Kwasi Kwarteng’s market meltdown

This is an audio transcript of the Payne’s Politics podcast episode: Kwasi Kwarteng’s market meltdown

Sebastian Payne
Liz Truss struggled to defend her government’s economic strategy this week as the prime minister said her dash for growth might still pay off.

Liz Truss
It’s not fair to have a recession. It’s not fair to have a town where you’re not getting the investment. It’s not fair if we don’t get high paying jobs in the future because we’ve got the highest tax burden in 70 years. That’s what’s not fair.

[MUSIC PLAYING]

Sebastian Payne
Welcome to Payne’s Politics. Your central insider guide to Westminster from the Financial Times with me, Sebastian Payne. This week we’ll be looking into the unfurling economic chaos in Westminster as the pound crashed to its lowest ever levels and Liz Truss and her chancellor Kwasi Kwarteng struggled to calm the markets. Our experts will look back on all the chaos and try to fathom where the situation goes next. Political editor George Parker and economics editor Chris Giles all make sense of it all. And later we’ll be looking back on Labour party conferences and whether Sir Keir Starmer’s party is preparing to return to power. With the government in crisis, was the opposition leader able to capitalise on it in Liverpool? Our chief political correspondent Jim Pickard and our Northern correspondent Jennifer Williams would take us inside the corridors of the convention centre. Thank you all for joining.

[MUSIC PLAYING]

Last Friday, Kwasi Kwarteng delivered a so called mini-Budget that was not so mini and so far, not so successful. The biggest package of tax cuts in 50 years was meant to stimulate growth. Instead, it spooked the markets and has crushed the pound. The government has not U-turned and has not handled the communications of this crisis particularly well. After several days of ducking strategy, Mr Kwarteng told the BBC there was no alternative to what he was trying to do.

Kwasi Kwarteng
If you look at the government’s plan, we’ve got the growth plan, we’ve got the energy intervention that’s saving thousands of pounds a year. We’re putting more people’s income into their own pockets through tax cuts and we’re very, very focused on making sure that the cost of living pressures can be withstood.

Sebastian Payne
George Parker, welcome back to the pod. Can you recall a more disastrous budget or fiscal event in modern British history?

George Parker
No, I can’t. I mean, I think you have to go back to the Tony Barber budget in ’72 or . . . 

Chris Giles
’72 is the really bad one. But remember the omnishambles budget a decade ago, 2012? That was about pasties.

George Parker
That was the caravan tax. So I think it’s a macro term, Seb. I think we can put this one down as a real stinker in terms of the market reaction presented last Friday. And since then we’ve had a whole series of terrible events as far as the government is concerned, including the market volatility. Of course, the IMF coming in. We can talk about that in a minute. Larry Summers, the former US Treasury secretary, saying that Britain’s turning from an emerging to a submerging economy. So it’s gone down extremely badly. The communications, as you say, have been terrible. And we ended up on Thursday with an opinion poll by YouGov showing the Tories with a 33-point deficit behind the Labour opposition. It’s been a terrible week for government.

Sebastian Payne
And we should say that opinion poll reflects several others that came out this week as well with I think Delta poll putting the Tories 21 points behind and Redfield & Wilton putting the Tories 19 points behind. And if that was replicated to a general election, I believe the YouGov poll mean there would be a majority of 300 for the Labour party. It might slightly be over egging the actual situation, but it does express just how dire things are. Chris Giles, thank you very much for finding the time to join us this week. Why do you think it went so badly wrong? Because many of the measures were already out there from Liz Truss’s leadership campaign. You know, reducing national insurance, not raising corporation tax. That was already agreed. The only two extra measures were cutting the 45p rate of tax and bringing the income tax cut forward from 2024 to 2023. And the sums of money that are billions, they’re big sums, but they’re not massive. So why’s everyone take fright?

Chris Giles
I think there’s a couple of things. One was that before the mini-Budget, lots of people actually thought that although Liz Truss was clearly going to do the corporate tax and national insurance changes, there would be something out of the hat that sort of balanced things a little bit, maybe some tax rises elsewhere, stealth ones or some other stealthy spending cuts to balance the books a little bit. They also thought there might be some statements about how the government was going to show that its public finances were under control. And they certainly didn’t think the chancellor would then go on TV saying that he was going to cut more tax, just at the moment where we’ve got high inflation in the UK, 50-year low of unemployment, so this is going to push up interest rates. It was just the whole package together which made it seem as if the government just simply didn’t care about Britain’s public finances. Just it was irrelevant to them. And that’s why the markets behaved as they did.

