The Duran Podcast - Starmer's UK budget debacle

Episode Date: November 2, 2024

Starmer's UK budget debacle

All right, Alexander, let's talk about the UK economy and the budget that has been passed by Sir Kier Stomer. What are your first thoughts on his budget? Well, I mean, this has been heavily trailed over the last couple of weeks, and basically ever since the election, I should say that the Labour Party gave everybody to think during the election and, before that they were not planning to increase taxes to any great extent. And the election came, they immediately said that they've discovered a 20 billion pound hole in the British budget that needed to be closed. And a lot of people were rightly cynical about that because everybody knew about this

$20 billion hole even before during the election itself, as everybody, it was discussed in the media. So, I mean, this is not any great revelation. And then we got weeks of preparation. There was going to be big, big tax increases, and that there was going to be a period of austerity and all of that. And we got the budget yesterday. And in some respects, in many respects, it was exactly as we'd been led to expect. This was a huge budget increase. 40 billion pounds. That's, I think, just over around $60 billion, not quite that much. But anyway, it was a very, very big tax increase for an economy the size of Britons. And loaded very heavily, by the way, on employers.

So employers, businesses are going to have to place significantly higher taxes if they hire more workers. I mean, we have a very complicated tax system in Britain, but basically we have something called national insurance, which contrary to its name, is basically simply a tax. Everybody has to pay, is obliged to pay national insurance contributions as part of their tax, as part of their wage or salary or income packets. and for every worker, the employer also has to pay contributions in national insurance contributions. So it's effectively, it's a tax on workers. If any company employs workers, he plays a tax on them.

So bigger companies, companies which have more than four workers, which is not such a big company, anyway, they are going to have to pay significantly, very significantly more tax on their workers. And there's also been other changes to capital gains tax. which has also been sharply increased, and inheritance tax, which is also, well, not so much increase, but all kinds of restrictions and arrangements have been made to sort of make the burden of inheritance tax on wealthier people, also bigger, and there's all kinds of other things that are coming. I understand that private schools are going to have to charge VAT on school fees and things

of that guy. So a very, very big tax increase indeed. The biggest tax increase we've seen in Britain since the early 1990s. So a huge tax increase. But, and this is what is so interesting, even as they said that they were going to have to increase taxes in order to close this big budget gap, they are also increasing spending. So the spending is going to be on the national health service on various parts of the British public service system. They're going to be paying extra wages to certain public sector workers. And it looks as if that's set to continue well into the future. So higher taxes, higher spending. Some economists, I think the most more reputable economists think that the overall deficit position of the British economy,

the government's spending over revenue, is actually going to grow despite the higher taxes, which, of course, opens up the possibility of still further taxes further ahead. The one thing I think everybody agrees looking at this particular package is that it does absolutely nothing to deal with the underlying problems of the British economy, low productivity, insufficient investment, problems with getting businesses started, regulatory overload, all of those things. the contrary, the general consensus, and I think this is a consensus that is not just, you know, a consensus on the right, it extends to much of, you know, the more, shall we say, non-partisan left as well, is that on the contrary, this budget taken together, it's going to make those problems worse. The taxes on business are going to obviously disincentivise people to take on workers and to expand business.

So, and it's not going to encourage any growth and productivity or business investment. And the extra spending looks very, very much, to be honest, like the Stama government, paying off specific groups of public sector and other workers that form part of its electoral constituency and who also it doesn't really want to antagonize at a time when it's already looking increasingly unpopular. So this budget is going to make our underlying problems worse. That's my own view. So is there an increase in spending in the defense industry?

Is Stammer talking about Project Ukraine and sending more money to Project Ukraine? Because I imagine if something like that happens, that's going to infuriate people. Not not officially. The British military, the defence budget, is increased by $3 billion, which relative to its costs, is not going to be an enormous earth-changing amount of money. I mean, if we look at spending on Ukraine alone, that has been over £10 billion. It's not even going to make that up. So overall, despite the increase in defence spending, which is, by the way, controversial

and unpopular with many people on the labour side anyway, this increase in defence spending is only going to make the general deterioration of the British armed forces continue at a slightly more slower rate than it would have done otherwise. So the other thing is, because of the extra spending, there is a view that the overall effect of this budget

is going to be inflationary, it's going to add to inflationary pressure within the economy. And there's also a view that it's, it might result in a little more growth in the first year or so, but overall, growth is actually going to fall. So how does this affect Stommer's administration? I mean, people are not going to like this budget. They're not going to like tax increase.

