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tv   HAR Dtalk  BBC News  November 10, 2022 12:30am-1:01am GMT

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this is bbc news, we will have the headlines— this is bbc news, we will have the headlines and _ this is bbc news, we will have the headlines and all— this is bbc news, we will have the headlines and all the - this is bbc news, we will have the headlines and all the news| the headlines and all the news at the — the headlines and all the news at the top _ the headlines and all the news at the top of— the headlines and all the news at the top of the _ the headlines and all the news at the top of the hour- the headlines and all the news at the top of the hour straightl at the top of the hour straight after— at the top of the hour straight after hardtalk. _ welcome to hardtalk. i'm stephen sackur. the uk economy is in a hole. inflation is high, interest rates are rising, public debt is soaring. and according to the bank of england, brits face two years of recession. the new pm, rishi sunak, has justjunked the economic plan put forward by his short—lived predecessor and he's focused on restoring stability. my guest is economist and sometime adviser to conservative politicians
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gerard lyons. he's long been an optimist about britain's prospects in the global economy. but at what point does optimism look like delusion? gerard lyons, welcome to hardtalk. thank you. great to be here. it's great to have you here. would you agree with me that you've tried in recent years very hard to look on the bright side when it comes to the uk economy through brexit, through all sorts of different challenges, including the pandemic? are you struggling right now to be optimistic? well, actually, i wouldn't call myself an optimist. i tend to try and be realistic
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and call it as it is. often that might mean my views are in line with the market consensus. sometimes it doesn't, and that's when it's more fun. but the underlying trend, both for the global economy and the uk economy, i think is quite positive, actually. we have a major challenge immediately ahead, both here in the uk, western europe and indeed globally. but coming back to your question, one of the remarkable characteristics, both of the uk and many parts of the global economy, has been the ability to rebound from shocks. and we've seen that many times, both at a domestic and at a global level. but there's no doubt that one shouldn't be overly optimistic at the moment. the near—term outlook for britain and for western europe is a recession and, depending on the policy response, unfortunately, it could be a deep recession. yes. and the bank of england says it could last historically for two years, longer than any recorded recession we have seen in modern times. but beyond that, it's notjust about the uk's performance, it's about relative performance. and according to the oecd, of all the g20 countries, over the next year, we are going to be the worst
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performing, bar russia. well, the trouble with the oecd forecasts in recent years is that their forecasts about the uk have tended to be very pessimistic. but the actual data, the outturn, has tended to prove the oecd too pessimistic, shall we say. the outturn for britain has tended to be better than the oecd has often expected. but not really this time, as far as we can see, and according to all sorts of different measures that the bank of england has just alluded to, whether it be the soaring debt crisis that this country is currently wrestling with, inflation rates, which are 10% and are going to be high for the next few months, if not the next year. and then we look at all sorts of other measures which people really care about, like their own mortgage rates or housing costs — they're pretty disastrous for people at the moment, too. every single place you look in for economic data, it's bad. well, actually, let's look at where we are and then we can try and diagnose the future. if we look back over the last, say, six years, since 2016,
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since the vote to leave the eu, over that period, there have been many pessimistic forecasts about the uk. but if we compare britain, say, with the three major economies on the continent — germany, france and italy — like britain, they're all part of the g7 group. in actual fact, the uk tends to be pretty much in the middle of the pack or indeed better than the others. if we look at the major economic indicators, such as growth, jobs or indeed inflation, if we take growth, sincejune 2016, up until the latest data, britain has grown faster than italy, faster than germany, but not as fast as france. if we take jobs, what's quite remarkable is how manyjobs the uk continues to create. in fact, in terms of unemployment, or indeed youth unemployment, we have less than half the european area average — 3.5% unemployment here in the uk. and if we look at inflation, of course inflation is poor across all of western europe, including britain. but latest data shows that inflation in britain is lower than in italy, lower than in germany, but much higher than in france.
