineffective and inefficient way. I mean, council tax is you know, I think nineteen ninety one was based on this weird extrapolation of values back then. It's I mean, yeah, it is really right for an upgrade. But again, if you wanted to go near it, you'd be a very brave man or women.
Yeah, I've taken us off on a tangent, haven't the Sorry Robert.
Dum always happy to talk about housing.
I'm going to ask you about housing again.
What's the simplest thing that we could do, Because we like to keep being very simple on this podcast, what's the simplest thing that we could do to transform our problem with house building?
In the short term. Reinstate the housing targets. I mean we were actually building it a fairly decent clip before that. In the medium term, find the better way to come to take communities housing and to get their consent to deliver infrastructure more quickly. How would that work well at the moment. So again it's going off a bit of tangent, but this is a good time if you as If you as a community housing it generally means that your local council will get a payment at some point which it will theoretically use to deliver all the goodies that were promised, but in practice it may not, and so the houses will appear before the roundabout, before the GP surgery. If you can flip that on its head and actually put the infrastructure in first and give people the goodies, then the resistance does go away. I mean it's striking at the local elections. One of the areas where the Tories did best is the West Midlands, which they basically turned into a building site. But because it's you know, that building site is for HS two and because they're going to get a high speed railway and they can sort of see the progress being made. They can see housing going up, they can see their communities getting better, in their economy getting more dynamic. There, you know, they're actually quite happy with that idea.
I didn't feel like that when I was watching the Edinburgh trams go up.
Not sure. Is there anything else that either of you would like to add to.
The Brexit conversation about things that have gone well or have gone badly that we've missed out, Anything we've missed Julian, that's important to this conversation.
Well, An interest of balance. I think one thing that has gone badly is it's clearly contributed to the politically uncertainty in the country over the last few years, both by distracting politicians and the wider Whitehall and Westminster establishment from other problems, but also the way that we've had this sort of churn of prime ministers and other senior figures partly related to the fallout of Brexit, is yet another fact of preventing us from making big, long term decisions, that the difficult decisions that might be politically unpopular but are the right thing to do so. I think one additional headwind to the economy from Brexit is simply that sort of general climate of a political uncertainty that it's undoubtedly fostered. I don't think it needed to have been like this. Had a proper plan for Brexit and people are more committed to deliver it from day one, then we could have avoided this. But that uncertainty has undoubtedly held back some business investment and also made policy making in Whitehall more difficult than otherwise.
I might also have done as something with John and I, John Steppeck and I write about all the time, which has made UK assets and particularly UK listed equities for nominally cheap in the rising of the risk premium, there is something that global investors are now beginning to notice. So that may be something that turns around over the next few years.
Oh, I'd certainly agree with that. I mean, particularly now we've got data showing that Brexit Britain wasn't in fact the outlier that people assumed it was. Then we're already starting to see a turn in investment sentiment I think towards the UK, which should be very positive over the next few argument.
So I've been making argument, Actually the UK is arguably one of the most stable of the G seven countries. It's not going to be the fastest growing. But when you look at what could happen in the US elections, when you look at the rise of the AFT Germany, when you look at what happened when Macron goes in France, you know there are clearly a lot of other places that are a lot more politically risky now than a country run by Richie Sunac and potentially about to be run by Kirstaber.
So here we are stable, reasonable growth doesn't seem so bad, do you think, Julian and Robert that in ten years, maybe even twenty years, people will think about Brexit positively, negatively, or have forgotten all about it.
Well, I think there must be some diehards at both extremes who either think it's been the best thing ever or a completely not a disaster. But unless that really shows through in the lives of ordinary people, and I think it may well be forgotten to some degree. What w'd be interesting is if there's ever anybody you know in a serious position of power who would want to hold another referendum on this. I know there are lots of calls for another referendum sooner rather than later, but I think we were sold this on the basis that it was a once in a generation vote, and I also think it's only fair to give the pro Brexit side more time to deliver on the potential benefits. But assuming there isn't another referendum, then I think you're You're probably right. Some of us will continue to be obsessed about it, but for most people that won't have much impact on their day to day lives.