George Parker
And I agree entirely with what Chris just said. And it was sort of the view in the markets that the government’s taking almost a devil may care approach to public finances. And Mark Carney made this point, the former governor of the Bank of England as well, Mel Stride, the Treasury select committee, that the they given the impression that the institutions in the British economy which are there to prevent politicians doing stupid things or reckless things have been systematically chipped away at by the government in the run-up to the fiscal events. So the fact that Liz Truss was criticising the Bank of England during the course of the Tory leadership contest, saying that the mandate might have to be reviewed. The fact, as Chris was saying, that the OBR, the Office of Budget Responsibility, was sidelined on the day of the events. So there was no forecasts of where that was going, where the British economy was going. And of course, you know, quite important thing, the sacking of the permanent secretary of the Treasury, Sir Tom Scholar, on Kwasi Kwarteng’s first day as chancellor. Tom Scholar embodied Treasury orthodoxy that Liz Truss decries, but the Treasury orthodoxy of sound money and getting rid of him sent a clear message to the markets.

Sebastian Payne
Now let’s play through this almost day by day because it’s been really quite the week of dramatic events. So, Chris, you mentioned that where things really got spooked was actually last Sunday where Kwasi Kwarteng was on the BBC’s Laura Kuenssberg show, was being interviewed about the budget. Now on Friday, the pound hit its lowest level since 1985 when Kwasi Kwarteng was actually having a nice pint in the pub celebrating this big package of tax cuts that was delivered. But that message that there could be more to come really seemed to spook things. And when the pound trading stopped in Asia on Sunday night, it started to get very bad and overnight hit the lowest levels ever. But then on Monday, the Treasury and the Bank of England intervened, which again felt quite unprecedented. What was the thinking behind that and what was the significance?

Chris Giles
Overnight, the pound was in freefall. Over Sunday night to Monday, going to the lowest ever 1.035 compared with at the end of the war, $4.80. You know, we’ve had quite a lot of deep devaluations over those last 80 years or so. But the thinking was that things were not calming down in the markets. Even though the pound rose a bit on Monday, things were not calm. The government bond market, or how much it cost the government to borrow, that was looking really ugly on Monday. The Bank of England went to ground with (inaudible), you couldn’t get hold of them all through Monday and you sort of began to realise that something was up. They were trying to negotiate something and what they did was they negotiated two statements, one first from the Treasury which said, OK, come November we will show how this all adds up. And then one from the Bank of England after that saying, thank you very much for that. Almost certainly this is gonna mean higher interest rates. We won’t tell you how much now, but in November, prepare for it.

Sebastian Payne
And at that point, Kwasi Kwarteng, who had not been seen in public, was actually spotted walking down the street outside the Treasury. And normally during a fiscal crisis, I talked to one former Treasury aid who said that chancellor would be bundled into a car for walking 5 minutes down the road. So because, of course, every single thing you say can affect the markets. This is what Kwasi Kwarteng did not have to say.

Unidentified speaker
Chancellor, what are you gonna do about the turmoil on the markets this morning, sir?

Kwasi Kwarteng
I’m not making a comment now.

Unidentified speaker
What about the City? What conversation you’re having with the Bank of England, sir? Do you have anything to say about what’s going on, sir? Are you planning to reverse the announcement you made last Friday, sir? What do you have to say about everything that’s been going on, sir?

Kwasi Kwarteng
I just go into my office now. Thanks.

Unidentified speaker
Thank you very much, sir.

Kwasi Kwarteng
Thank you.

Sebastian Payne
Doesn’t exactly inspire confidence, does it, George?

George Parker
No. Silence has been a bit of a theme of this week, hasn’t it? It has to be said (inaudible) Kwasi Kwarteng, one of the reasons he didn’t want to say anything by the way, on Monday, was he was having a very difficult conversation with Liz Truss in Downing Street about whether the government and the Bank of England should say anything at all to steady the markets. Liz Truss’s view, according to people we’ve spoken to, was that they should say nothing, that this was just a market squall that would pass by, the government policy was correct, markets do what they do. But Kwasi Kwarteng and the Bank of England took the view that something had to be said. And that was a clear admission by Kwasi Kwarteng that he messed up by not promising a fiscal plan on the previous Friday. But when I saw Kwasi Kwarteng at a modular housing factory in Kent a couple of hours after he delivered that statement last Friday, he said that the fiscal plan would be delivered in the new year. So they’ve already had to bring that forward to November. And some people speculate it might have to come forward beyond that. But, yes, I mean, there was, there was silence, and Liz Truss went to ground as well. And for a while there just seemed to be a complete vacuum at the heart of economic policymaking.

