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What Does (And Doesn't) Labour Do First?

Published Jul 2, 2024, 5:37 PM

Abrdn Chairman Douglas Flint joins this week to explain why he thinks the new government needs to build up transportation and education. Senior reporter Phil Aldrick also joins to discuss the sort of economy Labour will inherit if it wins this week's election. Hosted by Stephanie Flanders, Adrian Wooldridge, and Allegra Stratton. 

Bloomberg Audio Studios, Podcasts, radio News. Welcome to voter Nomics, where politics and markets collide. This year, voters around the world have the ability to affect markets, countries and economies like never before, so we've created this series to help you make sense of it all.

I'm alegra Stratton, I'm Adriam Woodbridge.

And I'm Stephanie Flanders.

Right here it is.

We've finally got here, actually all three in the same place. A, we're all together and B what a momentous week to be all together.

It's the week of the UK election.

In this episode, we're looking beyond polling day, if you can believe that, to the administration's first one hundred days, and we'll be asking what can the next government really do given the economy it's inheriting, and can it create the necessary conditions for investors and firms to thrive in the So to help us explore those questions, Stephanie, you spoke to Douglas Flint, chairman and asset manager Aberdeen.

I thought Douglas would be an interesting voice to have from the business community, and particularly from financial services, one of Britain's most important service sector industries, and he's had very senior positions at HSBC and KPMG, as well as being on the advisory panel for Labour's Financial Services Review. He's sort of a thoughtful observer as well as a serious player in that world. And I was particularly interested with the support he offered, not just to Labour's focus on growth, which of course most people in the business community want them to focus on growth, but the potential need to raise taxes or borrow more to support that agenda. He was remarkably open to that.

Okay, well, we're going to look at that in a bit more detail. And second, we do also have in the studio with us Phil Aldrich, who is going to help us unpick what we can expect out of the first hundred days. But first of all, Adrian column today is fairly punchy on the possible new labor government.

My worry is that we are about to elect a labor government with all the power that that entails, because we have a very centralized system with no real checks and balances, and a prime minister with a big majority has enormous power, much more so than the American president in the sense of being no constraints, obvious constraint on that power. And I think we're electing the Labor Party and Starmer to this position without any real scrutiny. This has been an election entirely dominated by the awfulness of the Tories. It's a rejection of the old order, and we haven't really asked difficult questions of the new government. And I think that the more one looks at it, the more I at least and worried. It seems to me, in particular that the education policy, which consists of removing the twenty percent viaight exemption on schools, in other words, increasing the price to parents of private education by twenty percent, is symptomatic first of all of a bias towards the state sector public sector producer lobbies the teacher unions in particular, and secondly, a hostility towards excellence, independent traditions. And I think this bad labor runs through all sorts of that's a preser.

I mean, okay, so I think the pushback would be and it came partly from your old employer. We saw the Economist endorse Labor this week, and of course a big chunk of that was as a sort of vote against the Conservative Party, which we've seen obviously in a lot of the endorsements that the Labor has had. But I think that the Economists leader did also take the time to make a positive case for Keir Starmer in particular and what he'd done to the Labor Party. So I think the response to you would be you draw a negative comparison with Tony Blair as being more about change and about bringing in multiplicity of providers for education and health. I mean the argument against that would be, actually he has changed, He inherited a very unreconstructed Jeremy Corbyn led Labor Party, has brought it back to the Blairite center and will have now a mandate to make some quite difficult changes in public services, which would actually be much harder and more divisive for a conservative party to do. We tend to make the classic sort of Nixon to China argument that it's easier for Labor to do that than the Conservatives. I just wonder why you don't think, looking at his record, that he wouldn't be quite ruthless.

I'd love to be able to agree with you about that. But if you look at the Labor Labour's education and policy, that policy was created under Jeremy Corbyn by Angela Rayner. I remember going to labor body conferences in which the teacher unions were cheering that to the rafters.

It's making problems though, isn't it. I mean, this is really the argument, right, that that's actually a bit of red meat to where they.

Don't need to be giving meat to these dogs because they've been aimed.

This.

This is the funder point.

I think he does believe, because in the.

Past week they've all come out with quite full throatated support.

