0:00:36 > 0:00:39Hello and welcome to the Daily Politics.
0:00:39 > 0:00:43In Yorkshire with Theresa May this morning, it's all smiles.
0:00:43 > 0:00:45But are Philip Hammond's Budget promises to cut stamp duty
0:00:45 > 0:00:46for first-time buyers
0:00:46 > 0:00:49and the three billion for Brexit preparations being overshadowed
0:00:49 > 0:00:53by bleak economic forecasts?
0:00:53 > 0:00:56The gloomy news was delivered to Mr Hammond
0:00:56 > 0:00:59by the Office for Budget Responsibility.
0:00:59 > 0:01:01Dragged down by low productivity,
0:01:01 > 0:01:06Britain will grow far slower than expected.
0:01:06 > 0:01:08We speak to their chairman, Robert Chote, about the worst
0:01:08 > 0:01:09downgrade since 1983.
0:01:09 > 0:01:11But economists don't always get everything right.
0:01:11 > 0:01:17For example, they didn't foresee the 2008 financial crash.
0:01:17 > 0:01:25We debate how reliable economic computer modelling really is.
0:01:25 > 0:01:31I did take the precaution of asking my right honourable friend to bring
0:01:31 > 0:01:33a packet of cough sweets just in case.
0:01:33 > 0:01:36And is it "Funny Phil" now rather than "Fiscal Phil"?
0:01:36 > 0:01:38The Chancellor peppered his Budget statement with a series of jokes,
0:01:38 > 0:01:44but did they add to his productivity in delivering the Budget?
0:01:44 > 0:01:46All that in the next hour
0:01:46 > 0:01:49and with us for the whole of the programme today is someone
0:01:49 > 0:01:51who probably enjoys Budget Day
0:01:51 > 0:01:53in the way the rest of us enjoy Christmas -
0:01:53 > 0:01:54the economist Linda Yueh.
0:01:54 > 0:01:58Welcome to the programme.
0:01:58 > 0:02:01It looks as if Philip Hammond has overcome the short-term political
0:02:01 > 0:02:03challenge of delivering a controversy-free Budget.
0:02:03 > 0:02:06Yet while the Chancellor has steadied the Tory ship,
0:02:06 > 0:02:08for now at least, the British public
0:02:08 > 0:02:11may well feel much more gloomy today.
0:02:11 > 0:02:13The dire state of the public finances -
0:02:13 > 0:02:16and the growth forecasts in particular -
0:02:16 > 0:02:22provided him with little headroom to go on a spending spree.
0:02:22 > 0:02:26But he did find money to scrap stamp duty for the majority of first-time
0:02:26 > 0:02:29buyers and also to set aside £3 billion for preparations
0:02:29 > 0:02:32for the UK to leave the EU.
0:02:32 > 0:02:33Well, earlier this morning,
0:02:33 > 0:02:35the Prime Minister was asked what she thought
0:02:35 > 0:02:42of Philip Hammond's performance.
0:02:42 > 0:02:46The Chancellor did a very good job yesterday. He was setting out how
0:02:46 > 0:02:49Willie will ensure we have an economy fit for the future. But the
0:02:49 > 0:02:53Chancellor and I agree that what the Budget was about was jobs for people
0:02:53 > 0:02:57up and down the country. It was about insuring people are in work
0:02:57 > 0:03:00with that income for their family. It's about building the homes that
0:03:00 > 0:03:03they need, and it's about ensuring that we seize the opportunities for
0:03:03 > 0:03:13the future.Linda Yueh, what were your impressions of the Budget?I
0:03:13 > 0:03:16was certainly worried about how significantly downgraded economic
0:03:16 > 0:03:20growth was, and this came on top of the fact that inflation is expected
0:03:20 > 0:03:27to be higher than 3%. So the economy is only going at 1.5% for the next
0:03:27 > 0:03:30five years, and we have high inflation. That is really going to
0:03:30 > 0:03:34squeeze incomes. That is why this Budget was a real change in course
0:03:34 > 0:03:38for the government. In other words, almost everybody I can recall, and
