332. Rachel Reeves' Budget: How does it affect you?

Is Labour's first budget a success or failure for the new government? How does it compare to previous budgets? Did Rachel Reeves alter her proposals from pre-election? Rory and Alastair come together to answer all your budget related questions in today's emergency budget episode. Join us on Election Night Get ready for in-depth, real-time analysis as we go live throughout election night on November 5th. Watch here. The Rest Is Politics is powered by Fuse Energy, a green electricity supplier powering homes across the UK. Use referral code POLITICS after sign up for a chance to win a signed copy of Rory and Alastair's books with personalised messages. Learn more at getfuse.com/politics ⚡ Get our exclusive NordVPN deal here ➼ nordvpn.com/restispolitics It’s risk-free with Nord’s 30-day money-back guarantee! ✅ TRIP Plus: Become a member of The Rest Is Politics Plus to support the podcast, receive our exclusive newsletter, enjoy ad-free listening to both TRIP and Leading, benefit from discount book prices on titles mentioned on the pod, join our Discord chatroom, and receive early access to live show tickets and Question Time episodes. Just head to therestispolitics.com to sign up, or start a free trial today on Apple Podcasts: apple.co/therestispolitics. Assistant Producer: India Dunkley + Aaliyah Akude Video Editor: Teo Ayodeji-Ansell Social Producer: Jess Kidson Producer: Nicole Maslen Senior Producer: Dom Johnson Head of Content: Tom Whiter Exec Producers: Tony Pastor + Jack Davenport Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04Rory Stewart?

  This episode is brought to you by NordVPN.

• 0:06Alastair Campbell?

  And I must thank NordVPN because on my Grand European Tour with Fiona, I was away from the Hawthorns for West Bromwich against Burnley, but I managed to watch it. There you go.

• 0:19Rory Stewart?

  I actually had a NordVPN thank you. I was in the new Starbucks here in Creef. And of course, the thing flashed up, saying this is an unsecured public network. And I was able to go to my VPN. And it was a little reminder of something we often forget when we're in all those cafes and things, which is actually genuinely, people can do all kinds of weird cyber attacks and spying if you don't have a virtual private network when you're sitting in that Starbucks.

• 0:42Alastair Campbell?

  Well, I think, are you not really sort of proud of me that I managed to do this? Or should I say Fiona managed to do this?

• 0:49Rory Stewart?

  I'm incredibly proud of you. That's a tech transformation. So to get the best discount off your NordVPN plan, go to nordvpn.com/rustispolitics. That's nordvpn.com/rustispolitics. And the link is in the episode description.

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• 1:58Alastair Campbell?

  Welcome to The Rest is Politics with me, Alastair Campbell.

• 2:00Rory Stewart?

  And me, Rory Stewart. And we're here doing a budget special. And Alistair, one of the things you have often commented on is the way in which the budget is really the centre point in many ways for this new Labour government. And it's been a very long delayed budget. You've pointed out that often in the past, budgets have happened just a month or two after governments come in. This is nearly, nearly four months after. So everybody really waiting for it. And maybe if we can start a little bit with what it feels like politically, how you feel it's landed, how it's been presented, and then maybe we can move on a little bit into the gritty content of the economics, yeah?

• 2:34Alastair Campbell?

  Well, I think it's a much bigger budget than we expected. I think it's in many ways a lot bolder. And I think what it's done is laid down the really big political and economic dividing lines of this parliament. Frankly, whoever the Tories elect as their leader. I think the right wing in our politics is going to give it a pretty universal thumbs down. And it'll just project it as tax spend, borrow, hit on employers, hit on energy companies, capital gains, inheritance tax, VAT on private schools, et cetera. I thought what was fascinating yesterday was that both sides, Rachel Reeves, Labour backbenchers, Rishi Sunak, Tories backbenchers, both sides seemingly to me genuinely cheering what they'd heard from

• 3:19Alastair Campbell?

  their own side. And that sells you. Gone are the days when we can say there's not much difference between the parties. And I think the left of politics sees this very much as a Labour budget, more spending on health, on schools, on special education, on defence, but also on infrastructure and transport. And the big, big message he was trying to get out was this sort of driving investment up to 100 billion over five years. Now, most of the individual decisions that were announced, much to the annoyance of the Speaker and the Deputy Speaker who gave the front bench a bit of a bollocking before the whole thing kicked off, most of these decisions have already been trailed.

• 3:58Rory Stewart?

  Yeah, can I just on that one before you get on to one big surprise? I mean, that really fascinated me. I was struck by the fact that Chris Mason from the BBC, for example, before the budget was saying, expect big tax rises, more borrowing, more public services and investment. And that really surprised me because of course, the narrative only during the election would have been no big tax rises, no big borrowing and not much more money going into anything. So they achieved something really remarkable to land the conventional wisdom with the BBC and others before the budget even happened, that what people should be expecting is not what was said during the election, which is no tax rises, no borrowing, but instead, big tax rises, big borrowing, big spending. Is that right?

• 4:38Alastair Campbell?

  Yeah.

• 4:38Rory Stewart?

  Yeah. How did they manage that? How did they manage to get, achieve that?

• 4:41Alastair Campbell?