Absolutely, this is a party rooted in the public sector, with very very public sector producerist passions. His instincts a pro public sector at a time when we really need to improve the productivity of the public sector. And he has this idea of industrial policy, if you want to call it industrial policy whatever, whatever it is, state activism, state intervention in the economy, and Britain has a dismal record at that. And the Labor Party seems to be saying, look, Britain is broken. The state is broken, let's spend more money on it and give it more responsibilities.

Stephanie, anything else you No, I think it's going to be exhilarating this new government. People say it's going to be terribly boring and they're not doing anything but if for nothing else, but we can continue to have this very lively debate.

Patiently listening to all of this has been one of Bloomberg's most brilliant reporters, Award winning award winning Phil Oldrick, Phil just to go quickly to it first one hundred days, What do you think will be most interesting?

If it's a labor government.

Well, they're going to have to get through these key bills, so the workers rights that's going to be a big development, and then the planning reforms, which you know, that's the most exciting thing if they could actually come up with something which does make you transform the UK's performance. We'll probably have the budget in early September or mid September. If they don't hold it before the party conferences, it's not going to come till sort of late October. And then there's this big question of whether we have a single year spending review just to sort of roll over year so that they can really build some proper plans. They say they're going to drive or pay for everything by getting growth, So will there be an increasing growth prospect in that intervening year, and then you don't have to raise taxes quite as much. What are going to have to be big spending increases.

But Phil, you are an expert on all these matters. Is it possible for them to be demonstrating kist Armer said the other day needs two point five percent growth, which is more than America's enjoying right now. Is it possible for him to be demonstrating signs or indications that they're getting two point five percent growth in the next twelve months.

Yeah, I mean that is stretched. This is the thing. If Liz trust as she did, say that I'm going to deliver you two point five percent growth and it's going to pay for everything, then everyone's going to say, what a load of nonsense, and you know, throw the sterling out with the bathwater. And that is not going to happen under Kistamer because they know that lesson and they're not going to basically predicate their entire policy on a two point five percent growth schedule. They are going to be raising taxes or increasing borrowing and you know, so there are you know, you can change the fiscal rules. I think it's very unlikely for them to do that immediately after winning the election because they've come in on a manifesto with a set of very type fiscal rules, you know, so they won't be able to release.

He's borrowing to invest. You don't think they'll do that.

They limited to the exact same degree because it's the debt rule that's binding.

Rather we should we should just summarize quickly. There's the borrowing to invest, which is just how much were making sure that what you borrow every year is no more than what you're using for investments, so you can't be using it to for example, very fast rising bit of the bill, debt interest, paying interest on the debt, how much you're borrowing year to year. And then there's the stock rule. It's like how much is your total debt going up and is it stabilizing? And this rather odd rule that says in five years time you have to be able to show that the debt stock is going to fall relative to your economy. It doesn't matter what it's doing in the four years before that, as long as out and at the moment they are very very close to that. Because Jereby Hunter is not given much room for men.

Exactly there was eight point nine billion pounds headroom in the last budget, and so they don't have any money to spend, and there they're bound by that same figure. So there is they are going to have to They're either going to have to get better growth and so it won't go to two point five percent, but it may be the growth projection for the country will be a bit better and that will generate a little bit of extra income. But inevitably there are I think everybody assumes there's going to be some tax rises.

And tax rise is to prevent a tough squeeze on public spending advice.

So I mean they've got so you've got to settle these junior doctors strikes. You know, there's other pay deals. So the pay review bodies have delivered there what they want this year to the departments, but no one has seen these yet because obviously we're having the election instead.

And the junior dots is are wanting thirty four to thirty five.

Percent exactly, so they're never going to get that. But there could be a big extra bill to pay for the public sect to workers, and there is the prisons are in absolute chaos, so you can see that there's going to be immediate demands. So it seems likely that there will be some additional tax policy in the if it is a September budget, just to get over that bump, or they could.

Sort of fiddle the figures.

And do some kind of just just try and take on a little bit of extra boring. But I think you know it's subsequently we're going to see some some broader tax rises for next year.

