What Is 'Manchesterism'— And Will It Boost Britain's Economy?

Summary

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Merryn Talks Money – Episode Summary

Episode Title: What Is 'Manchesterism'— And Will It Boost Britain's Economy?
Podcast: Merryn Talks Money (Bloomberg)
Host: Merryn Somerset Webb
Guests: John Stepek (Bloomberg Senior Reporter), Roger Lee (Head of Equity Strategy, Cavendish)
Date: July 3, 2026

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Overview of Main Theme

This episode unpacks the rising concept of "Manchesterism," associated with Andy Burnham, former Mayor of Greater Manchester and candidate for UK Prime Minister. The discussion explores what Manchesterism actually entails, its roots in state-led interventionism now focused at a local/regional level, and whether this strategy offers a path to economic growth for Britain. The conversation delves into the historical context of UK economic philosophies, compares regional devolution models internationally, and examines the potential impact on markets and fiscal stability.

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1. Setting the Stage: UK Politics & Manchesterism [02:28–05:34]

• Post-holiday Banter: Merryn and John begin with lighthearted comments about political change being a constant during holidays, setting their informal but incisive tone.
• Current Political Landscape: The focus shifts quickly to Andy Burnham’s new role as the apparent de facto Prime Minister, evidenced by his recent speech outlining his vision (though, notably, with no questions allowed).
• Introducing 'Manchesterism': Merryn introduces the episode’s theme: "We want to talk a little bit more about what exactly is now becoming known as Manchesterism...the governing philosophy associated with Andy Burnham... an idea that people are talking about." [04:16]

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2. Defining Manchesterism: Statism with a Local Twist [05:34–11:45]

Key Insights:

• Not a New Philosophy: Roger Lee explains that Manchesterism is essentially an "extension of state intervention, but this time... at a local level." [05:40]
• Historical Continuity: Lee situates this approach within the UK’s "great arcs of political thinking," alternating between state-driven and free-market economic policies through the mid–late 20th century. [06:49]
• Recent Iterations: The past 15 years have seen growing state intervention post-financial crisis, with the financial crash ending the Thatcher–Reagan era of free-market ascendancy.
• Manchesterism’s Difference: The only novelty is geography: "It's not that the philosophy is new... It's just... applied differently." [05:54]
• Fundamental Critique: Lee doubts effectiveness—past attempts at heavy intervention have yielded poor growth, and he forecasts similar results here.

Notable Quote

"We're not changing any philosophy here in terms of an economic philosophy. This is merely more state intervention applied differently...the latest iteration of statism in an attempt to drive growth. And the evidence would suggest that that growth is going to be elusive."
— Roger Lee [05:40–11:18]

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3. Markets, Economic Pillars, & The Problem with UK Growth [11:23–13:00]

Key Insights:

• Core Ingredients for Growth:
  Roger Lee outlines the three “pillars” needed for economic growth:
  1. Low regulation
  2. Low tax burden
  3. Low energy prices
• UK’s Challenge: UK currently does the opposite— high regulation, high taxes, costly energy.
• US Comparison: The US is growing much faster, Lee asserts, because it maintains lower taxes and regulation and has cheaper energy.

Notable Quote

"Why are we surprised that growth slows even more? You then look at the United States who are doing...pro-growth, supply side, fiscal economics...no surprise therefore that they are growing quicker than anyone else in the Western world."
— Roger Lee [11:45–12:40]

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4. Is Devolution the Solution? Competitive Federalism & International Comparisons [13:00–17:35]

Key Insights:

• Not All Devolution Is Equal: It's not devolution per se that matters for growth, but "competitive federalism.” Successful cases (e.g., Texas, Florida, Swiss cantons like Zug) actively lower taxes and reduce regulations to attract investment.
• Manchester’s Situation: No evidence Burnham is pushing for such competition—his speeches center on tax-raising powers rather than lowering them.
• UK’s Federalism Reluctance: Scotland, with devolved powers, hasn’t used them for tax competition. The UK's political culture doesn't lend itself easily to this model.