Sebastian Payne
And that vacuum, Chris, was filled by a statement from the IMF, which where they came out and essentially expressed their grave concerns about both the economic statement and the market situation within the UK. And I don’t want to use the word “unprecedented” too many times, but it was a very unusual thing for them to come out to say and do that. And the result has been the IMF is now being attacked by many supporters of this policy. And Lord David Frost, the arch Brexiter and big supporter of Liz Truss, is grouped in with the Financial Times, The Economist and various leftist organisations apparently who are responsible for all this . . . 

Chris Giles
Like the IMF.

Sebastian Payne
Yes, indeed. Well, what did you make of the statements and the response?

Chris Giles
Well-known for its views of spending billions and billions. You know, IMF — the joke in economics is its, the acronym stands for “it’s mostly fiscal” and that is because it always asks people to tighten their budgets rather than loosen them. And that is essentially what it told the UK government. What was unusual, but not what it said, not that it was concerned because that was inevitable, but that it did it unprompted in a statement that we now know went all the way up to the managing director level, and they didn’t tell the UK government first. That is highly, highly unusual really. They always tell the government, but they just didn’t bother.

Sebastian Payne
And the Tom Scholar point that George made earlier comes in here because of course, Tom Scholar, one of the veterans, I think the last veteran actually of the financial crisis, left at the Treasury. And he is the exact kind of person who could have called a director of the IMF, was someone seen and said, look, don’t say anything, don’t do anything. Give us 24 hours, what have you. But that vacuum created meant that, of course, they didn’t have anyone to tell and just went out and said it.

George Parker
Yeah. We don’t know whether the Treasury had an inkling it was coming or whether it came as a complete surprise. But it is the sort of thing that you would have thought the permanent secretary of the Treasury, if we had one, would be on the phone to all international organisations saying, “we will sort this out, don’t make it worse for us, we will sort it out. Don’t worry, we’ve got this in hand.” And obviously there was no one to do that.

Sebastian Payne
Then we come to Wednesday, which was £65bn injected by the Bank of England into the markets following their deep concerns about stability. Now, this came, Chris, from a very particular corner of pensions market. Can you sort of unpack why the bank intervened, what they were concerned about and where exactly the money was being targeted?

Chris Giles
So I’m not gonna go into the gory details because they’re pretty gory. But it was in the, particularly in the very long dated government bond market. So where the government is borrowing for over 30 years because this is what pension funds use a lot. What happened was that particular part of the market was going even more bonkers than the whole market. And that was because pension funds — in the way they’d been investing, which was we now know was far too risky and this is going to be a scramble for the future, but just leave it at it was far too risky what they were doing — they were losing money hand over fist and they were having to put up more collateral to the people they’ve been borrowing money from to ensure they could pay it back. And the only way they could do that very quickly was to sell more government bonds. And so you got into a vicious circle selling government bonds that made the problem worse, had to put more money up, sold more government bonds, and the Bank of England wanted to stop that doom loophole, that vicious circle. So that’s where the £65bn is being spent. Really, it’s there not necessarily to spend the money, but to be there as a market maker of last resort. It’s as if no one else is gonna buy this stuff, we will. But of course, it caused on mighty amounts of stress because it means, again, the bank is now restarting quantitative easing, at least temporarily, just at the time when it was reversing it . . . 

Sebastian Payne
Of course, a policy that Kwasi Kwarteng and Liz Truss famously and loved.

Chris Giles
Famously, Liz Truss, in her leadership campaign, said that it had caused inflation and the bank should not have done it. And now, you know, 22 days into her premiership, it is doing it again to bail her out. It also makes it look like the bank is having to bail out the government for making a mess. And that is bad internationally because it looks as if the bank’s independence is being compromised. And that’s when people see, you know, America, the former adviser to Barack Obama, said this looks like fiscal dominance, which is the jargon for what I just said. And this tends to end up in hyper inflation in emerging markets. He went on to say it probably won’t in the UK, but it’s not good news. This is how bad things start. And of course, it makes more “pull me, push you” problems within government economic policy. Because again, fiscal policy, government tax and spend is trying to pump things up. And the Bank of England’s policy to try and get control of inflation is to try and dial things back.