I mean, you spend a lot of time talking to the Treasury and the Bank of England. Do you get the sense that they're expecting quite a big first budget from Rachel Reeves despite the very limited promises in the manifesto, or is it a question of a we're going to build credibility. Do they think they've got time to build credibility, or do they really need to do something quite dramatic on growth.

I thought originally that they were going to do a big first budget, because you know, you can hit the ground running. But all the noise I'm hearing is that it's going to be it's not going to be a huge first budget, and that you know they're going to basically it's going to be next year that you're going to see, if necessary, these big tax risers. And because obviously the big issue is what you do with spending and how you fix spending. And they haven't really got time to do a proper spending review because the depth of investigation that's needed to do at these at the departmental level to really come up with proper plans.

So how do you get around that because they've got they need new plans for April.

Yes, so they'll do it one years, they rolled, so they'll beat. They'll have the spending plans for a single year and then then they build out the bigger, broader plans for three to five years beyond that next year. So, I mean, that's one thing that's that's one thing that I'm increasingly hearing from, you know, around in the policy circles.

Good quick question when you say next year, do you mean a spring budget or.

So an autumn budget next year for well autumn budget and spending review.

So like every chancellor, she said she's only going to have one big fiscal event, but they never do.

We'll see.

I do think, you know, it's not an open ended book for them. They've got to crack on pretty quickly in order to we all say, you know, landslide is going to be huge, you know, two three term prime minister. But we did say that about Boris point. It did look and you know, not long after twenty nineteen that that administration could go on and on and on, and part of their problem was how do you deliver on leveling up within four to five years? It was always going to be tough, and you know, potentially the answer is they didn't. But the same challenge is going to be the case for Starmer. How does he deliver for these people he has persuaded he is different.

Yeah, well, that's that's going to be the big question, isn't it. The I think again, do you think it's going to come down to planning and the sort of you know, do you bring HS two back, that second leg of HS two as well Northern And it's those kind of big infrastructure projects where you can demonstrate that you're doing something for these regions even if it doesn't get completed in time. But the actually, you know, things are under way and this general building.

I mean, doesphologists say that he's likely to get this big victor on a pretty small proportion of the vote. We also have a very unstable electric for example, and there's there's red wall voters again who will go back are not going to be permanent demonstrated pus promiscuous is a very good word, the right word. But I do think there's a big difference between Kirs Starmer and Boris Johnson. That Boris Johnson was a liberty jib and Kirs is you know, he's clearly somebody who is is interested in achieving results and has studied the dynamic, the mechanism power. So he will do more. Whether enough, if he does enough, that's a different question. But it's a serious person, which boris never one.

I mean the point that you've come back to, I mean, just come back to where we started. I mean, if he does something that genuinely looks like it's going to move the dial on planning and other things that have proven obstacles to raising living standards through higher productivity, it is possible that the Officer Budget Responsibility, which is marking his homework on this and actually give in a sense setting how much lee where he has by making their growth forecast, they could give him some credit in advance. So yes, actually we do think that, and they did that. The record of them doing that with Jeremy Hunt when he cut Nash Insurance in a way that they thought would increase the workforce. So that will be one of the things he can play with, which actually he doesn't have to deliver. He just has to convince the OBR that growth will get up, and that's through those kinds of public investments, but also something it came up with Douglas Flint, sort of softer investments potentially in skills and other things.

Yeah, and also just a foreign direct investment talking about France earlier, the UK is looking more attractive in a relative term, so we've been doing pretty well on FDI, so perhaps we do get some of this investment boom that we've been waiting feels like generations for.

And at Bluemberg, you will be very well placed to be the first to spot that money coming in.

Yes exactly, the data will be there.

All right, that's a good place to leave it for now, Phil, But come back when we have this possible neighbor government.

As we discussed at the beginning, I had this nice chat with Douglas Flint. We talked a bit about his past. He's now chairman of the asset manager Aberdeen, and I started by asking him, I mean, after all the upheaval we've had under successive Conservative governments and prime ministers. You know whether this might be one time where changing the party in power might be seen by the business world as a vote for stability.