Notable Quotes

"If devolution was...to set up Wales as the Zug of the UK...slash corporation tax to zero...I could strongly predict the Welsh economy would grow very quickly. I didn't sense in Andy Burnham's speech that was the direction of travel..."
— Roger Lee [15:10–16:20]

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5. Challenges with Manchesterism: Execution, Bureaucracy and Fiscal Risks [19:34–22:27]

Key Insights:

• Risks of Localized Intervention:
  • Merely “moving desks from Whitehall to town hall” could increase bureaucracy and costs.
  • Potential for double the regulatory burden if not handled carefully.
• Unaddressed Fiscal Issues:
  • Markets are "already jittery" about rising spending and unclear fiscal rules.
  • More regulation/taxes to fund devolution could weigh on growth.
• Lack of International Evidence:
  • Lee notes France (with many mayors) and Germany (deep federalism) are not outperforming in growth; UK may face similar limits.

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6. The Birmingham Analogy and 'Tall Poppy' Policies [22:27–24:59]

Key Insights:

• Historic Parallels: Merryn brings up the “Birmingham Problem”—in the 1960s, Birmingham was penalized for being too economically successful rather than emulated.
• Negative Policy Instinct: Past instinct has been to restrict growth hubs rather than foster similar conditions elsewhere.
• Concern Over Burnham’s Approach: Risk of policies that suppress outperformers rather than encourage competition.

Notable Quote

"The instinct then...was not to say, 'what are they doing well, let's do that everywhere else,' but to say 'this must be stopped.'"
— Merryn Somerset Webb [23:16]

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7. Markets, Fiscal Rules, and Economic Dilemmas [24:59–32:27]

Key Insights:

• Runaway Spending and Debt:
  • The UK's deficit is growing—potentially up to 5.5% of GDP this year, above the "danger zone."
  • Rising welfare costs, slowing growth, and shrinking tax base compound the problem.
• Bond Market Realities:
  • Any sign of relaxed fiscal rules would spook investors; UK "borrowing costs are still the highest in the G7."
  • Burnham's promise to stick to fiscal rules is welcome, but future credibility is in question.

Notable Quotes

"The danger is if you are literally just moving desks ... you double up the bureaucratic burden. There is a cost to devolution, so how is that going to be paid for?"
— Roger Lee [19:50]

"...he is caught in the middle of that vice." (Between bond market discipline and Labour’s spending aspirations.)
— Roger Lee [30:22]

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8. Political Consequences & The Cost-of-Living Challenge [30:31–32:57]

Key Insights:

• Political Survival:
  • The most important concern for voters is the cost-of-living crisis.
  • Manchesterism unlikely to provide quick improvement—any positive impact would come too late, perhaps not before the next election.
• Implementation Timing:
  • Even if Manchesterism were the right approach, it would be nearly impossible to show results before 2029 general elections.

Notable Quotes

"Will Andy Burnham's Manchesterism improve the economic outlook of the UK? I find it difficult. I think at best it will be merely an extension of what we have seen to date. At worst...it will increase the regulatory burden further and ...the fiscal burden."
— Roger Lee [31:09]

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9. Wrapping Up: Should Burnham Call an Early Election? [32:57–34:24]

• When to Go to the Polls?
  • Both John and Roger are asked if Burnham should call an early election. John: "Yes." Roger: "Definitely not. Risk a hung parliament. No, definitely not." [34:11–34:24]

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Memorable Moments & Quotes

• On Manchesterism:
  “It’s an extension of what we have already seen...not different, just expressed in a more charismatic way.”
  — Roger Lee [05:40–07:00]
• On Economic Policy:
  "Why are we surprised that growth slows even more? ...the United States...are growing quicker than anyone else in the Western world."
  — Roger Lee [12:00]
• On Devolution and Tax Competition:
  “If devolution was...slash corporation tax to zero...I could strongly predict the Welsh economy would grow very quickly. I didn't sense in Andy Burnham's speech that was the direction of travel.”
  — Roger Lee [15:10–16:20]
• On Political Cycles:
  “Merely moving desks...could increase the bureaucratic burden.”
  — Roger Lee [19:50]
• On Historical Context:
  “The 70s isn’t the usual template for economic renewal...most people would say it is the example of not what to do.”
  — Roger Lee [24:38]
• On Policy & Outcomes:
  "I think at best, it will be merely an extension of what we have seen to date. At worst...it will increase the regulatory burden further and ...the fiscal burden."
  — Roger Lee [31:09]

