Video transcript: Q&A with Lord Gavin Barwell and Rt. Hon Alan Milburn

Transcript

Victoria: Hello, everyone. Lovely to have you with us this afternoon. My name is Victoria Tillbrook. I lead our pensions employer covenant and restructuring practice and I sit also on the board of our wider restructuring practice and, just to say, it's lovely working with you. We've really enjoyed working with many of you over the course of last year. We're very much looking forward to working with you over the next year. Although it's pretty difficult to predict what we might be working on together at this point in time and hopefully the discussion will maybe give us some predictions in relation to that. The next 25 minutes or so will be a question and answer session focusing on the political and economic environment that we find ourselves in. I am joined by two experts on that point. First, Lord Gavin Barwell, thank you for coming to join us today, ex-Conservative member of parliament and chief of staff to Theresa May between 2017 and 2019. And then, also, the Right Honourable Alan Milburn, Labour MP for eighteen years and secretary of state for health from 1999 to 2003 under Tony Blair. So, potentially some differing views but also potentially some views that (talking over each other 01.15).

Alan: Unlikely but, anyway, we'll try. We'll try. We'll try. Yes.

Gavin: We'll do our best.

Victoria: We'll see. You're currently both senior advisors to PwC as well. So, you know, I and many of the team draw on your thoughts and we're very grateful for that. So, thank you. So, I will kick off with the economy and we'll leave politics for a moment and then we'll get onto that. So, Gavin, I'll start with you. What are the key concerns for the Conservatives when managing the current UK economic situation?

Gavin: So, I suppose they've got two. There's a, sort of, public service concern which is the impact the current situation is having on consumers. The cost of living crisis we've been through, the risk that the increase in interest rates is going to potentially tip the economy into a recession, some people are now predicting later this year. So, there's that, kind of, macro concern. And if they're being honest with you in answering the question there's also a political concern, which is they're at risk of the biggest failing in politics. Which is getting the economic cycle completely out of kilter with the political one. If he's going to have any hope of winning the next election at all there's got to be a feel-good factor by the next election, which I think probably will come in the autumn of next year. And the risk that with inflation proving sticky and the bank having to do more on interest rates, the risk is actually there's not going to be any, kind of, feel-good factor from it at all there. So, I suppose, public policy terms, they've got the immediate problem of trying to get through this period and how do you get inflation down quickly so that people are feeling better off? Also, and we might come onto this, there's a kind of longer term growth challenge that, whoever wins the next election, that the UK economy has never really got back to the levels of growth that we had before the global financial crisis.

Victoria: Okay. So then, Alan, how might the Labour party be managing it differently?

Alan: Well, the Labour party would probably say, 'We wouldn't have got into this mess in the first place.' Obviously. But that's what oppositions always say. I mean, it's interesting, isn't it? When Rishi had the banks in or Jeremy had the banks in last week the immediate Labour response to that was, 'That's all well and good but we would go further and we would enforce action on the banks.' So that gives you a bit of a clue, I think, as to one of the, sort of, differences between a potential Labour government and the current Conservative government. But they will be more interventionist. They just will. And, by the way, they've set quite a big ambition. You know, not only to achieve the fastest growth rate in the G7, much of which is not entirely new at all. But, also, what people haven't spotted is that there's a sub-objective which is to close the gap in terms of the median disposable income between the average British family and the average French and German family. And that's quite a big gap right now. So, I think, you know, they're going to be pretty interventionist. I think their analysis, I mean, in a sense it's “Trussian”, you know. So, Liz Truss wasn't entirely wrong. I mean in terms of analysis. Entirely wrong in terms of prescription, obviously. But the default position, which is that we've got an endemic problem of low growth and therefore we've got low wages and therefore lower standards of living than otherwise we should do, that's a shared view and it's right. And so, the critical question is how do you drive up levels of growth?

Victoria: Interesting. Just picking up on that point, and, Gavin, I'll come back to you on this, just about, how different does the UK economy actually look to other similar countries at the moment?