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so the reality is that, if we look at the last six years, often the forecasts, the expectations, have proved to be far more pessimistic than the outturn. so what we really should be saying is britain is pretty similar to the other major economies in western europe. well, there's a lot of data there. of course. let me just focus on one particular aspect of the economy, and that is the government's spending and the public budget. now, you've worked with and advised a bunch of senior conservative politicians. the conservatives have been in powerfor a long time and, after the financial crisis, david cameron's government made it a priority to balance the books. well, here we sit today with the uk facing a national debt which is more than 100% of national income of gdp and a year on year deficit which has risen to something over 7% of gdp. now, these are terrible figures, figures that any conservative surely ought to be ashamed of. 0k. well, just in terms
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of the politics, i look at it straight economics, regardless of politics. in fact, i was brought in to give advice to gordon brown and darling... since then, you've advised borisjohnson, you are very well known in recent times for giving quite a lot of advice to liz truss, who of course we must remember was only in power for a few weeks but nonetheless had a serious impact on the economy. and we can talk about that because her so—called mini budget was perhaps the single most disastrous piece of economic policymaking we have ever seen in the uk. and you were advising her up until she issued that mini budget. 0k. well, let's be straight. i did see liz truss twice before she moved into downing street, when she was foreign secretary. so i didn't actually speak to her or meet her after she went into downing street. and indeed, i didn't meet her chancellor or any of her ministers, so i was very much outside the tent. as a sort of leading economist, i'm often asked, as you've correctly pointed out, by politicians to actually give my thoughts about the economy.
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so i think it's very important to differentiate between being on the outside giving views as opposed to being on the inside. i accept all of that. but nonetheless, what liz truss decided to do, along with her then chancellor, kwasi kwarteng, was go for growth, go for growth by slashing taxes, all sorts of different taxes, at a time when, as i say, the national debt was rising and the deficit was also rising. now, most economists, if that had come from a labour government or a labour party, would have said that is the most irresponsible sort of economic policymaking! but it seems you and a bunch of other i'm saying small c conservative economists appeared to think that was the right thing to do. 0k. there's a whole host of issues there. let's take the actual debt figures. but then the advice after. in terms of the debt figures, uk debt to gdp is very high. it's just below 100%. it's the second lowest... it's going over 100%. yeah, it's second lowest in the g7.
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so the point is that it's not a unique problem for the uk, but the high level of debt means that it makes the debt picture very sensitive to the relation between economic growth and interest rates. so, if interest rates go up, it makes the debt picture worse. if the growth picture is disappointed, it makes the outlook worse. so a decade ago in the uk under osborne, the uk adopted the wrong approach. then, with the economy weak, the treasury said the public finances are in bad shape, therefore you need austerity. i was critical of austerity at the time, as indeed was borisjohnson, shall we say. in the last couple of years, the approach has been in economic terms similar, but the politics very different. the last couple of years, the treasury has basically said growth is very weak, public finances therefore are not in good shape. to get the finances back into shape, you need higher taxes, which is what rishi sunak was advocating. now, the imf, earlier this year, rightly, in my view, criticised the uk as being the only g7 country planning to raise taxes going
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into a global recession. as keynes correctly pointed out almost 90 years ago, you need to use fiscal policy to stabilise an economy when it's facing economic weakness. but you are correct. the problem with debt makes the outlook very sensitive to that growth and interest rate picture. so what one really needs to do is try and turn the whole picture around and ask, what is it that's required? and you could apply this to france and germany and italy as well as britain. what's required to change what has been the picture since 2008? since 2008, britain has been a low growth, low productivity, low wage and, in recent years, high tax economy. now, if you basically have austerity or tax increases against that backdrop, it's like being in a hole and digging deeper. so the correct question to be asking is how you actually turn it around. indeed. but what is not correct is to undertake a sort of, as you would put it, or as liz truss would certainly
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put it, a growth oriented strategy which the financial markets themselves do not regard as credible. you are nothing if not a believer in markets and capitalism and the ultimate judgment on liz truss' mini budget came from the markets themselves. absolutely. yeah. and at the time i was basically arguing publicly as well as privately that liz truss and kwasi kwarteng, even though i wasn't advising them, they'd already gone into downing street, that they needed to take account of the very febrile state of the financial markets, they needed to make sure they didn't spook the financial markets. and publicly, i'm on the record. the financial times have quoted me on this, for instance, that fiscal policy actions need to be shown to be necessary, not inflationary, and affordable. now, if kwasi kwarteng, who was then chancellor in the mini budget, had actually stuck to what the markets expected, which is what i would have thought he should have done, which was the energy cap and reversing those two planned tax increases, then he probably would have been fine.
