Liz Truss on the 'Doom Loop' Engulfing the UK Economy

These days, everyone is talking about high interest rates across the rich, developed world, while warning of eventual fiscal disaster. But we may have gotten an early glimpse of this anxiety in October 2022, when then-UK Prime Minister Liz Truss unveiled her mini-budget that spooked the gilt market. Well today, rates at the long end of the British yield curve are even higher. So what's going on? Why all this angst now about UK fiscal sustainability and the economy itself? In this episode, we speak with Liz Truss about what she learned during her brief time as the PM. She talks about the political reality of fiscal consolidation, and how difficult it is on both the tax and spending side. And we also discuss what her economic vision was really all about, had she not been forced from the position so quickly. In addition, we talk about the general state of politics, the media, and free speech in the UK.

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.

Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Lots podcast.

Speaker 3 (00:21):
I'm Jill Wisenthal and I'm Tracy Alloway.

Speaker 2 (00:24):
Tracy, we're recording this August twenty six, twenty twenty five.
There's a lot going on right now, particularly in I guess,
many big questions about macro and governance and all kinds
of things in some of the richest countries in the world.

Speaker 3 (00:38):
That is certainly one way to put it. So just
overnight we had headlines saying that Trump was going to
fire Lisa Cook from the FED, and this obviously fits
into the whole debate around central bank independence and how
much influenced governments should actually have on central banks. And
it turns out this is a debate that we've had
before in other countries totally.

Speaker 2 (00:58):
And part of the reason I think is focused on
the FED is the high level of interest payments and
you'd like to see them come down. Speaking of interest payments,
this morning, I saw the headline that the UK thirty
year guilt is like at the highest in nineteen eighty nine,
it continues to elevate. So for all the stress that
we have here, all the fiscal pressure, inflationary pressure. It

(01:19):
actually seems potentially worse elsewhere, although yes.

Speaker 3 (01:23):
I will say the pound is up against the dollar, right,
so from a currency perspective, we're kind of doing worse.

Speaker 2 (01:30):
From a currency perspective. But there's a lot these things
are global, is I think the point, and all of
these anxieties and stresses. It's not just a US story.

Speaker 3 (01:39):
No, And obviously it's feeding into ball markets. And I
cannot tell you how many notes we get on a
daily basis about how governments can reduce the debt, how
they deal with deficits and things like that.

Speaker 2 (01:48):
Right now, everyone to talk about this these days here
in twenty twenty five, it got a lot of interest.
Of course in twenty twenty two, after there is a
famous spike in yields in UK guilt and maybe this
sort of premonition of what a lot of rich countries
would be dealing with. So I'm very excited to say,
we really do have the perfect guest to speak about

(02:09):
all of this today to understand some of the pressures
facing rich developed economies. We're speaking with the right Honorable
Liz Trust, former Prime Minister of the UK, author of
the recent book ten years to save the West. Liz Trust,
thank you so much for coming on odd lots, thrilled
to have you here.

Speaker 4 (02:25):
Good to be on.

Speaker 2 (02:26):
I have a question. You know, when you see like
thirty year guilt yields higher substantially than when you were
the Prime minister and whenever one attacked you over the
mini budget, do you feel some sense of like sort
of vindication or happiness or is it all like despair
for the state of your country.

Speaker 5 (02:42):
Well, I do feel despair for this date of my country,
and it's in fact why I tried to do what
I tried to do in twenty twenty two, because I
could see the way things were going. I could see
our economy was stagnant, that the tax revenue being generated
wasn't enough to cover the amount of money the state
was spending, and we needed to do something different in

(03:06):
order to get out of a negative spiral. And what
I see now is we're further down that negative spiral
and we are heading.

Speaker 4 (03:15):
For a very very serious crisis.

Speaker 5 (03:16):
I said last year, I thought we were headed for
an IMF bailout as Britain experienced in the nineteen seventies.
I think that's even truer now. Than it was a
year ago, and we're in an economic doom loop of
higher taxes, lower growth, higher debt, and it's very difficult

(03:38):
now to see the political way out of that.

Speaker 3 (03:43):
So how should governments actually announce or unveil large scale
policy shifts because there does seem to be a some
institutional constraint and then be the market reaction. We saw
that this year in the US after Trump's Liberation Day announced,
you know a lot of people were saying this was
Trump's trust moment. How should governments actually go about I

(04:06):
guess balancing the views of the market with you know,
big scale change in terms of policy.

Speaker 5 (04:15):
I think the issue that I faced, and it is
also the issue that Donald Trump faces in the United States,
is a lot of the mainstream economic establishment do not
agree with the policies that I was pursuing, and they
don't agree with the policies that Donald Trump is pursuing.
So you're operating in a hostile environment. In the UK's case,

(04:40):
we have institutions that have become very divorced from government policy.
In nineteen ninety eight, the Bank of England was made
independent by Gordon Brown. Since then, I believe it has
been pretty much unaccountable, So politicians have very little control
over monetary policy, and what has happened is monetary policy

(05:01):
has driven fiscal policy. It's very hard to coordinate between
those two policies as a government because you don't have
control of the leavers. Even more so, back in twenty ten,
George Osborne established the Office of Budget Responsibility, which handed
over huge powers to another unelected authority. It's a bit

(05:21):
like the Congressional Budget Office, but it has more power
within the British system. So what I was facing back
in twenty twenty two was powerful institutions that didn't share
my policy objectives. Now I believed, as the democratically selected
leader of the country that I should be able to

(05:42):
pursue those policies. It was what I was elected on it,
in fact, it was what the Conservative Party elected on.
But what I faced was resistant. So when you're talking
about timing of policy announcements, it's not like you're operating
on a clear creating in a stormy see where there
are people out there who want you to fail, not

(06:04):
just your political opponents, but also.

Speaker 4 (06:07):
The institutional opponents.

