May 30, 2025 • 17 mins
Reform are riding high in the polls, with a string of recent surveys giving them the support of about 30 per cent of voters. But with the party talking up the prospect of actually entering government, do they have a coherent economic agenda? We spoke to Reform UK's Chairman Zia Yusef and our Chief UK Economist Dan Hanson to find out. Hosted by Yuan Potts and Lizzy Burden.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:07):
I do think that the Conservative Parties run out of road.
Their project is faltering, They're in decline, They're sliding into
the a bit. Politics is about choices, and the choice
at the moment is between the choice of a labor
government that thinks that stable finances are at the heart
of building better lives for working people or Nigel Fragan Reform,
(00:31):
who only this week said they would spend billions upon
billions upon billions tens of billions of pounds in an
unfunded way, which is the exact repeat of what Liz
Prost did.
Speaker 3 (00:41):
So Kistarmicley thinks to Reform are the real opposition. But
do the party's economic policies stack up. You're listening to
Bloomberg UK Politics. I'm you and Potts and.
Speaker 1 (00:49):
I'm Lizzie Burden. So Reform our riding high in the polls.
A string of recent surveys put the party in first
place with the support of about thirty percent of voters,
and their leader Farage was in the US this week.
He was launching another eye catching policy on supporting crypto
but with the party talking up the prospect of actually
entering government, as you say you, And the question is
(01:11):
do they actually have a coherent economic plan.
Speaker 3 (01:14):
Well, in Reform world, there's plenty of money for tax
scots and selective increases in public spending. The party's last
manifesto committed to ninety billion pounds a year in tax
scots and spending increases of fifty billion pounds a year.
Those were Reform's own estimates, pretty sizable in themselves, but
according to the Institute for Fiscal Studies, the cost of
the party's pledges on both tax and spending actually amount
(01:35):
to much more than this. And new pledges this week
to scrap the two child benefit cap, effectively increasing the
welfare bill for mostly non working families. I think that's
interesting for what it tells us about how the party
intends to position itself as it looks to reach further
into the elector.
Speaker 1 (01:50):
So let's stop talking about them and hear from them.
We interviewed Reform UK's chair Ziausif on Bloomberg this morning
and we asked him what their economic plan for government
would actually look like.
Speaker 4 (02:01):
Well, look, we're still some years away from the general election,
but absolutely we've already got a brilliant team of people
working on a multitude of the sections that you need
for strong economic policy. And look what our economic policy
will do is kickstart growth again in this country. We
need uk GDP and more importantly uk GDP per capita
(02:21):
to be growing up at three to four percent again.
If we cannot do that, then, frankly, for our children
and their children, there's simply no way to pay the bills.
Given the size of things like you know, the pension
of population, et cetera. How are we going to do that?
We need to lean into britain strengths. We have a
formidable financial services sector on a relative basis, not as
(02:44):
strong as it once was, and frankly has been smothered
and clobbered by EU regulation. We have this country has failed,
as a result of Tory mismanagement to make the most
of the Brexit freedoms that we've been granted. Our Crypto
and Digital Assets Bill starts to do just that. Similarly,
we need to lean into AI. This country still has
a significant percentage of the world's finest AI talent. We
(03:07):
do very little with that commercially in terms of generating
value for the British economy and helping British people get richer. Obviously,
we've had mass immigration in this country, which people are
very very angry about, and that is one reason why
we're polling not just ahead of the Prime Minister's party now,
but in the gold standard YUGA poll last week we
were full eight points clear, which is pretty astonishing for
(03:29):
a party that won such a walloping majority just well
under a year ago.
Speaker 1 (03:33):
So that was Reform UK's chair Zia use Of, speaking
to Caroline Hepca earlier on Bloomberg Radio. Now, this is
a subject that gets very heated, isn't it, And we
wanted to analyze it in an impartial, objective way. So
we've brought in our chief UK economist, Dan Hanson. Dan,
when you hear this economic policy from Reform, how would
(03:54):
you characterize it?