0:03:38 > 0:03:43it is a bit like Christmas like me when it comes to Budget Day(!), they
0:03:43 > 0:03:50have always stressed how every Budget is fiscally neutral, so money
0:03:50 > 0:03:58raised is by cutting taxes, but in this case they wanted to stimulate
0:03:58 > 0:04:06the economy. In 2019-20, we were expecting to run a Budget surplus of
0:04:06 > 0:04:10£10 billion. But now after this Budget, or going to have a Budget
0:04:10 > 0:04:15deficit of £35 billion. Half of that is because growth has become so slow
0:04:15 > 0:04:20that we won't get as much tax revenue. But half of that is because
0:04:20 > 0:04:24I don't think the Chancellor has any choice but to try to spend more in
0:04:24 > 0:04:29order to raise growth. And by this measure, we will not have a Budget
0:04:29 > 0:04:35surplus until 2030. So he has abandoned the idea of getting to a
0:04:35 > 0:04:39surplus.If we remember, George Osborne said we would eliminate the
0:04:39 > 0:04:45deficit by 2015. So it is going to be 15 years late. But in your mind,
0:04:45 > 0:04:50did he have to add to borrowing in some way in order to stimulate the
0:04:50 > 0:04:58economy?I think he does. The main problem with slow growth is that it
0:04:58 > 0:05:01makes your Budget deficit worse. Slow growth means there is less tax
0:05:01 > 0:05:08revenue. So a lot of what he is spending is on investment to boost
0:05:08 > 0:05:12productivity. Another big portion of what he is spending it on is to put
0:05:12 > 0:05:16out fires around the NHS, preparing for Brexit and houses, which is
0:05:16 > 0:05:23important. If he doesn't raise growth, some may wonder why he
0:05:23 > 0:05:28didn't do more, why he is allowing the economy to go into the doldrums
0:05:28 > 0:05:33at a much lower growth rate for the next five years.We are joined now
0:05:33 > 0:05:37by the #'s political editor Tom Newton Dunn and Guardian columnist
0:05:37 > 0:05:42Polly Toynbee.
0:05:42 > 0:05:49Tom Newton Dunn, your newspaper and the Daily Telegraph give the
0:05:49 > 0:05:52Chancellor relatively favourable responses to the Budget. Why, when
0:05:52 > 0:05:58the UK will have one of the slowest rate of growth in the G7 and
0:05:58 > 0:06:01productivity has been downgraded? Relatively is the key point. We are
0:06:01 > 0:06:07not happy with everything he did yesterday. In terms of the bigger
0:06:07 > 0:06:16point you have heard from your guest in the studio, much of the problems
0:06:16 > 0:06:20faced by the Chancellor are not of his own making. It is the biggest
0:06:20 > 0:06:24productivity downgrade since records began in the biggest flat-lining of
0:06:24 > 0:06:27productivity since before the battle of Waterloo, since 1812 full
0:06:27 > 0:06:33stoppages out of his control. So I would agree with that analysis. I am
0:06:33 > 0:06:37not sure he had much choice. He had to spend that massive £26 billion
0:06:37 > 0:06:46war chest he built up, the rainy day Budget for tough times for Brexit,
0:06:46 > 0:06:49which begs the question, what on earth is the government going to do
0:06:49 > 0:06:53next? If you look at the path of deficit reduction now, it is barely
0:06:53 > 0:06:57going down. The deficit is still going to be 35 billion in a few
0:06:57 > 0:07:03years' time. So I think it is slightly dire straits now. This was
0:07:03 > 0:07:08an action by the Chancellor to keep the government afloat in the short
0:07:08 > 0:07:12term, prime pump in all the money he had into the economy to see what
0:07:12 > 0:07:16happens. He was even borrowing out of his departmental spending
0:07:16 > 0:07:21reserve. He was taking 2 billion out of that to plough into the economy.