Who's going to like a tax increase, obviously? But, you know, this would be all well and fine if Stommer was running a, a normal administration. If he was off to a normal start in his administration and didn't have so many scandals and controversies, but that's not the case. I mean, from day one, his administration has been a complete disaster. And he doesn't have the political capital for this type of budget. That is exactly. That is exactly. So what happened? Yeah. That is exactly right. This is stuff that you do if you have the political capital to do it. He doesn't have the political capital. Well, if I'm going to say that, I'm going to be even more critical than that.

I mean, this is stuff which in a sense doesn't mean anything because he's raising taxes and raising spending. But there's no clear economic program or economic rationale behind this. If this was a case of the British government raising taxes in order to undertake a major budget consolidation to try to sort out fundamental problems in the deficit, the British government's deficit in its fiscal position. Well, that would have been a policy. I mean, you could argue then that they're working to close the deficits in order to open up the way for extra spending or perhaps extra tax cuts in the future.

Now, back in 1981, that was exactly what Margaret Thatcher and her then-Cut Chancellor Jeffrey Howe did. They raised taxes, very considerably. They cut spending very considerably that enabled the British government to buy space, fiscal space, going forward, which the Conservatives, the Thatcher government, was then able to use in order to undertake a major tax cutting program later in its life. I mean, I should say that was a controversial policy at the time, and amongst economists, It is a controversial policy still.

I'm not going to say whether it worked or whether it didn't work, but it was a policy. There was a clear route forward. And the Labour government under Tony Blair did something fairly similar. Gordon Brown, who was the Chancellor, Tony Blair's Chancellor, he also inherited an improving fiscal position in the first years of Blair. government. He made a decision that he was not going to authorise extra spending. He continued to maintain a very tough fiscal policy for about two or three years. And again, that opened up space for the government to increase spending later. So, you know, you have policies like that and other governments have done that in the past. The Labor government in the 1940s did it. The Labor government

at the end of the 1960s did it. The conservatives did it in the 1990s. there have been many cases like that. But this doesn't do that. This is not a case of a government conducting a fiscal consolidation. Because what they're taking with one hand through the extra taxes, they're giving to certain groups with the other through extra spending. So this isn't a fiscal consolidation like the kind I've described. Nor is it a Kenzian demand stimulus, which is what some people have been advocating.

Don't worry about the deficit. Just go on, increasing spending, do what Joe Biden and company have been doing in the United States, run high deficits. Don't worry too much about what the markets say. That was the sort of Liz Trust's quasi-quarteng approach. But engage in a major demand stimulus, fiscal demand stimulus. Also, you know, you can cut taxes that way and that will, you know, give more people incentive maybe to expand their businesses and get the economy moving again. That was, again, what Liz Trust, people like that were talking about.

And of course, that didn't work, but again, it was a policy. Starr isn't doing that because, of course, even as he's increasing spending, and this is a very targeted spending to basically satisfy certain political groups and to tick certain political boxes, he's increasing taxes at the same time. So what he's doing is he's just pushing Britain further down the wrote that it has already been going down for some time now, where the government spends more and taxes more. And the overall burden on British workers and British employers increases. And the underlying problems of the economy, the problems of low productivity, growth,

lack of innovation in the economy, the deterrence to open up businesses, all of that isn't being addressed. I mean, you know, if we take other examples, I mean, the Corbyn movement, which had, you know, very much more, if you like, dirigible approach to economics. They had all kinds of very ambitious plans. They were going to use British Telecom to establish. massive program of wiring up written through fiber optics to get us all to have ultra-fast broadband. I mean, again, that was a spending program with an objective behind it. We're not seeing anything like this at the moment. So it's essentially more of the same.

And it gives a greater sense of an administration, a government that is more. more about administration ultimately than government itself. It doesn't really have a plan. It doesn't have a real objective on how to address Britain's economic problems. It's just doing what it has to do in order to keep some people happy, even as it tries to keep the markets happy as well by trying to keep the British deficit under some kind of control. So it's a budget basically to manage decline.

Yeah, they're not there. I was going to say they're not there to solve problems. I don't think this is unique to the UK either. I think there's no governments with the exception of Hungary. I mean, I don't know what the economy is like in Slovakia or anything like that. But I don't think there's any government in Europe at the moment that their goal, their purpose is to try and solve the economic problems that lie ahead. But most of which are due to the conflict in Ukraine and everything that we've been documenting over the past three years. of course, COVID and then you have the conflict in Ukraine.