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how do you think government best boosts productivity, economic efficiency? because we, in this country, if you look at measures compared with germany, france, a whole host of european competitors, we are a very unproductive, inefficient economy. is it that the government has to take a very proactive role to investment to get that productivity higher? yeah, well, i've always argued that you need to have the government playing an important role, but the government needs to actually at the same time play a role that incentivises, encourages the private sector. so it's about getting the balance right. but the key issue really is this — it's about investment. i remember when i started in the city in the late �*80s highlighting the fact that the uk then had a very poor investment picture and the uk has continued unfortunately to do poorly on investment. now, very much what the government should be doing is coming back to all those is i talked about —
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the four is. 0n investment, it's notjust investment in plant and machinery — in particular, it's investment in skills and training. in terms of productivity in the uk, half the people work in low productive, low wage sectors, but they are only in about five different industries, including retail, hospitality, food services and a couple of others. but the point is, when you look at the data, most people in those low skilled jobs have not had ever money spent on their skills and training. so what the government should be doing is trying to incentivise or help firms to invest more, notjust in plant, in machinery, but in skills and training. that's key. now, the uk does have... so you need to use government in a very active, interventionist way in the economy to actually direct investment to the sorts of things which will boost long—term productivity. the government can't pick winners. that's the thing. tell that to the french, maybe the germans, because they believe from time to time the government absolutely can pick winners. well, the french and german
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economic record is not particularly good. if we look at... today, you say that to a german, they'll laugh in your face. right now, their economy is much more successful than ours. well, i was in germany a couple of weeks ago. they're in deep trouble, basically, they're facing recession. they've had three big factors in recent years. one, there's been cheap energy from russia — that has suddenly started to become questioned. second, they have a very good relationship with china, and i'm heavily involved with china. and china is playing an important role in the world. yeah, well, iwant to come to that. but third is their domestic economic situation where they are not as productive as they once were. but you're right... that's still a lot more productive than us. let's move on because i don't want to get stuck on any one topic. we've got a lot to get through. brexit. yeah. i referred to you as an optimist. you were extraordinarily optimistic about brexit. you were a champion of brexit and you said that a no deal — this was in 2017 — a no deal brexit might cause some short—term disruption, you said, but not very much.
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are you now ready in 2022 to say "i was wrong"? well, the growth figures i've cited you earlier about britain's relative performance to germany and to italy would suggest that the uk is very much in the pack... i don't want to blind people with stats, but if you look at all sorts of different trading measures, trading with the eu and then trading with other countries, since brexit, our performance has gone down and gone down very significantly. and the obr, the government's sort of chief sort of adjudicator on the economy, has said that they reckon that brexit has reduced uk gdp by at least 4% compared with where it would have been had we not brexited. 0k. i think this figure is always cited, but you need to put this in perspective. are you saying it's wrong? it's not often how people like yourself are citing it. the obr is saying that... first it wasn't a model forecast from the obr. this was a sample of other forecasters, some of which were unambiguously
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far too pessimistic. the picture, though, and it's important this, what they were saying is that the growth trajectory was still for the uk economy to grow strongly. but they thought if we had stayed in the eu we would be four percentage points stronger in i think 2030 or so. so it wasn't that the uk was not growing, but when you actually look at these figures, what is quite interesting is that the single market component only added 1% to uk gdp over the last 20 years. when you break down 4%, much of that 4% is based on productivity and on immigration factors which are not necessarily linked to the eu. they're based... they're not cast in stone. i think it's important because these are based on future policy actions. i'm a simple soul and i'm just trying to make sense of what has actually happened since brexit. now, leave aside the fact that trade with europe has declined and declined very significantly. you said that actually it would free the uk