Speaker 5 (06:08):
And that is what Donald Trump faced with his tariff
policies that he announced on Liberation Day. A lot of
economists said they wouldn't work. A lot of people say
said it would make the budget deficits in the US worse.
And those policy makers are very influential with the markets.
So in the case of the Bank of England, or

(06:30):
the case of the people sitting on the Federal Reserve
or civil servants within the Treasury, these people are out
there creating their own waves. So I think that's the
context you have to see what I was trying to do.

Speaker 2 (06:45):
First of all, I totally take your point about the
sort of limitations of many mainstream economists, the bias of
many mainstream economists, and we have many critics of mainstream
economics regularly on the show. So that's a point well taken.
When you unveiled your or mini budget, given the fiscal
constraints or the perceived fiscal constraints, why tax cuts specifically

(07:07):
and not also spending cuts. You know, there's so many
different aspects of the UK spending situation, whether it's the
triple lock pension. There's this thing that goes viral Twitter
a lot about like how easy it is to get
a free car, etc. Like why not first take aim
at potentially low hanging fruit, or at least in combination,
you know, spending cuts.

Speaker 5 (07:29):
Well, that is exactly what I sought to do. The
package we were putting forward was a combination. It was
actually not tax cuts, it was reversing a tax rice
and I think that's a very important distinction. The biggest
measure we wanted to take was keeping corporation tax at
nineteen percent, not raising it to twenty five percent. And

(07:50):
I believed, and I've since been proven right, that if
you raise corporation tax to that level, you get less
business activity, you get lower growth. Combined with the non
dom tax that's been put in place or the removal
of the non dom benefits, we've seen more millionaires leave
Britain than any other country in the world per capita.

Speaker 4 (08:13):
So what we were.

Speaker 5 (08:14):
Doing, just on its own account, raising taxes at that
juncture back in twenty twenty two was a bad idea.
I believe that it would lead to lower economic growth
and a higher deficit in the long term, and some
economists agreed with me, But the economists working for the government,

(08:35):
the Office of Budget Responsibility of the Bank of England
did not agree with me, and they were keen on
that policy, and in fact they forced me to reverse
that policy.

Speaker 4 (08:44):
So that's one point.

Speaker 5 (08:46):
Second point on spending is we did try to reign
in spending.

Speaker 4 (08:50):
So a particular thing I sought to.

Speaker 5 (08:53):
Do was increased welfare by wages not prices, because we
were a very high inflation year in twenty twenty two.
That would have saved seven billion pounds on the government budget,
which has a significant amount. What I found was that
conservative MPs were not prepared to vote for that. So

(09:14):
even a relatively minor change which was simply not raising
welfare as much as it was going to be raised,
created a massive outcry on the conservative benches. So the
answer on spending is it was politically not possible. Now,
personally I would have liked to be even tougher on spending.

(09:34):
I think we could have done that over time, but
I had to think about what was politically realistic, and
so what we had is spending constraint, not raising spending
as much as was previously planned, keeping taxes low rather
than raising them and choking off economic growth, which is
what I thought it would do and was what actually happened.

(09:57):
And then also supply side measures such as legalizing fracking
in the UK making it easier to drill in the
North Sea so that you stimulate the economy with supply
side reforms. That was the overall package, and you know
what happened. And you can compare my fiscal package with

(10:18):
packages that Richie Soon acted during COVID or packages that
Rachel Reves did, since my package was smaller even according
to the estimates of the Office of Budget Responsibility, and
yet it got a very different reaction. And this is
because the economic establishment, the key figures in the treasurer

(10:40):
in the Bank of England, have a bias towards a
more Canesian approach. So I think it's important to note
that this physical package was not any bigger than packages
before or after. It just got a different reaction. I
think the other important point to note about what happened

(11:02):
in September and October twenty twenty two is the night
before the mini budget, the Bank of England announced the
sale of forty billion pounds worth of guilts. So I
had a central bank who were making announcements that made
our lives a lot more difficult the day before the

(11:23):
mini budget, and since the guilt spike in twenty twenty two,
the Bank of England have actually produced a paper saying
that two thirds of that spiking gilts was down to
their failure to regulate the pensions market. So there were
lots of other things going on at the same time,
but it was very, very convenient for the mini budget

(11:47):
to be blamed for what happened. And as you pointed
out at the beginning of the show, the guilt spike
wasn't as high as it is now. So what I
think is going on now is you can see the
different treatment of a tax spending, high spending labor government
from a conservative politician who's trying to pursue in my view,

(12:11):
Laffer friendly tax freezes, supply side reforms, and spending restrain.

Speaker 3 (12:19):
If there's an institutional and market bias towards economic orthodoxy
or Knesianism, as you just pointed out, why not try
to adapt your budget or your economic policy to that
reality because it did seem like, you know, you were
sort of expecting the markets to adapt to your policy

(12:40):
rather than vice versa. I guess I'm asking it's just
is there a better way to try to communicate what
you were doing at the time.

Speaker 5 (12:49):
Well, I'm a believer in democracy and I think it's
democratically elected politicians that should decide policy, not unelected central
banks and a network there's the IMF for World Bank,
the central banks meeting regularly. They are far too powerful
in my view at deciding what countries economic policy should

(13:13):
be and they.

Speaker 4 (13:14):
Have not been effective.

Speaker 5 (13:15):
You know, if you look at the Bank of England's
record over the past ten years on things like inflation,
on economic growth, it's been extremely poor. And I fundamentally,
you know, why should democratically elected politicians cow tao to
what unelected officials want when we're the people who are

(13:39):
held to account for the success of failures of the policy.
And what is happening now is Rachel Reeves is very orthodox.
She's a former Bank of England employee. She's essentially taking
dictation from the Bank of England and the Treasury about
what she should do and we can see the results
of that. And what is happening is we are going
to reach an end point where the country runs out

(14:01):
of money and then we will have a major crisis
and we will have to think differently. I just think
it's very sad it's got to that point. This was
obvious from where we were in twenty twenty two. But
as I've said, the economic orthodoxy proved very powerful and Frankie,
what is the point of wanting to become Prime minister

(14:22):
if you're simply going to go along with the failing
orthodoxy that has put your country in the problems it
is already, which is where we were.

