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- [00:00]
Monks Investment Trust Representative
We don't just invest in cutting edge companies. We look at companies with a history of steady growth and companies whose growth cycle has come round again. Because in the real world you have to look at growth in three dimensions. Monk's Investment Trust the thing about AI
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IBM AI Business Representative
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- [01:46]
Marin Zumset Webb
Welcome to Marantalks yous Money, the personal finance edition of marantalks Money and these bonus podcasts. We talk about the best strategies for making the most of your money. I'm Marin Zumset Webb, Editor at large for Bloomberg UK wealth now this week kicked off with drama in British politics. No particular surprise there. Following Andy Burnham's victory in the makefield by election and growing pressure from Labour, MPS Karma announced his resignation as labor leader and Prime Minister. Burnham quickly confirmed what we all already knew, which is that he would be seeking the leadership. And that is widely expected to happen in the next few weeks without much of a contest. So we imagine that Andy Burnham will be the next Prime Minister and the question then is what will Britain look like under Andy Burnham and more importantly, what will it mean for your money? Spoiler alert. Probably nothing good. With me to help explore that question is Philip Aldrich, senior reporter covering the UK economy for Bloomberg News. Phil, welcome. Thank you for joining us today.
- [02:50]
Philip Aldrich
Good to be here.
- [02:51]
Marin Zumset Webb
Right, the first thing to say I guess is that assuming that Andy Banham is going to stick to the fiscal rules, which he has said he is going to do that leaves him with very little immediate wiggle room. Right.
- [03:04]
Philip Aldrich
Yeah. I mean, we've got 23 billion of headroom that Rachel Reeves left us with, which itself was a relatively small amount of headroom. Unless he gets really lucky with growth. Yeah, he's going. He's really got very few options at the end of the Parliament. Most of the hard work is going to be done with these frozen tax thresholds, which are going to really irritate most of the electorate. So you can't really see them. The government pushing through that. Even a Burnham government pushing through with something which is going to be so unpopular right before a general election.
- [03:36]
Marin Zumset Webb
Yeah. I mean, I suppose the first thing we should actually do is just remind everybody roughly what the fiscal rules are. Right. Which is that you correct me if I'm wrong, this is your. You're the technical guy here, not me. One that we need to be pushing towards the budget surplus by 2930, so that spending is in surplus. Although there's that sort of fluffy bit around what is spending and what is investment. Right. And the second major one is that public debt as a percentage of GDP needs to be beginning to Trend down by 29:30. And looking at where we are now, that seems to be verging on impossible. And we had the May. The May borrowing numbers were horrible, weren't they? Much higher than expected. And nearly 12 billion pounds in May spent on interest on our debt alone, which is horrible. So you look at this stuff and you think, well, even if the Starmer government had hung on and Reeves had hung on, this was still going to fail come 29:30. Unless there was a massive spending squeeze or some sort of bizarre boost in growth, which seems inconceivable. So that was already going to fail.
- [04:39]
Philip Aldrich
Well, the only thing I caution there is that obviously the situation right now in the middle of the Iran war and the oil price spike, et cetera, the inflation's picked up, so a lot of that may just be a temporary spike. The underlying state of the public finances does remain pretty dire. It was going to be very difficult for Starmer to deliver the fiscal rules and get growth going and get your investment up, because there are so many pressures on all sorts of public spending at the moment.
- [05:06]
Marin Zumset Webb
Okay. So let's assume that it is going to be Andy Burnham. Of course, it's not absolutely certain yet that there could be a contest. And then we get all kinds of spending commitments chucked in from everyone trying to win, and everything gets, what, rather worse than we think. But let's assume that's not going to happen. We have an orderly transition. The bond market and the equity market figure, that's kind of okay because fiscal rules, something, something. And so that all stays relatively calm. When we look at what Burnham has talked about, he's talked about things like looking again at the freezes on income tax allowances. He's talked about reconsidering the inheritance tax charges. Farmers, he's looked at, talked about cutting business rates down for pubs and listening lifting threshold for small businesses. He's talked about reversing the rise in employers, national insurance. But all these things would be marvelous because all of them have been fairly nasty drags on growth and on sentiment in the uk. But going back to this idea that there's very little room to do anything, it seems inconceivable that he could possibly do this, those things without also introducing new taxes, perhaps on wealth.
