← The Rest Is Money
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- [00:01]
A
We are seeing in all financial indicators, you know, warning signs flashing red. You know, this is now a national emergency.
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B
What are we prioritising here? Is it net zero? Is it growth? Can it be both?
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A
Hello, and welcome to the Rest Is Money, with me, Robert Peston.
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B
And with me, Steph McGovern. So this is another special episode for you, focused on the economic impact of the war in the Middle east, as we're now entering the fourth week. Oil prices still over $100 a barrel and no sign of the blockage in the Strait of Hormuz easing. And just to remind everyone that's, you know, the world uses about 100 million barrels a day of oil and about 20 million of that goes through that straight. And so far, analysts are saying since this war started, about 440 million barrels have stop going through there. So that's where a lot of this economic impact is really starting. So in this episode, we're going to talk about what Trump's been saying about it all, what it means politically for us. Then we'll focus on the UK economy and how it could impact it. Now, we know now this war is continuing, what the impact is for borrowing costs, for the government, for consumers, what Starmer and Reeves want to do about it, and at what cost and what it might all mean for the Autumn Statement, which people are now talking about whether we might see more tax rises. And we'll give you a flavour of what business leaders are saying in all of this, too. So, Robert, lots to talk about.
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A
If you are listening to this in the early hours of Tuesday morning, you will have a clearer view of a very, very important question, which is, you know, whether this conflict is massively escalating, because we are record recording, just a few hours before Trump's deadline expires for the Strait of Hormuz to be reopened by Iran. And what he has said is that if the Strait is not reopened, then the US and Israel will bomb and obliterate power generation in Iran, depriving Iranian people of electricity and power, which would be a massive escalation. There are some circumstances where destroying power plants is sort of deemed a war crime. And, you know, we've been acutely aware of the sort of horrors of obliterating power plants, because, of course, we've seen Russia do this in Ukraine, you know, as we speak, we are obviously the world, you and I, feeling very anxious about how much worse this could get. And in the meantime, we are seeing in all financial indicators the warning signs flashing red. And one of the things we probably need to talk about today is why these warning signs appear to be among the rich countries, among the so called G7 developed democracies, why the impact appears to be worst for Britain because it is in the sense that our borrowing costs, as measured by the fall in the price of government debt, the rise in the implicit interest rate that the government has to pay has been rising more than in other countries. And then this is feeding through to other measures. You know, the overnight interest swap, the OIS is showing potentially three interest rate rises by the bank of England this year. And you'll remember before the conflict started, we were expecting at least two cuts in the interest rate. And you'll be acutely aware if you're buying a property or refinancing a mortgage, what a nightmare time this is. Because mortgage rates have absolutely shot up, haven't they Stephen?
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B
Yes, because funnily enough, just before we started recording, because I am in the middle of buying a property, I just double check with my broker, we have definitely locked in this rate, haven't we? And we have, because what you've seen is, you know, if you, if you look at moneyfax, put out what the kind of typical rates are being offered now. So just to give you an example, a typical two year fixed rate is now at 5.3% and it was 4.83% only a couple of weeks ago. And that, that, you know, that, that. And now as you say, we were talking about rate cuts. We know in the last meeting the rates obviously held at 3.75% but people are now talking about them possibly getting to 4.5% by the end of the year, which is a huge turnaround from, from where we were just in a couple of weeks, just from what is going on in a, you know, a part of the world that's hundreds of miles away from us. It's quite incredible really, isn't it?
- [05:29]
A
Yeah, we're going back to mortgage rates that were very normal when I was a young person buying a house, but we haven't really seen since the global financial crisis. These are very, very high mortgage, mortgage rates. And equally the government, for the government to borrow for more than 10 years, which is the sort of benchmark gilt, so called gilt rate, it's now over 5% and holding, which as I say is a borrowing cost for the government that again, we just haven't seen since the time of the global financial crisis. So this is a big shock to the affordability of debt, a big shock
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B
to the economy and, and it's worth saying, because you preface this at the start by saying, you know, why are we different to other countries on that point? And it is because of our dependence, isn't it, on imported energy and how quickly that could feed through into inflation. You know, it's a huge problem for us how much we have to bring into this country.
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A
It's a number of things. And that is obviously the, the dependence, you know, the UK's relative dependence on imported energy is obviously very significant. But actually, I think there are other factors which I think are also very important. And I think it's probably important to explore that in some depth. And maybe we should do that after this quick break.