Speaker 5 (03:56):
Bold? Very bold, realistic. I think I think it's really interesting.
And you know, the polls don't lie, do they, So
you know there is something in it that people like
the look of and people are sort of listening to
you know, how much of it is the farage factor,
how much of it is the economic policy? There's a
there's a question mark about that. I think if you're
(04:19):
being you know, sort of analytically cold about it. It
really pushes against sort of mainstream economics in terms of
thinking about fiscal prudence, fiscal sustainability. The implication is of
the plans is an enormous rise in borrowing. And of
course we've you know, the Prime Minister has spoken about
(04:40):
Liz Trust and what happened in that episode, and I
think as things stand, you know, the market would not
take kindly to what they're proposing, what Reform are proposing.
That said, you know, you heard it there from the
Chairman of Reform that there's they've got some time, they've
got three or four years to look at this. And
(05:03):
we've seen what's going on in the US as well,
and I think there is a real there's a real
question generally around fiscal policy, at least for me, that
there is a desire to not raise taxes much more
and Reformer talking about big tax cuts. We know we're
fiscally constrained, we know everything, all the figures are tight.
(05:24):
I think what's really interesting what I'm hearing from them
is on spending, and they're sort of thinking about spending
and what public service provision should be. There's questioning that
and that is really I think that's a really interesting question,
and I think it's a question that the government, whoever
it may be in the next parliament, really needs to
think about. Because you're radical, it is radical, But equally
(05:47):
it is the area that we sit here and talk
about tight spending plans, but no one really talks about
rethinking how the government spends its money because obviously that
would require a huge amount of reform and change. But
actually there is I think a really important question about
is the government providing the right services and the money
(06:10):
going in the right place, and reform is sort of
it's knocking at that door, and we're seeing it in
the US as well. You know, the Doge experiment has
shown that it's very difficult to do this sort of
thing and make these changes. But actually, I think fundamentally
there is a question about government provision, what the government
provides in a world of very very sort of type
(06:31):
fiscal constraints.
Speaker 3 (06:32):
I just want to pick up on something that is
the USAF said earlier talked about aiming for four percent
growth in GDP per capita back in the Blairs. I
think we managed about one and a half percent per
capital and that was a really good period of equal
growth for the UK. So just how big a deal is.
I mean, how big is four percent?
Speaker 5 (06:52):
Yeah, I mean I think one of the challenges they
would reform and potentially have, and this goes this is
one of the issues that Liz Trust had and in
the Mini Budget and Quasi quarteng when he was Chancellor,
is that the claim was that these changes would boost
economic growth and effectively they would pay for themselves by
cutting taxes and the like. That's one of the many
(07:16):
things the market sort of bulked at on that day
and sort of that's why we had this enormous sell
off in the guilt market, which obviously turned into something
a lot more significant subsequently. So I think there is
a real risk you and that if you come in saying, oh,
we're going to lift growth to four percent GDP per
capital growth to four percent, I mean if you compare
(07:39):
that to what the government is. The government has said
itself it is just looking to raise living standards over
the parliament, so that is GDP per capita being higher
by the end of the parliament than it is today.
So that means you can grow by a tiny amount
over five years. You know, if you're growing by four
percent a year for five years, over a Parliament it's
(08:00):
two percent higher. The government is just saying it's just
needs to be marginally higher to meet the goal. And that,
you know, is a recognition of the fact that the
thing that drives real GDP per capita growth in the
medium term is productivity growth and we don't have that
here in the UK. So if reform came in and
we're saying we're going to deliver this and pay for
(08:20):
this by boosting economic growth in that to that degree,
that would just not be credible.
Speaker 1 (08:27):
Well yeah, so can I weave these two strands together?
Because we started off talking about public spending cuts in
a radical way, Now we're talking about growth and productivity.
If you were to, for example, massively cut the NHS budget,
trim back the NHS more than trim slash the NHS
in big ways, would that add to productivity and growth?