- [06:22]
Philip Aldrich
Yeah, I mean, it's implausible to think that he can make all these tax cuts for particular sections of society and to help ease some of the pressures on business without recovering the money from elsewhere. And we've seen that spending cuts seem to be pretty undeliverable under this government and the makeup of the Labour governments or the Labour Party with the backbench rebellions still sort know brewing. Whenever there is talk of a spending cut, it's going to be the same problem that Burnham faces in regard to that. So, yes, if there's going to be a tax cut, there's going to be a tax rise to pay for that tax cut. That's the way. If he is honestly going to stick to fiscal rules that Rachel Reeves has introduced, then, yeah, somebody is going to bear some pain to ease the pain
- [07:10]
Marin Zumset Webb
on someone else looking at where those rises might come. And one of the things that he has previously suggested is reintroducing the 50p rate of tax on higher earners.
- [07:20]
Philip Aldrich
Doesn't make any money. I mean, it doesn't. It doesn't touch the size, does it really?
- [07:24]
Marin Zumset Webb
It doesn't touch the science. There was a wonderful article in the paper, one of the papers at the weekend, I don't know if you saw it. And about, gosh, I don't know, seven or eight years ago, 10 years ago, whenever it was Scottish referendum, I wrote an article saying that taxes were going to go up in Scotland and that one should rush out and buy houses in, in Northumberland, just on the border, because that's where everybody would go. You know, the top rate of tax in, in Scotland is now 48%. And here's the headline Scottish tax exiles FL flood into Northumberland. Families fleeing the S&P's higher rates are driving up prices in Northumberland. So, you know, 50pm we'd all be going the other way.
- [07:59]
Philip Aldrich
Yeah, exactly, yeah. Gift for Scotland. It would be a symbolic gesture rather than an attempt to reduce the constraints that he has, his fiscal constraints that he has. I think he's also talked about sort of doing the council tax revaluation. That again, would be a shift in the balance of taxes because people in the poorer regions would pay less and people in London and the wealthier regions would end up paying more, more because their houses were valued more. So that would be a redistributive operation. But you can also attach to that some form of net tax increase as well. So I could imagine him doing something like that. And he's also talked about, I mean, in the past he talked about 10% inheritance tax on, I think on all inheritance. So we've obviously got up to a million pound before you end up getting IHT being incurred with inheritance tax. So. And that he talked about that in relation to social care in the past. So again, that's a, that could raise, you know, substantial sums of money and as you said, is effectively a tax on inherited wealth.
- [09:02]
Marin Zumset Webb
And that would be interesting because one of the things that people worry about all the time, absolutely non stop is inheritance tax. Even people whose estates will never fall into the inheritance tax regime worry about it all the time and suddenly you'd give them good reason to worry about it.
- [09:16]
Philip Aldrich
Yeah. And the last time they worried about it was with Theresa May's dementia tax, as Labour branded it back then, and it cost her majority, didn't it? So it's obviously, as we all know, it's one of the least popular tax rises. This is the thing. There is economic constraint and then there's political constraint and the two are sort of operating hand in hand. The fiscal situation, rather than the fiscal rules in the UK is itself a massive constraint. And then the efforts to actually try and fix that have proved to be a huge political constraint. So you end up just in complete stalemate. That is the, that's the big challenge for Burnham is how he breaks that stalemate where Starmer was unable to.
- [09:53]
Marin Zumset Webb
Well, I suppose a, he could be super strong and just get on with it. But the, the obvious route then is to try and go down, as we were just saying, with the inheritance tax to try and get further down the wealth tax route. And he has talked about, for example, equalizing the rates on income tax and capital gains tax. Which sounds very attractive to lots of people, but of course is fairly outrageous because that's an absolutely massive wealth tax. So when the rates of capital gains tax were cut previously under Gordon Brown to what today's relatively low sounding levels, one of the things that happened at the same time was the removal of the indexing to inflation. And because the rates were lower, that was sort of vaguely acceptable because you're no longer you're paying a lower rate, but you're paying tax on your inflationary gains as opposed to your real gain. But it was kind of a reasonable compromise. But if you were to put capital gains tax rates up to income tax rates without taking into account inflation, you have introduced, I mean, it's a wealth tax at the moment, but you would have introduced a massive wealth tax. And we have few enough of our rich happily staying in the UK at the moment. This would be something, I suspect, that would really drive up departures.
