Bond Markets and Fiscal Policy

Ten years after Brexit, can the UK deliver change? Welcome to Political Fix from The Financial Times. I'm Lucy Fisher Well this week I've been casting back to where I was on the day of the EU referendum a decade ago After the poll's close, I raceed to Millbank Tower, where Nigel Farage and his leave campaign accoltes partartied away into the small hours Now the dust has settled somewhat. We consider in this, our third show of the week, what Brexit has meant and whether a major shift in the UK's relationship with the blog is potentially on the horizon. Plus, what does Anty Burnham think about the issue recorded this as a live Q and A webinar FT subscribers I was joined in the studio by political editor, George Parker Markets columnist Katie Martin Economics correspondent Delphine Strauss and political columnist Stephven Bush Let's get started. I was really heartened and interested that we got so many questions wanting to get into the weeds Brexit. So At the top, let's go straight to a question from Jeremy Wagner, who asks There are conflicting views about whether the UK is or will be, better or worse off economically from Brexit. What is the considered view of the speakers George T Fest Thanks Jeremy for inviting me to revisit my PSD of Brexitism. I had to write the FT splash on the night of june the twenty third, twenty sixteen, it was was quite a harrowing nice, I have to say. Look, I mean, as you say, the numbers are disputed the economic numbers at re leased but the Office for Budget Rponsibility is stuck by its forecast that Britain has been left four percent of GDP worse off period than man if we'd stage as part of the European Union Rachel Ees, the Chancellor started using other studies which are available, which suggest that the damage could be six percent or eight percent of GDP But that in context, that amounts to tax revenues of forty, fifty, sixty billion pounds, which would be quite useful in the current context I think we should provide a bit of balance to that and say that there are some areas where The British economy probably benefited a bit from having a bit more regulatory flexibility outside of the European Union. And we have Mario Draggys report on the competitiveness of the EU, which points out that the EU, particular areas like technology over regulating and stifling growth in the continent, but on balance think most economics would most economists would agree bad for Britain Katie, I clocked your views on social media yesterday where I think you said Brexit was always going to be rubbish, is rubbish and will continue to be rubbish alth they use a stronger word than that I won't repeat now. So I'll also put this question from Kevin Sylvester to you Do you perceive that we have seen the worst of the economic considerations of leaving the EU, or is there worse or more still to come? That's a good question. It's worth rewinding a little bit. know my experience of that night with the Brexit referendum was very similar to George's. know We're all in newsrooms, know scattered around and and watching what was unfolding. And look, you know, that night, I remember it very clearly when it looked like we were going to be staying in the EU The pound was trading at one dollar fifty and it nosedived and it just kept crashing through the night, you know down to about one hundred and twenty or something as it became clear that we were going to leave and it has never recovered And that just tells you that the way that investors are looking at the UK now has fundamentally changed and that it's more difficult for the UK to attract foreign capital. And also it's worth remembering that the sort of benchmark UK borrowing costs at the time of the Brexit referendum. So the ten year guilt yield was about one percent. It's about four point seven now. a bunch of reasons that go into that It's much more expensive for us to borrow as a country. It is much more difficult for us to attract foreign capital. And again, you know, looking at those growth trajectories that George is just referring to, you know, we used to be pretty much know wed to the US trajectory, and we've peeled away from that and strangely enough, got closer to Europe since the time of that vote. Again, there's a bunch of different factors there. But so have we got past the worst? There is a school of thought that possibly we have because some of the worst impacts were sort of front loaded, if you like. were They clumped around the time actually departed The best hope that economists and investors that I speak to have that we could be past the worst is that actually we get closer to Europe over time. I don't think it will heal itself. It will be something where there does have to be a meaningful rapprochemment with Europe to turn the tide Delphine, can to hear your view. and also Patricia Anne Cross Meadows asks specifically do you look at as indicators of success or failure of Brexit? So if you could say a bit more about the metrics, I think that would be interesting Well, so a lot of these studies that George and Katie have been referring to sort of point you towards those metrics. So one of the ways that people try to quantify the hit from Brexit. and I don't think there are conflicting views about the direction it's gone in is to look at How the UK has fared since twenty sixteen. relative to the trajectory of countries that looked similar to us Ted referendum and one of the more careful studies of this type, which came out at the start of this year and looked at the UK versus more than thirty countries came up with a hit GDP of more like eight percent. so really quite a lot higher than that official OBR estimate. They also used a different methodology, which is more at the micro level, where you look at how of Firms who are more exposed to the E U fared compared with firms which are less exposed. comes up with a slightly smaller hit, perhaps six percent. and that's in GDP per capita whichichever method you use You see a very distinct impact on GDP per capita, a much sharper one on business investment, which shows perhaps just how much management, time and energy was sucked up sort of dealing with Brexit itself rather than planning other you know, nice projects that might have happened and accnterfactual And you can also see a smaller but sort of highly damaging impact on productivity. some hit onemployment. And if you look at the UK's share of goods exports that also has a very sharp fall There we go A Stephen, John Pete, the associate editor of the economist, has asked What do the speakers think about economists who claim that the UK has suffered no economic damage from Brexit They often say Germany's slower growth than Britain proves they are right I think that, to honest, just defies plausibility, right? If you are you if one talks to anyone who runs a business or indeed, if you interact with the economy yourself, I think almost anyone who buys or sells goods, right As experienced the transaction that doesn't happen because it is now pain in the neck, either to transmit goods to the EU from the UK All the variety of small businesses we have g like, you know, actually it's not worth the candle to trying to it in the other direction. But also crucially, I think Germany is under performance is not the same as an argument against our membership. One of the tragedies is not just the impact on the United Kingdom, but the impact on the EU as a whole. One of