Speaker 3 (14:32):
You know, you mentioned that the Bank of England wasn't
really independent from HM Treasury until Gordon Brown's chancellorship in
the nineteen nineties. Do you think that arrangement still works
or would you perhaps call for reform where maybe the
Treasury regains some of its influence over the central bank.

Speaker 5 (14:51):
I think the Bank of England needs to be accountable
to politicians. I think the current system doesn't work. This
is why I'm very sympathetic to what Donald Trump is
saying about the Fed. Monetary policy is incredibly important. It
determines the allocation of assets within society. And what we've
seen in Britain is we've seen people who have property,

(15:14):
who have capital have done very well out of the
low interest rates that the Bank of England and the
easy money the Bank of England has created over the
past fifteen years, and we're seeing young people struggle to
get on the housing market. We are seeing it real
effects in the economy of the Bank of England's policies,

(15:36):
and as a Democrat, somebody at leaves in democracy, I
just think it's wrong that people should be making those
decisions and not accountable to the elector. And it's also
very difficult, as I found as Prime Minister, to combine
fiscal and monetary policy if you don't hold one.

Speaker 4 (15:55):
Of the leavers.

Speaker 5 (15:56):
So yes, I think it's got to change, and I
think there is a reckoning coming for the central banks,
not just in Britain but also in the United States,
also the ECB. The current system does not work, and
I think one of the reasons that the Bank of England,
I would say sabotaged what I was trying to do

(16:17):
is I was a critic of central banks before I
became Prime Minister. I'd been very clear that I thought
the Bank of English record was not good, that the
Treasury should have much more of a role in setting
the mandate for the Bank of England, and they didn't
like their power being challenged.

Speaker 2 (16:50):
First of all, I want to say, I think your
point about the sort of the political impossibility of or
the political at least difficulty of spending cuts is really
important that you had the Tory majority obviously, and even
what you described as sort of modest cuts to the
rate of growth is spending, couldn't get the votes. Like,
I think there's a very telling issue and raise a

(17:11):
stress about the ability of any democracies to do difficult things.
Sitting aside, maybe what's politically capable in the next parliament.
Should the next parliament revisit questions such as either the
triple pensions or free point of use at the NHS.

Speaker 5 (17:27):
So, just on your point about political possibility, I think
the only thing that is politically possible at present, or
certainly was in twenty twenty two, was to try and
restrain the growth of spending and to grow the economy
faster than that. And I think that is what just
that is my Trumpite strategy is in the US you've
got to outpace the growth of public spending sure with

(17:51):
economic growth. I think that is only possible. What you've
just said about actually spending cuts is when there is
some kind of well, so this.

Speaker 2 (18:01):
Is what I'm saying. So you mentioned you said last
year that you were worried that the UK could need
another IMF bailout. There were headlines I think of the
news just in the last week of some economists talking
about that again. Okay, like, if this is what we're
talking about, I mean, if this is real and we're
talking about the UK essentially being at the point of
needing an IMF bailout, is it time to look at

(18:21):
these sort of core pillars of existing spending levels.

Speaker 5 (18:26):
Well, you can see what's been going on in Parliament,
which is the Labor Party tried to put through some
modest welfare cuts and there was a massive rebellion by
Labor MPs. Even though they have a huge majority in parliament,
they could not get through some pretty minor changes, smaller
by the way, than the amount I was proposing in
twenty twenty two. I think it was only worth about

(18:48):
four billion pounds. They could not get that through their
current parliamentary party. And all of the evidence what happened
in Greece, what happened in Ireland where spending cup programs
have been achieved, or Argentina is another good example, have
come after a crisis. I think that's deeply regrettable. But

(19:09):
I can't see certainly with the current parliament serious spending
cuts happening until Britain runs out of money.

Speaker 3 (19:18):
I'm going to ask Joe's question just in a slightly
different way. But if you were back in government today
and guilt yields are where they are, what specific tradeoffs
between spending and taxes tax cuts would you be willing
to make and what trade offs do you think are
actually politically realistic.

Speaker 5 (19:39):
Well, the issue now is that taxes have got so
high that they're checking off economic growth, and we're seeing
millionaires leaving the country, We're seeing businesses closing down. I
think the easiest thing and the most sensible thing to
do straight away is all the supply side stuff, abolishing
planning regulations, taking on the environ our mental NGOs, getting

(20:02):
on with fracking, using north sea oil, maybe using our
coal reserves. I think those are the types of things
that can be done relatively quickly and would have an
impact in terms of spending. Of course, our welfare state
needs to be reformed. I think something like over sixty
percent of Britain's budget is a combination of the National

(20:24):
Health Service and welfare and those are the.

Speaker 4 (20:27):
Two areas that need to be fixed.

Speaker 5 (20:28):
But I don't think there's any room for maneuver now
on taxes. I think that raising taxes has proved already
to be counterproductive. Doing it even more will simply make
the UK even more unattractive for investors. So you've got
to focus on supply side. Make it much easier to
build things, make it much easier to frack, make it

(20:51):
much easier to hire people, all of those kind of things.
And you have to have spending cuts where you can.
But as I've said, I've tried myself to get spending
through Parliament.

Speaker 4 (21:01):
It's it's not easy.

Speaker 2 (21:04):
I'm going to ask the really ignorant American question that's
sometimes so forgive me if this comes off as blind,
just so I'm just getting it out there. But is
there a cult of the any trust in the UK?

Speaker 4 (21:17):
There has been.

Speaker 5 (21:18):
I think the cult is wearing thin, but you know
there has been a cult. I think people are recognizing
though that the outcomes are not good. You know, if
you compare British health outcomes with other countries, I don't
think the American system is anything to aspire to. But
if you look at countries Germany, if you look at

(21:41):
countries like Germany, France, Japan, you know they managed to
achieve better outcomes with similar levels of funding. So I
think everybody in Britain recognizes that it's not working as
it's currently constituted. But it is such a big and
deep issue to resolve.