Anymore of it entirely forgotten.
I don't think so.
I mean, Mervin King has said that if you look at the sort of fifty years chart of British GDP growth. You know, the inflection points are nineteen seventy nine and two thousand and eight, and this was a few years ago.
But his view was that two thousand.
And eight would remain the inflection point rather than twenty sixteen or twenty nineteen if you take a bo went And I think he's probably right on that. So I was looking at some of the publing data were in talking to some people who do this stuff. Party affiliation has now recovered, so in the years from twenty sixteen till essentially twenty nineteen twenty twenty, people identified more as a lever or Remainer than as Tory or Labor and that has changed. But it hasn't so much changed on the remain side, because I mean Brexit is a they got what wanted and be Some of them are slightly embarrassed about that now because it's not perceived to have gone that well, whereas there are still quite a lot of people on the Leave side for whom remain. As you know, the people wearing waving EU flags at the last night of the problems the other night, they are like the breakageers. They're the guys who care about this, and they're going to try and keep it alive. So I don't think it will be entirely forgotten. I think it will still be quite contentious, but I think as a live issue, as we drift further apart, it will become harder to knit the two back together.
Robert Julian, thank you very much.
John, ma'am. Do you think you'll have forgotten Braxit in twenty years?
I mean, not after the foster everyone made, But other than that, I don't think. I'm not sure that it all matter that much economically, And I mean, that's good, that's a good question. And actually I do sort of think it comes back to that, like after the fuss and everyone.
Yeah, And when I think about it, I think that the major downside to Brexit so far, and obviously, as we discussed in that conversation, of course there's impacts. Of course, there's downsides. There's all the frictions, there's the loss of trade with the EU, there's a lot of pain for individual businesses, et cetera. But when I think about it that the main thing is, again something we've picked up in the conversation is stability. You know, one of the things you really need if you want to go for growth, which everyone seems to want to do at the moment, is a sense that you have a political stability, in particular, that your institutions are strong, that your political environment is strong. You remember the great Adam Smith quote about there being a lot of ruin in a nation, the point being that you can do an awful lot to a country and it can be fine as long as your institutions are strong and your politics are stable. And of course what we've now done is run through I can't even remember how many prime ministers in a very short period as a direct result of constantly ongoing John thinks is fall by the way for fingers of me as a result of constant rouse about Brexit, and that to me so far has been the thing that has caused some of our problems. And that's possibly why I think Julian says in the conversation, why there's this discount on UK assets and a lack of investment into the UK, et cetera. But you know, this is very short term and it's not just us. There's political instability everywhere, and you know you can't blame political instability in European countries on Brexit or maybe you can. I don't know about it, but let's not so we can pull that stability back.
Yeah, I mean so, I don't. I think that part of the problem is that people are were very impatient. We kind of expect stuff to happen over night, and obviously one of the breaksit was always going to be a tricky process. And then amplify that by the fact that the people who actually suggested the referendum in the first place, and the people who were running the country throughout the process didn't want to do it, you know, kind of made it trickier as well. And I think the fact that actually the British institutions actually stood up really surprisingly well and came out of it quite impressively. You know, we didn't actually end up reversing the referendum, which has happened in other countries and certain occasions and also could have happened here. I think everyone got a much better sense of where kind of you know, responsibility and sovereignty actually lies in the country, and it wasn't actually that far away from where most people thought it was. And I think that I don't I struggle to view it as being a failure from that point of view. You know, we've come through it. It got down, it was messy, it was bumpy. There hasn't been an epic depression. There hasn't been anything other than a lot of embarrassment, you know, kind of embarrassment because I've and standing up in front of our pals kind of high level kind of conferences and so it's not in my country voted the wrong way. But other than that, that's it.
Yeah, we can recover from that too, And maybe if everyone would just accept the results and stop going on a better Remember how everyone kept telling the Scotts to just accept the results of the referendum and just shut up and get on with the day job.
