James Gard: Welcome to Morningstar. It's budget day today and U.K. editor Ollie Smith is with me for some instant reaction. Thanks for joining me, Ollie. So what do you think are the key messages from the budget speech today?
Ollie Smith: Thanks, James. I think at 1 hour 3 minutes, this wasn't one of the longest budget speeches ever, but I think at times it certainly felt like that, didn't it? And there were bits that really dragged on. More on that in a minute. And the key message, I think, was that things aren't as bad as they look and have perhaps felt and that there's a lot to be hopeful for. He told us inflation had peaked, that the U.K. economy was proving the doubters wrong. And that we would not enter technical recession in 2023. And of course there was that huge claim, the big prediction that inflation would fall from 10.7% in the final quarter of 2022 to just 2.9% by the end of 2023. And you know, that's a significant political gamble and it's out of step also with the Bank of England's own regular assessments of inflation. So really, next week's monetary policy meeting notes will be very interesting reading, indeed, and you could be forgiven for thinking the chancellor has just put up a very uncomfortable rod up Andrew Bailey's back. So what will the bank say now, we'll have to see next week.
Gard: Indeed, yeah. We can't wait for that. So how do you think Jeremy Hunt navigated the good and bad economic news today?
Smith: Yeah, it's a good question there. I think, since Brexit, certainly since Brexit, there's been this duality between sort of fixing the U.K.'s problems and creating a brighter future, and the promise of jam tomorrow. And this budget was no different at all. But there was real emphasis on the latter. And the wrap around structure, there was the four pillars of education, enterprise, employment and everywhere, which I have to be honest, didn't really work for me. I thought it was clunky and a bit lame, but that was about creating this kind of positive messaging and on the good stuff there was money everywhere. So, money for investment zones, artificial intelligence, medical innovation, life sciences, nuclear energy, you name it, it was spend, spend. And there was a lot of cash available for new exciting projects on the science and technology side. ESG investors will be very, very interested to read Jeremy Hunt statement on nuclear energy -- the EU's July 2022 pronouncement about making nuclear energy a sustainable alternative to fossil fuels. It's controversial. But it's forming a core part of the apparent growth plan.
And then there's the bad stuff really, which I think exposed the actual structure of the budget speech itself, you know, so there was happy stuff, and then there was unhappy stuff. And then there was more happy stuff at the end. So the bad news really is about U.K.'s productivity. It's about its welfare system. It's about its economic inactivity. Got 1 million vacancies in the economy and over 7 million adults not in work. So, for that we had welfare reform, we had a plan for older workers as well as some healthcare spending that took me by surprise. You know, specifically there was I think a 400 million plan for muscular skeletal disorders and mental health in the workplace, which is bit of a left field curveball to mix metaphors. We've also got a white paper on disability benefits reform.
And then, of course, the big announcement, which was on pensions. This really is addressing a problem that was apparent from about 2018 onwards with doctors and their pension allowances and consultants being charged effectively go to work. But there's other tinkering too, so the pensions and annual allowance will be increased from 40,000 to 60,000. The big announcement that the lifetime allowance will be abolished. So in my mind that makes this a budget for pension lobbyists, really, but it's going to make very little discernible impact on people who are really feeling the complex and traumatic side of household financial management at the moment. So, a big headline but really is it something that's going to put a smile on the face of millions of people at once, perhaps not.
Gard: Sure. Yeah. And I agree, I mean, but what do you think is most significant announcement? The pension changes or the childcare changes, they're addressing different issues perhaps, but…
Smith: I think the first thing I'll say is there's an intergenerational aspect to both of those things. You know, in terms of pension fairness and the way in which, government policy is clearly shifting from this idea of a happy retirement to addressing the issue of productivity, particularly in later life. And as I was saying earlier, the issue of inactive workers. But this childcare stuff, really is fascinating. It's fascinating to me because I realized early today that, I'm the target audience for this stuff. I think just a few years ago, I was thinking, well, childcare policy. That's nothing to do with me, but this is actually a policy that will really affect people who are in their late 20s, people who are in their early 30s and perhaps mid to late 30s as well. People who are starting a family and really feeling the pinch, particularly around the absolutely astronomical cost of childcare. So in some ways, this is clearly a tacit acknowledgement that starting a family is becoming even more difficult financially, and it may go some way to starting to address sort of vocally at least with a view to the next election. The intergenerational unfairness felt by people under the age of 40.
Gard: Definitely, yeah, time does creep up on you, Ollie. So you have a question for me about budget takeaways?
Smith: Well, it's funny, isn't it? I absolutely do because I wanted to know from you. What really piqued your attention here. I mean, there was a lot of stuff here that felt kind of, it was interesting, it was exciting. Perhaps a little bit absurd. What was most interesting for you?
Gard: Yeah, I was a bit blinded and exhausted in the end, having to listen to it, but there were some very strange moments in it, which I'll gloss over, but the one peculiar thing was the flight of fancy in relation to the investment zone. So levelling up is something that's very hard for people to object to. We all know that we need to move the economic base away from South East of England, London in particular, but Jeremy Hunt almost sort of indulged in sort of flight of fancy when he talked about Canary Wharf being an example of great redevelopment, which you know if you know your 1980s history, you know there are some good and bad cases there. But he had this vision of 12 Canary Wharfs dotted all over the country which is perhaps not what a true socialist would envisage as an example, levelling up and a Conservative government would certainly shy away from just building huge skyscrapers just all over the country in lieu of proper economic growth.
Smith: Okay, interesting. James, thanks for your thoughts and thanks for interviewing me today. For Morningstar, we've been James and Ollie.
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