- [11:03]
Philip Aldrich
I mean, a lot of small business owners, they make their money through taking capital gains on the businesses, the profits that they've made and the gains that they've made. I think people in general would see it as unfair if you had a capital gains tax which was unadjusted for inflation. Obviously the people who are defending the idea will point back to Nigel Lawson in the 1980s and that was when capital gains tax was lost. The rates were drawn to be equivalent to the income tax rates. And so there is a sort of the labor can say, oh well, the Tories did it. But of course back then there was the inflation adjustment and the Liberal Democrats, Democrats in the election manifesto, in their election manifesto in 2024, they had something similar where they wanted to harmonize the rates with the income tax rates, but they would introduce an inflation adjustment. So if he is thinking about doing this, you either do it the way he wants to do it and just irritate so many people that it'll backfire inevitably, or you do it in a way the Liberal Democrats were suggesting, which ends up raising after behavioral adjustments or whatever, only ends up raising 3 or 4 billion, which is nice to have, but it doesn't solve everything. So it's not a big, big bazooka.
- [12:12]
Marin Zumset Webb
Yeah. And one of the things that you will hear from wealth managers at the moment is that people refuse to take capital gains because they don't want to pay capital gains tax. So we have much lower turnover possibly in the UK equity markets and other parts of the market than we would otherwise, because people are very keen not to take their capital gains tax of Course, because you pay both capital gains tax and inheritance tax, people are loath to pay capital gains tax when they know they're then going to have to pay inheritance tax. But of course capital gains are wiped out on death. So you only pay inheritance tax. So people will only want to pay one of those, not two of those. So if you put the rate of capital gains tax up, then that becomes even more of a problem. The behavioral stuff that it drives is really out of proportion to the tax.
- [12:57]
Philip Aldrich
Well, and actually on the behavioral stuff, as a reminder that the HMRC's own estimates of harmonizing the CGT with the income tax rates are for there to be. And you end up losing tax revenue because of this exact thing. Because everybody just assumes we're going to wait it out, not going to cash in anything, so there's no tax to be paid. And then, you know, they hope for a Tory or reform government next time around who will just completely reverse the policy which they will inevitably run on. And I mean they're all, you know, they're saying now that they wouldn't enforce such a rise. So yeah, so I mean, it doesn't work. And we saw some behavioral action by business owners and others a couple of years ago after it was anticipated the capital gains tax would rise to everybody basically cashed in before the budget. So we've seen a massive spike in actual capital gains tax rates, revenues and it's all been driven by behavioral stuff. So again, wealth tax is such a difficult one to actually guarantee you're going to get any income off because it is subject to so much behavioral change. More constraints there.
- [14:05]
Monks Investment Trust Representative
We don't just invest in cutting edge companies. We look at companies with a history of steady growth and companies whose growth cycle has come round again. Because in the real world you have to look at growth in three dimensions. Monks investment trust.
- [14:20]
IBM AI Business Representative
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- [14:49]
Public.com Representative
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- [15:47]
Philip Aldrich
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- [15:54]
Public.com Representative
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- [16:04]
Marin Zumset Webb
What is interesting here is the limited period. I mean, I know there's talk about how there's a possibility that Andy Burnham might call an election and we might have another general election. I'm not, I'm not convinced on that one. I don't know how you feel about it, but barring that, we're only talking about a couple of years left in this term. And so the other conversation that is happening around Andy Burnham and the thing that he's mentioned several times is the idea of introducing some kind of land value tax. But of course this is an incredibly complicated thing to do where you have to come up with a value for every single bit of land, because this is not a property tax. It's not about the value of houses, it's about the value of the land itself. And the idea of a land value tax is to, is to charge you very much higher amounts for land in areas surrounded by state provided amenities, etc to force you to make that land productive. So to prevent people from simply sitting on bits of land and not using them properly. But to introduce a tax like that, I mean, that takes years, years. So I'm hearing lots of people worrying about a land value tax, oh, this is going to be awful and how will this work and blah, blah, blah. But I suppose the answer in the end is that we've got a very short time period here and it probably wouldn't work, don't need to worry about that kind of thing.