Speaker 4 (21:59):
It really is.

Speaker 3 (22:00):
Joe, Remind me to tell you my NHS horror story
later on. Everyone has one. On the plus side, it's free, right,
all right?

Speaker 4 (22:09):
You know, I want to go.

Speaker 5 (22:10):
Back to cost you it costs you in other ways?

Speaker 3 (22:13):
True, I agree, say true, I want to go back
to something you said about the economic orthodoxy leaning towards Keynesianism.
Why do you think that is? Like, why is that
the dominant economic policy framework at the moment, given that,
as you keep pointing out, you know, a lot of
people would argue that it hasn't actually yielded good outcomes

(22:33):
for the developed world.

Speaker 5 (22:35):
In the eighties, we had some very successful supply side
policies both Thatcher and Reagan increased economic growth, increase the
strength of our respective economies, And when the Soviet Union collapsed,
I think we all thought free market capitalism had won
low taxes, restrained spending, supply side economics, and I think

(23:00):
people in favor of those policies took their foot off
the pedal, and that allowed more left wing economics to
gain traction. And since then, I think we've seen it
in universities, in the Treasury, in the Bank of England,
but the Kanesian economics has become much more prevalent. And

(23:29):
whether it's the Office of Budget Responsibility or the CBO,
they're looking at economics through a Kinesian lens. And I
think it is a big question about how on Earth,
after seeing the success of those policies and now seeing
the failure of Kanesian policies, anyone could possibly think these
policies are right. But they proved very hard to shift.

(23:52):
And I think the left of politics have been very
successful at capturing institutions. I think they've captured large parts
the bureaucracy, the university's, large parts of the media. There
was in Britain there has not just talking about these
the events of twenty twenty two. There's not been real

(24:14):
analysis of what happened and what the Bank of England
did and how the institutions behaved. It's something that is
not talked about. And I think the level of economic
literacy in the media has also got lower, and certainly
British politics just gets reported as a pantomime rather than

(24:35):
an analysis of the issues.

Speaker 2 (24:38):
There's much you say about the media, the way reporting
is done that I probably am quite sympathetic with. Actually,
would you ever join reform if the Conservatives can't pass
modest slowdowns in the pace of welfare increases, if you
know labor obviously hesitated issues, would you join reform?

Speaker 5 (24:57):
I'm not really thinking about party politics at the moment
because my whole experience of being in government, and I
was a government minister for ten years before I became
Prime Minister, was that the power was not in the
hands of the politicians. The power is in the hands
of the bureaucrats. So even if Nigel Frage gets elected

(25:17):
in twenty twenty nine, and currently he's the Booky's favorite
to get elected, if the bureaucracy isn't changed, if there
isn't fundamental change to the way Britain is run, nothing
will alter I mean a lot of them.

Speaker 2 (25:31):
Presumably presumably a breakup of the I mean, right, like
that's the idea, Right, there's no prospect of breaking up
the bureaucracy unless there's like genuinely something new that happens politically,
like that would be their argument right, that of brand
new party taking power is the only way that there
could be some sort of deep institutional shakeup.

Speaker 5 (25:49):
Yes, in some ways that's true or could be true.
There's no reason why the Conservative Party couldn't do a
deep institutional shakeup. But the Conservative Party has to acknowledge
what went for fourteen years. You know, why didn't we
solve the immigration problem, Why didn't we solve the growth problem?
Why didn't we solve things like the free speech problem?
The answer is we didn't reverse the institutional changes. Tony

(26:13):
Blair mate and I talked about how he made the
Bank of England unaccountable. He also made the judiciary unaccountable
with things like the Human Rights Act and the Constitutional
Reform Act.

Speaker 4 (26:24):
So until the Conservatives acknowledge that.

Speaker 5 (26:27):
That is why we failed to deliver an office, that
is true about the Conservative Party. But if you look
at the two Trump administrations, Trump one and Trump two,
in Trump won, there was less recognition of the institutional
change that was required in the US, and we're now

(26:49):
seeing more of that from Trump. So my point is,
whoever is in office in twenty twenty nine needs to
understand that the British state needs to be fundamentally shaken up.
Otherwise nothing is going to happen. And I make that
argument to all parties. Interestingly, there are even people in
the Labor Party backbench MP's who are saying the Bank

(27:12):
of England's independence needs to be removed. They're saying get
rid of the Office of Budget Responsibility because they can
see the types of policies they want pursued are not
possible with the current setup.

Speaker 3 (27:24):
Since we're talking political parties, and on this note, you
know there maybe there is some consensus on specific economic policies,
as you point out, but we've had this back and
forth between Conservatives and Labor for many, many years now.
How do you actually go about building consensus around economic policy,
especially at a time when you know people would describe

(27:48):
our current environment as relatively turbulent and guilt yields are
where they are.

Speaker 5 (27:53):
I would say there's a bad economic consensus between Labor
and the Conservatives at present, which is nobody is saying,
apart from me a few others, nobody is.

Speaker 4 (28:04):
Saying that the institutions need to change.

Speaker 5 (28:08):
The Conservative Party are also wrapping themselves in we need
to respect the independent Bank of England. We need to
listen to the Office of Budget Responsibility. They're not prepared
to take on the economic establishment. Neither are the Labor Party.
And we're in a situation where the policies these institutions

(28:29):
believe in are failing, and they're manifestly failing. Guilt rates
are now much higher than they were back in twenty
twenty two, Unemployment is up, our energy prices are the
highest in the world, and the industry is closing down.
These policies are manifestly failing, yet nobody is challenging the

(28:54):
fundamentals of the economic institutions.

Speaker 2 (28:57):
You know, I'm gladly brought up free speech because I'm
interested in that as well. And of course, you know,
again in the West, I think free speech, liberal speech
norms are good, and so I worry about when I
see them failing in various countries or friends and neighbors.
Palestine Action seems like a bunch of like crusty old hippies,
And I know they defaced a plane, but they're listed

(29:20):
as a terrorist group in your country. People can get
arrested even just for saying support them, And I think
they're like a terrorist group basically, like on the same
level of as like isis which I think most people take, yes,
that is a genuine terrorist group, like what is going
on there?