Sebastian Payne
A more basic analogy that I used on the podcast last week is the person driving the car is hitting the accelerator and the brakes full pelt at the same time. And if you do that for long enough, well, you eventually break the car. Now, George, let’s put this back to politics. So on Thursday morning, obviously, again, we’ve not heard from Liz Truss at all throughout this period. We’ve had a brief statement at one point from Kwasi Kwarteng, I think had gone to a factory in Darlington we heard earlier on. But for some slightly unfathomable reasons, Liz Truss decided that the reason to respond to this and then following the bank’s intervention, was to do a series of BBC local interviews. Now these always happen in the run-up to party conferences, but she’d not spoken to, you know, the Today programme or the news or to any clips or any newspaper news — all the usual things you would do in a crisis to try and calm the situation. And I think in many years and decades to come, this series of interviews will be taught in media studies classes on how to not respond to a crisis. It’s quite painful listening. But let’s just listen to one exchange that happened on BBC Radio Stoke.

Liz Truss
It’s also about how we grow the size of the pie so that everyone can benefit.

BBC interviewer
By borrowing more and putting our mortgages up . . . 

[LONG PAUSE]

Liz Truss
We need to borrow more this winter for the energy crisis that we’re facing. And I think . . . 

BBC interviewer
We’re gonna end up paying more in mortgage when you did that.

Liz Truss
That was the right thing to do. That is . . . 

BBC interviewer
We’re going to spend more in mortgage fees under what you’ve done based on the predictions than we would have saved with energy.

[LONG PAUSE]

Liz Truss
I don’t think anybody is arguing that we shouldn’t have acted on energy.

Sebastian Payne
It’s quite painful, George. The silences, and there were, as a whole hour-long of these interviews, which the BBC have helpfully put together into a podcast, if anyone wants to listen to an alternative for an hour. But yeah, again, not exactly reassuring.

George Parker
No, it was excruciating. Whoever thought that was a good idea to put the prime minister into back to back local radio interviews, I don’t know what they were thinking because they’re notoriously difficult. I mean, I’ve seen some speculation or she was trying to sort of get an easy ride because she was going on local radio rather than going on the Today programme, where she might have gotten more of a grilling. My experience, the total opposite is the case. You’ve got the best journalists on the local radio station doing the interview. They won’t just be asking you difficult questions, just like the ones you said about the economy more generally, but also on local issues that the prime minister is necessarily across. So for example, on BBC Radio Lancashire, she was asked about fracking, where again she came unstuck. But the overarching impression was someone who didn’t have the answers to the questions. And you heard some of those silences were as cavernous as the Grand Canyon, weren’t they (laughter)? It’s just awful, awful to listen to. And the problem is that first impressions really count because frankly, a lot of people still don’t really know who Liz Truss is. She suddenly became prime minister. The Queen unfortunately died and therefore we didn’t see very much of her during that period either. So she’s just being introduced to the British people and the introduction is against a backdrop of crushing pound, soaring interest rates and a load of media interviews where she sounds like she doesn’t really have an answer to any of the quite reasonable questions that are being put to her.

Sebastian Payne
The thing that’s so confusing about all this, George, is it’s just what is going on inside government here because we’ve talked a lot about Truss world and the people advising her, and it does feel as if they’re not the most experienced people in government. They don’t have legacy within Whitehall, and I think reacted before she became PM. The worry was they would hit a major crisis and would not be able to deal with it, and it really feels as if both the teams in Number 10 and in Number 11 just don’t have enough experience to deal with, you know, a crisis of this magnitude.

George Parker
Well, you and I have spoken to Tory MPs and ministers who’ve made exactly that point, that there’s a total lack of experience to deal with an international crisis like this. And of course the team that Liz Truss has in Number 10 has almost completely changed from the one Boris Johnson had. They’re all learning on the job very quickly. The Treasury is, Chris has mentioned, don’t have a permanent secretary. We don’t even have a second permanent secretary. That job hasn’t been filled either. The Treasury minister with the most experience of working in the Treasury was appointed by Boris Johnson on July the 8th. So you’ve got a Treasury ministerial team which has no more than two months of experience and the two senior officials have gone and you’re embarking on a completely different and radical, as it turns out, risky economic strategy. And, you know, the lack of experience is obvious.

Sebastian Payne
Now, Chris, I know you won’t want to open up your crystal ball too much because the situation is so volatile. But as we’re recording this on Friday morning, there was a meeting between Liz Truss and Kwasi Kwarteng and the head of the Office for Budget Responsibility, which again in itself is highly unusual. What do you expect from that and where do you think this whole thing goes next?