Hi say that to politicians here? Shut up, get on with the day job.
Hi.
Right?
You know we can say that to Nicola Sturgeon. I think we can say that to our Westminster politicians to just get on with the day job. And the thing is they know what the day job is, right, they want to go for growth. We talked about this a little with robertam and with Julian about what is it that we need to do. Well, we know what we need to do. We know we need to have a less complicated and lower tax regime. We know we need to change the incentives inside our tax system. We know we need to deal with the regulation problems, as Robert said. We know we need to stop faffing around with infrastructure and do it properly. We know we need better transport links. We know we need better Wi Fi. Know we need to short out our edge problem and stop overproducing elites and start producing people who can actually do something. You know, we know all this stuff. It's not new news. And now we don't have russels to blame and we've got to stop breaking it, breaksit, bles it, breaxit. We just need to get get on with it. And that seems to be me to be the way we have to go. And one of the really depressing things that I can't remember who was seven in the conversation that our problem here is we just don't want it enough and we have a large part of the population that isn't interested in the kind of policies that we need to go for growth. And my fear, because you know, I like to be optimistic and I'm definitely a half glass fall person, everyone knows that my fear is that it may be that the long term dynamic of an aging population is non stop risk aversion, because we have too large a group of the population who have a full incentive to protect the status quo kind of. I mean almost you and I are the point. You know, Please don't make my health value go down. I want to retire, and please please don't make the value of my pension go down. I really want to retire. Please let me hang on to my status quote. And then there's the generation above you and me. Of course you feel that way more strongly. You're an increasingly large part of the population, and crucially increasing large part of the voting population, and that might mean that economies such as US and all European economies are automatically risk averse and therefore unable to go for growth. That's my big worry. Tell me it's okay.
I think that's a really good point. The problem is quite a tricky one measure. I mean, I'd be interested to see because if you know, for all the you know we talked about older people being more you know, conservative or you know, kind of want to keep that house place, whatever it is, I also get the sense that the younger generation certainly comes across as being highly risk averse and sort of you know, for what a better bird socialists rather than entrepreneurial minded. But I just wonder how much of this is really just perceptions where we are in the current scale kind of age whites. I don't I don't know that it's about demographics as such. I think possibly it's more about the fact that we've gone through a long period. Again. Actually, I tend to bring everything back to two thousand and eight. What happened in two thousand and eight is that we didn't let the banking system collapse.
And a low the way that we wanted the banking system to collapse, just to be clearly wanted you lose, that's John.
And you know, rise from the ravages of the apocalypse to lead my people to salvation. Not more there's but the way we can have dealt with it seemed very wishy washy, even though you know, yeah, I mean most bank shareholders would not think that they were treated with kid gloves, you know, most of them kind of lost all of their money. But I think it's that thing that comes down here that they build out the banks and then suddenly everyone thought, well, where I need to get bailed out as well, and then you know where various crises come along where the government got bigger and bigger and bigger, and then obviously the kind of you know, ps to resistance, so like COVID coming along, and then we get locked down and suddenly government's into absolutely everything, and it's sort of seen as the cushion of last resort. So I think it's much more to do with that than they do be an aging population, because it's a long period of time where the role of the kind of state has been unquestionably increasing, and and I think it was supposed.
To be a small state guy.
Yes, I mean, and the thing is, in relative terms, he probably his small stay guy compared to where the rest of the or the majority of the kind of politicians are at the moment.
No one's just John. You know what, We're doomed. Thanks for listening to this week's Maren Talks Money. We'll be back next week in the meantime. If you like us, show, rate, review, and subscribe wherever you listen to podcasts. This episode was hosted by me Maren Somerset Web. It was produced by Someersidi Additional editing by Blake Maple special thanks, of course, to Robert Colville, Julian Jessup, and to John Steppe. Be sure to sign up for John's daily newsletter, Money Distilled link in the show notes. You won't regret it because he's always right.