the ironies is since leaving, both us and the EU have become less Anglo Saxon, We've become a typical European country both in terms of our politics, which we'll get into later. but we have de it turns out in this myth and the Brexit has han't we' become, you know, more liberal, more free trader, we've become none of those things. We've become more protectionist. but also The EU has changed in a way that is not to the United Kingdom's interest, but yet by breaking up, I think actually to meet one of the underrated engines of British prosperity, which is the Anglo Dutch alliance within the EU, the European Union has become much more inclined to regulate first And although that means we can go our own way on things like AI and financial services, we would be much, much better off if we were leading on the competition agenda within the whole of the EU than being this other also actually pretty flabby and all of the things that people rightly thought could sometimes be a problem with the European project, but in a much smaller market. So Germany's problemms and the United Kingdom are linked, even though we are no longer around the same table Let's try and be positive for a moment, then after you've all given quite a definitive arguments for the negatives of Brexit. George, you also already mentioned a few regulatory freedoms. Katie. C you answer Edward McGon's question?, What's been the greatest benefit of Brexit Itone' the wrong personion there. U that is a really That is a really tricky one. You know, as George says, there are some, you very sort of specific areas where greater regulatory flexibility has been useful to certain companies. It's been great for companies that do the paperwork for customs. Other than that, I'm somewhat struggling. but I'd just like to pick up what Stephen was saying actually, makes a very good point about how the EU is a different beast without us inside it. You know, When I go to Europe and I talk to people in European finance, they really miss us You know, fundamentally, the UK was driving the bus on European finance. It had a fantastic opportunity there to go further Since then, the departure of the UK, I would argue has been one of the main reasons or certainly a large reason why Europe has found it difficult to coalce, difficult to strip out kind of duplication and regulation and overlapping organizations and it could have a much more Dynamic financial markets ecosystem if we were still there. so they do miss us Ting to answer the question specifically on positives, I do find more of a stretch. Does anyone else want to jump in with any other positives So I also struggle to point to big positives. I think there will be many areas where there have been small changes or deviations from EU rules, for example, perhaps the rules for listing companies in London where there has been a little bit more flexibility and freedom to do things as we want. I wouldn't say these transform the UK's prospects. I think they probably do mean that you're gradually creating interest groups who would perhaps object if there was a sudden rush to return to the EU Jan edited crops, who said. There we go. there's one. There's one, Stephven. I think some of the Edinburgh reforms wouldn't have been able to do within the EU and those have been positive. I think also actually the growth shook from Brexit has at least been a helpful spur in the last few years, so under Bresak and then with the Labour goverment is now on its way out has at least slightly moved us beyond the kind of period in the immediate aftermath of the financial crisis where we were declaring war on one of our areas of comparative advantage, because we no longer have that luxury as a country. However, that is a tiny silver lining on a pretty big cloud. The one thing I would say is when we were writing about in the run up to the vote The big fear that everyone had in this building was that the city of London would be eviscerated by the Bxits and were projections of huge job losses and business being transferred I'm not saying the city of London would rather we'd stayed in that we hadn't left It's adaptive. London has shown, what the British financial service industry generally shown how adaptable And when you ask them, would you be interested in going back into the single market now? Generally, I think it's fair to say the answer is no, right I'm not sure the answer is no. But yeah, that's right, that the city has definitely survived in much better shape than anyone predicted. And the other thing that the leavers, I guess, have got that they can plausibly claim is know there were all these predictions that as soon as we left the EU, there would be this kind of cliff edge re and that there will be a very immediate short term hit to the British economy and that didn't materialize and that that did make it awkward for you know people like us honestly, you know in the early stages. But the long term forecast for the damage to the economy, I think are pretty incontrovertible and have been absolutely borne out. So project fear was project reality, but there was a gap in between where it wasn't clear that the damage was going to actually arrive Well as well as the economic impact, it's had a huge impact on our politics in the UK Christian Lekesne from France asks, how could we explain that we have at the same time regret, this idea of Brexit regret and a rise of the Reform Party in the opinion polls It seems to be contradictory George is really speaking to how politics has become more polarised in the wake of the U referendum, isn't it I mean I think the Brexit referendum introduced a air of toxicity into British political discourse and debate ation that I I'd really experienced before. Alough there was a foretaste of that a couple of years earlier with the Scottish Independence referendum, which was and I covered that, and that was a really this a campaign about identity referendums have their origins and the same idea, which was that the There was an other power being exerted somewhere else And they were to blame. In the case of Scottish referend, of course it was in London Of course in the Brexit referendum people to blame were in Brussels And once you take brrussels out of the equation There's no one else to blame, basically. And I think that to goes to the question, which is a very good question. Why is it that you know, despite the fact that the polls suggest people regrets leaving the European Union now and the person who did more to deliver Brexit than anyone else Nigel Farage His party reform UK are now leading in the opinion polls How is that the case Well one thing for St that Nigel Farage doesn't talk about Brex anymore hardly at all. he realized nobody wants to talk about it But the second thing is it's now politics of grievance basically. prereviously the grievance was aimed at Brussels Now he's basically saying, well the political class in Westminster didn't deliver Brexit as we'd envisaged it and therefore in any event But it's Westminster that's a problem now. So it's now politics agreement aimed at the elite in in London So you know, there's always an You, you just change the people you blame, basically and that's what's happened with it Well, it's like yeah, this mystery that you know he's this used car salesman where everyone hates the last vehicle he sold them yet according to the polls. twenty five percent of the country is going to go, actually, would love to buy