Chris Giles
I don’t expect huge news to come from that, but there might be a bringing forward of the November the 23rd statement to something more urgent. That’s the one thing I think they could do. I think they can come up with sort of words about how the government is going to show that it’s going to have the public finances on a sustainable footing in its statement in the autumn, whenever that comes and everyone agrees that and they will come up with new fiscal rules. I mean, it’s very difficult because there isn’t a forecast now so you can’t just say that ‘this is what the OBR thinks and it’s all fine’. It wouldn’t be, by the way, but they can’t do that. So they’ve got to have some time, but not a huge amount of time. (Inaudible) I was looking at the economy at all times, you know it can do things quite quickly if it’s being told, but it has to be told to come out with the forecast. It doesn’t have the power to do that on its own unless you’re getting close to that limit where it’s got to do two per year. So at the moment it can’t just go and say, right, sod it we’ll go and we’ll tell the world what we think anyway.

Sebastian Payne
And what about market reaction, where that goes? Because in terms of the politics that I’ll come on to with George, what’s really forced the issue was the Bank of England’s intervention on Wednesday, and it feels like the situation from the political perspective is in deadlock because Liz Truss, there’s been some rumours abound that she might jettison Kwasi Kwarteng, but I think it’s quite unlikely because they’re still totally simpatico on the policy and the strategy. She’s not going to immediately bin her chancellor; she’s not going to change the strategy. So it just feels like continues and the next big event will be something that comes from markets.

Chris Giles
It’s difficult to know exactly what’s gonna happen. Markets have calmed down, but interest rates or government borrowing costs are still massively higher than they were a week ago. So that is the most important, markets. Sterling is about where it was a week ago. It’s recovered, but you know, anything could make the febrile atmosphere come back again. And we don’t really have things in the diary until the 3rd of November when the Bank of England is bound to raise interest rates by quite a lot. You know, there’s going to be a big vacuum for quite a while.

Sebastian Payne
But thankfully, George, that vacuum is going to be filled by Tory party conference where you and I are off to in Birmingham on Sunday. Normally this conference should have been introducing Liz Truss to the world, to the party and allowing her to set forth her new agenda. And instead the sort of mood inside Downing Street seems to sort of be “everything is fine here”. And Liz Truss wants to say as little as possible about that. And you heard it through the series of interviews, but it’s gonna be a bit like a party conference unlike any other. All the moderate Tories from the Rishi Sunak wing of the party, they’re just staying at home and not going. And journalists like you and I are gonna be chasing down every Cabinet minister and MP saying, what do you make of this unfolding chaos?

George Parker
That’s right, I would imagine that most Conservative MPs won’t go to Birmingham, they don’t like party conferences very much of the best of times, and they’ll certainly be steering clear of this one. I suppose the only relief for Liz Truss is that Rishi Sunak won’t be there, and he’s gonna be at home in Yorkshire apparently and neither is Boris Johnson. You can imagine what it would be like on the fringe of the party conference if Boris Johnson made an appearance. So she’s got that. But on the other hand, as you say, we will be looking for divisions where we try to find people criticising Liz Truss and Kwasi Kwarteng. When Kwasi Kwarteng makes his speech on Monday afternoon, I imagine the broadcasters will have a chart showing the movements of the markets in response to everything he says from the podium. So it’s gonna be really difficult. And for Liz Truss, you know, this could have been, should have been her moment of coronation, instead of which there’s just gonna be a huge amount of anxiety and nervousness. I mean, how on earth do you play a conference where you going into it with a poll deficit of 20 or even 30 per cent judging?

Sebastian Payne
Chris, thank you very much.

[MUSIC PLAYING]

The economic chaos dominated the other major political event this week, Labour’s party conference in Liverpool. Sir Keir Starmer’s second in-person gathering since he became head of the opposition was rather different to the first. Unlike Brighton, the mood was calmer. The party was more in his hand and there was a clear feeling that Labour believes it is finally ready and preparing to return to government. In his solid but steady keynote speech on Tuesday, Sir Keir Starmer used the turmoil of the Truss government to highlight how he would do things differently.

Keir Starmer
What we have seen in the past few days has no precedent. The government has lost control of the British economy. And for what? They’ve crashed the pound. And for what? Higher interest rates, higher inflation, higher borrowing. And for what? Not for you. Not for working people. For tax cuts for the richest 1 per cent in our society. Don’t forget. Don’t forgive. The only way to stop this is with a Labour government (applause).

Sebastian Payne
Well, Jim Pickard, welcome back. I dread to think how many Labour party conferences you’ve been to over the years. But tell us about the mood and the atmospherics of this year’s gathering in Liverpool, and what did you make of it all?