  I think partly by annoying the speaker. In other words, so if you think of it, some weeks now, where we talked about this on the podcast, that's stuff in the Financial Times about changing the fiscal rule to allow more borrowing. So once you say you rely more borrowing, well, what's that going to be about? That's going to be about more spending and more investment. How are you going to pay for that? Well, they've absolutely flat ruled out austerity, they're not going to do that. So therefore you're talking about tax rises. And it's almost like the debate became, maybe I was wrong when I said that I filled the gap between the election and the budget was too long. Because maybe what he's done is allowed the Chris Masons of this world slightly to forget

• 5:20Rory Stewart?

  Right.

• 5:20Alastair Campbell?

  the exact framing. The one person who did not forget was Rishi Sunak, who absolutely had this line, broken promise after broken promise and it's working people who will pay the price.

• 5:30Rory Stewart?

  So cut, I mean firstly, it also seems to be, I'm talking from Sydney, a version of what you pointed out was Anthony Albanese, the Australian Prime Minister's strategy, which was to say no tax rises during the election. And then, as you pointed out, he then brought in tax rises after the election. As you pointed out, got away with it. My sense is that they're likely to get away with it. There's not actually as much outrage as you would expect, particularly from journalists. There was from Rishi Sunak. But maybe because they prepared the ground, that there wasn't a sort of bolt of lightning from the sky, oh my goodness, we can't quite believe they've done this.

• 6:03Alastair Campbell?

  I wonder as well whether they might have been, he might have taken it rather personally that they were putting VAT on private schools, taking away the non dom status, and she made a big deal about adding tax on private jets. But I think the one big surprise that we hadn't seen coming, in fact, we'd seen the opposite coming, was this index tax ban thresholds to rise in line with inflation after 2028. So that non-indexation is actually one of the best ways to help people on lower incomes.

• 6:32Rory Stewart?

  Yeah.

• 6:33Alastair Campbell?

  And I wonder, 2028, that's saying to me, round about the time of the next election, an awful lot of people on lower wages are going to be seeing the benefits of this budget.

• 6:43Rory Stewart?

  Got you.

• 6:44Alastair Campbell?

  I thought that, you know, the numbers were really big. And again, maybe we should have seen this coming more because of the scale of the mess that they said they were inheriting, this fiscal mess they were inheriting. And I know, once you get into these big numbers, I know you're going to give us some detail of the decision, but we're talking about £40 billion tax rises, £70 billion an extra on spending, borrowing up £20 billion. These are huge numbers. Nobody can say this isn't a big budget. And just on the, on the tax rises, I mean, your two heroes, Paul Johnson of the IFS and Dan Needle of the Tax Guy, they both say they would have preferred to have seen a rise on the basic rate of income tax by 2p or more, but that of course would have been absolutely blatantly going against the manifesto.

• 7:29Alastair Campbell?

  Then you had Jeremy Hunt, who cut national insurance for employees last parliament. Labour said they weren't going to reverse that. So they've kind of just, you know, they've put it on to employers and it's a big hit. There's no doubt about it. If you're looking for £40 billion. You're not going to find it down the bottom of the proverbial sofa. The national insurance change is £25 billion a year. And that's the biggest chunk of this £40 billion tax rise. And it is a hit on employers, but I was, I was interested. I was channel hopping a little bit after the event. I saw the new director general of the British Chambers of Commerce, Siobhan Haveland. She kept saying, I'm determined to see the big picture. I think the big picture is good, provided this investment happens, provided they bring forward this money.

• 8:14Alastair Campbell?

  Yes, this national insurance change is going to, you know, will have an impact upon businesses. But it was a very interesting, slightly muted attack, I thought.

• 8:25Rory Stewart?

  I'd love to come back to the question of the politics this because I think it is really interesting in how they presented and how they did it. And talk a little bit about budgets that have gone wrong. But let's just, for listeners that haven't been geeking out quite as much as, as you have, and some people have on the budget, just to run through what it is. So as you've said, the top line is this is a really big, bold budget. And it's big, bold because it's putting taxes up considerably. It's borrowing a lot of money and it's spending a lot of money. In other words, it's the sort of budget that you would expect from a slightly more left wing government coming in as opposed to a right wing government coming in.

• 9:00Alastair Campbell?

  Yeah.

• 9:01Rory Stewart?

  And one way of framing it is that it's doing what I suspected they wanted to do. I don't even remember when I was talking to Rachel Reeves and Bridget Philpson, I kept saying, presumably what you want to do is create a more kind of Scandinavian economy, where the government taxes more, spends more and the public sector is bigger. And they slightly shied away from that, but that's what they've broadly done. Britain has always been an outlier in Europe, so we've always spent less than 40% of our GDP in government spending. This will take us up to closer to 45% of GDP regularly spent by the government, which is much closer to the kind of European average.

• 9:39Alastair Campbell?

  We're still in the middle of the pack though, aren't we? We're not, we're not kind of outliers at all.

• 9:42Rory Stewart?