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Timestamps for Key Segments

• Introduction & Political Setup: [02:28–05:34]
• What is Manchesterism? [05:34–11:23]
• UK’s Economic Challenge: [11:23–13:00]
• Devolution Models & International Examples: [13:00–17:35]
• Risks of Bureaucracy and Fiscal Burden: [19:34–22:27]
• Historic Parallels & 'Tall Poppy' Policies: [22:27–24:59]
• UK Debt, Deficits & Market Concerns: [24:59–32:27]
• Election Timing & Political Prognosis: [32:57–34:24]

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Takeaways & Conclusion

• Manchesterism is not a sea change in UK economic policy, but a localised continuation of existing state interventionist trends.
• Without competitive federalism (i.e., local tax or regulation cuts), there's little reason to expect economic dynamism from Burnham’s approach.
• The UK faces sustained fiscal pressure, growing deficits, and bond market skepticism. Markets are wary of yet more spending without credible plans for growth.
• History suggests that attempts to spread or enforce regional equality by pulling down outperformers rarely work.
• Even if Manchesterism is right, results will take years—too late to help in the political or economic short run.

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This episode offered candid, sometimes sardonic analysis, with a clear through-line: without deeper structural reform and a willingness to compete, Manchesterism is unlikely to bring the economic boost Britain needs.

Transcript

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[Marin Somerset Webb]

Welcome to the Marin Talks Money Market Wrap, where we break down the biggest moves in the markets this week and what has been driving them. I am Marin Somerset Webb, Bloomberg's UK Money's Editor at Large, and I'm John

[John Stevick]

Stevick, senior reporter and author of the Money Distilled Newsletter.

[Marin Somerset Webb]

Welcome back from yet another holiday, John oh, thank you. Nice time.

[John Stevick]

It was wonderful. It was great. It was actually much cooler than London as well.

[Marin Somerset Webb]

Really?

[John Stevick]

Okay. A couple of degrees cooler. I'm lying. I was in Greece, so.

[Marin Somerset Webb]

Okay. And while you were away, lots of stuff happened.

[John Stevick]

It did. Unusually. Normally I come back and I just write a big column about how nothing's changed and then.

[Marin Somerset Webb]

That's absolutely not true. Every time you go away, something happens. Every time.

[John Stevick]

What happened the last time I was away?

[Marin Somerset Webb]

I can't remember.

[John Stevick]

Oh, probably another Prime Minister.

[Marin Somerset Webb]

Another Prime Minister? Almost definitely another Prime Minister. What else would it be? One a week. Right. You only have to go on holiday for two weeks and you've got a couple under your belt. Anyway, the interesting stuff that has happened while you've been away, to the extent that any of this stuff is actually deeply interesting, is that we have this new candidate for Prime Minister who's acting as though he is Prime Minister already, which I have to say, I find mildly irritating, but that's just me. And he has given us a speech, no questions allowed, at the end of, about roughly what his policies might or might not be. And some people would say it would word salad. Some people found it very inspiring. I don't know. What did you think, John?

[John Stevick]

I. I'm. I'm going to go with mostly word salad, but I feel that. I feel that he actually. You know what? He was just. He was repeating a load of stuff which seems like common sense and that everyone says when they get any power and it's like, why can't we do this? Why isn't this easier? But actually not then explaining how he was going to do any of it. Because clearly these common sense things can't be easy or else they'd have been done by now.

[Marin Somerset Webb]

They would have been done already. Exactly. I'm particularly enjoying on social media the not the Messiah posts. I don't know if you've seen this.

[John Stevick]

Is this a Life of Ryan reference? Life of Andy?