0:07:21 > 0:07:24So it looks like he has done everything he can and it is in our
0:07:24 > 0:07:28case of waiting to see if it works. And there is of course the politics
0:07:28 > 0:07:33behind that. We will come to that in a moment. Polly Toynbee, £25 billion
0:07:33 > 0:07:39of new spending.Will that be welcomed by Labour? It is an
0:07:39 > 0:07:42incredibly small sum. We are where we are because of what this
0:07:42 > 0:07:46government decided to do. If you look at the growth rate, it was
0:07:46 > 0:07:50going well when George Osborne took over. But from his very first Budget
0:07:50 > 0:07:54in June 2010, growth fell off a cliff and never recovered. That is
0:07:54 > 0:07:58what happens if you have an austerity Budget and if you cut into
0:07:58 > 0:08:04the headwinds of a recession, and it got worse and worse. The longest, as
0:08:04 > 0:08:09Tom says, that we have ever had, for the very reason of taking this
0:08:09 > 0:08:13antique Ainslie in view. Keynes would have said to the
0:08:13 > 0:08:18counterintuitive thing, to borrow and spend into a recession. Growth
0:08:18 > 0:08:25is what pays off your debt. Growth and productivity are the only things
0:08:25 > 0:08:28that can pay off your debt. So you have to borrow, like a family would
0:08:28 > 0:08:33for a mortgage, in order to increase your wealth in the longer run.
0:08:33 > 0:08:38Politically, let's talk about that, Tom. He has survived. He hasn't
0:08:38 > 0:08:42tripped up on a banana skin, which he did earlier in the year with his
0:08:42 > 0:08:45cut of national insurance contributions for the self-employed.
0:08:45 > 0:08:48Was that the sole aim, to keep his job and therefore keep the
0:08:48 > 0:08:52government going?Yes, not just to keep his job, but also to keep
0:08:52 > 0:09:00Theresa May in Number Ten. It was a fascinating political U-turn
0:09:00 > 0:09:07yesterday, from Fiscal Phil, the man who prides himself on having a tough
0:09:07 > 0:09:09hand on government spending across all the departments from the MoD to
0:09:09 > 0:09:13the Foreign Office, now a year on, he is spending like Corbyn.
0:09:13 > 0:09:19Everything he can get. He is not spending the way Labour had
0:09:19 > 0:09:25proposed.Polly should be delighted. She's muffling her delight.It is a
0:09:25 > 0:09:29very small sum. When he says 15 billion more for housing, it turns
0:09:29 > 0:09:34out that it is over five years. It will build very few homes.
0:09:34 > 0:09:38Overnight, people have been analysing some carefully. When it
0:09:38 > 0:09:41comes to Universal Credit, 300 million gets you almost nowhere in
0:09:41 > 0:09:46the appalling state of people moving on to Universal Credit. These are
0:09:46 > 0:09:51little token sums. Those who didn't follow them closely cheered on his
0:09:51 > 0:09:56side of the House because it sounded good. A bit of something for
0:09:56 > 0:10:02everyone, a tiny bit for the NHS, less than half of what it needed.I
0:10:02 > 0:10:06agree that he hasn't spent things in the right way, if that is what Polly
0:10:06 > 0:10:10is saying. I'm not sure where he could spend more, because if we
0:10:10 > 0:10:14borrow more, the deficit will go up the market would lose credibility
0:10:14 > 0:10:19and then we are into a sovereign debt crisis. The problem is that
0:10:19 > 0:10:23they spent in the short term and they have sought that Universal
0:10:23 > 0:10:28Credit and given money to the NHS, but they have gone nowhere near
0:10:28 > 0:10:32tackling other problems. I was deeply unimpressed by the housing
0:10:32 > 0:10:37measures. And also social care is another huge problem. They're all
0:10:37 > 0:10:39the great demographic problems facing the country which were left
0:10:39 > 0:10:44and tackled and getting worse by the day. At some stage, some government
0:10:44 > 0:10:49will have to tackle them.Finally, Polly Toynbee, on trust with the
0:10:49 > 0:10:56economy, bearing all of that in mind from both of you, why is it that got
0:10:56 > 0:10:59the Budget, the Shadow Chancellor and Labour leader were trusted less
0:10:59 > 0:11:04on the economy than Hammond and May? I don't think that will last long as
0:11:04 > 0:11:08people unpick this Budget. But more to the point, overshadowing all
0:11:08 > 0:11:11this, despite this appalling long recession which has been created by
0:11:11 > 0:11:17government austerity policies, we have Brexit and what is this
0:11:17 > 0:11:20government's fault on the fault of the fanatics on its front benches
0:11:20 > 0:11:24and the backbenchers.Is it not the fault of the people who voted for
0:11:24 > 0:11:30it?Maybe, but they were lied to by the likes of you and they still are.