Jim Pickard
From a particularly FT perspective, there were an awful lot of business people there. I think was the biggest business presence there since they lost power in 2010. A lot of eager people in suits and more senior, those people in suits than usual, reflecting the fact that there does seem to be at least a credible chance of Labour winning the next general election and a lot of happiness among Labour delegates. We were having dinner with an unnamed member of the shadow cabinet when that YouGov poll came through, putting Labour 17 points ahead of the Conservatives and that is a 21-year record. And there was a lot of delight there. But that sense of optimism is very much tempered by better experience, which is that since 2010 we are now on our third leader and each one has had a false dawn. So under Ed Miliband, there was a point where Labour was leading the Conservatives by something like 12 points, I seem to remember. And there was a point under Jeremy Corbyn where of course the 2017 election, which Theresa May launched to crush the saboteurs and thought was gonna be a walkover. And Jeremy Corbyn’s Labour went on to win something like 13 net seats! And we all had to take Corbyn incredibly seriously at that point. And of course, he got totally destroyed in 2019. But Labour has had these false dawns that end in electoral setback, and they haven’t forgotten them. And Keir Starmer in his speech did say this feels like it could be a historic moment, like great Labour victories like ‘97 and ‘45 in the past, but it’s still a long way to go. And the Tories are gonna attack us in every direction and we can’t take this for granted. Bear in mind, there are places in, you know, Scotland, for example, they lost 40 seats. They still only have one. There are all sorts of psychological reasons why this isn’t gonna be a walkover for Labour. They have to gain something like 120 seats, but for now, they’re feeling quite happy and they’re watching from the sidelines as the Conservative party appears to implode.

Sebastian Payne
Well, Jen Williams it’s good to have you back on the podcast as always. And we were together in Liverpool and throughout the many conversations you had over the last week, what was your sense of it? Because obviously Labour’s strategy has got tighter. They’ve got a clearer message and of course that was massively helped by the events in London. Do you gain a sort of sense that they’re on a glide path to power now? Is that too much confidence perhaps?

Jennifer Williams
It felt to me as though they don’t quite dare to hope that it’s quite a kind of incremental increase in confidence, I suppose. It was calmer and one of the reasons that it was a lot calmer was that you didn’t have that level of friction and toxicity that we’ve seen during the Corbyn years. And even on some occasions prior to that there was much less in the way of people stood outside shouting. It looked more professional, as Jim says. It was more of a business presence. I wouldn’t describe the mood as jubilant, though, because I think they are kind of slightly holding their breath, and I think they know that there was work to be done. I think what they are still probably missing is a sense of a really clear narrative going into the next election. And I think they know that. I think the sort of awareness itself as a party that they need to be clearer and more disciplined around a political strategy which kind of works symbiotically with that narrative. What is the story that they are trying to tell the electorate next time around? And I think they know that. I think that they are talking to Labour Together, which is like a kind of offshoots, one of these many bits of Labour. That’s people looking to possible policies, possible narratives. I think it is going to be a move to sort of strengthen that at the top of the party now. They’re definitely not taking anything for granted, I would say.

Sebastian Payne
Now, Jim, the dominant thing was obviously the economy, and that’s because of what was going on further south of Liverpool. And I think one thing that’s worth listening to is Rachel Reeves, the shadow chancellor, who I think gave the most compelling, implausible case for prosecution that we’ve heard from a Labour shadow chancellor against the Tories in probably quite some time.

Rachel Reeves
A return to trickle down economics, an idea that has been tried, has been tested and has failed (applause). Why should my constituents in Leeds West, why should people in Merseyside pay for tax cuts for those who are already the wealthiest? It’s not what anyone voted for. It’s putting our economy in danger and conference Labour will fight it every step of the way (applause).

Sebastian Payne
Well Rachel Reeves got, I think, two standing ovations for that speech Jim and you, which you were in the hall for. What do you make of where she is and Keir Starmer is on the economy and, obviously, in some ways a bit of an open goal given the market volatility that continued throughout Labour conference. Does it all hang together? Is it something that’s still going to connect with voters or is it still a big group thinky, a bit think-tanky, I should say.