But, I mean, yeah, it's about managing the decline. And, you know, in a year or two, Stommer will be gone. It'll go to the next person. Tories, conservative. It doesn't matter. They're all the same party anyway, pretty much. So the next person will come in to manage the decline until you get to, you know, it's kind of like, yeah, like musical chairs, Alexander.

You know, who's going to be the person sitting on the chair when you've hit rock bottom, that's the person that's, that's going to be the unlucky prime minister. Everyone else is just, it's just saying, okay, I've got a year or two years, maybe in Liz Trust's case a month. Who knows, right? And I'm just going to manage a decline, keep on spending, keep on taxing, keep on spending and taxing, a couple of wars here and there. Who's going to be the unlucky person to be in that chair when everything has crumbled?

That's going to be the person that gets the blame, right? Exactly. This is exactly what I think. I mean, it's not, to repeat again, this is not an economic program that we saw yesterday. It is essentially a technical enterprise. I mean, what you could argue, and I think this is perhaps the best way to understand it, is that the new government came in. It had to do certain things in order to carry up more spending programs

because it's already unpopular and it cannot afford to antagonize certain core groups. like some types of public sector workers, people in the National Health Service, that kind of thing. So it is under pressure to increase spending. It is haunted by what happened with Lestrust when she went and looked as if she was going to let the deficit rip. And the markets went haywire. Of course, it was a more complicated story than that, as we described at the time. But anyway, that's the perception. So in order to avoid having panic in the financial markets

and because there is this deficit, they raise taxes. So it's just basically, it's administration. It is administration taking the place of government. And anybody, by the way, who believes that, you know, they've done this and then, you know, with a couple of months' time, they'll come up with some really interesting and exciting new ideas. I'm going to disappoint them. There aren't going to be any such ideas because they are incapable of producing ideas. This particular lot have no ideas. And if you're talking about the conservatives, despite all the drama and melodrama of conservative leadership election contest that is still underway, I don't think they've got many ideas either. I don't think any part of the political class in Britain has any real ideas. So it's exactly what you said. When the music stops, the unlucky person who is the

Prime Minister who finds himself in the chair is going to have all the bricks and things thrown at him or her. But at the end of the day, that's where, that's where inexorably we are drifting towards. The question is, how long is this going to take and who's going to be that person? How long is it going to take and who is that person? Now, of course, the usual and comfortable answers that these things can take a long time, and they might do. But I'm going to say this. I think actually that is perhaps complacent.

I think that we are running out of road very fast. I mean, the deterioration in government finances is incredible. I saw a report recently, which said that in Tony Blair's time, The government, the British government, when he became prime minister, needed to borrow around 10 to 20 billion pounds a year through extra borrowing in order to keep everything together and going. And that was perfectly sustainable. And at that time, government debt to GDP ratio was around 30%. I understand that today it is around 250 billion pounds. Yeah, the government has to borrow in order to keep things going.

I mean, that seems astonishing, but that gives you a sense of how fast things have deteriorated. And, of course, the government debt to GDP ratio is now over 100%. And it's rising. And, of course, people will come and they will say, well, it's been higher. After the Second World War, it was 250. You know, debt GDP ratio was 250%. But, you know, we'd had a World War to pay. Britain had an empire.

It was still massively strong with its financial system. In times of peace, it was possible through higher economic growth to pay down the debt, which, by the way, Britain very successfully did. All of this is happening in peacetime. And instead of things getting better, they're deteriorating very fast. that is true right across the West, by the way. So I don't think that there is this huge amount of time before things become irretrievably bad. I mean, you know, we cover a few years, perhaps a decade of things gradually getting worse. But as Ernest Hemingway said, the thing

about bankruptcy is that you get bankrupt slowly and then suddenly. And I think we will get bankrupt. we will find ourselves bankrupt very, very suddenly, unless something very dramatic happens in the meantime. Someone like a Putin comes onto the scene. You know, like a leader, someone like that just shows up where no one's expecting it. But, you know, I don't see anyone like that on the horizon. I don't even think the UK political structure would allow someone.

like that to show up, right? I don't think there's any space for someone like that to show up. I mean, to be fair, to Sunak and trusts and even Johnson, especially Stommer, these aren't leaders anyway. These are administrators. I mean, to be fair, if these people were employed by Microsoft or Amazon, I don't know, a big company or something like that, and the HR interviewed these guys, I mean, you know, they would be middle managers somewhere.