0:11:30 > 0:11:35They would say there were lies on both sides, Polly Toynbee.It is
0:11:35 > 0:11:38turning out that the Remain side were painfully right about the
0:11:38 > 0:11:41dreadful economic consequences and much worse to come.Thank you both
0:11:41 > 0:11:42very much.
0:11:42 > 0:11:44Now it's time for our daily quiz.
0:11:44 > 0:11:49Shadow Education Secretary Angela Rayner has announced on Twitter
0:11:49 > 0:11:52that she has just passed a rather important milestone in her life,
0:11:52 > 0:11:53so our question for today is...what?
0:11:53 > 0:11:56a) She's just bought her first house, b) She's got a degree,
0:11:56 > 0:12:06c) She's passed her driving test or She's become a grandmother?
0:12:07 > 0:12:10If it is her first home, she can benefit from the stamp duty measure.
0:12:10 > 0:12:13At the end of the show, Linda will give us the correct answer.
0:12:13 > 0:12:16So, it was the gloomy outlook for the UK economy
0:12:16 > 0:12:17which overshadowed much of Philip Hammond's Budget.
0:12:17 > 0:12:19The official forecasts for the UK economy are delivered
0:12:19 > 0:12:24to the Treasury by the Office for Budget Responsibility.
0:12:24 > 0:12:27The OBR was established in 2010 by then-Chancellor George Osborne
0:12:27 > 0:12:30to end a system under which the Treasury produced its own
0:12:30 > 0:12:32economic growth estimates.
0:12:32 > 0:12:33Philip Hammond yesterday delivered their latest
0:12:33 > 0:12:43downgraded predictions as part of his Budget statement.
0:12:43 > 0:12:46Regrettably, our productivity performance continues to disappoint.
0:12:46 > 0:12:49The OBR has assumed, at each of the last 16 fiscal events,
0:12:49 > 0:12:51that productivity growth would return to its pre-crisis trend
0:12:51 > 0:12:52of about 2% a year,
0:12:52 > 0:13:02but it has remained stubbornly flat.
0:13:03 > 0:13:05So today, they revised down the outlook for productivity growth,
0:13:05 > 0:13:12business investment and GDP growth across the forecast period.
0:13:12 > 0:13:14The OBR now expects to see GDP grow 1.5% in 2017,
0:13:14 > 0:13:181.4% in 2018, 1.3% in 2019-2020, before picking back up to 1.5%
0:13:18 > 0:13:27and finally 1.6% in 2022.
0:13:27 > 0:13:29The Chairman of the Office for Budget Responsibility, or OBR,
0:13:29 > 0:13:38Robert Chote is here with us now.
0:13:38 > 0:13:42You live for these events, but grim, Dyer, dismal, these are some of the
0:13:42 > 0:13:45words being used this morning to describe Britain's economic
0:13:45 > 0:13:52forecast. In your view, how bad is it?Basically, the economy has been
0:13:52 > 0:13:56growing less quickly than expected this year, which extends the story
0:13:56 > 0:13:59for 2017. More importantly, we have taken a more pessimistic view over
0:13:59 > 0:14:03the next five years. That is a reflection of the fact that growth
0:14:03 > 0:14:07in productivity, which is the amount of output you get out of every hour
0:14:07 > 0:14:10that people work, has been growing very slowly over the last ten years
0:14:10 > 0:14:14relative to the three or four decades that came before it. A while
0:14:14 > 0:14:18back, people would have said you can probably now that down to specific
0:14:18 > 0:14:22reasons related to the financial crisis. But as this period of
0:14:22 > 0:14:27weakness has got longer and longer the crisis recedes further into
0:14:27 > 0:14:30history, some of those explanations fall away. Therefore, we have
0:14:30 > 0:14:34decided to place more weight on this relatively weak period as a guide to
0:14:34 > 0:14:38what is coming. Another reason for that is that this is also a global
0:14:38 > 0:14:41problem and not just a domestic one. If you look at the way in which our
0:14:41 > 0:14:45American counterparts have been changing their forecasts, the
0:14:45 > 0:14:48Congressional Budget office, there is a similar pattern.But you have
0:14:48 > 0:14:51revised Britain's growth forecast down substantially since March.
0:14:51 > 0:15:07Let's look at the graph. What has changed since then? You were more
0:15:07 > 0:15:09optimistic just months ago, you would've had those figures then?