another car from you But crucially, he is only getting around twenty five percent. And I think the The known unknown about Nigel Farra is this theoretical poll lead which translates to local elections, but whenever there's been a parliamentary by election and have people have reached for the lever to stop him Will that still mean that he is too extreme to win an election We see that in every poll here IipsoOft recently saying, twenty one five percent think he'd be a great prime minister, fifty nine percent more than any other politician go, no no, he'd be a bad prime minister And so those two things aren't as contradictory as they sort of initially seem. It's just that he is the candidate of the remaining group of people who are not experiencing regrette Let's look ahead to what could happen regarding the reset between the UK and the EU. George, you've done a lot on what StTara negotiated, but we do have a new prrime Minister coming in, very likely at Andy Burnham Robert Rob Bigway from the US. asks would a return to the EU look like for both the UK and the EU? It's not really feasible rejoin package at the moment, is it Well I don't know whether he wants Britain to rejoin the EU. but I don't think that's a very likely scenario at anytime in the near future. The opinion poll certainly suggests that there is an appetite for Well, certainly regret about the fact that we voted to leave But that's different to things to people. do actually want a You talk take people through the different steps Yes, in theory, they might think they would like to rejoin the European Union But then when you ask them, would you like to use the single currency Would you like to have big donation contributions to the the EU budget? Would you like to have free movement of people? all those things and then their support starts to evaporate, but more importantly, don't want to go back to the debates about Brexit any moreore than If you ask British people they'd like to go out and start talkking about COVID again, you know, it's something's part of the national collective psychology, which people have put in a box and don't want to go back there. So To answer the question, And it was quite interesting in the Kir Starmer, when he was talking about his approach to Europe, he said, incrementalism is no longer good enough. trruth is We it will be an incremental back towards European integration. So kind of things that were being discussed before the EU UK summit was postponed again After Kissum announced you were stepping down with things like rememoving trade barriers in food and drink trade energy, having a youth mobility scheme All these things will make a tangible difference, but they're not quite the same at all, or not the same at all as' going back into the customer's union. or the single markets and Those things are still a long way off. and when we talk about this thing we should, of course forget there are two sides to this negotiation. We often talk about what we would like to do And the moment you start talking about parts of the single market, maybe a single market in goods, which we prefer to have a single market in services or financial services E will say, you know, it's a whole package or nothing And the EU doesn't want to do a kind of bit by bit negotiation with Britain as it's done with Switzerland over several decades is a deal they really hate in Brussels So I think it's going be slow and painstaking you can see a trajectory back towards moreore European integration and Donald Trum Vladimir Putin probably played a key role in that I want to come to Burview, but I'll just bring in two comments that pick up on two points you've made, George. Catherine Stewart asks EU' objectives changed too much in the past ten years for Britain to rejoin for your thoughts on where the EU is going that diverges from the UK. And Tanyja Morrison says, I expect I'm not alone in being a remain voter, but also thinking that trying to reverse and rejoin is not the best way forward What is the best pathway to better relations with the EU that is good for the UK and also attractive to Member States? Katie. I think it is this incrementalist approach that George was just talking about. That's the only way to kind of get this over the line. I think George is absolutely right. This is just such a in a Brits have such a kind of allergic reaction to thinking or talking about Bz. It's only the fact that we've got this ten year anniversary that's forcing us to face up to how the country has changed over the past ten years that makes us want to go there And yah, I do think Europe would have quite hefty demands of us if we were to seek to rejoin, the single currency being the most obvious and Again, you, that would stir some quite strong opinions. And in addition, you know, Europe can't take the risk that we just keep changing our minds about this every ten years You know, this is just it's not worth it to them. You know we were I think we did, you know, we were beneficial to the EU, you know, writ large, were we were good members of the EU U we can't push it too far Stuff in Adding to all of that. I mean the conditions aren't right now because individual voters but also businesses have No appetite for a dissent and all of the sort of fraught debates and that were worked through over so many years. and equally on the E side, there is absolutely no point in negotiating with such a manifestle and stable negotiating partner Conteext can change and it did, you know, to some extent change over the last couple of years with the U. S. sort of withdrawal from NATO commitments and sort of general geopolitical sort of fears and new emphasis on defence will be interesting As and when Andy Burnham might arrive in them ten And we move towards the next election is, you know what is said in the next manifesto on intentions for the future And could we see ourselves on the other side of the next election with some kind of different sort of mandate from voters would make it clear what you were negotiating with Steh, this is an interesting idea from Andrew Dundas, who asks, wouldould it be sensible for Burnham to keep Starmer as our EU negotiator considering Burnham's lack of EU experience? No, for a couple of reasons. Firstly we shouldn't forget that although Andy Burnham has been a mayor of Great Manester, he was actually a cabinet minister under newew Labour when every minister because we were still happily in the EU then. was having monthly or in some places, fortnightly meetings with their counterparts, whether it was in ecofin or you know, whichever group you at a name. So it's not like it's going to be his first Brussels, but also I think Towards the of Kisam' Premiership, saying he was doing well on foreign policy was the equivalent of saying someone has nice eyes. you just said it have something positive to sex. The reality is is that this position of, oh, I'd like to be closer, but I don't actually want to change any of the red lines from where they were when Rashi Sunak was Prime Mister meant that by the end, I think lots of European politicians are fact look, this is just a waste of our time And then broadly speaking Thanks, partly for the mood music change that happened under Tunak Actually, the relationship is as close as it can be if you aren't willing to flex on. further payments in free movement of goods, people and services. or membership of the customs union And seeing as it doesn't feel like the