I mean, these are just managers, administrators, like you said. They're not leaders. They would never get a leadership role in the real world, right? They would never, they would never get a leadership role in the real world. Absolutely. You know, a final question, if Trump wins, there's a good chance that he's not going to be so kind, so favorable to stop. given everything that has happened over the past couple of weeks. The UK has been defeated in Ukraine.

They bet big on Ukraine, and they're going to take a huge, massive L, as will Germany. The EU economies are in recession. They're crumbling, so that's going to hurt the UK. things are not going to get better for Stommer going forward. I mean, all the outlook does not look favorable to the UK. I mean, they've made bets. He made a bet on Harris. He might lose that bet.

We don't know. We'll find out in a week. But he bet big on Harris. We'll see. Right now the indications are that bet's not going to pan out. He bet big on Ukraine. It wasn't Stommer, the UK establishment, bet big on Ukraine. They're going to get hammered.

And they're bit big on remaining a trading partner, remaining close to the European Union. Instead of taking Brexit and branching out, expanding, they decided that, no, it's still going to be the EU. And the EU's going bust. Am I framing this correctly? You're framing it exactly right. You see, this is this is where there is the difference between an actual leader and people who are mere administrators. Because what an actual leader does, and, you know, I've worked with political leaders. I mean, I know a bit of what I'm talking about and read the history as well.

A political leader, it's like it's like driving a car. You see the obstacles ahead. You see the bump on the road. You see, you know, where the other car. is badly parked. You see the eccentric driver who's ahead that you need to be careful of. And you guide your way around that. You have that sort of skill and that kind of knowledge. So you're able to keep moving forward and moving forward towards whatever objective you have. Now, these administrators that you're talking about do not have that skill.

They don't understand how to do that. They're not able to guide. They're not able to guide. ride the car round the bumps. What they do instead is they crash into each one, one by one, and they just try and bump along and keep going. And that is the problem with Stama. Things are not going to get better with him, because not only has he got all of those problems that you've just described already coming up,

and bear in mind, some of them are self-created. Ukraine is to some extent self-creative. He was the leader of the opposition. He could have asked serious questions about Ukraine. He could have positioned the Labour Party as critical about the war in Ukraine. He could have said, is it really wise for us to overinvest and overcommit in the way that we have been doing? Had he done that, that would have opened up the debate. The result in Britain would have been completely different.

Of course, it's perfectly correct to say if Stama had done that, he wouldn't have been the leader of the Labour Party. He wouldn't have been the leader of the opposition. But all I am saying is that may be true, but he still is part of the political class that made those decisions. And so some of that responsibility must therefore fall on him. The decision to put everything on Harris,

if that turns out wrong, that was a mistake as well. It is still a mistake anyway, by the way. even if the gamble comes off because he's probably over investing in what a President Harris could do. It might not work out that way that well. I mean, you know, you want to keep a distance. It's important for you to do that. So he doesn't have that skill to navigate through the bumps or to see forward.

All of these problems are coming. He can't escape them because they are there. But even once those problems start to go into the rear view mirror, other problems will loom up ahead. And he doesn't know how to drive or guide around them. And that's the problem. And he's no different in this from anyone else. No one in Britain has those sort of political skills, which real political leaders are Margaret Thatcher or a Clement Attlee or a Harold Wilson or a Winston Churchill once did.

Yeah, they don't have that skill set. Just to wrap up the video, that's just the bottom line. They don't have that skill set and they never will be able to obtain that skill set. No. That's why these aren't the people to have it. as prime minister. Exactly. They get to the position for various reasons,

probably because they don't have that skill set, they get into that position. Exactly. Because the system demands weak, incompetent people in those chairs. Exactly. But to expect them to improve the future of the country, they don't have it in them. Everything you've described is something that you either have it or you don't,

and they just don't have it. Exactly. They don't have it. They don't have it. And there is no one on the horizon that the political class will allow to become prime minister who does. As you absolutely rightly said, anybody who has that skill, the political class are going to be very, very worried and nervous about. And we'll make sure that they don't become prime minister, one way or the other. All right. We will end the video there at the durand.orgas.com.

We are on Rumble Odyssey, Bitchie, Telegram, Rock, Finn, and X. and go to the Duran shop, pick up some merch 20% off. Use the code October 20. That is October 20. I will have a link to the Duran shop in the description box down below. Take care.