  Absolutely, in the middle of the pack, not crazily extreme, but it's definitely a move in that direction. And it's a big change for Britain. And it's, as you say, on the dividing line, you talked about dividing line between conservatives and the left. What Rishi Sunak chose to do in his response, people who watched his response after a rather sort of complicated intervention by the deputy speaker, where she rattled through a series of amendments and laws and Lincoln tax, he then came in and basically, as you said, said, these guys lied, they broke their promises. What, though, you can expect the Conservatives, I guess, to say a little bit more of in the future, and I'd be interested why they didn't say it on the Budget Day, is that we disagree with this economic philosophy. So what they would try to say, I guess, is that this higher borrowing

• 10:25Rory Stewart?

  might make the government more vulnerable to future shocks, that's one kind of argument. Second argument they might say is, yes, the government's going to be spending much more, capital spending's going to be going up to two and a half percent of GDP. So again, more sort of European, government's spending more of the economy. But will the government spend that money correctly? So I guess that would be a right-left division, you know, these are going to be good investments. Will it crowd out the private sector? Will it price people out of the labour market? These are going to be the sort of concerns. Can I just pause on that for a second before we go down too many rabbit holes? What's your instincts on why Rishi Sunak didn't make those kinds of objections to the budget, but instead just focused on broken promises?

• 11:03Alastair Campbell?

  Well, you've got to remember that even though there had been all this stuff trailed, the budget is one of the rare occasions where you see a politician literally have to stand up and genuinely react on his feet. So there was Rishi Sunak during Rachel Reeves' speech. It was a long speech, you know, 75 minutes and more. Rishi Sunak was flanked by Jeremy Hunt and Laura Trott, the Shadow Chief Secretary, and you could see that when he had a speech written and he was kind of flicking through, just adding in a little bit. So I think he just decided on one line, he was going to hammer that one line. And let's be frank about Rishi Sunak, although I thought he, you know, by his standards, did a pretty good job.

• 11:43Alastair Campbell?

  And it had been preceded by this rather weird love-in between him and Keir Starmer at Prime Minister's Questions, where they'd been sort of telling each other how marvellous they were before then tearing lumps out of each other in the debate. But I saw he landed that message pretty well. But look, the guy's on the way out the door.

• 12:01Rory Stewart?

  I'm just sort of trying to get to the fact that I guess there would be two messages possible. For the Tories, one of them is you broke your promise. You said you wouldn't raise taxes and borrow more and you did. You lied, in other words. The other objection would be, well, this is this is the wrong economic policy. We don't like more taxes, more borrowing, more spending. We prefer a more austerity approach.

• 12:20Alastair Campbell?

  I think where they were beginning to get to, but bear in mind, when he's making that speech, he has not yet had any time at all to digest the Office of Budget Responsibility report. Once he saw that, I suspect where he would have alighted and where the Tories might now go is on, your big mission is growth. But actually, even by the OBR standards, this is going to give us a bit of growth and then it's going to slow down again. And by the end of it, you're not necessarily growing any more than we are. I think that would have been the message. But I thought Rachel Reeves did quite well at the end of her speech, was frame it very directly to the Tories. If you don't support this, you're either going to have to come up with different tax rises or you're going back to austerity.

• 13:02Alastair Campbell?

  And what are the choices going to be? And I thought, actually, just for a minute on her delivery and her persona within the event, because budgets are massive events. And they're partly theatre, the whole thing with the red box and the ministers line up and the helicopter follows you and all that stuff. So they're theatre, but they're also massive strategic punctuation marks in the life of a parliament. And this one, I think, more, you know, bigger than most. And I thought she was very, very confident in the way that she put it over. I thought there was a real sense of I've got this. And I also thought that watching Darren Jones being interviewed later, the chief secretary. So he's obviously the guy who's been doing a lot of the kind of, you know, the nuts and bolts of this.

• 13:44Alastair Campbell?

  And I thought he was very, very confident in the arguments he was putting when he was getting the obvious pushback from media. Whereas I found Laura Trott, who was doing the same tour of the studios, I thought was lacking in confidence because they hadn't yet worked out what their line of attack was going to be. But what I liked about it, and you're right, by the way, the public elected a Labour government, probably to the left of the Labour government that I worked for under Tony Blair. So they see something like a budget as a means of. Protecting people on low incomes, increasing the minimum wage and so forth. Yes, trying to create the economic framework for investment, but at the same time with this relentless focus on investment in public services.

• 14:28Rory Stewart?

  One thing back in my mind there is trying to work out whether, in a sense, this was always really what was in the back of Rachel Reeves' mind. This approach has a lot of support from economists, right? There are many, many economists in Britain who felt that austerity was the wrong thing, felt that the government should be spending more, should be doing more capital investment, we should be getting our capital investment up, we should be increasing slightly our tax take, we should be investing more in public services, and that's the way to grow things. And in fact, that's what Keir Starmer basically ran on. He ran quite left when he was replacing Jeremy Corbyn, and that was his sort of language and rhetoric. But the interesting thing is that I was re-watching our interview with Rachel Reeves, and in it, I say to her-

• 15:07Alastair Campbell?

  You were pretty grumpy that day.

• 15:09Rory Stewart?

  Well, it's a fascinating interview when you look at it, right? So I said, well, NHS, right? How are we going to fund this? And I said to her, you're going to have to increase in real terms the spending by about 3%, aren't you? Now, what have they actually done? They've increased public spending by about 3.3%. So I got it absolutely on the nose. I predicted exactly what they were going to have to do, right? And I said, how are you going to be able to do it? Gordon Brown did it by a lot of borrowing, right? So she turns around and she says, I'm not going to take any lectures from a Tory on borrowing. How much did your government borrow? It's not about borrowing, it's about how you run things, and we're going to tax non-dom. So I said to her, but that's tiny amounts of money, right? And she says, £5 billion? Is that a tiny amount of money? Do you think £5 billion a time?