(08:48):
Maybe not to those levels of four percent, but would
it take us towards reform's growth target.
Speaker 5 (08:53):
Look, I think one of the if you look in
the data, you can see that the health sector has
been a drag on productivity growth and productivity itself. The
level of productivity I think you know there are and
if you're looking at it sort of through the cold
lens of GDP and GDP per capita. Yes, you could
make an argument like that, there are of course much
(09:15):
wider considerations when you're talking about than GDP, when you're
talking about public sector provision, and that's a sort of
broader question. It's you know, ultimately it's for the electorate
to decide. There is this gap in the UK between
what's going on in the private sector where productivity growth
is weak, and the public sector where and I should say, sorry,
the public sector has been even weaker productivity growth, So
(09:37):
you've got you have got this drag. It's in the data,
there are measurement issues around it and things like that,
so we shouldn't sort of jump straight to conclusions. But
I think it does go to that broader point that
I made at the start, that there are questions around
provision and it's not I'm not picking on the NHS
at all. I just think the broader provision that the
government provides and how taxpayers money is spent, that's what
(10:01):
That's the sort of question, the really interesting question I
think reformers sort of raising in this country, and I
think it will be an interesting question going into the
next election.
Speaker 3 (10:09):
I don't want to get into all the weeds of
the policy proposals, but one very eye catching money spinner
is reformers say they'd stop paying the Bank of England
or they'd get the banking to stop paying interest to
commercial banks on QE reserves. Saving they say, thirty five
billion pounds a year. Now, that sounds like an easy win.
What are the implications of that?
Speaker 5 (10:28):
So this one, this one's really You're right, this one's
really in the weeds. So what the Bank of England
did when it undertook QE was it bought government bonds
from banks and in return gave them reserves, which is
effectively cash cash a call on the Bank of England
and the Bank of England pays an interest. So the
(10:50):
interest rate the Bank of England sets is what is
paid on that reserve. And at the time, if my
memory serves me correctly, that there was there were seven
hundred billion pounds worth of reserves QE reserves in the
private sect swilling around in the private sector, and the
bank rate was five point twenty five percent. So you
multiply those two numbers together you get thirty five pounds. Now,
(11:12):
as part of the proposal reform was saying the Bank
of England should stop running down those reserves, which is
what we call quantitative tightening, so reducing the balance sheet,
reducing the QEQE reserves in the system. Now, of course
that's a monetary policy decision. So the first thing to
say is what they're saying is effectively taking a monetary
(11:33):
policy decision out of the hands of the Bank of England,
which obviously is a is a risky thing. The broader
question about reserves, and the broader concern about what's been
going on with QE is that the Bank of England
is obviously paying the private sector quite a significant amount
of interest. And the concern is is that banks are
making excess profits. So if banks are making excess profits,
(11:56):
what is the best way to deal with that? It
would be to tax them more. If they are making
excess profits, they will pay tax. If they're not making
excess profits, they won't pay tax. So that's the way.
That's the where to in my opinion, anyway to where
to levy did that or where to if you were
trying to deal with that excess profit making, that's how
(12:18):
to levy it is through taxes rather than through affecting
how reserves are remunerated because just sorry, Lizzie, just let
me finish. It's because if you start interfering with the remuneration,
it potentially affects how monetary policy is transmitted to the economy,
which is the last thing we want.
Speaker 1 (12:35):
All I wanted to ask you though, whereas if it
were that easy, why hasn't anyone else done it?
Speaker 3 (12:40):
Well?
Speaker 5 (12:40):
The Governor of the Bank of England has said this
is a this is a decision for the government in
terms of how they how they want to do this,
but they are the Bank of England is very clear
that they want to continue with the current setup. It
is a tax on banks if you start not paying
that money to them, and so there it becomes a
very sort of fuzzy line between fiscal policy and monetary policy.