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to be a much more open, resilient, unregulated... ..deregulated economy and that would help us in our wider trade relationships. but let's go back to china, which you care so much about. german trade with china dwarfs uk trade with china and the gap between the two has actually grown since brexit. it's more than three times now more trade that germany does with china — germany, of course, an eu member — than the uk does with china. the uk, according to you, freed of all the constraints that came with the eu. so how can you tell me that the uk's global trading performance and potential has been improved by brexit? all right, look, brexit does a lot of things. it provides political, economic and financial ability for the uk to reposition itself. the political aspect is very important in terms of greater democratic accountability, freeing us from a movement towards a greater political union. the big problem in the uk has been in terms of... do you think, in beijing, they seriously think, you know what? we're going to do much more trade and invest much greater
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sums of money in the uk now because it's brexited than we would have had it stayed in the eu? there's a whole host of issues here. let's take the china aspect at the moment because on the brexit component there is no doubt... i actually said this in 2016. and i think you were quoting from the... ..the clean brexit book that the economist and the times, both hardly brexit supporting organisations, basically said was one of the best and clearest books on brexit because we looked at the pros and the cons. now, the point is that it's notjust leaving, it's what you do when you leave. and there's no doubt, again... we haven't got it right since we left. no, of course we haven't got it right when we left. but that's quite clear. also, at the same time, you can't be in something for over a0 years and expect it not to have an impact when you leave, particularly when you rush through a trade agreement, as we did at the last minute. but notwithstanding that, if you actually look
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at the flexibility we've had in the last few years, say, on vaccines, in terms of repositioning ourselves, in terms of trade, the eu, when wejoined it in 1973, albeit with only nine countries, it was 26% of the world economy. when we left, there were 28 countries, but it was down to about 20% of the world economy. on most projections, including the european commission's projections, in 25 years' time, the eu, as it is then, will probably be about one tenth or less of the world economy. india... plausible scenarios will be even bigger. so the uk has the opportunity, and notjust with china but with india, to reposition itself in a changing and growing global economy. when china looks at the uk, one of the key things is that greenfield investment into the uk — that is take out m&a — has actually picked up from 2016 to 2019. 0k. you still see this extraordinary potential for britain in the world. what i think you've touched on is a very important point, which has been the failure in the uk to not only move ahead, move forward, rather,
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and to reposition ourselves, it's about not explaining this globally because if you... before covid, i was going to beijing, talking to them about the uk, and there is no doubt that they had not seen the uk, apart from the trans—pacific partnership, sort of brand itself. so i think it's both what we say and what we do, and i think we've had a political crisis and we haven't, coming back to your question, really seized the opportunity. right. well, we're near the end now. i just want to raise your eyes to a much wider horizon now, because underpinning much of what we've discussed is a notion that growth is good and that actually getting gdp growth higher is fundamentally what economic policy should be about. let me say, though, that we, you and me, we're talking as world leaders meet in egypt to discuss global warming and desperately trying to find ways to cut emissions to get to net zero by 2050.
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and i would put it to you that a whole bunch of economists now, as well as environmental campaigners, say that that goal is incompatible with this notion that the world must constantly strive for ever greater economic growth. do you, as an economist, recognise that? well, since its inception, i've been on the advisory board at the grantham research institute on climate change and the environment with nick stern here at the lse and imperial in london. so i've been very much arguing the green agenda. i would argue that green and growth do go hand in hand. but coming back to your question, it's very much about changing the growth agenda. the growth model in the uk, for instance, where we've reduced greenhouse gas emissions by 42% between 1990 and 2019, that can become more pro—growth and green at the same time. there is an inherent challenge that many people... does it require you notjust... that's a nice mantra, it's a good slogan, but does it require you to rethink your view of what capitalism does? rebecca henderson, an economist at harvard, says this, part
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of the problem is "a failure to imagine "that capitalism can be done fundamentally differently, "that it can operate without," as she puts it, "toasting the planet. we now need," she says, "self—aware growth, not growth at any cost." well, what comes out is very much incentives really do matter. and it's about incentivising notjust people and companies, but people's behaviour will change. look across parts of the uk — we've started to see, in response to people's behaviour, i can pick a whole host of areas in the uk — blyth, hull, aberdeen — now becoming centres for offshore wind. tyne tees, round the orkneys as well, have become centres for hydrogen. so how behaviours change, but governments do play an important role. but i don't think we should lose sight that you have to get the macroeconomic factors right. take inflation. last year, at the beginning of last year, i was asking, which p is it? would inflation pass through quickly, as the central banks thought? will it persist or would it become permanent? i was correct on it persisting.