- [17:11]
Philip Aldrich
Well, as you say, the complications involved, you just thought it would be an obstacle in themselves to this. If he needs to win the next election, he needs to have done something by then. One of the other things people are talking about is revaluing the council tax ban. So revaluing the entire housing stock in the UK so that the 1993 valuation estimates are updated for today. But that itself takes a long time, which doesn't sound anything like as complicated as doing this kind of what is the amenity value of the local services that are provided by the state for the land? And then we'll tax a little bit of that. But if the council tax revaluation is going to would take a few years to do that, seems implausible that he'll be able to put in a land value tax and actually get anything out of it in time for an election.
- [17:55]
Marin Zumset Webb
So what do you think he does have scope to do if we're looking at not much longer than two years here and he needs to win the next election and let's say I'm putting this out here, that he actually manages to hang on for the full period and we don't have another Prime Minister in six months or nine months or a year. So let's say he gets the whole lot. What could he conceivably do within the constraints of the fiscal rules that would actually be a effective and be reasonably popular? Yeah, I mean I'm coming up with nothing by the way.
- [18:28]
Philip Aldrich
I'm not sure what would necessarily be popular. They're going to have to touch spending in some way because the tax burden is already going to be hitting the highest since in the post war period debt is edging higher. It's getting up to very close to 100% of GDP. The deficit has been running at 5% between 4 and 5% for the last four or five years. I mean it's completely and utterly unsustainable. And the idea that you find a tax that is going to be an acceptable tax, I mean I could imagine him increasing inheritance tax for example, because unpopular as it is, it doesn't touch you immediately. It's something for the future. But the spending stuff, there's talk about the triple lock to try and restrain pensioner spending again would be hugely unpopular because we saw that with the winter fuel allowance then you've obviously got the health benefits which at of reaching about 160 billion a year at the moment, going up to 190 by the end of the parliament. I mean Jim O', Neill, who's one of the advisors to Burnham at the moment, he was even saying you've got to touch these shibboleths. You've got to say NHS spending. There has to be some constraint on NHS spending. And Burnham is a former Health Secretary who has said he died in a ditch just to prevent prescription charges, et cetera. But there's people within the NHS talk about rationing some services because it's unaffordable. You've got this Baumol cost disease, which is. Developments in technology end up not leading to productivity gains, but end up just being new technological costs to the, to the service. So it's just, you know, you have this mushrooming NHS state. The one thing that I was thinking that he can do is just to raise tax. If he's going to raise tax, he's just going to raise tax on everyone. And then that would require him to say, special measures, everybody, everyone who is paying tax is going to have to pay an extra 2% on the basis basic rate and make it, you know, a national project where, you know, you're not going to be singling out sections of society and saying, you know, we're picking on you because we need to fix the, you know, fix this country. We're going to pick on everyone because this is a national, this is a national requirement.
- [20:36]
Marin Zumset Webb
And at some point that has to stop, as you say, at some point it has to come back to spending, spending has to be reduced. At some point someone has to tackle welfare spending, someone has to tackle the nhs, someone has to look at this properly. You can't just keep saying, taxes up, taxes up, taxes, taxes up. And if he puts up taxes across the board, and there is this really interesting conversation going on in the UK about who is over taxed and who is under taxed and it, you know, we don't have a very good system of taxing everybody. The burden is very, very, very heavy on the well off and not particularly heavy by international standards, on everybody else. But then you come back to the fact that an awful lot of the things that people are expected to pay for themselves in the UK are financed out of general taxation. In other countries, in particular, auto enrollment, there's, you know, paying, paying into your pension in the way that we do in the uk. That not necessarily the case in Europe. And the same with university education, which we pay for here advera in pockets and people don't necessarily. Not enough, by the way, but we pay for advera in pockets which people in Europe do not. And then there's dentistry and, you know, various other things that come out of general taxation elsewhere, but not in the uk. So if you look at it in the round, it's very hard to say that any part of the UK population is under tax. Maybe over benefited, but not necessarily under taxed.