And as I say, I think given the risks involved
(13:03):
in if you don't remunerate any reserves, the Bank of
England will lose control of money market interest rates, so
they will lose control of their ability to transmit monetary
policy to the economy. If this point in time, or
at any point in time, I should say, but particularly
the period we've just gone through. That's The last thing
we need is to create more uncertainty about how monetary
(13:23):
policy is transmitting to the economy. If it's true that
banks are making excess profits, which is possible, but that
will show up on their bottom line, and the government
could say, fine, we're just going to raise going to
tax you on that profit. I think going down the
reserves route, it's very muddy, very complicated, and it's just
(13:46):
for me at least easier left alone.
Speaker 1 (13:48):
On the productivity question, is it kind of sounds like
they're going beyond efficiency. Every government calls for efficiency, but
this is more than moving deck chairs on the Titanic.
They actually want to do something fundamental. Well, when it
comes to spending cuts. Is there anything else that's radical
about the economic proposals from reform?
Speaker 5 (14:06):
I mean, I think the whole the whole agenda's pretty radical.
And you know, as I said at the start, I
think it's important to have these debates about we're sort
of nipping and tucking around different policies. If you look
at the policy proposals in the last election other than reforms,
which were radical and we've sort of been going through
and I think they are radical. You know, Labour's policy
(14:30):
propos Labour's manifesto contained I remember, off the top of
my head sort of these very small numbers and very
tiny things, and tories as well was very small numbers.
And I think it's important to have a debate about
thinking thinking more widely, you know, the arguments around AI.
I mean, I think it's really interesting about I mean,
(14:50):
the question about reforms saving around that zero that is
hugely radical, whether I mean forty five billion pounds I
think is their number. It doesn't strike me that they
would save that amount of money given the sort of
estimates that are out there, So there's a question about
the credibility of the number. But in terms of putting
that forward as.
Speaker 1 (15:10):
A anyone who hasn't heard of that, about that, what
is it that.
Speaker 5 (15:13):
They're proposing, they're scrapping, they're attempting They're going to say
that one of the savings to pay for the big
tax cuts that they're proposing, So the biggest of which
is raising the personal allowance from twelve and a half
thousand pounds to twenty thousand pounds, which would cost somewhere
in the region of sixty to seventy billion pounds, which
is just an enormous amount of money. You know, it's
(15:37):
sort of you think about it, it's two to three
percent of GDP. I mean, it's enormous. One of the
ways they're talking about making the savings to pay for
that is scrapping the government's the government the outlays the
government will make getting to net zero by twenty fifty,
So that's one of the things they're talking about. And
of course more broadly talking about going to your question,
(16:00):
talking about crypto, talking about AI. I mean, AI is
something that we definitely need to talk about more seriously
in the context of the productivity puzzles. So I think
it's interesting. I think I could be wrong, but four
years out from it might be three years, maybe four
years out from the next general election. It's almost unheard
of that the opposition party is making this much of
(16:22):
a of a wave in the in the press and
clearly got the government worried. We can see, we can
see that questions about has Farage peaked too soon? Who knows,
He's been around a long time. But I think it's
really interesting. And you've seen Labor respond already with what
(16:44):
they're doing on migration, and it's affecting how they set policy.
So and I think that is actually the interesting thing
for the here and now is that it's affecting the
policies that are being implemented by the government of the day.
It's not just about what might happen in four years
time when we go to the polls.
Speaker 3 (17:00):
Interesting to get your thoughts. That's our chief UK economist
Dan Hansen. Now, I think it's a long time to
the general election, as you say, but if the form
can maintain this poll lead, there's going to be a
lot more scrutiny on their econom and policy. So I
think we've been coming back to this many times.
Speaker 1 (17:13):
Yeah, they've got us talking from us for today though.
If you like the program, didn't forget to subscribe and
give it five stars so other people can find it
on Apple Podcasts, Spotify or wherever you listen.
Speaker 3 (17:23):
This episode was produced by James Walcock and our audio
engineer was sure On Gusta Makia.