• 15:52Rory Stewart?

  And I said, well, if what you're trying to do, it's a tiny amount of money, right? Because she needs to bring in £70 billion, right? Anyway, she has brought in £70 billion. So what is it that she's thinking during that interview? Is she sitting there thinking, well, obviously, he's right, I'm going to have to increase borrowing and taxes, but I'm buggered if I'm going to say it on the rest of politics?

• 16:11Alastair Campbell?

  I think there's something in that. And I guess that there's two things now that are going to happen. The reason why this black hole debate was so important, why they put that down as their early strategic staging post, is because in the end, with a very cynical electorate-

• 16:27Alastair Campbell?

  The parties are going to have to work out, well, where is the blame going to lie? For the fact that these taxes have had to go up because we're in such an economic mess. And Labour are desperate to pin it on the Tories, the Tories are desperate to avoid it. And say, as you've just said, Labour were planning this all along. Now, the truth is, both of those statements can be true. There can be a black hole, and indeed, there is a black hole. And even though Jeremy Hunt got very, very uptight and upset yesterday when she kept banging on about them being, you know, misleading and so forth, the extent to, and there's an argument about the numbers. But the OBR hasn't accepted that there was a sort of black hole there that needs to be filled.

• 17:05Rory Stewart?

  Yeah, the truth is somewhere in between, isn't it? The truth is that there was definitely a black hole, not quite as big as Labour said, not as small as the Conservatives said.

• 17:11Alastair Campbell?

  Exactly. So that's going to play out. But I think the other thing, I guess what she's thinking there, you said what she's thinking. What she's thinking is, we've got to win this election. We're probably going to win it anyway, because the Tories are in such a mess. However, if you're a Labour politician, you know the history. And Labour Party oppositions that have been suggested putting up taxes, the taxes that most concern real people, tend to lose. So we're not going to do that, we'll rule those out. And so you've got the Ming Vars, and I think what happens, the Ming Vars gets carried along. And you, people like you and I, very critical, too cautious, why aren't they doing more of this, more of that? And it's almost like now she's got the Ming Vars across the room, she's planted it

• 17:54Alastair Campbell?

  in the centre of this very nice, big office with shelves. And now she says, right, now I'm going to put other stuff around it. It's a big Rory Stewart style pot, and I'm now going to get other Rory Stewart style pots. And I'm going to surround the Ming Vars with them, because we are a government that's bringing in change.

• 18:11Rory Stewart?

  Why didn't you feel that you could do that in 97? Presumably, there would have been a temptation to think, okay, we've won this election, we promised we were going to stick to the Tories' fiscal rules. But actually, we could come in and say, there's a bit of a black hole here. We need to spend some more money, so we'll just use the budget to put up the taxes, put up borrowing and spend a lot more. Why did you decide not to do that in 97?

• 18:31Alastair Campbell?

  I think partly because the economic situation was better. But also, I think because Gordon Brown, as Chancellor, had a lot of other big stuff going on. Bank of England independence being this, you know, that was a massive strategic moment. And we also, we had stuff like, you know, the New Deal, so we were attacking youth unemployment. We had the minimum wage being brought in. And also, I think it was part of the winning strategy. In opposition to say we're sticking to their spending limits for two years, partly then to be doing all this other stuff, signalling change, real change in lots of different ways, Scottish Parliament, Northern Ireland, lots going on. And then after those two years, then Gordon Brown really started to, you know, right, the brakes are off, the accelerators on and here we go.

• 19:15Alastair Campbell?

  So it's a different approach, but I think this is, listen, as with all of this, you can go back to any budget you like and you can look at, I wish actually when we do budgets, maybe we should do this next time. One thing that would be really useful is an analysis of how all the predictions of bodies like the OBR actually panned out, because the truth is none of us know. There's a line in the OBR report, the Economic and Fiscal Outlook Report, which says, it just sort of drops in, it hasn't had any attention at all, but it says, you know, basically, if the situation in the Middle East gets any worse, we could be looking at inflation hitting seven percent, right?

• 19:53Rory Stewart?

  Right.

• 19:53Alastair Campbell?

  Just sort of drops it in there.

• 19:55Rory Stewart?

  Drops it in, yeah.

• 19:55Alastair Campbell?

  And likewise, if Trump, if Trump wins and he upends the whole global trade order with this all tariff stuff, right? What, what impact does that have?

• 20:04Rory Stewart?

  And that's before you even think about if China got into a conflict with Taiwan. I mean, you could be driven into an enormous recession. But the smaller things too, isn't there? I mean, the OBR is forced to accept what the government claims it's going to do. And Labour and Conservative governments consistently have claimed every year that they're just freezing fuel duty for a year.

• 20:24Alastair Campbell?

  You'd be venting about that one on the social media, Roy, I've spotted that.

• 20:27Rory Stewart?