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This episode is brought to you by Octopus Energy. Now, you know, we love talking to
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entrepreneurs on this show. So with us is the founder of Octopus Energy, Greg Jackson.
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C
Right, I'm going to start with this. If you could change one thing to
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B
help Britain's economy grow, what would it be?
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D
I'd love to see pension funds putting more money into British businesses. Over the last 25 years, they've fallen from 40% of their investments going to British businesses to 4%. That's bad for business here. It's bad for our stock market, but it's also bad for pensioners. In fact, a Canadian pensioner will get almost double the pension from the same amount invested as a British pensioner. We need to sort that.
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B
Nice one, Greg.
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C
Well, thanks to Octopus Energy for powering
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B
this episode of the Rest is Money.
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A
So look, the fundamental reason why we are so vulnerable in these circumstances, it stems from a number of related factors. But the most important one is simply that we have a very weak economy. Growth has been Low to non existent for years and years and years. We also have a structural problem in that we've got very, very large numbers of people on low incomes who when energy prices go up and when there are knock ons to food prices, for example, which is what we expect, then the pressure on their living standards is intense and we have a government that will feel under an enormous amount of pressure to increase benefit payments to these people, or at least subsidies for what they pay when it comes to energy of a substantial sort. All of that at a time of low growth, growth which may well tip into recession because of what's happening to interest rates and input costs, means that tax revenues will be falling and therefore you get this sort of negative gearing effect where basically this all translates back into higher borrowing. And that point obviously lenders to the UK become focused again on whether the debt burden for a government that has debt equal to about 100% of our national income is sustainable. Debt burden here, as I say, around 100% in a place like Germany, even though Germany's got a massive low growth problem, but its debt burden is way less, tens of 60, 70% of of GDP. So it starts in a much stronger position in that very important sense. And at the root of all of this, the sort of tragedy for the UK is this fact that we are massively growth challenged. This has been absolutely conspicuous to our whole series of governments. It was something that this government was acutely aware of when it was campaigning in the last general election and has just done way, you know, it's one of the things I've just sort of been banging on about week after week, more or less since we started this podcast. Growth is so important, particularly at these times of shocks in terms of essentially giving confidence to our creditors. And the fact that the government has done too little to reform the so called supply side of the economy in a fundamental way to get the implicit growth rate up is why we are so appallingly vulnerable. And it's a sort of scandal. I mean, in a way the one thing my dad was an economist said, don't cry over spilt milk. And it is true, the milk has been spilled. So let's not wring our hands, I suppose too much about the failure of the government to do that. But the fact is, along with everything else that it's got to do, this is the moment where it cannot waste the crisis. If it can't now take the kind of radical measures to really get the growth rate up, then you know, we've got big problems.
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B
Yes. And just, you know, on that, I think part of the problem is the heavy taxing on business. In that very first budget that Rachel Reeves did, you know, it was really was like a three prong tax hit for lots of businesses, particularly in the retail, hospitality, fitness, leisure area where you were hit by business rates going up, by minimum wage going up, particularly on young people, by national insurance contributions going up. It came at all angles at the same time. And that, you know, has put a lot of pressure in, we've talked before about the kind of zombie businesses as well. So these businesses that are not particularly growing, they're not, they haven't got great productivity but they're still giving people jobs and they've done well off cheap credit. And now that credit's going to up in, in cost, they're going to be pushed into being out of business. And you could argue that that's not a bad thing if it helps productivity. But it's still probably going to be people out of work. And we do have rising unemployment, particularly young people. I am so worried about young people out of work. The million that also needs, we have not in education, training or employment and just the pressure on that. And I, and I'm seeing this firsthand in our retail business. You know, we're looking at one of our stores now. It was, it was doing really great margins in it, but now it's costing us £500 a day to keep it open and where like, well, that doesn't make business sense for us anymore. You know, there's others where it's fine, it's doing really well, but because of that kind of three areas all going up at once, you, you're then like, you know, your margins are getting really tight. And so then there's a question of is it worth it with, you know, with businesses as well. So there'll be lots of people in all kinds of industries talking about how they're going to deal with this latest pressure of energy bills going up, of you know, oil prices going up, of, of inflation on food costs and everything else because it all hits us really hard. And that's my worry about this. So, so the question I want to ask you Robert, in all of this is you've said this is now the time to act. Does that mean she should forget about the fiscal rules? It should she stop thinking about, you know, only borrowing to invest and not borrowing for day to day spending? Does she need to just forget about that and think, right, let's put and
- [14:59]
A
get things going again in the short term? That would be the fast route to the mother of all debt market car crashes. I mean, interestingly, you're not the only person who has been thinking along these lines. There was what's called a political cabinet a few days ago, which is where the cabinet meets to discuss the sort of more party political issues rather than straightforward government business. And at that, a minister said to me that Lisa Nandi, the Culture Secretary, who is a very good communicator, she said that this was the time to relax the fiscal rules, loosen the restrictions on the government's ability to borrow. I have to say that although there's a perfectly good theoretical discussion to be had about whether these fiscal rules are the optimal fiscal rules, we are where we are. And if we saw the government at this juncture loosening those fiscal rules, the more than 5% that it's paying to borrow for 10 years, I mean, goodness knows how high that would, that would rise.