Speaker 1 (17:27):
I'm you and Potts and I'm Lizzie Berden. We'll be
back with more next week. Is Bloomberg
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:07):
I do think that the Conservative Parties run out of road.
Their project is faltering, They're in decline, They're sliding into
the a bit. Politics is about choices, and the choice
at the moment is between the choice of a labor
government that thinks that stable finances are at the heart
of building better lives for working people or Nigel Fragan Reform,
(00:31):
who only this week said they would spend billions upon
billions upon billions tens of billions of pounds in an
unfunded way, which is the exact repeat of what Liz
Prost did.
Speaker 3 (00:41):
So Kistarmicley thinks to Reform are the real opposition. But
do the party's economic policies stack up. You're listening to
Bloomberg UK Politics. I'm you and Potts and.
Speaker 1 (00:49):
I'm Lizzie Burden. So Reform our riding high in the polls.
A string of recent surveys put the party in first
place with the support of about thirty percent of voters,
and their leader Farage was in the US this week.
He was launching another eye catching policy on supporting crypto
but with the party talking up the prospect of actually
entering government, as you say you, And the question is
(01:11):
do they actually have a coherent economic plan.
Speaker 3 (01:14):
Well, in Reform world, there's plenty of money for tax
scots and selective increases in public spending. The party's last
manifesto committed to ninety billion pounds a year in tax
scots and spending increases of fifty billion pounds a year.
Those were Reform's own estimates, pretty sizable in themselves, but
according to the Institute for Fiscal Studies, the cost of
the party's pledges on both tax and spending actually amount
(01:35):
to much more than this. And new pledges this week
to scrap the two child benefit cap, effectively increasing the
welfare bill for mostly non working families. I think that's
interesting for what it tells us about how the party
intends to position itself as it looks to reach further
into the elector.
Speaker 1 (01:50):
So let's stop talking about them and hear from them.
We interviewed Reform UK's chair Ziausif on Bloomberg this morning
and we asked him what their economic plan for government
would actually look like.
Speaker 4 (02:01):
Well, look, we're still some years away from the general election,
but absolutely we've already got a brilliant team of people
working on a multitude of the sections that you need
for strong economic policy. And look what our economic policy
will do is kickstart growth again in this country. We
need uk GDP and more importantly uk GDP per capita
(02:21):
to be growing up at three to four percent again.
If we cannot do that, then, frankly, for our children
and their children, there's simply no way to pay the bills.
Given the size of things like you know, the pension
of population, et cetera. How are we going to do that?
We need to lean into britain strengths. We have a
formidable financial services sector on a relative basis, not as
(02:44):
strong as it once was, and frankly has been smothered
and clobbered by EU regulation. We have this country has failed,
as a result of Tory mismanagement to make the most
of the Brexit freedoms that we've been granted. Our Crypto
and Digital Assets Bill starts to do just that. Similarly,
we need to lean into AI. This country still has
a significant percentage of the world's finest AI talent. We
(03:07):
do very little with that commercially in terms of generating
value for the British economy and helping British people get richer. Obviously,
we've had mass immigration in this country, which people are
very very angry about, and that is one reason why
we're polling not just ahead of the Prime Minister's party now,
but in the gold standard YUGA poll last week we
were full eight points clear, which is pretty astonishing for
(03:29):
a party that won such a walloping majority just well
under a year ago.
Speaker 1 (03:33):
So that was Reform UK's chair Zia use Of, speaking
to Caroline Hepca earlier on Bloomberg Radio. Now, this is
a subject that gets very heated, isn't it, And we
wanted to analyze it in an impartial, objective way. So
we've brought in our chief UK economist, Dan Hanson. Dan,
when you hear this economic policy from Reform, how would
(03:54):
you characterize it?
Speaker 5 (03:56):
Bold? Very bold, realistic. I think I think it's really interesting.