[Marin Somerset Webb]

It's very good. And I'm also looking forward to him being properly dressed. I know you've had this conversation before, with the love of God, why politicians dress properly, World stage and all that. He's authentic, not dignified. I don't want authentic, I want dignified. So this week we're going to do things a little bit differently. It's less of an immediate market rap and more of a sort of deep dive. I mean, obviously everything that happens in UK politics is relevant for markets, so we're going to talk about that. And we have asked onto the show one of our previous guests, Roger Lee, who's the head of Equity Strategy at Cavendish, because we want to talk a little bit more about what exactly is now becoming known as Manchesterism. If you haven't come across it before, this apparently is the governing philosophy which is associated with Andy Burnham, as you know, is the former mayor of Greater Manchester and seems to be looking to move a lot of government function to Manchester. So whether you agree with all this or not, it is an idea that people are talking about. So we think it's worth unpacking a little bit. So, Roger, very kindly, thank you. Roger has come into the London studio to explain how he understands Manchesterism. I don't think this is going to take off because it's quite a difficult word to say what it is, where it comes from and what it could mean for investors and the UK economy. Roger, welcome back.

[Roger Lee]

Thank you. And thank you for having me back.

[Marin Somerset Webb]

Well, you're not going to be saying that when I've asked you to explain what Manchesterism is.

[Roger Lee]

Hope I can say it. Or you will edit it out appropriately. What is Manchesterism, given that we've only been fully aware of it for the last 24 hours? Obviously whatever I'm about to say is, is clearly subject to change. But my understanding, and I think most people, most commentators understanding of Manchesterism, it's just, it's a, A, an extension of state intervention. It's an extension of state intervention, but this time, instead of it being the state intervening in the economy at a national level, it's an attempt to intervene at a local level. And the hope is that the outcome of that will be better than the outcome when the state has tried to intervene at a national level. And Andy Burnham was quite explicit of this. I mean, there's a direct quote from him where he says that intervention at a national state government level has not work and this needs to be applied more locally. And I think that really is the point here, is that we're not changing any philosophy here in terms of an economic philosophy. This is merely more state of intervention applied differently. And I think that is absolutely the key to understanding what Manchesterism is now. I think it's, as I say, I stress it's an extension of what we have already seen. And I think John was mentioning this. A lot of these ideas have floated around. You could cut and paste, I mean, you'll have seen these comments from other commentators, but you could cut and paste George Osborne's the Northern Powerhouse. You could cut and paste leveling up his attack on the Civil Service. That could have been Dominic Cummings standing there. A lot of this is not different. It's just expressed perhaps in a more charismatic way, authentic way, but it really is just an extension of the state intervention that we've seen really since the financial crisis. And if I may just step back a bit and why I am not only convinced that it is merely an extension of the existing state interventionism that we see at the moment, or statism, it won't work. But let's put this into some sort of historical context. Marian, if I may. Now, I wish I'd written this. I haven't. It's. I think it's Niall Ferguson now, certainly Professor Ferguson, I think he had this great insight and he talks about the great arcs of politic political thinking in the UK and he talks about, you know, we came off the Second World War, we'd had this titanic victory and basically delivered by a state controlled economy. The state had beaten the enemy and then obviously in the immediate post war period, the state then decided it was going to protect its individuals and establish a welfare state and social services. Now so this idea of statism, the idea that the state can deliver everything was enshrined really in those post war areas. And that carried on all the way through, through the 60s. We had this sort of one nation conservatism and that was not arguably, it wasn't actually that different to what the Labour Party were opposing in the 60s. And of course this came to fruition in the 1970s where we obviously had a lot of state intervention. This idea then in that Ted Heath had in the early 70s that he couldn't allow unemployment to go over a million million people. And so therefore he ended up buying the Clyde shipyards and bailing out Rolls Royce, et cetera, et cetera. And of course this culminated in the grim economic reality that we could not afford this level of state intervention. And it culminated of course in 1976 with an IMF intervention which was the largest bailout the IMF had ever done at that point. And then of course we start the next great arc, which obviously is the competing theory that actually it's not the state that delivers growth, it's free markets, obviously founded by Anthony Fisher at the iea, championed by Keith Joseph and obviously the greatest exponents politically were Mrs. Thatcher and Ronald Reagan. And then that overarching philosophy then was applied through the 80s and obviously then through the 90s. And that begrudgingly was adopted by New Labour perhaps, or they accepted the need of that in the 2000s, but that came to a crushing halt in the financial crisis because it was quite clear that free markets unbridled free markets, unregulated free markets in the financial system effectively bankrupted the world. And the state in the UK and in Europe and in the United States then had to intervene again. And so we start the next great arc of history, which is what we are seeing now, which is the ever increasing role of the state in our lives. To the extent that the state thought it could control a virus to what we have now is the state will deliver growth. And so what we are seeing here, I think, I would suggest is perhaps, I don't know whether it's the final, but it's certainly the latest iteration of statism in practice as part of this great arc of politics, this competition between these two competing ideologies. I think that is the context of what we're looking at. It is the latest iteration of statism in an attempt to drive growth. And the evidence would suggest that that growth is going to be elusive.