  It's an amazing one, isn't it? Because the impact on the public finances is incredible. I mean, if fuel duty went up in the way that it was supposed to, cumulatively over the last 15 years, you know, it would have brought in tens of billions of pounds into the exchequer. And yet again, Labour's done what the Conservatives do, which say, well, we'll put it up next year. And so the OBR's forced, despite the fact they know that for the last 15 years, the government has broken that promise, they're forced to pretend they believe what the government's saying. And to put my cuts on the table, I would much rather they came up with a sensible economic policy, put up taxes and increased borrowing, rather than feeling that their hands were sewed tight. By their lies during the election that they couldn't actually do anything sensible. So I think in the end that this was the lesser evil.

• 21:10Rory Stewart?

  What's interesting, though, and I, you know, I've spent a lot of time saying these guys are mad. They tied their hands, they ruled out all these tax rises and borrowing, and now they're not going to be able to finance anything. But I'm glad, you know, they can fund stuff and they can behave more in the way that I guess they want to behave. It's also interesting that in a way I wonder whether there wasn't a sort of, it says something about politics or maybe it was a nod and a wink. But I don't sense that they're going to be damaged much by it, provided the economy is doing okay in four years' time.

• 21:40Alastair Campbell?

  Well, listen, it all depends on what now happens.

• 21:43Rory Stewart?

  Yeah.

• 21:43Alastair Campbell?

  So if the economy grows well, they'll get a lot of credit and people will say that was a very smart budget.

• 21:48Rory Stewart?

  And nobody will mind that the people saying, yeah, but they said they wouldn't do that four months earlier. Nobody will mind if, provided the economy is doing okay, nobody will mind too much.

• 21:56Alastair Campbell?

  It goes to the heart of this, how long this battle will go on about who's to blame. Now, I hate the whole blame culture in politics, but this is important on this because, you know, one of the reasons why Cameron and Osborne were able to justify austerity, to the public at least, was because they were saying, we had to do this because we inherited this terrible mess. They won that argument, even though in my mind they didn't deserve to. Mrs Thatcher did exactly the same, winter of discontent, I sorted out the country, I took on the unions. And this stuff, that's why when we talk about budgets, they get covered for all the sort of minutiae and this policy and that policy. In the end, they get remembered for the impact that we see them have over time. And it all depends on that.

• 22:39Rory Stewart?

  Sorry, just a tiny one on the politics, they can go wrong in the short term. I mean, I remember when I was a member of Parliament, sitting in Parliament, hearing some of the Osborne budgets. And when you heard him delivering them, you hadn't yet got this thing called the Treasury Red Book. You hadn't yet got the details and people hadn't had a chance to chew over. And in the moment, of course, the tribal sense of your party, Labour or Conservative, comes in. And if it was Osborne, he's throwing out lots of goodies. So he's like, and I'm going to duel the A sixty six and Cumbria. And I'm thinking, yeah, that's fantastic. And, you know, I'm going to give VAT exemption on mountain rescue. Yeah, you know, terrific. And then there'll be something on this and something on that.

• 23:21Rory Stewart?

  And because of all the cheering, you'll sort of get the sense that everything is going quite well. And it's, you know, he's, and obviously they will craft a story that sounds fine, right? But then with the Osborne budgets on a couple of occasions, they went horribly wrong. Within a couple of days, they were seen as totally catastrophic, either because something like the capacity tax, a tiny thing that he will barely have noticed, will have kicked off a huge thing. Or with Philip Hammond, I think it was stuff on national insurance for self-employed people that suddenly had to be reversed in a kind of massive thing because they did the numbers. But a lot of it seems to be that it's quite difficult in the moment to predict what may happen 24, 48 hours or three days later from the political and media reaction.

• 24:02Alastair Campbell?

  There's this old cliche that, you know, if a budget goes down well on day one, it's bound to go down badly by the weekend. The only thing I'd say about that, I thought that what was interesting about the way Rachel Reeves projected it, she just came straight out, quite early in her speech, and said, and therefore we're raising taxes by 40 billion. It was like, oh, okay, I see. Right, let's see where that's going to come from. I think where you get into trouble on budgets is where you try to pretend that it's something that it's not. That's when you get real trouble.

• 24:30Rory Stewart?

  And that's possibly where George Osborne went wrong. Sometimes he was too cute. He was trying to sugarcoat things and disguise things and yeah.

• 24:37Alastair Campbell?

  I can't remember if it was the same budget, but I'll tell you how cute he was. I got name checked in one of his budgets where he said that they were going to be putting in an extra 600 million pounds into mental health services, and I'd like to pay tribute to the all-party campaign led by Alastair Campbell, Andrew Mitchell and Norman Lamb. One Tory, one Labour, Norman Lamb. And we all go, oh, that's nice, isn't it? 600 billion. Now, we're yet to see that 600 million pounds of where it went.

• 25:03Rory Stewart?

  Well, I'm yet incidentally to see the dueling of the A66. I noticed the Labour governments had just announced again the dueling of the A66. But as far as I know, it was announced because this was my road. It was definitely announced in at least five budgets between 2010 and 2024.

• 25:19Alastair Campbell?

  Does it also go through Rishi Sunak's constituency? Because I think it was mentioned yesterday because it primed us as questions.

• 25:25Rory Stewart?

  It runs from Richmond into Tim Farron's constituency. He's taken over the southern bit of mine.

• 25:29Alastair Campbell?