And you know, the polls don't lie, do they, So
you know there is something in it that people like
the look of and people are sort of listening to
you know, how much of it is the farage factor,
how much of it is the economic policy? There's a
there's a question mark about that. I think if you're
(04:19):
being you know, sort of analytically cold about it. It
really pushes against sort of mainstream economics in terms of
thinking about fiscal prudence, fiscal sustainability. The implication is of
the plans is an enormous rise in borrowing. And of
course we've you know, the Prime Minister has spoken about
(04:40):
Liz Trust and what happened in that episode, and I
think as things stand, you know, the market would not
take kindly to what they're proposing, what Reform are proposing.
That said, you know, you heard it there from the
Chairman of Reform that there's they've got some time, they've
got three or four years to look at this. And
(05:03):
we've seen what's going on in the US as well,
and I think there is a real there's a real
question generally around fiscal policy, at least for me, that
there is a desire to not raise taxes much more
and Reformer talking about big tax cuts. We know we're
fiscally constrained, we know everything, all the figures are tight.
(05:24):
I think what's really interesting what I'm hearing from them
is on spending, and they're sort of thinking about spending
and what public service provision should be. There's questioning that
and that is really I think that's a really interesting question,
and I think it's a question that the government, whoever
it may be in the next parliament, really needs to
think about. Because you're radical, it is radical, But equally
(05:47):
it is the area that we sit here and talk
about tight spending plans, but no one really talks about
rethinking how the government spends its money because obviously that
would require a huge amount of reform and change. But
actually there is I think a really important question about
is the government providing the right services and the money
(06:10):
going in the right place, and reform is sort of
it's knocking at that door, and we're seeing it in
the US as well. You know, the Doge experiment has
shown that it's very difficult to do this sort of
thing and make these changes. But actually, I think fundamentally
there is a question about government provision, what the government
provides in a world of very very sort of type
(06:31):
fiscal constraints.
Speaker 3 (06:32):
I just want to pick up on something that is
the USAF said earlier talked about aiming for four percent
growth in GDP per capita back in the Blairs. I
think we managed about one and a half percent per
capital and that was a really good period of equal
growth for the UK. So just how big a deal is.
I mean, how big is four percent?
Speaker 5 (06:52):
Yeah, I mean I think one of the challenges they
would reform and potentially have, and this goes this is
one of the issues that Liz Trust had and in
the Mini Budget and Quasi quarteng when he was Chancellor,
is that the claim was that these changes would boost
economic growth and effectively they would pay for themselves by
cutting taxes and the like. That's one of the many
(07:16):
things the market sort of bulked at on that day
and sort of that's why we had this enormous sell
off in the guilt market, which obviously turned into something
a lot more significant subsequently. So I think there is
a real risk you and that if you come in saying, oh,
we're going to lift growth to four percent GDP per
capital growth to four percent, I mean if you compare
(07:39):
that to what the government is. The government has said
itself it is just looking to raise living standards over
the parliament, so that is GDP per capita being higher
by the end of the parliament than it is today.
So that means you can grow by a tiny amount
over five years. You know, if you're growing by four
percent a year for five years, over a Parliament it's
(08:00):
two percent higher. The government is just saying it's just
needs to be marginally higher to meet the goal. And that,
you know, is a recognition of the fact that the
thing that drives real GDP per capita growth in the
medium term is productivity growth and we don't have that
here in the UK. So if reform came in and
we're saying we're going to deliver this and pay for
(08:20):
this by boosting economic growth in that to that degree,
that would just not be credible.
Speaker 1 (08:27):
Well yeah, so can I weave these two strands together?
Because we started off talking about public spending cuts in
a radical way, Now we're talking about growth and productivity.
If you were to, for example, massively cut the NHS budget,
trim back the NHS more than trim slash the NHS
in big ways, would that add to productivity and growth?
(08:48):
Maybe not to those levels of four percent, but would
it take us towards reform's growth target.