0:15:09 > 0:15:15When you are looking over this period, you have to make judgments
0:15:15 > 0:15:19as you are going along, and do we see are there reasons why it'll pick
0:15:19 > 0:15:24up? You don't want to focus on the latest data, we have seen false
0:15:24 > 0:15:28dawns come and go. It is more a question of looking back at this
0:15:28 > 0:15:30remarkably unusual period in recent economic history and making a
0:15:30 > 0:15:34response to that. The economy will grow at less than 2% for the a least
0:15:34 > 0:15:37the next five years, how much smaller will the economy be over the
0:15:37 > 0:15:42next five years? Well, I mean, you basically summed it up there. We
0:15:42 > 0:15:47used to get the idea that you would expect large, mature industrial
0:15:47 > 0:15:52economies like the UK to grow by a bit over 2%, maybe 2.5% a year and
0:15:52 > 0:15:56at the moment we are assuming 1.5% is, as it were the new normal.
0:15:56 > 0:16:01Obviously you can add up the ditches, however many years you go
0:16:01 > 0:16:04out to get as large a number as you like.How much will be taken out of
0:16:04 > 0:16:08the economy? The figures of £65 billion taken out of the economy
0:16:08 > 0:16:12over the next five years, are those the figures that you recognise?
0:16:12 > 0:16:17Well, the potential size of the economy is about 2% smaller at the
0:16:17 > 0:16:20end of the forecast horizon than it would otherwise be. Obviously you
0:16:20 > 0:16:24can get as large a cash number as you like by moving out and making
0:16:24 > 0:16:28the comparison.Right, truth is, forecasts are rarely correct. You
0:16:28 > 0:16:34said so yourself. And they are routinely revised. It is entirely
0:16:34 > 0:16:38possible the Chancellor will prove you wrong?It is entirely possible
0:16:38 > 0:16:42the outcome is a 50/50 chance as to whether it is higher or lower. One
0:16:42 > 0:16:47of the things we do in the report is run alternative scone oar yes, sir
0:16:47 > 0:16:51for public finances on the basis of what happens if productivity growth
0:16:51 > 0:16:54revives to the rates we saw prior to the financial crisis and what
0:16:54 > 0:17:00happens if basically the last ten years are the new normal? Now we are
0:17:00 > 0:17:06not as pessimistic, there are techno pessimists out there who say we've
0:17:06 > 0:17:08had three industrial revolutions that's your lot you will not see the
0:17:08 > 0:17:12revival in growth. I don't think we are in that camp. There are reasons
0:17:12 > 0:17:16to think productivity will pick up, unemployment is falling, that will
0:17:16 > 0:17:20produce more pressure on firms to work things more productively so we
0:17:20 > 0:17:25don't give up hope of some recovery there.That means, the forecast
0:17:25 > 0:17:29could be more optimistic. It could be worse, then?I think there is a
0:17:29 > 0:17:33probability it could go either way. To give awe rule of them in terms of
0:17:33 > 0:17:36what the growth rates mean for the size of the British economy. You
0:17:36 > 0:17:38take the number 70, divide by the growth rate that gives you the
0:17:38 > 0:17:42number of years it takes for an economy to double in size. So the
0:17:42 > 0:17:46British economy grows, at say 2%, let's keep the maths simple. 7 #0e
0:17:46 > 0:17:52divided by two, we expect it to double in size in 35 years, if it
0:17:52 > 0:17:57grows closer to 1%, the economy doubles in size in 70 years, that's
0:17:57 > 0:18:00why the small ditcheses in growth rates have massive impact in terms
0:18:00 > 0:18:05of our living standard.Right, let's have a look at Brexit. You said
0:18:05 > 0:18:08yesterday the Government provided the OBR with no meaningful basis on
0:18:08 > 0:18:13which to form a judgment on Brexit. Do your forecasts take into account
0:18:13 > 0:18:19Brexit or not?They did. We made an adjustment in the first forecast we