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B
What if it came with a growth plan, though? Because that's what markets want. They want to see that you're going to grow. So what if the money was. Then it was shown that it could
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A
grow, okay, but you could. What Liz Truss showed is you can't put the, you know, the cart before the horse, right? If Liz Truss had not announced all those massive unfunded tax cuts to the tune of whatever it was, £40 billion, and it instead just concentrated on pushing through reforms to planning regulations, other forms of burdens on investment, for example, and then at a later stage, let's say a year, 18 months later, announced quite considerable tax cuts, at that point, lenders to the UK might have taken the view, okay, she has done some very difficult things to improve the productive potential of the UK economy. We now do believe that the economy is on a sustainable path to grow a bit faster without spiking inflation, and at that point she might have been able to get away with those tax cuts. But what you can't do at a time when inevitably borrowing is going to be rising because of the cost of sheltering people from these energy price shocks, at a time when that's going to be happening to simultaneously say, and by the way, we are going to be subject to less fiscal discipline, we would be back in a Liz Truss style fiscal crisis where you could get even to a position where the government's sales of this debt, actually its fundamental ability to borrow could be really fundamentally undermined. So one of the reasons, I mean, just to be clear, one of the reasons, I mean, I've talked about some of the other structural reasons why our borrowing costs are so much higher than our competitive countries. But a contributor to that is that Keir Starmer's holding on office personally is considered to be weak. And broadly markets take the view there is a very high probability that he and Rachel Reeves will be turfed out after the local and Scottish and Welsh elections on May 7th. They think there's a high probability of that. And they do worry that whoever replaces Starmer will indeed weaken or abandon those fiscal rules. And they are currently sending a warning to the UK by pushing up, up the interest rates that, you know, of what could happen were those rules to actually be shredded. So, you know, I'm not remotely arguing and you know, I did think that when she reformed her fiscal rules, you know, these were not optimal, her changes. And if she'd done something a bit more creative that had led to an ability to invest more, you know, at the time that she changed her fiscal rules in a different way at the end of 2024, that would have been, in my view, a good thing. But it's too late. Right? She and the government are now imprisoned in the rules of their own making. And until we actually see the reforms that will lead to higher growth. Right, and they are a variety of things, but they are mostly about looking at more radical reform of planning, more intelligent reforms, reworkings of the kind of regulations that affect investment and business. They are about going further and faster in providing scale up finance to the kind of fast going businesses that we are still creating but can't grow fast enough and too often relocate to countries like America, where the finance and the people are there. They are about moving further and faster in attracting talent to the uk. They are about providing the kind of tax breaks to businesses that allow them to invest in growth areas. And then with the big infrastructure changes that they're talking about, whether it's the Oxford Cambridge corridor, whether it is the Northern Powerhouse corridor, it's about massively accelerating. I mean, part of the problem that this government has got is they are doing some things that will lead to higher growth, but you know, it's happening slowly and none of it really will translate into the growth rate till it well into the next Parliament, which is way too late. So, you know, they should do that thing that I talked about repeatedly and this is the moment where they should. I mean, I think there's an argument for saying you should legislate for this, you should in this crisis, but what they should do is they should basically say every department that is doing any kind of legislation that has an impact on whether people save or spend or businesses invest or hire. Every single one of those initiatives should be assessed for whether it encourages growth or reduces growth. And if it reduces growth, it should only go ahead, in my view, if the Prime Minister personally gives permission for that. And in other words, the presumption should be. The only measures that they can now take are those that will increase the structural growth rate of the uk. And there may be things for the welfare of people that you have to do that are not growth enhancing. But the Prime Minister's mind has to be totally focused on is that a trade off, lower growth for helping a group of people that is worth making? I say I would, I would even, just to demonstrate to the world, you know, the intent, I would even legislate so that, you know that that was absolutely an obligation for the entire Cabinet.