I certainly think it's the way the business world is hoping that it plays out, because I think we've had a period of instability, uncertainty and business plans in much longer cycles than political cycles to have the ability to plan because there's a government with a sufficient majority that it can actually command support of the House of Commons, to get legislation through, to give clarity on what it plans are in important areas of the economy, like infrastructure, like pension provision, retirement provision, and the hope is that we enter a period of stability where there is clarity as to what the policy framework will be. Some people may not like that framework, but it's much better to operate within a framework of certainty rather than the framework of instability and lack of certainty secure.

Starmer has made much of the changes he's made to the Labor Party since Jeremy Corbyn's leadership. Rachel Reeves, the Shadow Chancellor, and others have made quite a lot of effort to reach out to business, to hold breakfasts and lunches with people in the city and elsewhere. Is there a basic level of trust for labor among the business community.

I think there's been a real sense of gratitude that there has been that reach out, and particularly because that reach out has been you need to help us to understand what we need to do, or what the reaction will be if we do something different from what you're expecting, and so on and so forth. So I think there's been a level of reach out which has been help us to understand, whether it's an energy or transportation or financial services. And that's encouraging because I think the relationship between business and government has gone up and down over the last you know, fifteen twenty years or whatever, and I think business would like to feel that it has a role to play, and it's good that there is engagement with business today and a willingness to listen. Now, how that gets translated is where the rubber hits the road.

You know, as an economist, it's been an ongoing topic, this sort of lack of productivity growth in the UK, which of course the only way you really raise living standards, making more stuff with the same number of people. And there's been a sort of dynamic around this where economists and others have pointed to the sort of micro underlying reasons holding back growth, planning, lack of skills, these kind of broader aspects of the environment, macroeconomic stability. And then what successive governments have done when, in the name of helping business has been cutting corporation tax and focusing on taxes and not on those micro things that are quite difficult. Do you think there's an appetite for the reverse of that under a new government in return for addressing some of those difficult things, you know, making people build more houses, pushing through more big infrastructure programs. The business community might be open to some increased taxes because it looks like there's not going to be many increases in personal taxation given how many things Rachel Rees has ruled out.

If you ask any business or any individual would you like higher taxes? The answer istrigued. But on the other hand, if you say, if we can build an economy where there is growth and your business will prosper and your family income will do well, are you prepared to invest into that growth in the economy? Growth and the family income. Are you you know, are you happy to invest in it in a society where you're you can visibly see that the infrastructure you operate within and the services you enjoy are better. I think you know people will will respond to that. But but of course that is the trade off.

I know you've been part of the advisory panel for Labour's Financial Services Review. What advice are you giving them? Would you give them now? What should they be looking out for and their traps to avoid when it comes to financial sector in particular.

Well, I was one of ten that were asked to basically review the document they produced on policy for the the financial services industry and a policy framework that starts off with we will un a shamedly champion the financial services industry of the UK is one of our core strategic assets. It's a pretty good opening and and the kind of the exam question was is there anything in this that you think is silly, won't work? Is there anything you think is missing? Is there anything you think will attry in particular comment from media or other commentators, and the vast majority of forres and it was straightforward, I mean, the political stuff wasn't in it because that's a political choice and wasn't in the policy framework. But to start off with a framework that you believe that you need. You have a financial services sector that is extraordinarily full of skills that you need to grow the economy, and you want to harness those skills and control them in a an appropriate way without overreach. It's a very good start for engagement with the sector. I mean, I think the financial sector is always kind of believed. You tell us what you want us to do, and we will help you achieve it. And I hope that that is the dialogue with whichever government we end up in a week's time.

Are they a labor underestimating the costs of clamping down even more comprehensively on the non dom status, which the kind of thing one hears a lot in the city of people planning to leave because Labor is proposing something that's actually a bit tougher than what the Chancellor introduced earlier this year.

Look at a political choice. I'm not going to comment on the relatives.

Do you know people who are talking about I think it's a.

Result talking about it. But I think that in the context of the scale of the economy, I think it's a factor, but not a huge factor. I also think that there are many other factors that attract people to the UK than just the rate of tax that they pay. I mean security, the lifestyle, the arts, the culture, the connectivity to other parts of the world, the rule of law. All of these things are factors. There may well be people for whom that tax change, as it's implemented, will impact the way that they live their life, But you know, in terms of the shape of the economy as a whole, I don't think that's one of the biggest issues.