Jim Pickard
So what’s really interesting when you unpack Labour’s economic strategy at the moment is that they would do in power a lot of the things the Conservative government is doing, but they would do less of it and they would avoid some of the pitfall policies like abolishing the 45p rate. So if you take the energy package, it was of course Labour who first said we need to intervene to cut prices for everyone. And that of course in August was worth £29bn over six months. The Conservatives have come along with a £60bn policy because they’ve included businesses, whereas Labour didn’t. And also they’ve promised that they would help households for two years. So you, amazingly, you have a Conservative package put together by these free marketeers, which is worth a 150bn, it’s five times bigger than Labour’s. And yet the focus is on the ruling government and not on the opposition. Nobody’s putting their hand up and saying: how come Labour, who are meant to be the party of, you know, the workers, is offering massively less important energy? So they’re lucky because no one’s even really looking at this. And then on the tax cut stuff, saying, look at these you know, idiot Tories with their massive package of tax cuts. This is profligate. And we, Rachel Reeves and the shadow economic team, would not do any unfunded tax cuts, but they would keep the reverse of national insurance rise. They would keep the cutting income basic rate from 20p to 19p, and even then they wouldn’t do the 45p cut. They’re saying that they would channel that money to extra spending on the NHS. So that’s about £20bn of kind of unfunded tax cuts from Labour. The only difference is that they’re saying, well, our energy windfall tax would actually end up being a lot bigger than the government’s if and when we get round to explaining how it would work. But you know, their windfall tax amount is pretty similar that I mentioned to government’s. But again, luckily for them, commentators aren’t as interested as a hypothetical situation where they’re in charge and they cannot believe their luck that this Conservative government is lifting the bankers bonus and cutting the 45p rate and also cutting corporation tax at the point where they’re doing all this other stuff, which in aggregate is spooking the markets because Labour can point to the government and say, look at these people, they’re cutting taxes for rich people. And look, the markets are terrified and your mortgage is gonna go up. From Liz Truss’s point of view, it’s a terrible confluence of events, and for Labour, it’s a massive opportunity.

Sebastian Payne
And Jen, how do you think this goes down in the wider country? Obviously a lot of people will be looking at the government and whether they agree or not with the economic package, everyone will be concerned. The competence, the fact — that message of Keir Starmer, they seem to have lost control of the economy — has some basis to it, but it’s obviously a very acute moment for many voters who will be looking at Labour with different priorities and prospects given the events the past couple of weeks and we’ll see where the economic turbulence ends.

Jennifer Williams
Well, I mean, I think Rachel Reeves is very much presenting herself as the grown up in the room, isn’t she? You know, former Bank of England, not only a potential chancellor that the electorate can trust but also a potential chancellor that the markets can trust. I think there were a couple of other things sprinkled into the speeches that are worth mentioning because they’re kind of potential building blocks of manifesto. So Bridget Phillipson talking about childcare I think is very sensible. She talked about rolling out breakfast clubs as the beginning of rebuilding the childcare system. That makes a kind of economic sense, as well as being appealing to people who are struggling and in desperate need of that and perhaps want to work more hours but can’t. And the fact that Labour have finally decided what their position is around nationalisation. It seems to mean a fairly obvious policy, to be honest, because it’s popular with the public. It’s at least throws some kind of red meat towards the membership in terms of saying that we are in favour of nationalising something, and it’s quite difficult for the Tories to attack anyway because so much of the system is effectively nationalised right now anyway.

Sebastian Payne
Now Jim, let’s just move on from the economy for a moment because we talked a lot about the vibes of this year’s conference and probably the most standout moment about where Labour is heading happened in the opening hours when a tribute was paid to Queen Elizabeth II.

Delegates singing
God save the King . . . 

Unidentified speaker
It still feels impossible to imagine a Britain without her. Hardly any of us have ever known anything else. For us, the late queen has always been simply, the Queen. The only Queen. Above all else, our Queen.

Delegates singing
God save the King . . . 

Sebastian Payne
Well, obviously, Jim, that sort of tugs at the heartstrings. That’s exactly what Labour party would have wanted, and that’s pretty imaginable under the Corbyn years. And I think Jeremy Corbyn gave an interview to the BBC where he thought it was unnecessary, I think was his words, to sing the national anthem. But obviously Keir Starmer is wanting to try and speak to those voters who feel very patriotic, have a very deep connection to the royal family. And one of the opposition leaders, senior aides I spoke to at the conference, said that that minute, when they had a minute’s silence, was the longest minute of her life, as they were seeing if anyone would intervene or would speak out. And they didn’t. And it showed that Labour is not embarrassed to talk about patriotism.