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B
So there's a few things I want to come back with on this. Right, so, first of all, we have heard since they came into power that they are going to streamline planning, that they are going to make it faster to build things. They came in with a pledge to build 1.5 million homes in England in this Parliament, So that's roughly 300,000 a year. They are so far, far behind on that. They're saying in the first year it was only about something like 180,000 that were built. And this is to do with planning approvals still not happening. It's also about the ongoing skills shortage. And I still feel like the skill side of this is so fragmented and yet we've got Skills England and all these plans to bring it together and have this big, one big plan for skills. But so far that is still not happening and we are, you know, years in, so. And on top of that, what we are talking about now is if the fiscal rules aren't going to change inevitably. And she wants to help vulnerable people. And I totally get the argument for helping vulnerable people with energy bills and those who need it most. I get that. Who's going to pay for it? It's probably going to be businesses. Again, there's going to be all the questions now about what taxes are going to go up in autumn. It's that. That cancer of uncertainty again in business, where everyone now is going to be going, well, hang on a minute, let's think about what do we really want to invest? Oh, they've loosened planning rules a bit, but do we really want to put money in there when we might get taxed again? You know that. And again, you're thinking about the Higher earners will be thinking, well, it's probably going to be us. Do we need to be thinking about how we structure our finances again in this country? So it's that uncertainty it creates. Because as things stand, what we're hearing again from I feel from Rachel Reeves is just defensive stuff. It's not, it's never about proactive change for the better. It's always about just, well, we just need to put this fire out and help these people for now. And then, you know, we did, we are going to make a plan better, we are going to do these things. But there's, it doesn't feel like there's really any signs of it in, in a tangible way for anyone yet. And like we said, it was 2024, that first budget, we're in the middle of, you know, 2026 and it doesn't feel like it's any better.
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A
Yeah, I mean, the thing that is frustrating when you listen both to Reeves and Starmer is they say one thing that is important and then they go on to exaggerate. And what I mean by that is they are right to say that reassuring lenders to the UK that the path for borrowing and debt is sustainable is important. Right. But then they constantly say, right. And they then say, and that is the most important element of our growth plan. And they characterize it as the growth plan. Now, to be clear, it would be very, very, very hard to attract investment and grow without confidence in markets that the government's debt is under control, but that it is not. It's a condition of growth. It is not in itself a growth plan. Right. And it's the absence of a plan on top of that that is frustrating. And then just to go back to what we talked about in our last episode, which was the Chancellor's so called new growth plan, which she outlined in her May's lecture. So I've been thinking more about the huge inadequacy of what she had to say about closer economic ties with the eu. Because as I say, it's all very well to say we will take EU rules in sectors of the British economy where those sectors want to follow EU rules. As I said in that episode. First of all, that does not guarantee that the EU will actually play ball and reduce the massive administrative burdens of trading with the EU in those sectors. But there's one other thing about all of this that causes me deep anxiety, which is quite rightly, she does recognize that there are certain sectors like tech, like artificial intelligence, where right now the UK is benefiting from the fact that it is setting its own rules separate from the eu. And the thing that I think she will, you know, the thing that I think is going to cause major problems to the government as and when it actually gets into negotiation on this sort of partial rejoining of, of the European single market is I basically think the EU will tell us to piss off. Because the one thing they've been consistent about is they don't want what they call cherry picking, Right. Broadly, they have a view which is completely understandable, that you either follow all the rules or you follow none of them. And I think the idea that somehow for chemicals, where it might suit us to follow EU rules, they'll say, yes. But on the other hand, while they see our tech sector gaining enormous independent competitive advantage, advantage from not following their rules, why on earth would the EU in those circumstances say to Britain, yeah, you can have this bit because, you know, the bit that you like, but you don't have to follow these other rules. That's just not how the EU in its entire history has ever operated. It basically says it's all the rules or none. So I think there's just a sort of staggering naivety here. Now, if, as I say, actually all she was really saying was we are on a path to do what Sadiq Khan, the London Mayor, wants to do, which is to see the Labour Party go into the next election with a pledge to rejoin the eu. Okay, that would be different. But there is no sign from either Starmer or Reeves that they are on a course to do that. You have to take them at their word that they think they're in the process of negotiating better terms of trade with the eu. And so far, everything that I hear from them on this sounds to me to be naive and completely unrealistic.