Speaker 5 (29:33):
Well, they did attack a military base and they are
advocating for terrorism in the UK.

Speaker 2 (29:41):
They deface a plane and then also people get arrested
or in trouble for saying that they support them.

Speaker 5 (29:47):
They are clearly a problematic organization. And there are lots
of organizations in Britain that are allowed in the UK
that aren't actually allowed in many Arab countries. So I
think it's right that we down on these organizations. I
do think when people you know, I am a pro
free speech person. I'd love to have the First Amendment

(30:09):
here in Britain. I support both people I agree with
and people I don't agree with having a lot more
free speech. And it is a travesty that we've just
seen Lucy Connolly released from jail who put out a tweet,
deleted it four hours later and was sentenced to thirty
one months in prison.

Speaker 4 (30:29):
That is absolutely ludicrous and.

Speaker 5 (30:30):
I think we've become an international laughing stock. And it
is an attempt and Kirs Starmer is very clear about this.
It is an attempt by the authorities to suppress what
people are talking about and I think that's a very
dangerous thing for a society, For a society to go down.

Speaker 2 (30:49):
All of these things really worry me. In the Lucy
Connolly example, so she tweeted and I understand that she
deleted it, but she tweeted about setting a hotel on fire.
I mean that is our arguably a call to violent action.
Like how would that be different? Would you feel the
same way if someone said, look, you know, we should
set a synagogue on fire. Is that free speech? Well?

Speaker 5 (31:08):
I think what she said would not have been deemed
a violation in the US because it wasn't. I don't
believe she was talking about a specific you go out
and do this now, it was a general statement. It
was obviously a terrible thing to say, and she has
said sorry for that. I think there's a question about
whether or not in the US that would have even

(31:29):
been a crime at all, and even if it is
a crime, whether it merits a thirty one month prison sentence.
When we have people caught with child pornography being let
off with no jail time at all, I mean you
probably heard the expression two tier Britain. But what is
happening is people are being let out very early for
crimes like child rape, and yet put in prison for

(31:54):
things that they write on Twitter, and those are two
different categories in my opinion.

Speaker 3 (31:59):
You mentioned the first mention, then how would you reform
I guess speech rights in the UK if you were
in power again.

Speaker 5 (32:08):
We came up with free speech, freedom of the press
back in sixteen ninety five, and it was a historic
British liberty. We had the Bill of Rights of course
sixty to eighty nine, which then the United States built
on that with your Bill of Rights and so on.
So these liberties are there in the British constitution. The
problem is all of the laws that have been passed since,

(32:31):
most notably the Online Safety Act. So what we need
to do is restore Britain's historic liberties with a great
restoration bill that sweeps away all of this legislation that
has tied the country and knots. And I've talked about
our problematic institutions, the problems with the judiciary, the problems

(32:54):
with free speech. This is all down to very poor
quality legislation that is essentially handed power that used to
sit in the hands of the individual British citizen or
the British Parliament. It's handed those power to unelected bureaucrats.

Speaker 2 (33:25):
Basically, my entire professional career, your party has been in
power except for you know, the last ten minutes or
so in Labor and Cure Star mar.

Speaker 4 (33:34):
Doesn't feel like ten minutes.

Speaker 2 (33:36):
Maybe it just feels like it over here because it
feels like a lot of the rot. You describe the
route that you perceive in your country, Almost so much
of it seems to have taken place under Conservative government.
Why is that? And why would anyone, you know, and
they're thinking about the next election, why would anyone think
that if there's so much route was allowed to happen

(33:56):
under the Tories, that the Tories should be given another
chance power.

Speaker 5 (34:01):
So I think the rots has sort of built up
over time. So I talked about the development of the bureaucracy.
You had the Atle government which socialized Land, which created
the NHS, which created the welfare state. A lot of
our problems go back to that government. But what was
very important about the Blair government is this taking power

(34:25):
that was in the hands of Parliament and putting it
in the hands of unelected bodies, bureaucracies, the Bank of England,
the judicial appointments, Commission, all of this plethora of people
offcom who are now making the decisions about free speech,
These pleasure of people who have not been elected now

(34:45):
de facto run our country. And the big mistake the
Conservative Party made was not reversing that. And this was
because at the time David Cameron said he wanted to
be the heir to Blair, you know, who wanted to
be fashion of all the Conservatives, be modern. But I
think it was a huge error and the Conservative Party
lost its soul. That's what happened in the pursuit of power,

(35:08):
in the pursuit of trying to be modern, the Conservative
Party lost its soul. And I think it's an open
question about whether or not the Conservative Party can get
it sold back or be replaced. But certainly you know
where we are now. Not enough people are saying what

(35:28):
really went wrong over those fourteen years, But the Conservative
Party failed to take on the bureaucracy. These were not
the Conservative Party's policies. They were just policies that we
didn't object to.

Speaker 3 (35:43):
Related to Joe's point, when you think back to certain
moments in Britain's economic history, so for instance Brexit, the
argument then was that if we get rid of all
this EU regulation, the UK economy will be free to
flourish and prosper. And I think in the nineteen seventies,
you know, Anthony Barber instituted some tax cuts as well,

(36:06):
right before inflation hit, I think twenty five percent or
something like that. Why should the UK population have confidence
that a growth focused economic policy, one that features you know,
big tax cuts and deregulation, will actually drive economic growth.

