Storm Warning: Labour Piles On The Economic Gloom | Bloomberg UK Politics

[Music] Bloomberg audio Studios podcasts radio news why we had to do that was because if we didn't we would have seen the markets losing confidence potentially a run on the pound uh the economy crashing so that was the leader of the House of Commons Lucy poell speaking to Sky News over the weekend another dire economic warning from the labor government setting the tone as MP's return to Westminster hello if you're listening to Bloomberg UK politics I'm Caroline and I'm Steven Carol welcome to the program there's a yellow weather warning for thunderstorms in place for much of Britain today not in London though although perhaps a different kind of dark cloud hanging over Westminster as MPS get back to business although I wonder is that just sort of back to school Blues you're going to have from people filing into the House of Commons today the government's certainly setting the scene with warnings of painful decisions ahead thinking about the October budget and Lucy Powell there talking about the decision labor already made to means test pensioners winter fuel allowance she says it's about not losing the confidence of the market some questions over that that we'll get into in a moment yeah absolutely well to add to that feeling of Reckoning then in the air MPS going back to Parliament after the recess yes it is back to school week for most pupils in the UK the government's preparations for the October budget are ramping up the conservatives meanwhile Steven are focused on their own leadership Race So can labor work with the nation's finances how should they negotiate the big events and navigate them in the coming parliamentary session well our senior economics writer Philips alri has his new pencil case and school bag ready for this uh term in Parliament first of all Phil on that question of what Lucy Powell was saying is there could have been a run on the pound if they hadn't means tested winter fuel payments does that argument hold water for you not not really no but um you can see why you say that I mean the the the trusts mini budget Fiasco the kind of the final Domino which tipped the markets was you know on the Sunday where you know quy quatang said yeah we're going to do more of this more of these tax giveaways or whatever which unsettled everyone and and there was it was this 1.4 billion pound tax cut for I think it was around that for the you know to get rid of the highest rate the 45p rate um and that was the that certainly in government at the time saying that was that was a trigger point so there roughly the same amount of money you could maybe draw that comparison I think it's very very spurious um because there was no sense that labor are you know completely losing control of public spending here it was just a case that they identified existing fending plans and they said hey guys we're up front and we're trying to deal with this so you know it was completely different narrative they didn't need I believe was complete overstatement from Lucy PE okay interesting so going a bit off script then I mean the winter fuel payment goes to what 10 million pensioners so it is a a huge issue um the post election Buzz this the sort of Summer uh sunshine and levity I mean Steven cow's introduction didn't didn't put paid to sum of fun then maybe thinking about um the budget might might do how long do you think the idea of stability paying off for the UK just the fact of having a fresh UK government in place which admitted is only since just before the summer holidays um that that alone would deliver benefit with the country how long has that really lasted I.E is the honeymoon been and gone well if you ignore the you know prime minister's and the Chancellor's commentary what's happened in the economy since the election is that growth has accelerated you know things are looking better interest rates have been cut um so the economic backdrop is definitely rosier um uh you know Andrew Bailey clearly feels relatively confident that this is you know the the soft Landing is now you know the the wheels are touching down it's every you know it's it's all good the bad news has been that despite the better economic Outlook the fiscal position has actually been slightly worse than expected so you know growth has not delivered the fiscal benefits the you know higher tax revenues and and lower spending that would normally be associated with so they've got they have got a legitimate gripe to say that the the fiscal position is is not is not as rosy and obviously the obr is going to have to make a judgment on the tax richness of the economy so uh to decide how much you know tax we generate for every pound of growth and they may have to reduce their estimates of that which would mean that over the period you would see if the growth position roughly Remains the Same you would automatically see a bit more of a black hole in the public finances so that they've it does feel like they've got something to address there so yeah and I mean so the obr and the government are preparing now for a budget on the 30th of October is there any chance that picture varies For Better or For Worse between now and the end of October because we had you know Rachel Reeves talking about the extent of the the hole in the public finances just a couple of weeks after the election H we're now I suppose you know heading towards two months since the election and I'm wondering you know is there another in another two months to could things look different yeah so the key judgments that are being taken now the first one is on September the 19th the office of budget responsibility will deliver to the treasury their set of forecasts and what those forecasts mean for the public finances assuming nothing else changes and at that point they'll see whether they've got a bit of extra money or if they've got even less than they thought and then you know we I Jeremy Hunt basically the treasury would brief it out like what the number was almost to the to the decimal point um I don't know where the Rachel Reeves it was very unusual so I don't know whether Rachel Reeves will do that but um you even if she even if we don't get a number um for the hole or that that needs to be filled or the sunny Uplands that she's suddenly got um you'll be probably be able to to tell from the tone like if things if if the rhetoric ramps up about we're going to have more pain if they get you know we have to deal with problems then you can interpret that as meaning that the the physical position has worsened okay but hang on a second it's not even