Debate: Has the Chancellor turned a corner with the economy? – Channel 4 News
6m
15 Jan 2025

Debate: Has the Chancellor turned a corner with the economy?

Presenter

Economics Professor, Mariana Mazzucato, from University College London, and Rain Newton-Smith, Chief Executive of the CBI discuss whether the Chancellor has now turned a corner with the economy.

Rain Newton-Smith: I think lower inflation today is certainly welcome news and hopefully that will lead to a lower path for interest rates. So I’m sure Rachel Reeves will be breathing a sigh of relief. But the work is not done there. We just absolutely have to make it easier for businesses in the UK to invest and to grow their businesses.

Cathy Newman: Mariana Mazzucato, that’s the point, isn’t it? Because businesses, according to the Tory leader, are laying people off because of the budget. Labour’s just made it worse.

Mariana Mazzucato: I don’t know about that. First of all, these recent changes in interest rates and inflation just show that we need to be careful to distinguish long-run structural features in the economy from the daily noise that goes up and down. And what we really should be worried about are those structural features. So for the last 20 years, the UK has had very low public investment, we are one of the lowest in the G7. Had we invested the average, we would have invested £500 billion more over the last 20 years, and especially business investment has been low. We can’t have companies like Thames Water just giving all the money out as dividend payouts to the shareholders, we need profits to be reinvested back in.

Cathy Newman: Rain, what do you make of that?

Rain Newton-Smith: I think we’re all agreed we have to make it easier for businesses to invest in this country. From the business leaders I speak to, they don’t want to be walked from government department to department. They want to have a responsive government that gives them the planning permission to deliver the investment that will create jobs and growth and the productivity that Mariana is talking about.

Cathy Newman: What would emergency public spending cuts do to your vision of this growth future?

Mariana Mazzucato: First of all, these fiscal rules that Rain rightly talks about, what that is doing is allowing the government that kind of headroom, especially for the capital investment in the economy. So that’s infrastructure. It’s all those things that drive innovation. But of course, we also need public spending in the day to day because we have, frankly, a crumbling welfare state. Our NHS is on its knees. So I’m someone who tries not to distinguish so much the kind of spending that’s required in health in order to make our population resilient, healthy and have wellbeing, but also that kind of innovation side of the infrastructure, of the AI strategy, of the life sciences strategy. We need both.

Cathy Newman: Rain, your response to that, and particularly the idea that these crumbling public services can’t be starved of any more resources.

Rain Newton-Smith: We know that the answer to that is higher growth, which delivers higher tax receipts, which helps to fund our public services. And whether it’s thinking about the health of our nation, there’s a huge role for business to play in that. But ultimately, it has to come from investment, and that investment needs to come from the private sector. And what we need to ensure is that the decisions that the government make don’t make it harder for businesses to invest, to invest in their people, to invest in innovation and to create jobs.

Cathy Newman: So when Keir Starmer leaves the door open for further tax rises, that would be a disincentive to investment, would businesses think?

Rain Newton-Smith: What I’m hearing from the business leaders that I speak to is if we look back to the budget in the autumn, that made it much more difficult for businesses to invest. It reduced their headroom for investment in the near term and so they can’t shoulder any more. I was speaking to one business leader who said the decisions taken have increased their overall bills by £25 million and they are looking at how do they address that increase in costs when they don’t have the ability to pass that on to their customers.

Cathy Newman: Mariana, do you agree that the government shouldn’t be going back to raise taxes on business, that you agree with what Rain was saying there?

Mariana Mazzucato: First of all, we should distinguish types of businesses. And I think what we just heard is absolutely right in terms of making sure that how we design the tax system is not penalising small businesses that often already are struggling. There’s many large businesses and many global large businesses that actually pay very little tax. Instead of just talking about tax, there’s corporate tax, there’s capital gains tax, there’s income tax. What we need is that kind of portfolio of taxes that the government has choices over what to do with, to make sure that they are being designed in a smart way.

Cathy Newman: Rain, you were looking to get in.

Rain Newton-Smith: I think what I would also say is we’ve got to remember that large businesses in the everyday economy are the ones who are creating jobs. There are some really important companies who are really working hard to create investment and jobs in the UK, and I think we just need to keep them front and centre of the growth mission.

Cathy Newman: Mariana, finally and briefly, you inspired Sir Keir Starmer’s missions. Are you disappointed with how it’s all panned out?

Mariana Mazzucato: No, I’m not disappointed. But I do think that we really need to take this mission seriously and definitely in a more sustainable way of producing, and that’s both food, energy, materials, transport.

Cathy Newman: Rain, is business as disappointed as some of your members suggest in what Labour’s done, particularly since the budget?

Rain Newton-Smith: All the business leaders that I speak to absolutely want this government to succeed. This is not about a race to the bottom. It’s about a race to the top. But we cannot make it harder for businesses in that everyday economy to take a chance on creating more jobs and investing in our local communities.