Speaker 5 (36:25):
Well, I think the important thing to note about Brexit
is we haven't got rid of any of those European laws.
They're still on the British statute books. So laws that
protect bats and news still on the statute books. Laws
that tell you how your can opener should work are
still on the statute books. We still have the working

(36:45):
time Directive, we still got all of those laws. So
this goes back to the problem you were talking about
the Conservative Party. The Conservative Party is fundamentally split between
people who want Britain to be you know, Singapore on TEMs,
you know, a free trading go getting country, people who

(37:07):
wanted it to be part of Europe and want to
be part of the you know, European lots of labor
laws protecting people environmental red tape, all of that stuff,
and that issue has never resolved within the Conservative Party,
which is why you know, you saw prime ministers being deposed,
why you have the debate within the Conservative Party. And

(37:29):
I think if you look at the Brexit vote in Britain,
fifty two percent voted for Brexit, forty eight percent didn't,
so Brexit was not delivered as the public intended. I
mean the biggest case in point is of course immigration,
where the Boris Johnson government failed to invact allowed immigration

(37:50):
to increase huge amounts, which has had a very negative effect.

Speaker 2 (37:55):
You know, since you mentioned party politics in the UK
and the split within the Conservative Party, again ignorant question here.
I do get the impression that the Conservatives just like
all seem to hate each other more than the members
of the Labor Party and the nineteen twenty two Committee,
which I still like have to Wikipedia every once in
a while to remember what that is, and they're always
like scheming against each other. Is there like a deeper

(38:17):
culture of just internal hate in the Conservative Party than
the Liberal right?

Speaker 4 (38:21):
I would say.

Speaker 5 (38:22):
I would say the problems that the Conservative Party go
back to where Margaret Thatcher was defenestrated and the sort
of Tory wets and the you know, the Thatch Rights.
But if you compare it to American politics, you know,
if you look at the split between people like Trump
and people like Dick Cheney or the sort of Bush Republicans,

(38:44):
it's a very similar ideological divide. But what is different
in America is that Trump has basically taken over the
Republican Party, whereas in Britain the kind of the left
of the Conservative Party is still in control of it.
That's the difference. Well, there is going to be a
political realignment, and you can see it in America. You know,

(39:07):
Republicans are now getting votes from low income people, people
in rural areas. The Democrats are dominating in the sort
of liberal cities. That's exactly what's going to happen in
Britain at the next election. It's just the Conservative Party
hasn't really got its head around which of those two things.

Speaker 4 (39:26):
It is.

Speaker 3 (39:27):
So one of the things that seems to be happening
in many developed countries at the moment is everyone wants
to boost their own domestic manufacturing sector. And I believe
you've spoken about the need for this in the UK
book four. When I think about the British economy. I
usually think there's a pretty big monopoly when it comes
to let's call it intellectual.

Speaker 2 (39:49):
Jobs, services, finance office, journalisms and journalism.

Speaker 4 (39:53):
Yeah, that kind of thing.

Speaker 3 (39:55):
But when I think about British manufacturing, you know, it's
it's an island with a relatively small population compared to
some other places in the world and high taxes. As
you've been pointing out, what would make Britain actually competitive
when it comes to manufacturing at a time when everyone
seems out to compete in the same field.

Speaker 5 (40:17):
Well, the number one thing is energy prices need to
come down. They're the highest in the world. They're four
times the United States. If you are a car manufacturer,
steel manufacturer, it's incredibly hard to compete. So that has
to change. We have to make it much easier to
build things in Britain. If you want to build a
new factory, it takes far too long. So there are

(40:38):
all of those sort of supply side policies.

Speaker 4 (40:42):
That need to change.

Speaker 5 (40:44):
I think Britain we de industrialized pretty much earlier than
any other country.

Speaker 4 (40:49):
You can see the.

Speaker 5 (40:49):
Same thing now happening in Germany and continental Europe. I
think it's important to do, or you can to maintain
a manufacturing base because a lot of industry like AI,
for example, requires high levels of energy. It requires other
industries that it can sort of feed off if you like,

(41:09):
So if you just become I talked about Singapore and
seams earlier, but Singapore's a relatively small countries so it
can afford to be a trading hub.

Speaker 4 (41:18):
Britain is a country.

Speaker 5 (41:19):
Of seventy million people. I think you can't rely on
services alone. I think you have to produce the full gamut.
I'm very worried that we're losing our last steel blast furnace.
What we learned during COVID is you are seriously up
against it if you are relying on China for pharmaceuticals.
These are the types of industry that Britain.

Speaker 4 (41:40):
Can excel in and does excel in.

Speaker 5 (41:42):
I mean, our biggest manufactured export to the United States
is cars. We do produce good, high end cars that
people want to buy. So there are opportunities for British manufacturing.
It's just been made very very hard by high energy
prices and are planning rules.

Speaker 2 (42:01):
I take your point about certainly about energy prices and
planning rules. Many people are having the same discussions here
to my mind, and Tracy mentioned the fairly small population
scale is incredibly.

Speaker 4 (42:13):
Well, I was seventeen, okay, okay.

Speaker 2 (42:15):
Okay, Well you know China has, however, hundreds of millions
just in the manufacturer But yes, I take your point,
not that small. But did Brexit harm scale capacity because
to my mind, if we're thinking about okay, mass production
at efficient level, so that it's like genuinely competitive, so
that it's not some sort of you know, government subsidized
albatross that just exists as a make work industry, it

(42:38):
strikes me that sheer scale of market is very important,
and it feels to me like Brexit has shrunk the
scale of that market.

Speaker 5 (42:45):
For these I mean, there's no there's no evidence that
exports to Europe have gone down after Brexit, and in fact,
you know, the different trade deal we got from the
EU presents the UK with some opportunities because we have
lower tariffs in some areas with the United States than
the EU does. But I think the other big factory

(43:05):
in manufacturing is so much of it is becoming automated
that it makes economic sense for goods to be produced
close to market because you're no longer getting the advantage
of a massive labor cost differential. So I think it's
it's just a natural progression of modern economies that more
manufacturing is going to be done closer to home when
you've got a much more automated process.

Speaker 3 (43:28):
Since we're talking trade and exports, the UK was one
of the first countries I think to sign an agreement
with the Trump administration on tariffs. Would you have signed
that so quickly or would you have perhaps pushed back
a little bit more, given you your emphasis on boosting
manufacturing domestically within the UK.