politics are going to align on any of those anytime soon. dont I don't think there's anything really to unlock by keeping kissed armor in some negotiation point. Where I do think we probably will see a change is if we think about how we joined, having initially said in the fifties we didn't want to be part of Coolin Steel We had a failed attempt to join under a conservative government in Power Pc Millland We had a failed attempt to rejoin under Harold Wilson. and it was only on the third attempt when Ted Heath tried to get us in, which was of course partly to go back to the other question about is the EU changing too much? partly because of a change in politics in France, you had Pomperdu who was more open to British membership But I think also we only be when peat when on the other sideid of the negotiating table, don't it doesn't feel like EU membership in the UK can change with an election. only be when the British right learns to love the European project again could happen quicker than we think because the European project itself could move in a more farg e direction quite sharply beginning next year, for example. I think you're hinting there at the French presidential election and perhaps the RN winning there George, interested in your views on this. Stephen mentioned some of the barriers to closer relations, but on some of those principles like more payments into the EU, the government has signaled that it is willing to pay to play. And on some of the other areas like customs union, there are key proponents in the Labour Party who could be very prominent in a Burnham administration, including West Streeting, who's being touted as a possible contender a foreign seecretary, who were quite amenable to that idea Yeah. I mean, I'll take that on in a minute. I was going back to the earlier question about whether the EU is involved in a unfriendly UK unfriendly sort of way Yes, I mean, there's been bit too much regulation, I think that's will put people often Steam was absolutely right to say that Brushin leading the E was bad from that point of view. But in other areas, you can see our interests are starting to align and that does give us greater scope I think, for reintegration. We haven't really talked about defense yet, but we've probably come on to that external threat posed by Russia is forcing Britain and the European Union to come together and discuss all kinds of operation and joint defense funds and all the rest of it Global trade wars, the fact that there are three big trade blocks and we're caught in the middle of a global trade war, China, the United States That is forcing Britain to talk to the European Union about joining in some of these humans Tex's procure arrange was designed to protect the European industrial base from external competition So Um that sort of brings you closer together and sort of starts to edge you towards discussions about Customs union, as you say Customs Union, I think is the easiest next big step. As opposed to an incremental step And you can easily imagine that being part of a Labour manifesto Of course it would mean giving up No trrade deals, which KS Aam has been very proud proud of with America And India and South Korea. H I missed any Switerland as well, maybe Gulf Bs Look at the numbers. I mean, Delphine will know the numbers off the top of her head, but the economic gain from these trade deals is a fraction We lost Customers Union, honestly, when we were covering this debate back in twenty sixteen I mean it's a failure of everyone, and I think I put my hands up to this as well. didn We talked a lot about the single market, but we didn't talk very much about the customs Union. People in Brussels didn't talk about it. It was something that was set up in the nineteen sixties. It was in a dusty file in the Birlingmore. Everyone had forgotten about it. But actually, when it came down to it, that was one of the biggest problems we faced, wasn't it? It was the form filling and the box sticking And I think going back into the customers union would be a wise first step back towards that sort of closer integration Delphine, can I come to you on some of the figures Because we actually had quite a few questions asking us to assess How big deal are these other trade deals we've been able to sign from being outside the customs Union So the Office for Budget Responsibility Sores their impact is pretty much nothing me is the simple answer Andam The counterfactual one is also not necessarily that you have no trade deal with these countries. It's that you have the trade deal the EU has which quite similar And there's a question here from Lord Benjamin Stoneham, Libem Pir, who says how does a trading nation like the UK achieve economic growth assuming EU membership is realistically not on the agenda for the next five or ten years? and you dolphin I think it's a bit of a premise to think that any government can generate economic growth Clearly, there are things you can do with the EU relationship of an incremental kind which help There are a lot of other things you can do within the domestic economy don't produce incident results that could produce long term results, a lot of which the current government has been trying to set and train around planning, around energy infrastructure There are various things Andy Burnham is enthusiastic about, which, depending on what form they take could be helpful Fiscical devolution is something a lot of people have wanted for a long time It's hard to know exactly what it means, but it could be positive And then you have these big questions at the moment about exactly what is going to happen with the spread and deployment of AI Wh Really nobody knows. see how it's going to play out, but Regardless of the relationship with UU, the UK has potentially quite a strong starting position. in its skills base and the fact that we're so concentrated in prorofessional services. in the you know, in the clusters we already have in London and all of the investment we have in the sort of Kings Kings Cross Tech Cub And you know, this could go well or badly One kind of big picture thing to bear in mind here is that There's a very heavy sense in Europe that we're incredibly reliant on the US Right? So you the dollar is the world's dominant currency fm, we all understand that. But we're also incredibly reliant on Google, on Amazon web services, on know lots of bit of the financial system are fundamentally American on visa. You know, the story that we had back in May about the international warar crimes lawyers who were sanctioned by the US. and woke up the next day and their booking. com bookings had disappeared and they couldn't use Epedia and their UPS packages were getting sent back There's a real sense in Europe that we can't carry on like this and that we need to have homegrown alternatives to some of the things that we've grown up with as American products and never really thought about it because America's been our friend and ally for the past eighty years. Europe needs homegrown alternatives, and there's no reason why they can't be born and raised in the UK as well as in the EU It strikes me as pretty self evidently obvious that we should be working with our friends in Europe at building those sorts of alternatives I that mirrors a lot of the rhetoric we hear coming from the UK Government about wanting to you know, support the next British unicorn to rise up It hasn't been as sort of lively attxt