Some of the people who've been talking about moving to France are now rethinking as a result of the turbulence there and the possibly we've had one round but a quite dramatic response result of the second round of the French elections. Are you hearing that that actually suddenly some parts of Europe actually also are looking a bit unstable uncertain.

Well. I think that what's handing in France at the moment reminds people that things can happen that are unpredictable. Nobody saw that coming. People talked about UK election, the US election, and all of a sudden we've got election. We didn't expect in France with potentially quite dramatic consequences depending on how you play it through, and that could have an impact on Europe. And again, I think in terms of the narrow conversation around the City of London, instability elsewhere is actually quite good for the City of London in terms of it attracts business, it attracts talent, it attracts people. It kind of highlights the resilience stability of the City of London and our legal system for.

An international business in any sector, what's the framework to plan against in a world where Donald Trump is elected in November.

I think, you know, one of his one of its characteristics is he's unpredictable, and yet when he was in power, some of the fears that people had didn't materialize, some some did, so I guess it would be a foolish person who said they know exactly what he's going to do. He's obviously still got to get elected, and there's no certainty over that. There's a long there's a long way to go. But I think people will reflect thoughtfully on either of the two candidates as to how America, what role will America play in the world, whether it's a security role, whether it's an economic role, whether it's a role that attracts seeks to attract more and more economic value into the United States, or whether it wants to share its economic power with others to create you know, friends, and I personally don't think that the major issues that face the world in terms of bidiversity, climate, demographics, migration, and aging population within demographics can be sold without nations working together. So you can't have one winner and everyone else living a terrible existence. And you know that Europe, America, Asia, led by China, the Middle East are all fundamental actors and this so I would hope that whoever is the president of the United States reflects on the contribution they can make through leadership to the rest of the world.

I've had a number of senior investors privately at least, and certainly some business leaders across Europe, including the UK, say, if Donald Trump is elected, especially given the kind of spending he wants to do and the tax cuts, but also the way he does tend to see the world in a sort of zero, some American first way, if he gets elected, I'm going to do everything I can to be attached to the US because that's where all the money's going to be, and money's going to be sucked out of everywhere else.

I've heard say that. I don't think that's a good answer, because I think that we need to build societies in the rest of the world that have resilience for our children, grandchildren, and we don't do that if we concentrate all economic power in any one part of the world. And I actually don't think that will happen because, in a kind of a way, I think governments would react to business if business said we're only going to bet on one team, one flavor of success, because at the end of the day, governments are elected by people who've got jobs, and if you've organize your economy so that the jobs are all somewhere else, there are many more people who are not going to be supportive of the policies that have led that to happen. I also think talking to American business, they recognize that if they want to have the export markets they want, they can't capture everything for themselves, but still expect people to buy their goods and services. You know, I don't believe the worst extrapolation of what could be done by any political per personality will come to pass, because I don't think they would work.

Going back to the UK, assuming we do have a new government, a labor government we have, if we have our first woman chancellor. Lots of ifs, but the polls are put certainly putting that way. In nineteen ninety seven there was that big first surprise move that Gordon Brown did of making the Bank of England independent, which was not only a sort of shock and all moment, but actually also sent a very powerful signal about microeconomic stability and tying one's hands and I think reassured maybe the business community after many years of Conservative rule. Would you have any advice for Rachel Reeves about in her first budget what would be a powerful signal about their seriousness to achieve growth and to do what they've said they're going to do on the campaign which has put growth really before anything else.

I think one of the important things for whichever government we have is to think very carefully about how we unlock the savings of the nation. I mean one of the things that I think we'll look back and reflect on whether it went the way that we wanted it to. But when we sort of closed defined benefit pension schemes thirty years ago and replaced them with defined contribution arrangements because the final salary final corporate schemes, and replaced them with contribution schemes which are not really which are not pension schemes because they're no newsy. At the end of it, the contribution rates are probably a half to a third of what they would be if we were still running defined benefit schemes. So the pool of money going into savings for all the things that people save for its significantly less, and effectively the city runs on the flow of money and the flow of money coming in from retirement systems. It's considerably less than it used to be. The evolution of people investing against their own risk preferences tends to be that people have a much more modest risk appetite then they will have vicariously if someone was doing it for them, because they can take in pilled savings much more, you know, a broader view of where they might put their money. And we're in a world now where, for all very good reasons, the vast amount of money that goes into equities goes into global equities, of which, depending on who does the construction, sixty to eighty percent goes into US equities because it's market cap waste.