[Marin Somerset Webb]

Yeah, to us that sounds like doubling down on stuff that already hasn't worked. In that, I think we would say being more of a free market. I'm sorry, speaking for you again, John, would being more of a free market marketeer mind, we would say that if you were to remove all the state sponsored policies that are paralyzing the private sector, you would get your growth.

[Roger Lee]

It's generally accepted by most economists that you need three economic pillars to grow an economy. You need low regulation, low tax burden and low energy prices. We of course in the UK have got the complete opposite of those three. And so then why are we surprised when we struggle to grow, we increase the regulatory burden, we increase the tax burden, we increase the energy burden. And why are we surprised that growth slows even more? You then look at the United States who are doing what would genuinely be accepted as pro growth, supply side and fiscal economics. They're reducing the regulatory burden, they're reducing the tax burden. And of course they've got some of the lowest energy prices in the Western world. And there is no surprise therefore that they are growing quicker than anyone else in the Western world. So what Andy Burnham is doing, I'm afraid, is we are having another go. And I think this is an idea to me anyway, that this is statism applied harder and applied differently. And I fear the outcome will be exactly the same as other forms of statism that we've seen over the last few years.

[John Stevick]

Just to be clear, it's not so much devolution or necessarily the idea of pushing powers more locally that's the issue so much as this is basically just Andy's way of painting. It looks like he's going in a different direction, but actually he's just doing the same thing as Starmer's already been doing.

[Roger Lee]

Yes, it's an extension of that. Again, I don't mean to be flippant, but he is literally moving the desks around.

[John Stevick]

Yeah, yeah, yeah.

[Roger Lee]

Now let's just.

[John Stevick]

Because the thing is, Britain is heavily centralized. I think this is the point lots of people make, is that actually compared to other countries, so much of the tax take is administered centrally. Wouldn't it be a good idea if local regions had more ability to kind of take account of what's going on in their areas and administer accordingly?

[Marin Somerset Webb]

Has devolution actually worked in Manchester? And we hear a lot about its relatively fast growth rate and everything that's been done there, but it's also got massive amounts of debt. Is that growth or is that debt?

[Roger Lee]

I don't know the Manchester economy well enough, Marin. It's quite difficult to unpack whether devolution in Edinburgh or Wales has worked, let alone with a devolution in a metropolitan area's work. But I can tell you where it has worked. We'll talk about where it has worked. So if anyone asks you, where has devolution worked? Now, devolution tends to work from an economic perspective where they have what they call as competitive federalism. And some people talk about this as competitive devolution, but I think the economic term is competitive federalism. This is some very clear examples of this. Florida and Texas in the United States would be seen to have very successful economies relative to the other United States because they are able to effectively set their own tax rates, both corporate and personal. And they have, well known, attracted a significant number of inward investment as a result of that. A bit closer to home, Switzerland is a classic example of competitive federalism amongst the cantons. Now, of course, there is the famous canton, which is perhaps the most attractive for inward investment, and that's zug. And I have to confess, I'm not totally sure where zug is, but it does. What is a common feature of this competitive federalism is that devolved regions are able to set a regulatory burden and most importantly, they're able to set a fiscal tax burden. And so the competitive federalism comes as Zug being a great example, Florida, Texas being example as well, of setting low taxation and low regulatory burden. Now, if devolution, and let me stress so again, so I'm not being dismissive about if devolution was, let's say we were going to set up Wales as the Zug of the UK and the Welsh national assembly were going to slash corporation tax to zero and they were going to slash personal income tax to 15% and they were going to remove a lot of the corporate revolution regulatory burden that the rest of the UK suffers from. I could strongly predict that the Welsh economy would grow very quickly. I didn't sense in Andy Burnham's speech that was the direction of travel because he actually talks about tax raising powers amongst the Regents. Tax raising. I don't sense that the good burghers of Zug would be talking about tax raising powers.