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B
Yes. So then where does that leave us? Because that, you know, so then they don't get the terms we want. Where does that leave us?
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A
It leaves us saying we've got to do, we've got to take our own fate into our hands. Which is, goes back to the conversation we were just having about there are quite a lot of things we could do to improve our growth rate. I mean, I was rather struck. Do you remember when we had Mark Warner on the program, the boss of faculty AI, One of the things that he was talking about was if you gave tax breaks to those who were setting up businesses like the one he set up, it would encourage more of these high growth companies to be created. There would be a political cost because the government would have to admit it's giving tax breaks to people who may well end up being very wealthy. But he would argue, and I think there's quite a lot to this in terms of, again, a statement of intent that the government understands what you need to do to create growth. Because the thing that really this government doesn't, I think this whole, obviously it really, really, really matters that any government does what it can to alleviate acute poverty. I mean, too many people are living in appalling housing conditions and are really struggling to pay the bills. All of this matters, right? But we could as a country do so much more for those people if we got the growth rate up, which then got tax revenues up. And it's, you know, I'm not arguing that those with more wealth and more income can't afford to pay more, but truthfully, that is not a bottomless purse. The bottomless purse is provided when you get the growth rate up. And the failure to do that. And that is. This is now a national emergency. Right? It's a national emergency to do what matters in that sense.
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B
But my worry is if in order to give tax breaks to tech firms, and I absolutely hear the argument that to be at the forefront of this, we have the brains, the skills, but often they're not given the financial backing or, you know, as we've talked about lots, they, they get a company going and it gets bought by America and everything else. But you cannot neglect what a lot of this economy, particularly outside of London is built on. And it's the traditional jobs in, you know, in the public sector, it's people working in, in, in shops, it's people working in factories, it's people. And I know manufacturing not as big as services and all that, but if you're, you don't want to put so much tax, tax burden on those businesses who employ young people, for example, that you then stop them from employing people because then they're gonna, this is just gonna put even more people out into the benefit system. You know, when I go to the food bank near here that I work with, it is working poor people. But none of them are working in tech. They're all working in, you know, small supply chain manufacturers or they're working in the, the health care sector in social services, they're working in shops in town. They're, you know, they're not working in the high tech area. And the danger is if we keep taxing the organizations that are employing those types of people, you're just going to push more people into poverty and into the benefit system and, and so there has to be a coordinated plan about how we do this. How do you bring those people into the tech sector as well? Because they will have ideas for things too that will make lives better for lots of people because they'll have different views to others and experiences that are all relevant to making all of our lives better. And I think the danger is by focusing too much on those high growth biz business areas sectors, you might send a load of people, more people into poverty to pay for it.
- [33:27]
A
Okay, there's so much more we need to analyze in terms of what the Iran war means for our living standards. So come back in a minute or two.
- [33:39]
C
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- [35:31]
A
Look, I mean, look, I mean there are so many huge, powerful economic social changes going on and we've talked about and let's not go into it again today. But you know the pace at which AI is displacing quite a lot of white collar jobs is going to be a problem that materializes in the next year or so for the government. And again, they haven't got a plan to deal with, you know, what's going to happen to those people who lose their jobs or young people who can't get jobs that they were expecting to get, you know, in those services sector, for everything from law to accountancy and the rest. I think there are sort of three or four other things that we should just, just note, which is we've talked about the long term structural imperative of getting up and growth that benefits everybody, which is, you know, obviously at the heart of solving the issue that you've just talked about. But in the short term, you know, the government faces, you know, some real problems. It's made it absolutely clear that when it comes to helping with the cost of living as energy, oil, food prices rise, it is not going to provide the universal support that Liz Truss and then Sunak hunt provided that 80 billion package, because given the government's borrowing costs and debts, that is seen to be unaffordable. So they're going to target help. So let's just say at the moment, actually, it's the petrol price that is rising fastest, because as it happens, Europe is less dependent on liquefied national gas that comes from the Middle East. There's no. Well, that traditionally has come from the Middle east, but is not coming through the Strait of Hormuz at the moment, much less dependent on that liquefied national gas, natural gas, than it was on Russian piped gas. So the disruption to gas supplies in Europe from this Middle east, from Trump's Iran war, is less of a shock