scene in recent years in London as ministers want it to be, has it? I mean, the perennial problem with the UK tech scene is that we're really, really good at incubating really good ideas and early stage companies. And then as soon as they get to the point when they're talking about needing funding rounds that go into the billions then they end up going to the states because that's where the biggest pots of money are I don't have a magic bullet solution to put all of that right. But the problem is not that we don't have the talent or the ideas or the ability to kind of get these things off the ground. It's when you get beyond that. And that's a common problem across Europe as well be fair, but it does again, strike me as pretty obvious that if we worked together on this that it would be easier to find a solution. And It is also under the radar. Absolutely the fastest growing part of the UK economy at the moment. and is becoming more productive as well, which is a rarity in the UK economy and that's actually quite a positive sign It does seem to be something where you know financial services, which used to be the absolute motor of the economy has, um productivity growth really tailed off post financial crisis and that's been a big drag ever since It does look as if the tech sector is Has things happening Let's take two questions together here. Gian Piero Bentevolio asks, do you reckon without Brexit our PMs would have lasted much longer in the past decade Michelle Sang asks, what is the counterfactual economics scenario for the UK if you remove Brexit but keep the Ukraine war, COVID and Trump's second term factors place Stephven Well on the first one, I think it is obvious, not least David Cameron would not have had to resign. and he did have to resign, right? We can complain about the slight en suchance He showed in the end, but his party would not have allowed him to negotiate the terms of exit Thesa Mayan, through no sort of her own in my view, was then left on the hook for the impossible promises that Vote Leave had meant, which was always going to wreck Pmiership, The the Conservivative partarty, in its desperation turned to Boris Donsson, a man who they had always believed was A a winner and be incapable of being Pime Minister, and he proved them right on both accs. And then Kirst Arma essentially round on the platform of, don't worry. I'll I'll keep the impossibleomisses Boris made because I'll turn up for work and there'll be no day drinking in the office turned out, of course to be illusory because I think we still haven't as a country got past the fact that What was unleashed, George is exactly right about the toxicity, but as well as the toxicity, what was unleashed was this Oh yeah trade off talking about trade offffs, you know, that's a weakness. you know, just promise promise the moon and let that be tomorrow's problem. until we can get back to as a country talking about trade offffs again, we are going to continue to rattle through Prime mininisters. The second it turns out oh wait there is a trade offff and no amount of promises or eyelashes can get past that Do it No, I agree with everything Stephen said there, alough I think probablybably there's an underlying factor which goes beyond Brex. I mean, certainly in the case of You know, the first three prime ministers as you mentioned there May and Boris Johns Nothing subsequent to that It goes back further than Brexit does't it. It goes back to the financial crash and the stagnation of living standards and rising incomes And the fact we've had twenty years in this country where people have not been feeling better off. public services declining and J just that sense of accumulating Anger and Brexit compounded that, of course I don't remember what was it? How quickly was the economy growing before the Brexit vote? G was the twenty fifteen election, it was growing by about three percent, was' it? threeree percent something So we'd have this huge jobs growth Wages were finally starting to grow again. There were things that were looking up There's no cut growth wasn't there, I suppose. Well, this is thing th one it's the completely sort of neglected point, occasionally when I comment about the financial crisis quite reasonably people involved in the cooalition govern who are often fairly hardcore remainers will go. But look actually the twenty fourteen to fifteen economy, which is key to why David Cameron was reelected they would argue does show that our problems aren't so much about the long run consequences of the financial crisis and they had turned the corner. of course we'll never know. as the other question alludes to, we a country whose energy prices are tied to gas and we've had a dash shock uh where a country that is very exposed to financial services, which that's one of our strengths. And we had a financial crisis in two thousand eight. so maybe a lot, we would still have these quite deep problems even if we hadn't left the EU Crually it would have meant we would have been focusing on those problems. And I think there are so many policy areas where you can just see the impact of the fact that from twenty sixteen, really until Rusi Sunak became Prime Minister Um No government had the bandwidth to focus on anything other than our institutional relationship with the And it's kind of It's interesting as well. you look over to Europe and I think it is important to think about what they get right as well as what they get wrong. know It's not a perfect organisation in the EU, but you look at the example of Spain gone its own way with incredibly high levels of immigration and with a really aggressive solar energy project that has untethered it from this horrible problem that we have with that are linked to gas prices. You know, it is possible to kind of innovate yourself you know around these really massive challenges, whether you're inside the EU or not. And we have just done a lot of those things, and I think you can definitely argue that some of that is down to the endless amount of energy that we've poured into the Brexit project I'm sure that's right. And I'd also add maybe as a factor, but something that's become An issue in its own right is a change in parliamentary culture, MP's have become much more rebellious and ill disciplined One other suggestion that somebody made to me last week. is that if you wanted to ar my guilt market. It's not necessarily that you need a different prime minister or a different fiscal policy. but electoral reform would be Big thing would, you know, perhaps if we've become a more European country and degree of division we have in the electorate and whyy does that help though, Delphine mean? If we'd had PR at the last election, we'd had a whole load more reform UK P's m me with thes up Gillild Markets one And I think they're looking more at, um, sort of five party split we have at the moment in the sense that people do vote tactically in individual constituencies when it comes to it That's us through and And of course, Andy Berham himself is a long standing proponent of proportional representation, although I'm probably among the skeptics who think he'll arrive in Westminster and immediately start to give away power On that question of the Gilt markets, there's been a lot of interesting questions in what Burnham do. Katie, give us a sense of how the bond markets are looking at his programme. He's been forced to sort of row back on his suggestion that