0:18:19 > 0:18:22produced after the vote to Leave so. That was the November forecast last
0:18:22 > 0:18:26year. And we haven't basically changed the broad judgments around
0:18:26 > 0:18:30Brexit, both in terms. Process, and in terms of the sorts of
0:18:30 > 0:18:34implications it would have for things like productivity, trade
0:18:34 > 0:18:38intensity, migration we did then. So the announcements we made or the
0:18:38 > 0:18:42updated forecast yesterday is much more about looking at this
0:18:42 > 0:18:45historical pattern, the fact that this is a common global feature,
0:18:45 > 0:18:48rather than that we have looked again specifically at Brexit and
0:18:48 > 0:18:51said - we think the outcome of this will be different from what we
0:18:51 > 0:18:55thought a few months ago.What information did the Government give
0:18:55 > 0:19:00you on Brexit?We had and we have asked for no more than what is the
0:19:00 > 0:19:04in the public domain. I wouldn't come want to come here and say - of
0:19:04 > 0:19:07we have produced this set of numbers that the Government has told me
0:19:07 > 0:19:10something about Brexit I can't share. The reason we ask this, when
0:19:10 > 0:19:13we are preparing the forecast it is useful for us to know if the
0:19:13 > 0:19:16Government is going to put into the public domain new information that
0:19:16 > 0:19:21may be relevant, which is why we ask.And they are not?Well as you
0:19:21 > 0:19:24see we have the information that's available to everybody else and we
0:19:24 > 0:19:28wouldn't want to be doing tonight basis of private information.Well
0:19:28 > 0:19:32it is not meaningful then, to use your words f stlnt enough
0:19:32 > 0:19:35information in the public domain to make that judgment?Well the
0:19:35 > 0:19:40judgment, as I say, is based on series of broadbrush assumptions
0:19:40 > 0:19:45Which? Think would be consist went a wide variety of potential outcomes.
0:19:45 > 0:19:48Under most circumstances, you would expect import growth and export
0:19:48 > 0:19:52growth to be weaker for a period of time than they otherwise would be,
0:19:52 > 0:19:54that business investment will be weaker because people will be
0:19:54 > 0:19:59uncertain for the period that they don't know what the end point is
0:19:59 > 0:20:03going to be but what we don't done is come up with a envelope and the
0:20:03 > 0:20:06last page conclusion is where we end up with the negotiations and pinning
0:20:06 > 0:20:11the economics numbers to that. Right. Probably wise. Jacob
0:20:11 > 0:20:18Rees-Mogg, the Tory MP says the OBI, yourselves work on false
0:20:18 > 0:20:22assumptionless given to you by the Treasury, he would like you to be
0:20:22 > 0:20:26more optimistic on the tudgets of Brexit?Well, I wouldn't describe it
0:20:26 > 0:20:30as false assumptions. I think Jacob would take the view that Brexit
0:20:30 > 0:20:34creates the opportunity for a whole variety of other policy changes that
0:20:34 > 0:20:37this gives a greater freedom to do that which you could then
0:20:37 > 0:20:40incorporate. Obviously we are basing our forecasts on what current policy
0:20:40 > 0:20:45S so this is one of the reasons why it is difficult to nail it down very
0:20:45 > 0:20:49precisely, if we get close to a particular outcome, the Government
0:20:49 > 0:20:53may announce other sets of accompanying policy changes and
0:20:53 > 0:20:58maybe Jacob sees scope in those to provide a better outcome.Do you
0:20:58 > 0:21:01have any sympathy with what Jacob Rees-Mogg says in terms of the
0:21:01 > 0:21:04assumptions that both the Treasury and Office for Budget Responsibility
0:21:04 > 0:21:08are working from?I think it is very difficult for them. I thi, as Robert
0:21:08 > 0:21:12says, you can only work with the information that is currently given.