Jim Pickard
Yeah. So the way to think about this is that there are three strands, successive strands in Keir Starmer’s thinking on how he would conduct Labour leadership in opposition. The first one, the detoxification of the Labour party, as he would call it, after Jeremy Corbyn, by which he means supporting Nato, shedding any remnants of anti-Semitism among the grassroots Labour party, wrapping himself in flags. We’ve seen a lot of that, you know, gets ridiculed for it by some elements of the left. But it’s a very deliberate strategy of focusing on blue collar, socially rightwing, I suppose, whether or not they’re economically leftwing voters who deserted in droves over Brexit and over Corbyn a few years ago, back in 2019. And another element that is also kind of ridding the leadership of the party of pro-Corbyn figures, and he’s done a lot of that. He now wants to turn outwards and basically put forward a great vision of how Labour would govern differently. And of course, as both you and Jen have mentioned earlier, that’s the bit we still seems a little bit shaky and they can’t decide on what their slogan is. And Labour’s overly democratic processes lead to all these policies put in slightly different directions. And a lot of people say Labour doesn’t have enough policy. It has actually got quite a few policies, some of them quite big ones, which it’s announced over the last couple of years. That hasn’t really been a transmission mechanism by which the public knows about a lot of these policies. And some people, you know, we broke bread with a Labour veteran who describes Keir Starmer as, was it wooden and monochrome I think? You know, there is that question mark over his personality and his charisma. But his supporters will say, and I suspect a lot of floating faces will say, that they’ve had enough of charismatic, somewhat chaotic leaders. And maybe now is the time for a bit of dry, technocratic leadership of the sort that the Australian and German and American voters have gone for in the last couple of years.

Sebastian Payne
And finally Jen, the phrase that came to mind for me, which I wrote about in the FT, was that Labour now feels plausible again. There’s over the past kind of six years or so of Labour’s trajectory, they’ve had to deal with the Jeremy Corbyn turbulence, the 2017 election, the 2019 election, the failure of Ed Miliband to win. And it now feels that partly given where the Tories are, but also where the party’s got itself into a decent shape, you can see Keir Starmer in Downing Street. You can see Rachel Reeves as chancellor. You can see Wes Streeting as Health secretary. They’ve got themselves into a place where what they’re saying and their priorities do seem to chime with where the British public is.

Jennifer Williams
I think plausible is the right word. It wasn’t really a conference in which we had any gaffes or we had any really big rows. The standout gaffe was when Rupa Huq was suspended for comments that she made about Kwasi Kwarteng at a fringe meeting. And Keir Starmer dealt with that very, very quickly, and she was slapped down and things moved on. Now I don’t think that would have been the case necessarily a year or two ago. That wasn’t a story that suddenly dominated everything, you know, things moved on from that quite quickly. And I think that that is a sort of sign of a confidence, I guess, pleading confidence. But I also don’t think that that has an effect on the way that they are treated, if you see what I mean. It has an effect on the way that they’re covered, and it just has this kind of sense of maybe it just starts to become a little bit more self-fulfilling. They really needed that plausibility, and clearly they now have further steps to take in order to be really assured that they are in a position to actually turn those sort of 17-point poll leads into a genuine majority.

Sebastian Payne
And finally, Jim, we’ve talked a lot about the atmospherics of this conference, but there was one big policy announcement which came in to Keir Starmer’s speech, which was the creation of GB Energy, which is going to be a national state-owned energy company to rival the likes of EDF in France. What does that policy tell us about where Labour is heading and what do you make of what they’ve proposed?

Jim Pickard
It wouldn’t just be doing renewable energy, of which there’s no shortage of investment and progress at the moment. It would also be doing nuclear, where as many of our listeners will be aware that the nuclear programme has been stuttering at best over the last 10, 20 years. And, you know, you don’t have to be leftwing, rightwing to make the very clear point that one of the biggest problems in the programme as it’s been executed by governments in Britain over the last few years, is that they’ve tried to do it with the private sector. And we’ve had Hitachi was gonna build a nuclear power station, pulled out. Toshiba was gonna build one, pulled out. China’s CGN was gonna co-build some with EDF. We are pushing them out for geopolitical reasons, which only leaves EDF. EDF is struggling with cost overruns and delays at its entry point site in Somerset. If you could reverse the clock, it could have borrowed much more cheaply if it had done this 10 years ago. But either way, you deal with the government, you have a little bit more certainty. And given that nuclear is the only low carbon form of energy that provides baseload and is not subject to intermittency, this idea seems like quite a good one.

[MUSIC PLAYING]

Sebastian Payne
Well Jim and Jen, thank you very much for joining us. And that’s it for this week’s episode of Payne’s Politics. If you like the podcast then we’d recommend subscribing. You know where to find us through all the usual channels to receive episodes as soon as they’re released. We also like positive reviews and nice ratings. Payne’s Politics is presented by me, Sebastian Payne, and produced by Anna Dedhar and Howie Shannon. The sound engineers were Breen Turner and Jan Sigsworth. Until next week, thank you very much for listening.

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