the UK shouldn't be as in hoc to the Gilt markarkets and said that he will obey Rachel Reeves' fiscal rules. You might have noticed I kind of sigh when you mention the word words in hook The problem with Andy Burnham saying that we shouldn't be in hoc to the bond market is that that's exactly what the words in hock actually mean. L you owe people money. We are literally in hock to the bond markets. and it's absurd to suggest anything otherwise, you know we've got one hundred percent debt GDP ratios. We've got a lot of debt to pay back. So whether you like it or not, we are in hock to the bond markets. and it's important for politicians of any persuasion to have a constructive relationship with the market, right? to You know, this kind of combitative thing where again, you're kind of, you know a bit like when you're looking at the EU to say, let's blame our problems on the EU. there's a lot of people who blame our problems on the bond market, and it's just absurd on its own face So Bernham does have a somewhat kind of wobbly relationship with the market. know He had an opportunity a few weeks ago to talk to a bunch of hedge fund managers. Hedge funds are an incredibly important part of how the UK government bond market works. He pulled out of that meeting quite late on citing scheduling issues and scheduling issues come up It is important to get that relationship working more smoothly Again, you know,, you know, As Stephen was saying, we've forgotten how to talk about trade offs and Governments in the UK have pretty much forgotten how to talk to the elector about tax and about if you want these things, you have to pay for them The money has to come them from them from somewhere So the big other place where that money comes from, is the bond market. And when that's functioning well, just it's a money tap. You can turn it on and off and as long as you can borrow at reasonable rates. You know, Rachel Reeves has said numerous times that it's absurd that the UK spends four times more money on paying back its debts than it does on nurses. And that's because we do have structurally really quite high borrowing costs. And any new administration, any new government, of whatever party they're from or whichever part of the Labour Party they're from It's their job to try and pull those borrowing costs as low as possible. it benefits all of us And the ways to do that are to keep public spending in check not to borrow too much money and not to let inflation run out of control. Those are the ingredients that bond markets want to see They will be willing to lend to the UK government if it does sort of slip on some of those things. but It will cost us more And if you think about every little increment of a percentage point in borrowing costs, if you think of that in numbers of nurses and numbers of hospitals and numbers of schools, suddenly you understand those trade offffs somewhat better. And to my mind, it would be helpful if politicians could at least engage with the facts of what the bond market is and how it works and what it's looking for so that we can h a magic money tree, but so that we can have a more affordable source of funding that's not taxation First of all we owe you a debt crust that says what Hock means? I must adm I didn't know, did you? No, I hadn't thought about it, but yeah it makes makes sense. We're literally in hook. We'it true hook U Well cases made the main points that it's very interesting that Andy Berham had to retreat extremely quickly, not just about the in hot comments, but his idea that you could somehow borrowing for defense spending somewhere off the books as if it wasn't nters They wereon't noticed. a real borr because it's called something else U George, can I also ask you you picked up on a story about Daron Jones, the chief Secretary, the Prime Minister, who's been out and about saying that he isn't going to run because he's had private reassurances from Burnham on his plans for borrowing. Yes. he said that Darren Jones used to be the treasury Chief secretary so the man in charge of public spending and seen as a ort of fiscal hawk and He was reassured he said by Andy Burnham that his plans wouldn't involve more than a little bit of extra borrowing, I think was how he She phrzed it And he was talking about an idea which I think some people in the city have suggested as well. I think it's done in some European countries that If you have very specific projects overseen, for example, by development corporations targeted You might be able to get away with a bit borowing, I't o cas, with the markets Wh that I was talking to a guilty investor the other night who was saying, you know You can try and package up additional borrowing anyw way you like, but we're not idiots. We can see that this is additional borrowing. And if you have more borrowing, then you your borrowing costs Oh higher One thing about the, you know the past few weeks, obviously there's been this kind of political drama in the UK. we love a bit of political drama in the UK. And at the same time, UK borrowing costs, benchmark borrowing costs from government bonds have been drifting higher And there has been this kind of narrative that this is all about Burnham. And this is all because guilt markets hate Andy Burnham This just isn't the case at all. Global borrowingosts have been pushing high because there's a war in Iran and there' been significantly higher energy prices, and if there's one thing that bondmarkers hate, it is inflation And so Actually, Burnham could get lucky here because the markets at least think that the Iran crisis is over. okay? We haven't seen the MOU yet. We don't really know what's in the agreement between the US and Iran book Whatever, it's deemed to be all over Bar the shouting. And so borrowing costs globally have started coming down and UK borrowing costs have been coming down a little bit more quickly than they have in the US. So it's actually plausible that Bernam could take office and preside, if you like, over this huge dissent in UK borrowing costs and take the credit for it. does. I can ask a quick question to you Some people like Jim O'Neil, Lord Jim O'Neill hass been advising Andy Burnham have said, has said that the bond markets would be a bit more relaxed if they could tell that the extra borrowing was going to projects which were designated, possibly by an independent body to boost Britain's long term growth prospects. is Do the markets differentiate between different types of brewy? They say they do. But in reality, it's supply and demand. And if you have additional supply of bonds hitting the market, then that does cost the borrowers more. I think markets would be receptive to borrowing that did look tailored towards growth. You know, if you're borrowing to fund defense, for example You need defense. We can't have conversations like this unless you've got a functioning defense system, but it doesn't create additional growth on the back of it. So yes, I think the markets would be more receptive on the margins to borrowing that was tailored at energy infrastructure and more innovative industries. but the end of the day, extra borrowing is extra borrowing OkayK, well here's a related question Henry Mendoza asks between businesses and the GMB and Unite, both indicating opposition to Ed Milliband as Chancellor I thought Bernam would retreat on that, but the idea is still being floated. But Burnham still appoint him, also where