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[Roger Lee]

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[John Stevick]

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[Marin Somerset Webb]

We did we often talk about this in the context of Scotland saying they have all these tax powers and wouldn't it be great if they used it to compete with the rest of the UK on taxes, et cetera. But they don't seem to want to do that. So federalism doesn't seem to be natural to the uk.

[Roger Lee]

Well, yes, this is the other interesting again, it's a good job there weren't any questions yesterday because if you're, if you are thinking about devolution in terms of establishing competing metropolitan regions, then that sounds like awfully similar to Singapore on Thames. That was the fantasy or the objective, depending on where you sit in the Brexit debate. Of course, this idea of competitive federalism, devolution really only works outside the EU anyway. I think there's a couple of observations here, the couple of risks that I'm not sure he addressed. The danger is if you are literally just moving desks from Whitehall to town hall, then you double up the bureaucratic burden. There is a cost to devolution, so how is that going to be paid for? There must be extra layers of regulation that will be applied here. He's already talking about trying to get value for money, broader value criteria for assigning government contracts. That sounds to me like more regulations. Where we're actually heading here, where I said at the outset, we're actually increasing the amount of regulatory burden. We're probably going to have to increase the fiscal burden to pay for it all and that will weigh on growth. And then there's the third element of this that I don't think has been properly talked about, is that yet again the market is faced with this fiscal uncertainty over what Burnham is going to do in his first budget and this is the third time in this administration the market and corporates and individuals have had to second guess and we have already seen the sort of the number of commentary about which taxes are going up and where the tax burden is going to fall and so we end

[Marin Somerset Webb]

up

[Roger Lee]

with just more of the same. And that's really, I'm afraid, the prognosis. I hope it works. I sincerely hope it does work. I hope this will be the exception to the rule. But I struggle to see where this sort of devolution has worked in the past. France has 35,000 mayors and France is faced with a fiscal, potentially a fiscal, certainly fiscal issues, shall we say, not a crisis. Germany obviously has a very extensive federal system and Germany is growing less than the UK is. It is difficult to cite examples where this devolution has worked without significant fiscal, tax and regulatory adjustments.

[Marin Somerset Webb]

Yeah. And a willingness to compete. I want to come back in a minute to the gilt market and the extent to which you think we can continue to bear this increased spend in the uk. But before that, one of the things that keeps popping into my head whenever we hear about Manch Manchesterism and about the. How London can't be allowed to continue to be this giant, successful money producing hub in the south of England without everywhere else being pulled up along with it. What pops into my head is the. What they called the Birmingham problem back in the 1960s, when it was Birmingham that was considered to be far too successful. Not okay. Expanding too far, drawing in too many people, creating too many jobs, simply not okay. So instead of saying, let's look at Birmingham and see why they're doing so brilliantly and try and do the same in the rest of the country, the government put in place a series of policies deliberately designed to prevent Birmingham expanding any further. So there were various acts and policies that meant you couldn't get. Couldn't get planning permits if you wanted to expand in the region, for example, no more commercial buildings allowed in the city center. So the instinct then, which seems feels a little Burnham to me, the instinct then was not to say, what are they doing? Well, let's do that everywhere else. But to say this must be stopped.

[Roger Lee]

There are of course, arithmetically two ways to reduce inequality, aren't they?

[Marin Somerset Webb]

Yeah.

[Roger Lee]

The numerator or the denominator.

[John Stevick]

There's tall poppy. Devolution.

[Marin Somerset Webb]

Yeah.