Speaker 5 (43:47):
I did actually praise Kirsedtarma for the deal at the time.
I was one of the few people to praise it,
and I said, because I've got experience of negotiating with
the first Trump administration. Bob Loiheiser said, I know how
difficult it is, and I thought the UK got a
good deal, and so it has proven that the EU
has actually got a worse deal than the UK got.

(44:09):
So I thought he was right. He was right to
do that.

Speaker 4 (44:12):
And I want to see.

Speaker 5 (44:14):
Well, we are paying lower tariffs than the EU.

Speaker 3 (44:17):
Is, so just on a relative basis compared tor on
an absolute basis, you're still paying terroriffs.

Speaker 5 (44:25):
Yes, But what Trump has done the with all of
his trade deals around the world is essentially reset the
World Trade Organization. I think it was one of the
biggest errors that of American foreign policy when Clinton allowed
China to join the World Trade Organization on developing country terms,

(44:46):
and that has had in my view, it's helped boost
China's economy. China is an autocratic, authoritarian regime. I think
that was a disastrous policy. What Trump is trying to
do is reset at that, and that has inevitable consequences
for all of America's trading partners. But knowing what I

(45:06):
do about the Trump administration, I thought the deal kissed
Arma Gott was a good deal.

Speaker 2 (45:12):
Potentially one thing that could I.

Speaker 5 (45:14):
Don't praise him very often, by the way praise I figured.

Speaker 2 (45:19):
That's one thing that theoretically could be done to lower
energy prices for in many places would be a resolution
of the war in Ukraine. And I'm curious when you
look at either Trump's pursuits or what Keir Starmer has said,
do you see other paths? Were you the Prime minister now,
what would you be pushing for in that particular conflict.

Speaker 5 (45:39):
Well, I want what I want out of that conflict
is I want Putin not to have been rewarded for
his appalling invasion of Ukraine. So what we don't want
is him, or indeed shi Jingping to get the signal
from the resolution of the Ukraine conflict that this was
a this invasion was somehow justified or worth it. I

(46:04):
want Russia to be contained because I still believe that
they have expanded its instincts.

Speaker 3 (46:13):
Just going back to the Mini Budget for a second,
one of the components of that was government support to
offset higher energy prices, and that was also one of
the things that seemed to spook markets, This idea that
the UK government would be fiscally on the hook to
compensate for astronomical energy prices at the time that seemed
to be expanding at an enormous rate. If you were

(46:36):
going to do it all over again, would you have
possibly included some sort of mechanism to maybe limit the
cost or avoid the sense that the UK was basically
bailing out its population in some way.

Speaker 5 (46:52):
It's important to note that the Energy package was one
thing that wasn't reversed, so that was not the policy.
The policy that I was forced to reversed, and that
was made pretty clear to me pretty much through threats
was the corporation tax increase. The energy policy remained in place.

(47:13):
The energy policy remained in place. And the point about
the energy policy was it was not a subsidy that
happened automatically. It was only when energy prices reached a
certain level. And I believed it was right for the
government to do that because the government had failed to
ensure adequately cheap energy was supplied.

Speaker 4 (47:35):
But what I was.

Speaker 5 (47:36):
Doing in tandem with that policy of essentially ensuring people
against very high energy prices was getting on with fracking,
licensing new north sea gas reserves so the prices would
never get that high. So it was an insurance against
prices going high to give consumers and businesses confidence to

(48:00):
invest whilst we sorted out the supply that had been
so badly failed by previous governments. That was the intention
of the policy, and as I've said, the policy wasn't
reversed by my successor. The policy that was reversed was
getting on with the fracking. So you had the energy
insurance policy but not the fracking policy. Those policies were

(48:22):
designed in tandem so that we can make sure that
businesses in the country weren't spooked by the threats of
having a sky high energy prices. And by the way,
if the energy prices had got that high, there would
have had to be some kind of package to deal
with them. Anyway, what I was doing is giving people
notice so they had the confidence to invest.

Speaker 4 (48:45):
The energy package was.

Speaker 5 (48:46):
Actually announced because very sadly, her Majesty the Queen died.
It was announced a few weeks beforehand. It wasn't announced
at the time of the mini budget. The thing that
the economic establishment really objected to in the mini budget
of the taxes, it was that, you know, it was
not raising corporation tax.

Speaker 4 (49:04):
That's what they didn't like.

Speaker 2 (49:07):
I just have one last question. You know, Tracy and
I work in public, though not as public is having
been the Prime Minister of the UK. We live in
this age where people, you know, stories go insane, and
people love to see someone publicly humiliated. And it just
seems to me that the UK press in particular is
a bunch of jackals. But that's just my impression over here,

(49:28):
even relative to the pressure.

Speaker 5 (49:29):
So it's funny when Americans come over and they don't
realize what they're like, and I'm like, you ain't seen
nothing until you dealt with the UK press, and they
always ga, Liz, you were right, you're about these people.

Speaker 2 (49:40):
I just see in the headlines it's I don't know,
it seems obvious to me. What's your lesson takeaway? How
do you move past a period of one's life like that.

Speaker 5 (49:49):
Well, I didn't really see it like that. I just
see that the British press needs to change. And I'm
a big support of independent media. I think the British
press is coverage of e Can is appalling. I think
their coverage of politics is skin deep. I don't think
they've done anything to analyze the sort of failings of
the British state, and I think there won't be serious.

(50:15):
We don't just need to change the bureaucracy in this country.
We need to deal and change the press. And people
are now turning off the BBC. You know, they're turning
off the mainstream media because they can see that the truth.

Speaker 4 (50:30):
Isn't being told.

Speaker 5 (50:31):
And there used to be a golden age I guess
in journalism where people cared about the truth. I'm afraid
they don't now. Friends of mine who are journalists just
say their editorial conference is about how many clicks their
article gets, and it's you know, I just think that's pathetic.