Streeting apparently wants it, but I've never heard of him being a serious economic thinker before recent weeks Yeah, I mean, so one of the reasons why there's so much chatter about who the next chance will be is that most in Westminster. Yeah, well most people in the Lab Party in Westminster don't know Andy Bernam very well. They don't know what version of him. is it going to be the actual mayor where you had a business quite dare I say blareite approach to you've got to get growth first and you worry about redistribution later, Or is it going to be the kind of Soft left friendly Ohh, actually the Manchester project is really about contontrol of buses and the essentials of life And none of us none of us really know which version of Andy Burnham is going to emerge when he actually walks through the doors of Downing Street. And that's why there's this fierce internal lobying about the next Chancellor. So I don't think it's a misread to see the fact that there's that the Ed chat hasn't stopped, as oh, that means Anddy Burnham is still considering it. That means that the people who want Ed Milliband will continue to advocate for Ed Milliband until the second that, you know, the box opens and it has, you know, either Shabana Mahamud or Darren Jones or Heidi Alexander who I continuely think is underpriced because she's a long term Burnham Lwist It is, of course, alsoue that West Streeting had notot notably had opinions about the economy until two weeks ago Admittedly, until two weeks ago, he was bound by collective responsibility. But onene of the problems for the Lab Party is they didn't have that deep level of intellectual renewal this time they were in opposition and they did the last time. And that means that they don't have that in depth thought about what type of economy they'd like, which is an essential prerequisite to governing wellalth George I I mean you can certainly say that Ed Milliband has that, doesn't it? In fact, of all the candidate discuss, he's the one who's thought most deeply about it. He's got a long track record tre And that may be why he doesn't get it in the end because You know, you speak to people don't you who say, do you make Ed Millaband chanceces you're handing over your preremiership to Ed Millaband and He's an unusual politician and somehow he manages to arouse the eyire not just a wing trade Union leaders, but also people in the city. he said and a lot of labour and pes guess is that Ed Mib Bam won't be the next chancellor in Stehven's run through some of the alternatives. Shabana Mammud is Lightw trereating someone who we don't know very much about their economic views, but they seem to be able communicators and quite strong politicians, which may be what you want. alternatively you could go for more of a middle ground, less threatening person mentioned there Who's you magining event crouooper? Darren Jones? mean I would chuck into the mix there. If you wanted to go down that route, someone like Johnynolds the former businessiness secret Manter MP respected by business or some people in business in the city of London U the Hc Fadden. Pat McFadden, of course, I am The probleblem is it's starting to look, if you don't have a millaband as to your chancellor It's starting to look a bit like a blairright tribute attack getting back together again, isn't it? Panneell who was in was a firm as the Chief of staff about David Milliban might come back from New York to be foreign Secretary, you know You've got to have some people on the left there somewhere. So it's a really tough choice and the biggest choice, I think is going to have to make the next couple of weeks. One thing about Andy isy is actually quite self aware Yeah, he often tells jokes against himself about the fact he wasn't a very good chief seecretary to the Treasury because he didn't like saying no And I suspect therefore then he will want to use and, you know, I'm suren't Lots of managing directors and CFO's assuming this will be having horrible flashbacks having to be the one who after the CEO has gone raises for everyone. know As says I buy raises for everyone. We actually meant raises for some I suspect he will want a Chancellor who will do a lot of his saying no for him because he knows that's not one of his skill sets so I whoever it is, I think they will probably someone who as Georgity project that toughness so they can be the person who goes, I know the Prime Minister just made some nice promises, but actually that costs too much so go away. Just looking back at previous chancellors, you would not necessarily say that being a serious intellectual economic thinker was the main qualification for a successful Chancellor. been plenty of veryy well respected chancellors, maybe Alistair Darling. You could mention who you know had an extremely good record in office without coming from In fact actually intellectual chances tend to have quite a Dreadful record, qu quuasi quuating. Brilliant b. Y Yeah, read you know, dreadful chancellors, Stafford Cripts, massive intellectual, I think actually when we think about chancellors who are both intellectuals and good chancellors fact really is a group that begins and ends with Nigel Lawson Yeah And when you speak and when you speak to people in the markets now about who they feel more or less comfortable with I wouldn't say that Strong economic intntellectual views were their main criterion Duffy, another question I want to put to you is around immigration. There's interest there and a big question mark over what Andy Burnham will do under pressure from his soft left backers to peel back the harsher elements of the crackdown on legal migration that Shabana Mahmou, the current homeome seecretary has put forward Christian Anton Smith Saug from Norway asks Do you consider immigration to give a net supply of work? or do the demands that arise from newcomers,i. e. migrant workers who bring their families, result in more demand and supply He also floats this idea of a more refined guesswork visa being a solution. What do you make of that So I think the economists answer to that would be that get across the economy over time Immigration doesn't solve a labour shortage. It's increases to supply and the demand Having said that It clearly can smoother demographic adjustment. It skews the population a little bit more towards people of working age at least in the earlier years can make, you know, perhaps your swing towards them bigger pension be a bit less painful It also clearly particular industries So hire a lot of immigrant whether that should be the answer if they're simply not offering good jobs is a different question. but We did see disruption post Brexit in particular areas followed by the very shark increase in immigration that has clearly led to more of a backlash sentence. The second part of that question around a guest workor visa or you know, do you think that's sort of ripe for In theory that in theory that can work in that you bring in immigrants you wouldd like to have in your economy who then, you know don't stay, become old, retire draw their pension in practice What we've seen over time in lots of countries is that realistically people stay, they settle And if you care about integration and helping people feel a part of society, So on you might you might rather accept that that's how things are going to be and not have some sort of unrealistic guest worker tag, which we saw in Germany was not how things panned over