[Roger Lee]

I think again, what I'm concerned about, and I found very curious, shall we say euphemistically about Andy Burnham's speech, was his nostalgia, his clear nostalgia for the 1970s. Now I'm old enough to have lived through all the way through the 1970s. I was quite young at the start, needless to say. But I do find it rather curious that Robertum seems to have this nostalgia for the 70s, which was of course categorized Characterized rather by a period of stagflation. The only time we've ever experienced real stagflation in the uk, it was the first time we've ever experienced mass unemployment since the Great Depression. And of course, as I've just mentioned, it's the first time and the that the UK had to be bailed out by the IMF. It just seems to me odd that the 70s isn't the usual template for economic renewal and regeneration. In fact, most people would say it is the example of not what to do. And of course actually using that as the example, I find that curious.

[Marin Somerset Webb]

Yeah. Okay, so let's talk markets then. We're already in a big pile of trouble, debt wise in the uk, Spending simply doesn't seem to come down every time we get new fiscal rules, which we seem to get all the time. It's obvious from the beginning that they're not going to be kept because it's always we spend up front and promise we'll cut it later, we'll cut it later, everything will be fine, later, we'll meet those fiscal rules. So I think we already knew that Rachel Reeves wasn't going to comply with her own fiscal rules and now we're worried that Burnham might introduce some new fiscal rules or change the terms of the existing fiscal rules or have more exemptions, whatever it is that he does. But one thing that I think we're all reasonably clear on is that the spending binge is not ending. How much more will the market tolerate? Where does this come to any sort of end?

[Roger Lee]

That's a really interesting question. I'm going to start by making a positive comment about Burnham's speech. I think, as again in, we do try and be balanced, we do try and be objective, but we also can't ignore the historical and economic facts. But clearly one of the very positives that the market took from this is Burnham said on a number of occasions that he was going to stick to the fiscal rules. So that is a very clear and demonstrable positive that the market took at face value. Now, you and I have seen various commentary subsequent to that about whether the fiscal rules will be extended over the 10 year time horizon that he's talking about. I don't know whether that's. He certainly didn't hint at that in the speech. So that's just purely speculation. I think any change to the fiscal rules would probably be received badly by the bond market. Not that there isn't merit in extending the time horizon of the fiscal rules, it's just that we're coming at this from a position where I fear the credibility of the UK's fiscal position is very poor. And that's not me saying that. That is evidenced by the fact that, okay, borrowing cost costs are still the highest in the G7. So I think we're coming at this from position of weakness in terms of our international credibility. If you just basically just look at the bond spreads at the moment. So I think any sort of changes, the fiscal rules would probably be taken badly. So where are we as we stand at the moment? And again we come back to this thorny subject of the deficit, which is such a mystery to a lot of people, but is just so important. And of course, the deficit is the difference between what the government spends, which is about 1.4 trillion pounds a year, and what it generates, which is about 1.3 trillion in an ideal world. And then we take the difference of that and use that as a percentage over the size of the UK economy, which is about 3 trillion pounds. So the numbers actually are quite simple. The makeup of those numbers is incredibly complicated. So where we are at the moment, in an ideal world, an economy runs with this deficit at about 3% of GDP. So again, just quickly doing the maths, 3% of a 3 trillion economy is about 90 billion. And that's usually where most economists would argue would be an optimal place for an economy to operate. So the simple maths at the moment, so the OBR forecast for this year is around 120 billion. That has come down from last year for the reasons that, that we can talk about, but it's about 120 billion. The problem is for the first two months of the fiscal year, our debt has exceeded the obr forecast by £7.7 billion. And so if you then just basically do some very rude arithmetic and just multiply that up by two months is 7.7. If you multiply that for the 12 months, then you get the fiscal deficit in the UK is around 160 billion. That's just doing them very simple arithmetic. There are a lot of other moving parts I have to stress. Tax takes, could be, et cetera, et cetera, whether the economy slows. If the economy slows further, welfare payments goes up. But I'm just merely extrapolating the first two months of the public sector net borrowing over the course of the remainder of the year. Now that 160 billion, that translates, if we do the maths, over 3 trillion pounds of GDP, that translates to about 5 and a half percent deficit. That is what France is currently experiencing. The danger zone is said to be six. And you know, there are a lot of moving parts in this. What happens if the economy slows because of this increased burden of regulatory and tax burdens? The Employer Rights act hasn't really fed through yet into sort of corporate profitability and behaviours. Maybe that will slow it. The UK unemployment is sadly rising at the moment. We've seen this in almost every single month since the general election. If unemployment goes up, then the cost of welfare goes up and the tax take from those unemployed people goes down. Simple arithmetic. If the economy starts to slow, we purchase less goods. Vat, which is one of the largest tax rises, tax generators in the uk, that comes down. So this is the sort of the reality that Andy Burnham is inheriting. People talk about it as a fiscal vice. It is a fiscal vice because he's stuck between one side of the vice is the bond market that seems very reluctant to allow more borrowing, and the other side of the vice is a parliamentary Labour Party that seems very reluctant to allow spending cuts. And he is caught in the middle of that vice.