Speaker 5 (08:53):
Look, I think one of the if you look in
the data, you can see that the health sector has
been a drag on productivity growth and productivity itself. The
level of productivity I think you know there are and
if you're looking at it sort of through the cold
lens of GDP and GDP per capita. Yes, you could
make an argument like that, there are of course much
(09:15):
wider considerations when you're talking about than GDP, when you're
talking about public sector provision, and that's a sort of
broader question. It's you know, ultimately it's for the electorate
to decide. There is this gap in the UK between
what's going on in the private sector where productivity growth
is weak, and the public sector where and I should say, sorry,
the public sector has been even weaker productivity growth, So
(09:37):
you've got you have got this drag. It's in the data,
there are measurement issues around it and things like that,
so we shouldn't sort of jump straight to conclusions. But
I think it does go to that broader point that
I made at the start, that there are questions around
provision and it's not I'm not picking on the NHS
at all. I just think the broader provision that the
government provides and how taxpayers money is spent, that's what
(10:01):
That's the sort of question, the really interesting question I
think reformers sort of raising in this country, and I
think it will be an interesting question going into the
next election.
Speaker 3 (10:09):
I don't want to get into all the weeds of
the policy proposals, but one very eye catching money spinner
is reformers say they'd stop paying the Bank of England
or they'd get the banking to stop paying interest to
commercial banks on QE reserves. Saving they say, thirty five
billion pounds a year. Now, that sounds like an easy win.
What are the implications of that?
Speaker 5 (10:28):
So this one, this one's really You're right, this one's
really in the weeds. So what the Bank of England
did when it undertook QE was it bought government bonds
from banks and in return gave them reserves, which is
effectively cash cash a call on the Bank of England
and the Bank of England pays an interest. So the
(10:50):
interest rate the Bank of England sets is what is
paid on that reserve. And at the time, if my
memory serves me correctly, that there was there were seven
hundred billion pounds worth of reserves QE reserves in the
private sect swilling around in the private sector, and the
bank rate was five point twenty five percent. So you
multiply those two numbers together you get thirty five pounds. Now,
(11:12):
as part of the proposal reform was saying the Bank
of England should stop running down those reserves, which is
what we call quantitative tightening, so reducing the balance sheet,
reducing the QEQE reserves in the system. Now, of course
that's a monetary policy decision. So the first thing to
say is what they're saying is effectively taking a monetary
(11:33):
policy decision out of the hands of the Bank of England,
which obviously is a is a risky thing. The broader
question about reserves, and the broader concern about what's been
going on with QE is that the Bank of England
is obviously paying the private sector quite a significant amount
of interest. And the concern is is that banks are
making excess profits. So if banks are making excess profits,
(11:56):
what is the best way to deal with that? It
would be to tax them more. If they are making
excess profits, they will pay tax. If they're not making
excess profits, they won't pay tax. So that's the way.
That's the where to in my opinion, anyway to where
to levy did that or where to if you were
trying to deal with that excess profit making, that's how
(12:18):
to levy it is through taxes rather than through affecting
how reserves are remunerated because just sorry, Lizzie, just let
me finish. It's because if you start interfering with the remuneration,
it potentially affects how monetary policy is transmitted to the economy,
which is the last thing we want.
Speaker 1 (12:35):
All I wanted to ask you though, whereas if it
were that easy, why hasn't anyone else done it?
Speaker 3 (12:40):
Well?
Speaker 5 (12:40):
The Governor of the Bank of England has said this
is a this is a decision for the government in
terms of how they how they want to do this,
but they are the Bank of England is very clear
that they want to continue with the current setup. It
is a tax on banks if you start not paying
that money to them, and so there it becomes a
very sort of fuzzy line between fiscal policy and monetary policy.