I think quite a big portion of that's been going into Nvidia.

Yeah, and because one of the things you would also want to do is an incoming government say we've got to spend more money on infrastructure. If we're going to get productivity, we have to do things with infrastructure. That means the planning system in large part, but we've got to do something to get infrastructure, all the grid, electricity, supply, transportation, all that stuff. How are you going to fund it? If you can't tax more and you can't borrow more, then you've got to channel the population savings into pools of assets that offer an attractive return and also offer a sort of a benefit to those who are investing. And it's saying I'm doing something for the future of my kids and my grandkids because we're going to build a better society. So I would think very much about infrastructure. I think very much about pensions. And I'm not an economist. I know you're an absolutely fabulous one, but I also think that if you take the analogy of business, we absolutely distinguish between borrowing for investment and borrowing for consumption, and we have these rules about the total borrowing has to come down over the life of a parliament. It depends what the borrowings for. If we are borrowing to invest and genuinely invest in infrastructure and clinding soft infrastructure, and we have the capability as in government to ensure that the return on that investment because we can show that the pricing of it is adequate, then we should be investing in in physical and selft assets infrastructure for the future without getting caught up with the fact that because our consumption expenditure is rising because of so economy or whatever, we can't invest in the long term growth of the economy. I think that I know it's been a huge debate for a very long period of time, but I would at least think about that whether we can find a way of saying this is genuinely capital expenditure and that's okay.

Well, you've said two interesting things there and as well as being to have being nice about me, but so obviously I like that bit. But I do think you've said, or you've given the impression. I know you're not speaking, be so easy if you spoke for the whole of the global the UK financial community and business sector, and you don't. But for the purposes of this podcast, it is interesting that you've said, actually, if it was genuinely for investment, there could be an appetite and an acceptance of more borrowing. But also you talked about soft infrastructure, suggests that one could also have a broader definition of the kind of infrastructure we're talking about. It doesn't have to be big hospitals or roads and the things that we tend to think of. I have the sense if a government, if the next government announced they were actually going to change their rules. They've said they won't, but they changed the book debt rule in order to be able to borrow more over the next five or six years, and they were going to broaden the definition of investment. They would be jumped on for trying to get away with fudging the figures and we're going back to silly money and borrowing too much. But you think possibly they could make the case.

Well, I think you would need to demonstrate that you were you were genuinely putting it into skills, training and education, you were genuinely putting it into the hard infrastructure.

But that means teacher salaries. I mean if you're putting it into skills that's going to then say, well, no, you're just paying teacher salaries.

But if you believed, and if you could demonstrate that by having more and better teachers, you would have a better workforce, more capable of earning their living and therefore not being dependent on welfare. If you had more people in employment, then you wouldn't have the need for immigration so much. If you had more people employment, then your health statistics and your crime statistics should be better. So you can make the case. Now, yes, the cynics would jump on it, but it ought to be possible to make the case, And then the question would be, can you actually back up what you've said with what you're doing and show the evidence. You know, genuinely, skills training is a fundamental underpinning of the economy and we should be investing in it. And you know, as individuals, we've invested in our own education. So what more important is there for future generations than to invest in them.

Douglas fint I wonder how many others are thinking that way across the business community, little in within the new labor government. If we get one, thank you very much.

It's been a pleasure, thank you.

So I don't know what you guys thought of that. You know, he was being very careful not to be partisan, but I was interested in not just the air of general positivity, but also this sense, at least from him that financial services and perhaps the business community generally would be relatively relaxed about the idea of higher taxes even on businesses at the margin, or higher borrowing if there was a real sense that the new government could show where the money was going to be invested.

Yeah.

Absolutely.

It's also the idea that France is making us more and more attractive that we I.

Quite like that was just so kind of boldly. You're supposed to not want, you know, insecurity on your border, and he was like, no, no, actually quite good for the city.