to supply than Putin's invasion of Ukraine was. But even so, the global price of gas is going up. You can assume that in July the price of energy will rise, and there's a very good chance that it's going to rise further in the autumn when temperatures drop. The government's emergency committee, so called cobra, is meeting today with the bank of England to discuss essentially the framework for what kind of support will be given to people targeting it at people on low incomes. You could say you could only get it if you're on universal credit. You could say that you can only get it if you're older, if you're on pension credit. There are other ways of defining who gets the support, but it will miss out very large numbers of families who will be on incomes just above that threshold, who will struggle to heat their homes. Right. And so there will be, you know, so setting that level, level of support is going to be fantastically difficult. What kind of subsidy should we give to petrol prices? Right. The current reduction in fuel duty rolls off in September. We've got all of the opposition saying it shouldn't roll off. Is that the best use of public funds? I mean, these are very, very difficult. These are very difficult questions for the government, politically very sensitive, but more importantly, of enormous impact on people who are struggling to pay bills. So there's both a short term problem, which is how do you provide the support in the most effective ways to the people who need it most without hanging out to dry? Some pretty vulnerable, desperate people. And then there are the slightly more medium term. How do you provide confidence to the wider world that they've got a plan to essentially increase the strength and growth potential of the British economy? One of the things, again, that, as it happens with some business leaders the other day, and one of the things that actually I was genuinely shocked by, there was a public letter that pretty much the boss of every British public company signed in the autumn, which was sent to the Chancellor. It was coordinated by the London Stock Exchange. And it said something that I thought was pretty sensible. It said one of the reasons why borrowing for companies in the UK is high is because the London Stock Exchange has performed in incredibly badly for years and years and years. And the reason for that is because our pension funds don't invest in the London Stock Exchange to an extent, for lots of sort of regulatory reasons. And it's not just that they think the grass is greener in America. And again, if you're interested in any of this, if you're listening, we've done quite a lot of episodes on this. I won't go into the detail about it now, but just getting the cost of raising capital for companies down is a really important, important thing to do. So that these companies said, when pensions come, when pension funds are investing on behalf of British individuals, given that these pension funds get massive tax breaks from the government, there's a massive subsidy, right? There should be a default position that says 25% of their money should go into British shares on the stock exchange and British assets, right? A quarter right now, this was what we call nudge. You know, we've talked about nudge, nudge theory on this program, and it didn't mean that you had to invest 25% of your money in the UK, but it meant that the default position is you would invest 25% in the UK unless as a saver, you decided to opt out. Right. So in your pension fund, the automatic position, unless you said, I don't want to Invest in the UK, would be 25% would go into UK assets on the stock exchange. Now, I thought that was a really sensible idea because broadly it would definitely lead to a much bigger flow of funds in the uk. But it preserves freedom, it perturbs freedom of choice. It actually says to the saver, you've got to think about where you want your money to go. And it puts quite a lot of pressure on the fund manager to explain the pros and cons of investing in the UK versus elsewhere. All of that would be really good for investment competence and flows of funds. And as far as I can see, the treasury looked at it for about two seconds and just ignored it, which is mad. It's completely mad. Right. We just seem to have a government that can't prioritize it is on the things that really matter. I mean, genuinely upsetting it is.
- [43:00]
B
And just on the point about the energy bills and helping vulnerable people, again, just to make, I mean, I always sound like the raving capitalist, you know, whenever I say this, but again, think you've got to think about business in this, we had like various, you know, big companies saying that the energy price going up already is putting extreme pressure on their businesses. So where, what, so what about businesses and all of this too in terms of their energy costs, because they're employing people again. So. But then where does it end? Because if you then help businesses, you help vulnerable people, low income people, then are all the people who are higher earners or middle income or whatever, just going to be like, well, taking the hit of everything. So I think it's really hard to, to, you know, to try and make this specific to just vulnerable people and especially if it's just people on benefits, because there are so many more people out there, you know, trying their best at work and just not able to, you know, live within their means because it's not their fault, but everything's gone up. But I mean, I wanted to ask what you thought about Richard Walker's idea. So, Richard Walker, we've had on the show before, he's the chair of Iceland, the, the supermarket chain, but he's also the Prime Minister's cost of living champion and he's suggesting that actually there should be a temporary cap on the profits of oil companies and to stop them cashing in essentially from this huge increase in the price of oil. What do you think of that idea, Robert?