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but the point is that you need to get these macro variables — growth, inflation and with the interest rates in check — and i think it works hand in hand with growth. but in a way i'm asking you... i'm asking you to think the unthinkable. i'm asking you to consider what people like george monbiot say. he's an environmental activist. he's not an economist. but he says green growth, as it's called, doesn't exist. less of everything is the only way to avert catastrophe. that's wrong. what we know... why is it wrong? because, frankly, the trajectory we are on, to quote the un secretary general today in egypt, is a highway to hell. look, we have to take action to address the environmental challenge. i'm not disagreeing with you on that. i've been arguing that myself for the last 15 odd years. yeah, but you can'tjust do it by little incremental changes. you've got to accept that, if we agree that we're on a highway to hell, radical change, radical reassessment of what capitalism does and what it's for has to happen. well, it's not a radical
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reassessment of capitalism. it's about different countries recognising their own responsibilities. if you look at china, the second biggest economy in the world, they have a green agenda. but what the uk has shown, we were the first country to actually come out with net zero or carbon budgets. what we actually are showing in the uk is to use the financial system, which directs capital and money, can play an important role. i'm with you in your question about the need for action, but you don't throw the baby out with the bathwater, to use the old phrase here. but you do need to take radical action. but radical action doesn't mean that you... sorry, gerard, but to end, we talked about your optimism, even on this issue of whether we truly can continue to enjoy greater prosperity and avoid the worst of global warming and deliver sort of net zero by 2050, you think we can have it all? no, i'm not saying you can have it all, but what i'm saying is that your actions need to back up your rhetoric. and what we saw in paris was a commitment at the cop
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meeting to take action. governments didn't follow through with their national recommendations in glasgow. some, like the uk, did, but it does require more people to take action. it requires carbon markets so you can use the price mechanism. but also at the same time it recognises that you can actually have greater investment and a green growth model, as i think some economists, not the ones you've quoted, but i would put myself in there, would highlight. gerard lyons, iappreciate you coming on hardtalk. pleasure. thank you very much indeed. thank you.
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hello, many areas desperate for rain, including the south—east of england. that has been addressed a little over the last few days. it has been the way to start on record for england in the south—east, some areas have seen a month's worth of rain injust the space of a few days. however, mist and fog is likely to be a problem over the next few days. the rain stays into the far north—west, elsewhere it will be largely dry, and it will be mild for all of us. over the next few hours, that rain across the far north of scotland, the south—westerly wind feeding in a lot of cloud, mist and drizzle as well. it will be a mild start to thursday morning, temperatures sitting between nine and 12 degrees. the cloud of thick enough for a spot of drizzle, and it will be pretty misty as well. high pressure is dominating
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the story and keeping things largely dry. it is also keeping these weather fronts out to the far north—west. around that high, we have the southerly wind, and that is feeding on the mild air, and extending as far north of scotland. yes, cloudy, with some light drizzle first thing. a misty, murky start for all. the rain quite heavy and persistent towards the north—west of the great glens. the winds are a feature for the highlands and islands and the start of the north sea. we are likely to seek deal wednesday, blustery elsewhere, mild winds with it. there will be some brighter spells into the afternoon, with highs of 16 degrees, 61 fahrenheit. that is going to lead into a very mild night indeed. we are likely to be greeted with temperatures not falling very far at all, 15 or 16 celsius. look how much cloud we have got for many, first thing. that should tend to break up across central and eastern england into the afternoon, the rain stays to the north—west, the talking point on friday will be temperatures as high as 18 or 19 celsius.
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now, as we move into the weekend, it starts off dry, but there is a threat of another front pushing in from the west as we go through the latter stages of sunday. all in all, not a bad weekend in prospect, dry and very mild for most, certainly better than last weekend.
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welcome to newsday — reporting live from singapore — i'm karishma vaswani. the headlines. a major set back for russia in ukraine — it announces a retreat from kherson — the only major city its captured since the invasion. the race for control of the us congress is still in the balance. the democrats are hoping to hold onto the senate — while republicans haven't given up on winning both chambers — as the votes are still being counted. a man is arrested in britain after eggs were thrown at king charles. and — the bronze statues from ancient italy — perfectly preserved in the mud and hot springs of a spa.

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