  You obviously didn't see PMQs because at the end of PMQs, after Rishi Sunak's final question, Keir Starmer said, and I can, I can reply yes, in answer to the letter that he sent me.

• 25:43Alastair Campbell?

  About the refurb of the A sixty six. So it's still there.

• 25:47Rory Stewart?

  It's beyond imagining. I mean, because of the commitments and the budget, I was able to go into the 2015 election with my election literature saying, big picture of me saying, I've won the money for the during the A sixty six. I then was able to do it again in the 2017 election, again in the 2019 election. And my successor in the 2024 election had it on his literature.

• 26:06Alastair Campbell?

  It's incredible, isn't it? I think on that, though, that this investment stuff has to happen and it has to work and it has to be big and it has to be very, very notable. That has to become the kind of story of this budget is that brakes came off and that this investment started to flood into the economy, public and private. So these things that she talked about, you know, the how many times have we heard about railways in the north being improved? It's got to happen. It's got to happen.

• 26:30Rory Stewart?

  That's exactly right. So one of the interesting things about watching it from Australia is you get a sense of just how much trouble Britain is in and how few choices Rachel Reeves faced. So I'm talking to you from a country which has got a budget surplus and it's a completely different universe. And in Britain, you know, we've got debt pretty close to 100% of GDP and we've got a deficit running at about 120, 130 billion pounds a year. And Britain since 2008 has been just in a world that we haven't really seen since Napoleon. Zero wage growth, zero productivity, till pretty recently, zero interest rates. And it's been bashed in the

• 27:11Rory Stewart?

  face by Brexit, by Covid, by the energy crisis. And if you look at the growth projections that the OBR has put out, you know, optimistically, they're thinking about one and a half percent growth for Britain.

• 27:24Alastair Campbell?

  By the end of the Parliament.

• 27:25Rory Stewart?

  It actually comes down a bit too. But when you were in office, 2006, 7, you're looking at about 2.6% then. I think it's 4.3% in 2000, something like that in 97. Under Thatcher, she was hitting 4.2, 5.1% growth. The 1960s, you know, 1.6 was about as low as it ever went. 5.5 was considered kind of good. So it's pretty horrible. And real household incomes, and this is the real problem for Britain, a lot of that growth as your. Friend, the former chief secretary points that is being transferred to the wealthy. Real household incomes are projected by the OBR to only go up by about 0.4% per annum. Over the next five years, that's under the Labour government.

• 28:03Alastair Campbell?

  I think that's why she did do this big rise in the minimum wage and the living wage, allied to the tax changes that she talked about. I think there's a big focus in here on protecting the living standards of the poorer people. Although she didn't go down, I thought there was an outside chance. The Albanese comparison would have been a wealth tax, and she didn't do that.

• 28:23Rory Stewart?

  Okay, Alistair, quick break and then back for more discussion of the budget.

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• 30:16Rory Stewart?

  Another big, massive problem that we've maybe not talked about enough is disability benefits which have doubled. So I think 1 in 10 people in the country, 1 in 4 in places like Blackpool and Welsh Valley, it's on disability benefits. The OBR reckons it'll be £100 billion a year, that's about 10% of the entire government budget is going to be going on disability unless people can work out what to do about that. The public sector pay about £250 billion, that's about quarter of the entire budget's going to go on public sector pay. So how do you turn that all around? And that's where, of course, she's right, theoretically, it's got to be growth. The only way of coming out of these problems is growth. And that's where we get into two things I want to throw

• 30:58Rory Stewart?

  back at you. Again, looking at it from Australia strikes me that our two biggest problems are that we have an entire economy in a public sector based on immigration. Our hospitals, our care homes, our businesses need immigrants, but we have a population that doesn't want immigration. And we have an entire economy which is talking about the necessity for building stuff, building trains, building bridges, building houses, but where a combination of regulations, costs, nimbyism, skills is basically crippling buildings. So unless they can somehow work out how you get a proper approach to immigration, a proper approach to building, I don't know how they're going to pull this off in the next five years.

• 31:41Alastair Campbell?

  There's a section in the OBR report where they talk about net migration figures, and it absorbs that sense of the debate that immigration is not very popular. But it is very hard to see how the, just take the house building programme alone, you know, where are the labourers, where are the workers going to come from to build on a scale that they're talking about? So she announced an extra £5 billion for house building. She talked about the aerospace industry, a billion investment, automotives, 2 billion, life sciences, 520. That all sounds great. And that means lots and lots and lots of economic... Activity, but there wasn't much there about how we're going to sort of develop the labour force. And let's be honest, we are a very aging population. We are going

• 32:23Alastair Campbell?

  to keep having to spend more on pensions, on health, on social care, which didn't really get a mention yesterday. We know that the international situation means that we're going to have to keep spending more on defence. And she announced, I think it was 2.9 billion additional in defence. We've got the climate. So the truth is, although, as you say, we're now, I think we're at the highest level of tax share of the economy since Norman Lamont post Black Wednesday. But is it going to come down? Very unlikely in my view. The other line, just, just let me read you, I'm going to read you this, this is page from page 35 of the OBR Economic and Fiscal Outlook Report. Weak growth in imports and exports

• 33:04Alastair Campbell?

  over the medium term partly reflect the continuing impact of Brexit, which we expect to reduce the overall trade intensity of the UK economy by 15% in the long term. Now, can you think of anything else, whether it's a pandemic, whether it's an international crisis, whether it's a war, can you think of anything else where you say this is going to affect trade intensity by 15%, and yet we don't really seem to me to have a strategy?