Gavin: It's not totally different. I mean, this problem of sticky inflation is a problem in most of the G7 economies. There's this organisation called, I think it's the International Bank for Settlements, which is basically, like, the central bank of central banks. And they put out a warning over the weekend basically saying, 'This is a big problem everywhere and governments need to start using fiscal policy to help central banks out.' I.e. either cut spending or raise taxes to take some of the heat out of the economy. But the UK looks worst of it. It looks stickier here than elsewhere. And ‘why?’ is the million dollar question. I don't think anyone's come up with a totally compelling answer but it looks to me like there's at least three bits of the answer. One is that our labour market is tighter than many other countries, so you get more pressure for wage increases. The second is that the inflation that we're seeing in most advanced economies is being driven by the services sector and the UK economy is more services dependent than most other major economies. And the third, which touched on your questions at the start, is ‘the B word’, Brexit. Which has probably had a bit of an impact on both of those things. It's reduced the labour force and it's complicated supply chains a little bit and therefore led to companies increasing their prices. So, I think the simple answer to your question is ‘not totally different’. Many of the causes of this problem are common across the world, whoever's in government. You know, left wing governments, right wing governments. But there do seem to be some particular factors that make it a bit worse here than elsewhere.

Alan: And it's an interesting thing, isn't it? That right now for the first time in British history the number of vacancies in the economy is higher than the number of people who are officially unemployed. So, you've got an incredibly tight labour market. Now, the truth is there are also ten million people who are economically inactive and two million of those actually want to have a job. So, there's a real job of heavy lifting to do to ensure that the necessary support, infrastructure, upskilling, etc. is there for those people because otherwise we're going to continue to face what we face every day. I mean, you can't get into a restaurant because they're closed on a Monday and Tuesday. You can't get into a care home because they don't have any staff. And, of course, the other problem is there's a big circle around one of the answers to all of this which is immigration. And Labour's pretty nervous of that and the Conservatives are pretty hostile to it. So, one of the big levers that you could pull in order to address these things is politically a bit of a no-go area. So, that makes it even more difficult.

Victoria: Yes. Really, really interesting. And we're getting various questions in but one of them is about do we think the Labour party approach will be radically different? And, I guess, you know, you mentioned a number of points there. You've talked about it being much more interventionist but, I guess, on some of those other key points do you think they will be radically different?

Alan: I think what you're going to see is an interesting combination of what I call “fiscal conservatism”, and watch out for Rachel Reeves and Keir Starmer using that phrase because I suspect that they will, and economically quite radical. I think there's going to be an interesting combination. They're not going to play fast and loose on tax and spend. Not least because you've got the biggest fall in living standards for 60 years and the highest taxes for 60 years. So, the ability to mess around with taxation is pretty low. But when you look at what the Labour party, and particularly Rachel, has been saying on economic policy it does mark the end of an era. I mean, she talks about hyper-globalisation, that era, coming to an end. Now, I'm a hyper-globalist. So, you know, it slightly takes me aback to be perfectly honest. But she made a recent speech in Washington, which I thought was very good by the way, where she talked about this new concept and what she calls ‘secure-onomics’. Which is very much based on the Biden proposition, about how do you ensure, within the context of globalisation, a nation is able to secure its own future, its own supply chain, its own key strategic industries. And beneath all of that, therefore, there's a view, I think, in the Labour party that what is required is a much more active state and active government and a much more active industrial policy. And you saw a little bit of that last week when they published their green plans for net zero or with this Great British energy company being created, extra money going into it, the idea of the public sector, as with the Inflation Reduction Act in the US, unlocking more private sector capital. Because one of the problems that we have structurally, and this is, you know, beyond the remit of any one government, it's a deep structural systemic problem, is that we have very low levels of investment. And so, we've got to find a way of unlocking that. And I think the Labour party sees public sector capital as being one of the catalysts that might make that happen.

Victoria: And I think we might come onto that a little bit and particularly in relation to pensions because obviously (talking over each other 09.31).

Alan: No, exactly. No, no, no. I mean, it's becoming more and more important. Yes.

Victoria: Yes. Okay. So, that was the warm up, the economic, the easy bit. So, let's get onto the politics and, you know, where we're going to. So, let's think about the election, the next election, and, Alan, how do you think the Labour party are preparing and what is the theme?