[John Stevick]

I mean, given that, what do you think are the odds that he lasts any longer than Keir Starmer has?

[Roger Lee]

I don't know. I would be betting if I was going to bet on this, I'd be betting that he'd be fighting the next election. I think the kind of the question behind your question, if I may, John. I'll answer the question I wish you'd asked. I think if we look at the single most important issue to most voters, and you can go back almost to any opinion poll now for the last 15 years, certainly the last five, it is usually, depending on how people phrase it, is the cost of living crisis. It's bas fact that people's incomes aren't going up or aren't perceived to be going up and it's basically a critique of the economy. And this is 70% and this is by far and away the most important issue, followed by immigration, the nhs, but we don't need to go to either of those subjects now. But the economy is the most important issue facing most voters and they they express that as the cost of living. Will Andy Burnham's Manchesterism improve the economic outlook of the uk? I find it difficult. I think at best it will be merely an extension of what we have seen to date. At worst, I think, as I've already mentioned, it will be increase the regulatory burden further and it will increase the fiscal burden. So the risk, I stress the risk, it's not necessarily our forecast. The Risk is the economy slows further from here and that is not going to be electorally popular for whoever is sitting in the number 10, even if they are more charismatic, more personable or more authentic. The reality is it's about the economy.

[Marin Somerset Webb]

And I suppose the other thing to say is that even if Manchesterism was the right policy, which it could be, I mean, let's not be too judgy. Right. Could be. It's very hard to imagine that it can be implemented successfully in time for the next election. These are long term policies and even if they are the right policies, they're difficult to put in place and not immediate.

[Roger Lee]

I think that's a great point, Marion. It's time and what you could end up with. Let's assume that it works. Let's assume that it works. As you just said, hypothetically, let's assume that it works. The immediate issue now facing the UK is this fiscal uncertainty until the next budget. So we've already got that to deal with. That's going to be a hangover. We know how the market has responded to that because we've been here twice before. We know that there has to be cost associated with this. There has to be cost. And that you would think that would be some sort of drag on the economy before you get the benefits at some point in the future. And so I think it will be difficult to see how this could start to bear fruit, even if it were to bear fruit by July 2029, which I think is the latest date for next election. But yes, it will be very interesting. And maybe that begs the question of whether Burnham does go for an earlier election or not. If I was part of one of his strategy teams, I might be thinking about the timing of this.

[Marin Somerset Webb]

I would go.

[Roger Lee]

That could influence a decision.

[Marin Somerset Webb]

I would do it. I would definitely do it. Would you go for an early election, John, if you're Andy Burnham, I need a yes or a no because we're about to wrap.

[John Stevick]

I'm gonna see.

[Marin Somerset Webb]

Yes, yes, yes. Would you, Roger, if you were actually Andy Burnham, yes or no, Would you go for an early election?

[Roger Lee]

Oh, definitely not.

[Marin Somerset Webb]

No, definitely not. Okay. All right.

[Roger Lee]

Definitely not. Risk a hung parliament. No, definitely not.

[Marin Somerset Webb]

Okay. Irritating. I thought something exciting might happen. Never mind. So, on that happy note, Roger, thank you very much indeed. And thank you, John.

[John Stevick]

Thanks, man.

[Marin Somerset Webb]

Thanks for listening to this week's MarineTalks Money Markets wrap. 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 at Marionsw and John Underscore stepek. This episode was produced by Summer Society and Jennifer Seeley. Sound designed by Blake Maples and Aaron Casper. Questions and comments on this show and all our shows are always welcome. Our show email is marinmoneyloomburg.net.

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