• 33:33Rory Stewart?

  And there's an obvious solution, which is called the customs union, which they're not pursuing. It's very worrying because you've also pointed out that in that same report, the world is becoming more protectionist. So it's not as though, in the way that the Brexiteers fantasized in 2016, that there's some alternative to Europe of sort of great free trade deals with China or India and the US. It's just not happened. Global trade, which used to grow over the period when you were in office, at double the rate of global growth, has halved in its growth rate. Final thing to finish with then is the question of, you know, what other things she could have done. And I think it's here that A really bold imaginative budget might have done a couple more things. One of them is use the opportunity for very radical tax reform.

• 34:18Rory Stewart?

  So we could have looked at income tax, national insurance being put together. We could have thought about really dealing with stamp duty, which has become a really big problem, very economically damaging. We could have had a serious thought about being honest about fuel duty, stopping this joke about freezing fuel duty every year. We could have seen more radical stuff on the environment and the net zero economy. I imagine Ed Miliband will be a bit frustrated that that wasn't more front and centre. But the final thing to channel your friend Tony Blair and my friend William Hague, who's been talking about this a lot, is the tech ideas innovation bit. You mentioned 500 million for life sciences, but this is not a budget where you're really

• 34:58Rory Stewart?

  feeling this is a party really grabbing tech, AI, life sciences, green investment in a way that I would have liked to see.

• 35:06Alastair Campbell?

  On the climate, you know, I thought it was a bit odd yesterday. I know it's a big day, the budget, but I think there should have been some recognition in Parliament of what was happening in Spain. Spain, it's not like, we're not talking here about the places where we normally see these terrible flash floods and people die, we're talking about Spain. And, you know, by the time we're talking now, I think it's about up to 90 people dead. And then to see, sorry to bring this up, but Liz Truss, who did this bizarre kind of commentary on the budget, essentially saying I was right all along and this is a terrible budget, et cetera, et cetera, et cetera. And one of the reasons, she said, is they're going to push ever more, you know, demanding net zero policies.

• 35:49Alastair Campbell?

  I think to do that on the, literally on the day that we're seeing these unimaginable biblical floods, piles of cars, dead people in Spain, I thought was a, was a bit odd. But the reason I found it quite an exciting budget is because, you know, as I've said to you before, I think that politics is often about big moments and this felt like a big moment of change and that's what people voted for. And I think that the, you know, the commentary at and. Honestly Rory, if you want a good laugh, I don't know if you can find it out there, but get hold of a copy of the Daily Telegraph today. I mean, it's like, any fusion, any gap between news and comment has gone. They've got a cartoon instead of a picture on the

• 36:30Alastair Campbell?

  front page. The intro to their story basically says that she smashed the economy, she's wrecked living standards. This doesn't sort of say according to economists, it's just stated as a fact. So the dividing lines are clear. And the other thing, I think, the other thing worth saying, so it is a more left wing government, no doubt about that. But the other thing that's worth saying, you know, I talk often about how Mrs Thatcher still has a hold on our political psyche in a way that should have been gone years ago. But one of them is this, this idea that there's a sort of direct relationship between tax, low tax and economic performance. You can look at some of the Scandinavian countries where they take more in tax than we do, but they perform better. Or you can look at Japan,

• 37:11Alastair Campbell?

  where they take less in tax, but they've done worse. So it's not a kind of, it's not always obvious.

• 37:18Rory Stewart?

  Absolutely. And I think it's good because I think it reflects the instincts of this group of people. I think this is a budget that's honest in terms of the way that I imagine Rachel Reeves, Keir Starmer and others view the world. And I also think it's what subconsciously people who are voting for the Labour Party will have expected. They will have felt that austerity was wrong, that public service has been cut to the bone, that there hadn't been enough investment. And they will have wanted a government that was coming in and that was prepared to spend a bit more money. So I think it's, it's good that they've got that because it would have been a real, a real nonsense if they'd tied their hands so much during the election that they actually were completely unable to deliver what anyone expected.

• 37:56Alastair Campbell?

  I can hear Tory shadow ministers going crazy when you say it's an honest budget, that their, their whole line of attack is it's a dishonest budget. Just a couple of things we haven't touched on. I'm imagining that some of your farmers in Cumbria won't be that happy about the changes to inheritance tax.

• 38:14Rory Stewart?

  Can I talk about that for a bit? Because it's a slight detail and it is worth getting. So the fact is that farmers in Cumbria will be on very, very low incomes. You know, many people in my constituency are on less than 16,000. Pounds a year, they're struggling on with small family farms. And honestly, if you go into their farmhouses, they do not have much money. They're not living luxurious lives, but they're sitting on quite a lot of land because to make a farm operate nowadays, it's pretty difficult to run a farm on less than 200, 300 acres. Right. But the price of land at the moment, you know, you're looking at four, 5,000 pounds an acre. So it doesn't take very much for your farm to be worth a million pounds. And if you want to pass on a small family farm to the next generation, and it's a

• 38:59Rory Stewart?

  pretty tough life, it's, it's a choice that you're making because you really believe in the land, you really, I'm reading a wonderful book by a guy, I, I'm just, just the most incredible Cumbrian writer called James Rebanks, who writes amazingly about farming. He's just written a book about Norway and the Norwegian islands, but he's an example of this. I mean, he could have done almost anything with his life. He got a first class degree from Cambridge. He's the most beautiful writer and he's chosen to go back to a very small farm where he's backbreaking work, trying to keep his cows going, keep his sheep going. So there's always traditionally been an exemption on agricultural land and it's really designed to deal with the fact that people who are land rich, but very, very cash poor are able to keep their family farms together. So I think that's a pity.