Alan: Well, I would say they're in, sort of, phase three of what Starmer has really been trying to do. Phase one was detoxification after Corbyn. You know, Corbyn was a disaster. The worst election result, the last one, since 1935 for the Labour party. There was a lot of focus on the red wall but we also lost quite a lot of seats in the blue wall, Hastings as well as Hartlepool. So, you've had a process of moving away from that, moving back to the centre, reclaiming Labour as the party of business, as the party of the nation. You know, Keir can hardly walk past a Union Jack without being photographed in front of it. So, he's trying to make a point. The second stage was really about introducing Keir. Who is this guy and what's he about? And, sort of, we're around that a bit more now. But the third stage is really spelling out what it's all about, Alfie? What does Labour stand for? And my reading right now is the public, basically, they're ready to kick the Conservatives out. You know, they think after fourteen years asking for nineteen, which is what the Conservative party would be asking at the next election, is just too big an ask in a country that feels like everything's broken. But the Labour party hasn't yet sealed the deal and here there's a, sort of, strategic conundrum for the Labour party. Which is how much leg does it show before the election? Because if it shows too much then what happens is your policies, if they're decent, they're nicked. Or if they're not so good, they're attacked. But you've got to give a flavour of what it's really about and that's why they're publishing these missions. You've seen these. And the next one will be before too long probably next week the opportunities which is maybe the education measure (ph 11.30). So, they're trying to spell out what a Labour party would really stand for and their prospectives. I think going into the general election is going to be a pretty straightforward one. They're going to argue, 'It's time for change. The other guys have had their chance and they've blown it. Labour can now be relied upon.' It's reassuring again but it also has a plan.

Victoria: Okay. So then, what are the Conservatives doing to plan?

Gavin: Well, they're feeling pretty glum at the moment. I think it's fair to say that most of them know the writing's on the wall. I think the difficulties they've got, it's not really about Rishi. I mean, I think if you take Alan's three phases for the Labour party, they've done a good job on detoxification. A less good job on defining Keir. If you look at the poll and just Keir versus Rishi it was pretty close.

Alan: Yes.

Gavin: Whereas, the party gap is significant and growing again.

Alan: And growing again. Yes. Yes. Yes.

Gavin: Over the last couple of weeks. So, the problem is what's come before. The problem is Johnson and Truss. So, they've got their own detoxification problem and I'll come back to that in a second. And then, they've got the economic problem, which is just, like, it's tough for a government. When the global economic headwinds are difficult you get the blame for it and they're not totally blameless either. Because Labour can point at what Truss did and say, 'Well, there may be a global thing here but you made it more difficult.' So, part of the problem I think Rishi's got is he's not, in my opinion, doing as much as he should be to differentiate himself from what's come before. His only hope, as far as I see it, is to say to voters, 'Yes, we need a change and I am the change. I'm not like Johnson. I'm not like Truss.' Now, he's done it more with Truss. He's a bit more blunt there of saying, 'There were mistakes made and I'm clearing up the mess.' But, you know, if you take the vote the other week on the standards report into Johnson, he didn't turn up and vote. He found it politic to stay away. That was a big opportunity to say to voters, 'I don't tolerate that kind of behaviour. What he did was wrong and I'm very happy to endorse the committee's report and what it had to say.' So, they've got a huge challenge. I think, bluntly, whoever was the leader and actually even whatever had happened it would be difficult to get nineteen years. I mean, it doesn't happen very often in our system. But they're in danger at the moment of facing quite a heavy defeat. So, what follows from that is the government you're going to get for the next year, fifteen months, is going to be very short term. You know, if you came into Rishi's office today and said, 'I've got a wizz idea that's going to pay big dividends in four years' time,' there isn't much use to it.
So, the focus is on the short term things. Can they get inflation under control? Can they get the economy growing? Can they get the NHS-, they're never going to get it back to where it should be but can they at least demonstrate the right direction of travel? And, for their base, can they address this small boats issue? What we haven't had from him at all, which he is going to have to answer is, I mean, he may, being an optimist, think he could do those four things, what's the long term vision for, what? Another five years of Conservative government? He's not telling that story at all at the moment and the reason he's not is his pollsters are telling him, 'The voters don't even want to hear that from you at the moment. They want you to sort this mess out and then they might be open to..'