Speaker 3 (50:46):
Well, these are the tensions of being a journalist in
modern times. But I have one more question. It's just
going back to some technical aspects I guess of economic policy.
So you've criticized the OBR for you know, it's forecasts
that end up influencing or you know, perhaps even dictating
government policy. I guess My question is, you know, when

(51:09):
you think about a pro growth economic agenda that also
relies on forecasts about future growth. And when we talked
to Stephen Myron from the Trump administration earlier this year,
that was one takeaway from our conversation was how much
the Trump administration was really betting on economic growth picking

(51:29):
up in order to offset some of the stuff it
was doing it. But why should people have confidence in
the growth forecast but not have confidence in you know,
OBR forecasts.

Speaker 5 (51:43):
But the point about the OBR, and this has been
proven by history, is that they overestimate how much raising
taxes will bring in in revenue because they don't take
the full account of the depression and economic activity, and
they estimate the impact of supply side reforms like planning

(52:05):
or fracking or whatever else.

Speaker 4 (52:07):
And there are two answers.

Speaker 5 (52:11):
This one is there are better economists out there, and
I think the government, as was the case prior to
twenty ten, the government should have the ability to hire
the economists that they believe are right. I don't think
my homework should be marked by somebody doesn't agree with me,

(52:32):
which is what was happening.

Speaker 4 (52:33):
I think that's just wrong.

Speaker 5 (52:34):
If people don't like what I'm saying and they don't
like the policies, they can vote me out at an election.
But I wasn't even allowed to try the policies because
the people marking my homework said no. I mean, that's
the bottom line. But the second thing is I think
we're far too reliant on forecasts. You can't predict the future,

(52:55):
and trying to say which is what the UK system
does that five years out we know exactly what the
debt is.

Speaker 4 (53:02):
Going to be is rubbish.

Speaker 5 (53:04):
You know, we don't know what if Donald Trump imposes
huge tariffs, what if the UK strikes a trade deal
with India? You know what if there's a discovery of
a new technology that totally transfer You don't know what
the future is going to look like. And my economics
is based on first principles. I know that if you
put up taxes too high, people won't go out to

(53:26):
work anymore. I know that if you make energy prices cheaper,
businesses are more likely to invest in Britain.

Speaker 4 (53:33):
The problem with these forecasts, and this is.

Speaker 5 (53:36):
Another criticism of British economic media, The problem with forecasts
is that people become focused on whether the numbers right
in the forecast, rather than the fundamental principles of what
makes the successful economy.

Speaker 2 (53:51):
Trist so great to chat with you, someone we wanted
to have on the show for a very long time.
Great that we've made it happen, and I'm appreciate your
coming on. Thank you, Tracy. I'm so glad we finally

(54:13):
got to interview this trust.

Speaker 3 (54:15):
We finally did it. I think it was a good
time to do it, actually, because yes, you know, there's
a lot of overlap with the Trump administation at the
moment and what trusts experienced in twenty twenty two.

Speaker 2 (54:26):
Yeah, yeah, no, I mean there was a lot that
I found to be interesting there, you know what I think, Actually,
maybe the most interesting thing to me is thinking that Okay,
in the US we have these multiple branches of government, right,
so the president wants something, but Congress is going to
veto it or ken veto it, especially if it's a
different party in power. Obviously that's not the dynamic of
UK with the parliamentary system. And yet even in the

(54:47):
parliamentary system, to hear this, Trust described the fact that
what she describes is even modest cuts to the increase
in welfare weren't palatable to the members of her party,
let alone the opposition, which of course never going to
vote it for but in her party. I find that
to be a very striking comment about the difficulty that
you know, electoral democracies have in bringing back huts.

Speaker 1 (55:09):
Well.

Speaker 4 (55:09):
Absolutely.

Speaker 3 (55:10):
The other thing that kind of caught my eye or
my ear was when we were talking about tariffs, and
you know, Liz said that she had praised the deal
that the UK struck with the Trump administration because it
was less than what the EU was paying. And it's
interesting to me that like countries seem to be competing
with each other. You know, the Trump administration in some

(55:31):
respects has been kind of successful in that getting its
trade partners to compete with each other for the lowest
deal rather than to, you know, try to compete on
an absolute basis for lower tariffs per se. I thought
that was interesting.

Speaker 2 (55:44):
I also think it's interesting, you know, this sort of
I find myself having a lot of sympathy with this.
It's sort of like anti democratic aspects of entities like
the OBR or in the US, the OMB, and these
ideas that okay, they have one set of assumptions about
how Paul works, and the idea that like they have
a formal role, and you know, there's there is a

(56:06):
certain undemocratic element. I think of these sort of institutions
that either they not necessarily with a formal veto, et cetera,
that aren't elected. I have sympathy for that opinion.

Speaker 3 (56:20):
It certainly seems like they can act as an institutional
restraint on the government. But some people would argue that
maybe that's a good thing, an independent body looking at
economic policy and monetary policy.

Speaker 2 (56:33):
Right, yeah, I mean that's the thing. And look, it's
very striking that she said, really she does not accept
the premise the Bank of England should be as independent
as it currently is, and that you know, the idea
is to your question, folding it back in with the
Treasury is very striking well.

Speaker 3 (56:46):
Also the line about you know, not wanting to have
her homework marked by someone who doesn't believe in it.
I'm sure all of us as students would have liked
to choose our own teacher who was creating our homework,
but we don't get to for obvious reasons.

Speaker 2 (56:59):
We don't.

Speaker 3 (57:00):
Shall we leave it there?

Speaker 2 (57:00):
Let's leave it there.

Speaker 3 (57:01):
This has been another episode of the aud Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.

Speaker 2 (57:07):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our guest Liz Trust. She's at Trust Liz. Follow
our producers Carmen Rodriguez at Carmen armand dash Ol Bennett
at Dashbot and kill Brooks at Kilbrooks. For more Oddlots content,
go to Bloomberg dot com slash od Lots with the
daily newsletter and all of our episodes. You can chat
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Speaker 3 (57:29):
Outlines and if you enjoy Odd Lots, if you like
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(58:00):
It behind