• 39:39Alastair Campbell?

  Although I suspect that there'll be, you know, there's a wonderful book, Who Owns Scotland, which I read some years ago.

• 39:45Rory Stewart?

  Oh, yeah. Go after the big guys. I mean, I've always thought that's one of the problems with the National Farmers Union. One of the reasons I was getting into fights with them is that they're too much captured by these huge sort of barley barons in East Anglia and people. I mean, the people I care about, I'm a bit like the French or the Japanese or the kind of small family hill farms.

• 40:01Alastair Campbell?

  I, I suspect this, because it's interesting. You mentioned the NFU and we, we interviewed Minette Batters, the former head of the NFU a while back. And it was really interesting over the last parliament, how farmers, not least because of the broken promises on Brexit, really did move. A lot of farmers moved from Tory to Labour. This will become a problem, no doubt about that. And I think this is an area where they need to look at it. Through the lens of the one we've just been talking about, some people, including lots of people who are not British, buying up land, the rich landed gentry, et cetera, they are very, very different to small farmers. And I think that that has to be

• 40:36Rory Stewart?

  Exactly. Just very quickly, Al, so if I can, I think we'll also, if we don't get into the detail, a little bit on the biggest thing. You mentioned the biggest single thing is twenty five billion pounds on employers' national insurance. And just to explain to people, that's a huge amount of money. And to explain where that money comes from, national insurance basically functions like a kind of income tax. It was set up initially, and the pretense was that it went towards funding the NHS welfare and this sort of stuff. But in effect, it goes into the general government budget. And it's a tax really on employment because under the current rules, if you employ somebody, you pay a national insurance contribution. And at the moment, if someone earns more than nine thousand one hundred pounds a year,

• 41:19Rory Stewart?

  anything above that, you pay thirteen point eight percent. The employer has to add thirteen point eight percent. That's been changed. So the threshold's been dropped down to five thousand pounds, and the employer's next has now gone up to fifteen percent. And that is going to have a disproportionate impact on low earners, because the way the maths works, because that difference between five thousand and nine thousand one hundred doesn't make much difference to you if you're earning a hundred thousand pounds, because it's a pretty small proportion of your income. But it makes a huge difference if you're, you know, if you're earning ten thousand pounds. So we'll see a hit of about five point four percent on low earners, two point four percent on median earners.

• 41:56Alastair Campbell?

  But it's offset by this employment allowance change, and also Labour would argue through the minimum wage and the living wage changes as well. But these are where the detail that now gets thrashed out in Parliament and debated and so forth, these sorts of issues will get ventilated, and there is always the possibility of tweaking. But I think on the big picture, she has, as Rachel Reeves said yesterday, she has made her choices, and she's now throwing it out to the Tories, what are the choices you're going to make? Infected blood, should we mention that?

• 42:27Rory Stewart?

  Yeah, I mean, that's an astonishing thing, I'll say. I mean, let's just, since you just raised it. I mean, they're having to set aside 11.8 billion pounds for infected blood and over a billion pounds for post office. I mean, these are genuine horrible government scandals. And, you know, I very kindly remember that I asked the Prime Minister's question on this and campaigned on infected blood. But the numbers you're talking about are absolutely crazy. I mean, 11.8 billion pounds. To put it in context, we're talking about a budget where we're reeling from the tax. The taxes are going up by 36 billion. This is the third of that entire amount would go on infected blood.

• 42:59Alastair Campbell?

  Well, 25 billion. I was just looking up, unrelated to this discussion, but I was looking up earlier the budget of primary schools in the whole of England. It's 36 billion.

• 43:08Rory Stewart?

  Yeah, so that's a third of the entire primary school budget on infected blood.

• 43:11Alastair Campbell?

  Exactly.

• 43:12Rory Stewart?

  Disappointment also from a lot of my colleagues who would want me to mention that they said that when the fiscal situation allowed, they would return to 0.7% expenditure on international development aid. And they haven't done that, and that's sad to see.

• 43:24Alastair Campbell?

  Spending review to come. Keep fighting, keep fighting. And meanwhile, Rory, I shall next to you in New York on election night. And oh my God, it really is squeaky bum time now. I think she's going to win though. I'm not as confident as you are, but I still think she's going to win. I'm really not as confident as you are. And by the way, if people haven't seen it, Anthony Scaramucci has done the most extraordinary interview in the Fanfare Times. You talk about, you talk about being, being confident in your own choices. My God, it's very, very, very funny.

• 43:56Rory Stewart?

  Right, well, thank you, thank you, thank you, time to see you in New York.

• 43:59Alastair Campbell?

  See you soon, bye.

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