And as I say, I think given the risks involved
(13:03):
in if you don't remunerate any reserves, the Bank of
England will lose control of money market interest rates, so
they will lose control of their ability to transmit monetary
policy to the economy. If this point in time, or
at any point in time, I should say, but particularly
the period we've just gone through. That's The last thing
we need is to create more uncertainty about how monetary
(13:23):
policy is transmitting to the economy. If it's true that
banks are making excess profits, which is possible, but that
will show up on their bottom line, and the government
could say, fine, we're just going to raise going to
tax you on that profit. I think going down the
reserves route, it's very muddy, very complicated, and it's just
(13:46):
for me at least easier left alone.
Speaker 1 (13:48):
On the productivity question, is it kind of sounds like
they're going beyond efficiency. Every government calls for efficiency, but
this is more than moving deck chairs on the Titanic.
They actually want to do something fundamental. Well, when it
comes to spending cuts. Is there anything else that's radical
about the economic proposals from reform?
Speaker 5 (14:06):
I mean, I think the whole the whole agenda's pretty radical.
And you know, as I said at the start, I
think it's important to have these debates about we're sort
of nipping and tucking around different policies. If you look
at the policy proposals in the last election other than reforms,
which were radical and we've sort of been going through
and I think they are radical. You know, Labour's policy
(14:30):
propos Labour's manifesto contained I remember, off the top of
my head sort of these very small numbers and very
tiny things, and tories as well was very small numbers.
And I think it's important to have a debate about
thinking thinking more widely, you know, the arguments around AI.
I mean, I think it's really interesting about I mean,
(14:50):
the question about reforms saving around that zero that is
hugely radical, whether I mean forty five billion pounds I
think is their number. It doesn't strike me that they
would save that amount of money given the sort of
estimates that are out there, So there's a question about
the credibility of the number. But in terms of putting
that forward as.
Speaker 1 (15:10):
A anyone who hasn't heard of that, about that, what
is it that.
Speaker 5 (15:13):
They're proposing, they're scrapping, they're attempting They're going to say
that one of the savings to pay for the big
tax cuts that they're proposing, So the biggest of which
is raising the personal allowance from twelve and a half
thousand pounds to twenty thousand pounds, which would cost somewhere
in the region of sixty to seventy billion pounds, which
is just an enormous amount of money. You know, it's
(15:37):
sort of you think about it, it's two to three
percent of GDP. I mean, it's enormous. One of the
ways they're talking about making the savings to pay for
that is scrapping the government's the government the outlays the
government will make getting to net zero by twenty fifty,
So that's one of the things they're talking about. And
of course more broadly talking about going to your question,
(16:00):
talking about crypto, talking about AI. I mean, AI is
something that we definitely need to talk about more seriously
in the context of the productivity puzzles. So I think
it's interesting. I think I could be wrong, but four
years out from it might be three years, maybe four
years out from the next general election. It's almost unheard
of that the opposition party is making this much of
(16:22):
a of a wave in the in the press and
clearly got the government worried. We can see, we can
see that questions about has Farage peaked too soon? Who knows,
He's been around a long time. But I think it's
really interesting. And you've seen Labor respond already with what
(16:44):
they're doing on migration, and it's affecting how they set policy.
So and I think that is actually the interesting thing
for the here and now is that it's affecting the
policies that are being implemented by the government of the day.
It's not just about what might happen in four years
time when we go to the polls.
Speaker 3 (17:00):
Interesting to get your thoughts. That's our chief UK economist
Dan Hansen. Now, I think it's a long time to
the general election, as you say, but if the form
can maintain this poll lead, there's going to be a
lot more scrutiny on their econom and policy. So I
think we've been coming back to this many times.
Speaker 1 (17:13):
Yeah, they've got us talking from us for today though.
If you like the program, didn't forget to subscribe and
give it five stars so other people can find it
on Apple Podcasts, Spotify or wherever you listen.
Speaker 3 (17:23):
This episode was produced by James Walcock and our audio
engineer was sure On Gusta Makia.
Speaker 1 (17:27):
I'm you and Potts and I'm Lizzie Berden. We'll be
back with more next week. Is Bloomberg
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