- [21:52]
Philip Aldrich
Yeah, exactly. They're almost hidden Taxes, aren't they? Then, of course, you've got these levies for businesses on energy levies, climate change levies and stuff, and even on household bills, you've got them. So some of them, anyway, are effectively additional hidden taxes.
- [22:08]
Marin Zumset Webb
I mean, I think one of the things that you could say, and I'm interested in your view on this, is you could have a go at net zero. And the interesting thing is that if Miliband becomes Chancellor, then we double down on net zero in a. Well, we probably do. And that is one of the things that's adding, or our rush to net zero is adding hugely to our energy builds, because the infrastructure required and the various levies, et cetera, calming down on that slightly might be one thing that could bring down builds across the board.
- [22:38]
Philip Aldrich
Yeah, that's an easy one. The tourists just won in Aberdeen, didn't they? Aberdeen South. On this very thing, on this campaign to get know, get drilling in North Sea again. And I mean, yeah, I mean, this one, I just don't understand it because obviously you can, you can raise a bit of tax revenue and also instead of having to, you know, pump or ship container loads of oil to the UK or whatever, you'll be getting it more domestically. So I don't, I don't see. I don't see why bringing it in by ship is any better than just getting it out of our own reserves. So. And you get more tax revenue for it. So that one, that's. That seems to me like an obvious easy one. Again, you're not going to. It's not going to be game changing, but it'll be helpful.
- [23:18]
Marin Zumset Webb
Okay, well, I'm not sure that we've really made our listeners feel particularly optimistic today.
- [23:23]
Philip Aldrich
Yeah, there's not a lot of optimism going around. I know I've had one thought. I've had maybe check it out.
- [23:29]
Marin Zumset Webb
Let's hear it.
- [23:29]
Philip Aldrich
Which is, could Burnham just be a lucky general? We know Starmer's so dismally unlucky with the international backdrop, as well as making such a terrible series of errors, that Burnham has got a template for what not to do. As in the policy options that Starmer chose, just beware of, like, walking into landmines. And then also if the Iran war is going to be resolved and if Ukraine, Russia just sort of, sort of fades back again and Trump's unable to do more kind of crazy stuff because of the midterms and we've seen the data stand a little bit better. We've got. Inflation is a bit lower than was expected. There's signs of life in the jobs market. You could actually just see a situation where, where Burnham gets lucky and you just get that little spurt of growth which probably delivers as much tax revenue as all of these little things that we've talked about put together. So that's my optimistic, hopeful hat.
- [24:22]
Marin Zumset Webb
Okay, well, I think we'll end there, and I appreciate the optimism there, but I don't think I'm particularly happy when the best we can hope for from our new prime minister is he gets a little bit of geopolitical luck.
- [24:35]
Philip Aldrich
Yeah, wishful thinking. Exactly. It's not a strategy.
- [24:39]
Marin Zumset Webb
It's not a strategy, but maybe it would be something Phil, thank you so much for joining us today.
- [24:44]
Philip Aldrich
Pleasure.
- [24:51]
Marin Zumset Webb
Thanks for listening to this week's MarineTalks yous Money. If you like our show, rate, review and subscribe wherever you listen to podcasts. Also, be sure to follow me and John on X or Twitter A W and johnsteffic. And Phil, I know you are on Twitter. What is it?
- [25:05]
Philip Aldrich
Phil Aldrich Simple.
- [25:07]
Marin Zumset Webb
Excellent. Thank you. This episode was produced by Sama, Saadi and Moses and I'm sound designed by Aaron Casper. Questions and comments in the show and all our shows are always welcome. And of course we would love to hear any of your ideas for how Andy Burnham might actually be able to make things better. Our show email is merrimanyloomburg.net.
- [25:30]
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- [25:57]
Public.com Representative
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