Alan: No, he's got a huge quandary. And it's one of the interesting dividing lines that are, sort of, emerging between Starmer and Sunak, who in some ways are remarkably similar. You know what I mean, they're both, sort of, quite technocratic. You know, they don't really come from politics. You know, in the case of Rishi, as Gavin has just been saying, he's not that political, which is an odd thing to say about a prime minister but he isn't. But the big dividing line between the two of them is that Starmer has this view that, 'Look, the problems in the country, whether they be net zero or transition, what the new economy looks like, how we fix post-Brexit relations with Europe, etc., etc., etc., the state of the care system, they require long term solutions.' And unfortunately for the Conservatives they're stuck in the short term amelioration sticking plaster position. Because they've got to prove again, post-Johnson and Truss, that they're competent at governing. It's not really where they want to be. Now, having said all of that, this is one of the differences in view that we have because, oddly enough, Gavin thinks there's going to be a majority Labour government and I, you know, maybe psychological safety, I don't know, or what-,

Victoria: Pride comes before a fall.

Alan: I think it's harder than people think. It just is. Psychologically it's harder. So, you know, I think the odds are in moving towards a majority Labour government but it's definitely not a slam dunk. And I could see a minority government rather than necessarily a majority.

Victoria: Okay. Interesting. We've had a couple of questions which I'll put together about big business and regulation and about how we might see that change. I might ask that to both of you. Alan, maybe if you start. Just, do you think there will be a different approach to big business and also to regulation that we might see as we go into the election and post the next election?

Alan: I think, yes, but it depends on what big business we're talking about. So, going back to the previous answer I gave on the difference that a Labour government might bring in terms of economic policy, they're very focused on particular strategic sectors that they think are important due to the security of the country. So, energy, life sciences, creative industries and, interestingly, professional services. So, we, as a firm, are, sort of, in the Labour sweet spot, so to speak. And they want to see more competition and more success for those industries. Equally, they're taking a view that there are parts of the economy that become overly concentrated. And digital would be one and you would expect to see the CMAs brief being, I think, radically changed under a Labour government with a view to inducing more competition, not less. And that might be reflected in some changes of business taxation. So, they're treading a very tight rope here in terms of, on the one hand, wanting to be different from the previous lot and, on the other, not trying to upset the apple cart or scare the horses. So, there's an avowedly pro-business type of feel to what Rachel or Keir, you know, any of the Labour frontbenchers, are saying. And they are very pro-private sector, pro-growth, pro all of that but they recognise there's got to be some change here, particularly as far as bigger business is concerned.

Victoria: And, Gavin, how about the Conservatives in relation to big business?

Gavin: Yes. So, I think there's two things, and if I just touch on that and then come onto the Conservatives. I think there's two things at play here, right? So, I think there is a trend in the global economy and, sort of, geopolitics, which is against the, sort of, Reagan, Thatcher era of small state, let the free market do the job. All right? Because the pandemic, the war in Ukraine, worsening relations with China teach us that, actually, if our supply chains are all concentrated in somewhere that's geopolitically vulnerable that's an economic problem. And this is really what was behind Rachel's speech, right?

Alan: Yes. And what Biden is doing or what (talking over each other 18.27) doing as well.

Gavin: And the conservatives are, sort of, being driven into that territory, even though they probably privately ideologically feel a bit uncomfortable with it. You know, if you think about the recent investment in building this electric battery plant in the UK the government essentially provided £500 million of money to make it happen. So, you know, they don't believe in industrial strategy in the way that Rachel does. And, actually, Theresa believed in it, right? You had this little period of Conservative government where we were going to have this industrial strategy. And Boris and Liz and Rishi don't really believe in that but they're being, sort of, pushed into it, to a degree, by the geopolitical trends. I think with Labour, and Alan made the point very well that, the pro-business stuff is not just rhetoric. They mean it. It's serious. But it's also important to remember the flip-side, which is that they're also pro-worker and they are pro the state having a role in making and shaping markets. So, you shouldn't dismiss the pro-business talker's spin and PR, it's real, but you've got to see the whole picture of where they're coming from in terms of their overall.

Alan: No, that's important.

Victoria: We are so restricted by time, so I'm going to ask an enormous question and ask you for a short answer. But how might we see the foreign policy shift over the next couple of years? And, I guess, does Labour have a very differing approach?