And then as you've also alluded to the idea that potentially investing in skills, and I think you guys talked a lot about teachers' salaries and whether that would be a benign thing for the state to get involved in because ultimately would improve education and then people's earning.

We'll let me first say that I think the most important word in all of this is stability, and if you can offer stability or offering business a good chunk of what it wants. What the Tories did was to offer instability and imbecility, and the combination of the two wasn't all less attractive. So that.

Is much.

You know, taxes matter, but they don't matter anything like as much as that.

That.

What worries me about a general increase in teachers pay, I'm not sure is a very good thing. You need incentives, you need differentials, you need a competitive environment for the teaching profession, you know.

So I think it is more about you might be investing if you're investing in skills. Ultimately, that would come down to teacher's salaries, not necessarily raising their salaries, but you'd be spending more money on teachers and calling it investment.

But it does bring us.

Back to where we started this podcast switches on that being removed from private school fees in the following way, which is again whether the Starma government is setting itself up for tricky times because they're saying they're doing this so they can fund more teachers, but the number of teachers they will fund will be one teacher per three.

Schools, So again you're kind of state school.

Sorry, So I mean, you get the kind of principle behind it, and the philosophy of wanting to bring more math teachers, for instance, is the example he uses all the time into state schools. Clearly that is a noble aim, but whether or not it's actually going to be able to do it in any kind, I mean when the fact.

That the government, anybody who was either in government or about to be in government, would like would make numbers sound bigger than they really are, and trying to impress people with a number of I mean, I'm not to hear.

But if you look at if you look to put it on the side of a bus, if you look.

At Sweden or Denmark, for example, they allow, they actually give state subsidies to people for people to go to private schools. But because by going to private schools there, they're taking this hang up out of the country. We have a hang up, a class based hang up, and it presumes that everybody's going to eat nor harrow.

You know, this hang up doesn't seem to have held back the private education sector in the UK an increase. Of course, it's gone up way more past inflation over the last ten years. No, I just think I don't row back a little bit and having a tough time.

The public schools have behaved disgracefully. They bought it upon themselves. They've been irresponsible short term is greedy that you know, they deserve to some extent to be punished. But I do sympathize with the parents who are going to be globbed by.

I mean, one thing I do think is interesting is we would do you think, Adrian and I totally accept that it all if other things equal, if you had the choice, you probably wouldn't particularly want to have a higher rate of tax on education. And it's not that it's not what happens across the continent. But today, if it wasn't exempt from VAT would be exempt. It would any government, including a conservative government, choose to have it not be subject to a tax that you pay when you buy a kettle, when you buy a fridge, when you buy an oven, all these very basic things.

You pay when you buy when you buy an opera ticket VT on it. I mean, there are certain cultural goods that I think don't carry.

Vi AT there.

But what worries me more than the private public divide is the attitude that it embodies. Because when Blair came into power, he had this idea that in order to improve productivity in the educational sector, you had to have league tables, you had to have academy schools or schools that could have more independence, You had to have more differentiation. Starmer seems to have the opposite attitude, which is you just need to spend public sector producers, give them more money, and also close down or make competition more difficulty. That's the wrong attitude.

You're going to be able to see in the data a massive change in the quality of UK education as a result of this one change in vat.

No I was saying, it's a symbolic it's symbolic of an attitude. When Blair came in, he wanted to shake up the public sector, make it more meritocratic. When Starmer comes in next week, his first line of duty will be to remove a pressure, competitive pressure from the system. That's not right, that's not good. You know, he needs an adonus figure to come in and say, you know, let's let's try and turn this country into meritocracy.

I think it's going to be fascinating to see how he governs. And you are right that we don't have a good enough idea, but.

In a week's time we will know exactly what form the next government's taking. Thanks for listening to this week's Votonomics from Bloomberg. This episode was hosted by me Alegri Stratton, Stephanie Flanders, and Adrian Wildridge. It was produced by Samasadi with booking support from Chris Martlou, production support and sound designed by Moses and Brendan Francis Newnham is our executive producer and Sage Bauman is Head of Podcasts. Special thanks to Phil Aldrich and Douglas Flint. Please subscribe, rate, and review wherever you listen to podcasting

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