a week since we had kissed sta again kind of trotting out Doom and Gloom amidst the summer holidays he talked about things will get worse before they improve I mean you know sending people off on their holidays basically worrying about tax Rises to come some MPS are are concerned that that's sort of too gloomy was that a bit of positioning ahead of the budget again does the rhetoric around that change in the next few weeks if they do get a bit more borrowing Headroom than was expected then obviously then the actual budget can be the good news moment after preparing everybody for misery you know so but the I mean the longer term picture here if labor want you know to go into the next election cutting taxes and saying we fixed the economy now we can cut your taxes then what you're going to do is now is today you're going to raise the taxes as part of the fixing process the narrative that they're building is whether it works or not is that it's the Tories that are responsible for the tax Rises that they're going to have to implement it's very questionable argument but that's what the that's what the narrative is um but then you know in three years time have you know the economy recovers those extra tax Rises therefore have been generating a lot more Revenue your fiscal hole gets smaller they can cut those tax is going into the next election and it's a playbook for every government to basically bake in misery right at the start and then it's forgotten about as long as you can build a different rhetoric after the budget and you probably need to build a bit of a rhetoric around the time of the budget for what your vision for the country is really but is there also a risk that you're damaging confidence at the same time by saying how bad everything is I mean you know we're we're looking at the the survey from the um Institute of directors over the weekend talking about optimism plummet among company bosses I mean is that a risk if if you're going to keep talking like this about so much pain to come they can get through to October the 30th being gloomy if on October the 30th we suddenly see that things aren't as gloomy as they were saying if in October the 30th it's more gloomy and the warning is that there's even more Gloom to come yeah IR in you can end up sort of deterring investors and deterring business investment you've got you know the the narrative isn't going to be useful um if it's if it hangs around for too long yeah okay so give us the bullet points then of what we're expecting in the budget in terms of the 30th of October I mean tax Rises surely to fill this 22 billion pound black hole that labor has identified I mean is it going to be inheritance capital gains tax the energy profit Levy what are the kind of uh levers that we're watching now I think they're going to use some accounting trickery in the first instance always a popular favorite yeah they have a debt rule they've inherited which um they can change the measure of the debt in the fiscal rules and that potentially it's technical but it saves about 20 billion quid that is something like you know three 3p on income tax that they wouldn't have to do right that's a lot that's that's a big chunk of money and then there may be changes around I mean they they have options of changes around the bank of England's interest you know it's a quantitive tightening process which is which is adding to the fiscal problems at the moment they could they could do small measures around there I don't think they'd want to Tinker too much with the bank of England um as the benefits of the beneficiaries of the bank of England scheme actually now are the money this interest is being paid to to commercial Banks High Street Banks you could just say well I'm going to winall tax those those banks for this extra interest income that they're earning through this the QE effects um again is quite technical but you know so there are two there those are two ways in which you could sort of avoid inflicting pain on the general public but then when but depending on how big the hole is then obviously it sounds like you know capital gains tax so taxes on wealth inheritance tax capital gains tax seem to be the broad they talk about the broader shoulders those those kind of areas obviously vat national uh Insurance income tax corporation tax have all been ruled out so wealth taxes will be the area you'd expect them to have a pop up okay on the flip side cuts to benefits cuts to welfare that's the other of the agenda yeah as well so it sounds like they are telling departments to find savings where they can they have specifically mentioned welfare so they've talked about tax Rises and they've well they've they've not dismissed the idea of tax Rises and they've not dismissed the idea of changes to welfare to save some money so um yeah I think they want to show that they're not just taxing the rich they're also trying to take difficult decisions as well which is difficult for labor yeah indeed and plenty more to hear I'm sure between now and the end of October as well on on what may or may not be done and I'm sure plenty of the industry groups be getting involved in that as well I've already heard actually from the North Sea oil and gas industry lobby as well talking about the risk from The increased taxation that they're going to be experiencing the government's announced a higher windfall tax and removal of an investment allowance which uh they're saying now that could lead to an investment slumps that's just one industry Lobby group they're going to be talking about the effects of changes as well and I'm sure the others in representing industry will be looking at that as well Philip aldri our senior economics reporter thank you so much uh for joining us as we look ahead to that we'll be hearing from the chancellor tomorrow actually be interested to see if she manages to hint at any Eddie surprises while we're in those conversations with MPS yeah and we're reading the mood just very carefully aren't we in terms of what is the agenda what's it going to be for the next few weeks with what is still a relatively new government of course back from Recess now that's it from us though for today it's going to be an interesting few months ahead if you like the program don't forget to subscribe and give it five stars so other people can find it on Apple podcasts Spotify or wherever you listen this episode was produced by adabo and our audio engineer was Sean grassia I'm Caroline HP and I'm Steven Carol we'll be back with more tomorrow this is Bloomberg Bloomberg UK politics listen weekdays at noon on dab Digital radio in London