Alan: Yes. So, yes, I think in some ways. I mean, first of all you're seeing a more and more confident approach to Europe. You know, today's Conservative party, present company excepted, it's overwhelmingly a Euro-sceptic party or, worse than that, hostile to Europe. And Labour's basically a pro-European party. And so, Keir's problem actually is that he is pro-European. And so, he's having to, sort of, straddle to try to win Leave voters as well as Remain voters. So, he's not going to say anything outrageous ahead of the election. And indeed after the election those who might be hoping, and I might be one of them, for Britain to rejoin the single market and eventually think about membership of the European Union, that isn't going to happen. It isn't going to happen for political reasons. What you are going to see is much closer cooperation on issues like security and defence policy. They will review the deal, the Brexit deal, in 2025. And they're already talking about removing areas of friction around food, agricultural products, medicine and so on and so forth. So, there'll be some of that. Tonally I think is where you're going to see as a big difference. The question is an interesting one about how much that will be reciprocated by Europe because Europe's been burnt by Britain just as Britain felt burnt by Europe. So, we'll see how all of that plays out. So, you're going to see that. I think the other thing I'd highlight as a big change in foreign policy is you're going to see much more institutionalised in foreign policy, a pro-environmental approach. So, they're going to argue, for example, that one of the pillars in the United Nations should be about environmentalism. Just as international development should have at its core, ensuring that the planet is looked after in the appropriate way. So, those are a couple of the shifts that I think you will see.

Gavin: So, I don't disagree with that. I mean, I think overall there's quite a lot of continuity. I think Labour has shifted a long way since it was led by Corbyn. So, when it comes to commitment to NATO, if you listen to what Keir and David Lammy are saying about Ukraine, it's very well aligned with the current government. So, British foreign policy on that stuff will continue. I agree that there will be quite a big rhetorical change on Europe and a smaller shift in substance. The thing that interests me most, and we haven't heard a lot about it yet, is where they go on China. And this, I think, is a challenge for all European governments. At the moment the Biden administration is basically bailing Europe out on security. You know, we would be really struggling to deal with Putin if we still had Trump there and he had not played ball on Ukraine. And, to me, the idea that Europeans can then take a completely different view to the US on China is ‘for the birds’. You know, there is a reciprocity to foreign policy and if your ally's helping you out on the stuff that's a threat to you, it's very difficult not to stay aligned on the issue that's most important to them. And however much Biden is doing on Ukraine, American foreign policy at the moment is focused very, very ruthlessly on the challenge that they see in the Pacific. So, one of the challenges for UK foreign policy, whoever's in government, is exactly how we see our relationship with China developing.

Alan: And the thing that you can't predict, I mean, in foreign policy in particular, I mean, you know, events happen, right? And it's true to domestic policy but it's super true to foreign policy. So, think of the in-tray for an incoming foreign secretary. You know, is it going to be Biden or Trump in the White House? You've got China playing out. You've got the EU situation and a review coming up in 2025. And you've probably got a horrible, grinding, gruelling war still going on between Ukraine and Russia.

Gavin: And let's have one contemporary thing, right? This thing that happened at the weekend. Imagine if you get regime changes. I mean, some people watched that at the weekend and thought, 'Oh, great. Putin's in trouble.' Prigozhin is worse than Putin, right? And if you're the state department or you're the CIA, the thing that you least want is civil war in a nuclear state and not knowing who is in control of those nuclear weapons. So, you know, the war could go on or, even worse, you could see a, kind of, breakdown and dissolution of the Russian Federation. There's some real challenges.

Victoria: Goodness. And that is just so interesting. I'm going to scrap my question about have we see the back of Boris.

Gavin: We have. We have.

Victoria: For today. For today, we have. Okay. There we go. So, just one final question, even though we are slightly out of time. But final question, just on bringing it back to where we are, pensions and restructuring. Anything that is on the minds of the parties that is helpful for us to just comment on that?

Gavin: So, two sentences from me, if we're short on time. Look, I think whoever's in government after the next election is short of money to do the things that they want to do. There's a massive in-tray of stuff that needs doing. Lots of things aren't working, to use Alan's language. And so, whoever's in government is going to look at UK pensions and think, 'Is there a way of deploying that money to help with some of the stuff that we know needs to be done?'

Alan: And I think Rachel's thinking of that very strongly. So, I think that's a really big and interesting area. And there's quite a lot of active thinking going on about it. Not just about pensions, by the way, but how do we reverse course? In terms of lazy capital in the UK being turned into active capital in such a way that British companies, startups, as well as existing indigenous businesses, get a real opportunity to compete more successfully.

Victoria: Fantastic. Thank you both. Fascinating as always and we never have enough time. So, thank you very much.