- [44:40]
A
Well, he needs to flesh it out, basically, because he's not specified which energy companies it would be liable to. He's not fleshed out whether it's on their global profits, whether it's just on some portion that can be attributable to their UK businesses. I mean, if you're a BP or a Shell, you're a global business. Are you basically saying there's a cap on your global profits? I mean, if there is, those businesses will feel under enormous pressure from their own shareholders to relocate to another tax regime which would not probably be good for. For Britain. There is already a very large windfall tax on the profits of those companies that take oil and gas from the North Sea. In fact, there's quite a lot of. There's been quite a big campaign, as you know, from the energy companies to reduce that windfall tax. There is a huge debate going on at the moment about whether the government should allow. Allow more exploration in the north or other. More wells in the North Sea to be exploited. And that ain't going to happen if there is another tax on the profitability of these companies. I mean, for what it's worth, I'm sort of hearing that Ed Miliband and the Energy Department are not going to allow this further, the exploitation of these other reserves. This is. I'm not 100% sure what I feel about this. I mean, I brought. I think my instinct is that's probably a mistake, actually, because even though these businesses operate, to be clear, this oil and gas would be sold into the world market. If it is sold into the world market, it will bring the world price down a bit. That is beneficial for the uk. The tax revenues that these developments would yield very, very useful to the British government at the moment. And I guess my fundamental point is this really. This might be a sort of interesting point to begin to wrap up. We've heard from the iea, which is the global body, the global authority on energy, the International Energy Agency. Fatih Birol is the guy who runs it. I mean, he has characterized what's happening with Trump and Israel's Iran war as the worst shock to the supply of oil ever, is what he said. And he says it's as bad as rolling together in terms of lost supply as what happened in the 1970s with the Ukraine crisis. Right. And it's something like 11 million barrels a day lost as a result of the closing of the Strait of Honda. This is a big energy shock. I mean, we've seen the oil price soar, we've seen gas prices soar. Now, inevitably, when the price of carbon energy rises. There is a massive commercial incentive to develop renewable. First of all, the price pressure means renewable projects will increase in number because they become relatively more attractive. And there's also enormous pressure on all businesses to reduce their oil and gas consumption and to switch to greener technologies. So in a sense, you get markets, market pressure for innovations and investments that will reduce carbon emissions. And given that that is inevitable, there is an argument for saying right now, when people's living standards are under such pressure and when the government's finances are under such pressure, actually, whether you open another few fields in the North Sea is neither here nor there in terms of global warming. And therefore, if these developments are, are blocked, and I suspect they will be, that might be, you know, the government might feel it's the right political choice. Although I have to say, pretty much every, well, certainly every party of the right reformatory's opposal of, you know, want all those fields open. Obviously, you know, if they, you know, the Greens would be supportive of what the government is doing. You know, it seems to me that, but it's interesting, I mean, sorry, just put it clear. It's very interesting to me that a party that is supposed to be of the left, the SNP in Scotland, the Scottish National Party, is very much in favor of developing the North Sea more, which also is causing Labour major problems with these Scottish elections coming up. But the point, anyway, the fundamental point I'm making is this is a big, this is a big decision coming up. It'll be a big moment to judge that question of what is front of center in terms of the government's mind. Is it growth or is it a sort of a much more political project about showing leadership on the path to net zero, as it were? And I think they are going to veer towards the purest net zero approach. And I have to say I think, think conceivably economically that may be a mistake.
- [50:24]
B
And it comes back to your point about priority, doesn't it? What are we prioritizing here? Is it net zero? Is it growth? Can it be both? That's the big question. But that's probably it from us, isn't it, Robert?
- [50:36]
A
Yes, I'm afraid so. And if periodically today I've been seeming a bit low key, it's not because actually I don't think it's impossible that we could get an earlier resolution of this war. And therefore some of the more extreme scenarios we, you know, some of the more extreme scenarios we painted may not materialize. I think our argument is You've got to have a government that puts in place contingency plans to protect us if the worst happens. But as I say, I'm afraid the main driver of my slight occasional gloom is I was at Wembley yesterday, and I'm struggling to get my head around why my beloved arsenal was so terrible. Anyway, I will continue to focus on that more important question, and we'll see you very soon. Goodbye.
- [51:19]
B
Well, maybe that's where Starmer was focusing on that instead of growth as well.
- [51:29]
I
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- [52:03]
E
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