time. and then later all these reforms were brought in on citizenship to help people feel more part of society. Beram's wife or partner is Dutch Doould you think that will give him a slightly different perspective on this whole debate he's he's a he's liberal isn't he? iss Donald Trum They must be Stsbur from a town somewhere in England No, I mean, he he's I would say he takes a very liberal view on ration Um I think they're two stras to the immigration debate, aren't there There's illeal migr part of it and the hotels which have It's a briiant Robert Genic idea of taking problem put it plunk it right in the middle of every single town in the country which I think he'll continue to take a hard line on Sibana Mammi may continue at the homeome office to deliver on that Well on the legal migration side of it I think there's going to be a moment quite soon where party will be the debate will be starting to tilt a bit now that net migration numbers are coming back down to What was the last one? one hundred seventy thousand or something? It It's come massively off the Boris wave Peak. and some projections that we could be heading towards next immigration. So at some point we will have to have a sensible debate about immigration and getting the right people into the country to do the right jobs. and I think Andy Bernan will be quite open to that There's questions about where the British right goes, including this one from Esher Gosh, a school Puople in the UK Who says in places like Britain, Germany, and France, the mainstream centre right parties have increasingly indopted the rhetoric immmigration policies and cultural stances of the populace right to survive. Did the populist wave crest or did it simply dissolve into the mainstream permanently shifting the political spectrum to the right. Depends on the country, right? I mean The thing I would say, looking at Britain, France, and Germany the whateher you want to call it the Press stratey I actually to self write I did a column in which I classification did not did not work. for the French Center R. They no longer exist and now the populist write are the dominant challenger Thus far, Kenny Badenoch's strategy seems to be great at making peoplee who vote reform say, oh, I'm going to vote reform, but I also like Kemy Babenock But it is doing the square root of NaFL for the Conservative Party's electoral prospects and unless something changes, They're going to be replaced. In Germany, u it hasn't put the FFD to bed? I But historically, like how did Margaret Thatcher, for example, destroy the national Front or she did use ugly words like swwamp in her first term But also I think it is unarguable that Race relations in the United Kingdom were in a better state in nineteen ninety than they were in nineteen seventy nine I think thus far, it's not clear whether or not the centre wr right across the open indeed across the world can repeat that trick. Ultimately I think the lesson we're learn we're re learning is that It you're a liberal democracy and yourre centre right gets into trouble, you as a country have big problems. The most important thing in the United Kingdom in my view is not can labour succeed canan the center right in this country avoid the fav its peers? events aren't good Richard Oscroft Wainwright asks, a lot has been made about Berham being a Northern outsider even if he is a career politician Are there any comparisons in history about similar outsiders gaining office He raises the idea of Jimmy Carter, but would be interested to hear in British examples. And he asks, what effect might that have on Burnham's ability to push through policy objectives George That's an extremely good question. I mean The premise of the question is right. these' are Westminster insider turned outser, isn't? I mean he's suenly I first met mininisterial special advisor in his twenties And he's a creature of the Westminster system who' reinvented himself very successfully Um, I mean He's doing a big speech on Monday where I think the whole northern this regional identity will come up very strongly with Sace' speech about devolution. We did a story this week about how try to move party hiss number ten operations to Manchester in a real symbolic shhift But there have been politicians who in the past have traded on their outsideriness. and' Stehen N more a historian than I am, but Harold Wilson, you know played up to me as well. his working class with the pipe and the gunnicks meechanics Mack Some of the most successful politicians in British politics are people who somehow give the impression that outsiders When they're the ultimate insiders, I'm thinking here particularly of Boris Johnson didn't look like he was part of the Westminster establishment when in fact, he went to Easton and Oxford and you know with steaks in there establishment. So Farage as well, Dullwge College. anotherother good example. If you can pull that trick off Yeah, I think I think often when people say they like authenticity, what they're actually looking for in some ways is the performance of a stereotype Yeah, so what Boris Johnson did very cleverly As George says, he was from Conservative central casting kind of performed this role of Oh, I'm an affable member of the landed Gentry who's kind of, you know, in some ways, am I even political Farge, I think, there does a terrific I'm a massive clothes source, but does a terrific job of dressing as this kind v, look, I'm from the old city I'm from the days when you didn't have to get a degree. I embody a sort of a lost world that many of my voters still Hanker for I think the interesting challenge for Andy And see we actually embbodyodied in how he dresses, right? He's dressed casually and dressed as I'm this authentic man from the Northo is different I think the thing is people want their Prime Minister to look like they're the prrime Minister. they want them to dress up of it. And of course the win condition in British politics is not to win the North or London. It's to win the Midlands and I don't think people in the Midlands are going to particularly care for this language which kind of seems to talk as if They don't really exist or they're just either an adjunct of the N north or the privileged south. That is I think going to be the big political challenge for him. but If he can find a way to retain that authenticity as politicians who've succeeded always have done that good job of playing a role, Margaret Thatcher, we shouldn't forget essentially went from being quite different in how she presented when she was in the early seventies. to stealing, in some cases almost literally, stealing Barbara Castle's clothes in how she' presented as this t very strong, very impressive politician, which of course she then was able to back up with policy collateral, Maybe Andy Burnham can do the same Well, lots of food for thought there. That's all we've got time for for now. It remains to say thank you to you for tuning in and for your excellent questions. and thank you to our terrific panel, George Parker, Clatie Martin, Delphine Strauss, and Stephen Bush. Thank you The political fix was presented by me, Lucy Fisher, and produced by Peris Love and Claire Williamson Mal Malis Sarraagosa is the executive producer Original Music and Sound Engineering by Brene Turner The Brocast engineers are Petros Yumpesis. and Richard Toppping. Chloe Phillips is the FT's global headad of audio We'll meet again next week