0:21:12 > 0:21:15Their credibility would be in doubt if they were to, I think deviate
0:21:15 > 0:21:19from that and so, in their forecasts, as we just said a moment
0:21:19 > 0:21:24ago, it could be much better or it could be much worse. It is based on
0:21:24 > 0:21:27productivity but an element of t I would surely think is also Brexit
0:21:27 > 0:21:33because obviously the outcome could be better or could be worse, based
0:21:33 > 0:21:36on however the negotiations go. There was one phrase, if I may, if I
0:21:36 > 0:21:41could pick up with Robert that I found in your report, it is the idea
0:21:41 > 0:21:46of fiscal illusion. This is a really rather, I think important concept
0:21:46 > 0:21:53because we have been talking about the Budget and the Government says
0:21:53 > 0:21:58they will meet their fiscal target of 2% of GDP of the structural
0:21:58 > 0:22:02deficit but they have done by that selling shares in RBS and in little
0:22:02 > 0:22:06bit of what you describe yourself as fiscal illusion. Does that actually
0:22:06 > 0:22:10mean we shouldn't put too much credence by this illusion that's
0:22:10 > 0:22:12getting us to our deficit target? Well I think it is always very
0:22:12 > 0:22:16important. The fiscal illusion is basically getting at the idea that
0:22:16 > 0:22:19there are some changes which can make the official numbers you are
0:22:19 > 0:22:23looking at and that the Government maybe targeted better, without
0:22:23 > 0:22:25fundamentally changing the underlying health of the public
0:22:25 > 0:22:29finances and a key part of our job is to raise a flag when those sorts
0:22:29 > 0:22:35of things happen. Asset sales are a very good example. If you sell
0:22:35 > 0:22:38shares in RBS, for example, you end up with that reducing the
0:22:38 > 0:22:43Government's stock of debt. But in fact if a Government owns an asset
0:22:43 > 0:22:47and sells it for roughly what it is worth. It is no better or worse off,
0:22:47 > 0:22:59it has swapped one asset, shares in a bank, for a lump of cash. We need
0:22:59 > 0:23:04to flag that up. The other big... Housing associations.The statical
0:23:04 > 0:23:07decision to count them as part of the private sector rather than
0:23:07 > 0:23:11public sector but do we really believe the Government's behaviour
0:23:11 > 0:23:14if the housing association sector got into difficulties would be
0:23:14 > 0:23:16markedly difficult because a newspaper of statisticians in
0:23:16 > 0:23:19Newport have applied the international rules and concluded it
0:23:19 > 0:23:24is one side of the boundary or the other?Is that the illusion?Well,
0:23:24 > 0:23:28it helps in both reducing the level of Government borrowing and the
0:23:28 > 0:23:32level of Government debt because you are taking off the borrowing and the
0:23:32 > 0:23:37debt of the housing association. The Government has been remarkedly
0:23:37 > 0:23:42candid about why it has taken the measures in deregulating the sector
0:23:42 > 0:23:48to do that. They gave evidence to the House of Lords to say - we are
0:23:48 > 0:23:50doing this to persuade the statisticians to get this off the
0:23:50 > 0:23:57books.Criticising the Government's stamp doubty property, you say house
0:23:57 > 0:24:02price also go up. Do you accept it is quite a political statement to
0:24:02 > 0:24:07make within hours of the Budget being delivered Its not a criticism.
0:24:07 > 0:24:11Now not saying it shouldn't happen. It is explaining how it'll feed
0:24:11 > 0:24:14through into the economic and fiscaler if cast. You can certainly
0:24:14 > 0:24:18take the view that the policy is a good or bad policy. We have to
0:24:18 > 0:24:23describe what impact it has.But that is a critcy. If you say the
0:24:23 > 0:24:26bhan gainers are people who own their own proort when it is supposed
0:24:26 > 0:24:29to help first time buyers who haven't been able to get up and that
0:24:29 > 0:24:35house prices will go up and act as a stimulus. That's a criticismNo it
0:24:35 > 0:24:42is a statement of the facts. If house prices go up. It gives first
0:24:42 > 0:24:45time buyers who purchase properties that they otherwise wouldn't have
0:24:45 > 0:24:50blown able to afford but they are more expensive and I expect with
0:24:50 > 0:24:55#23is time buyers, it is the act to get on the ladder even if the
0:24:55 > 0:24:58property is more expensive, than a good thing about that policy. I
0:24:58 > 0:25:03wouldn't read it that as a criticism of the policy it is a criticism of
0:25:03 > 0:25:09what it does.
0:25:09 > 0:25:11The growth forecasts may have been revised down but the Chancellor
0:25:11 > 0:25:13still had some money to give away.
0:25:13 > 0:25:15Let's have a look at the key policies.
0:25:15 > 0:25:18Philip Hammond set aside £3 billion over next two years to prepare
0:25:18 > 0:25:21the UK for every possible outcome as the UK leaves the European Union.
0:25:21 > 0:25:28For housing the Chancellor outlined a £44 billion
0:25:28 > 0:25:31government support package, to help meet a government target
0:25:31 > 0:25:34of building 300,000 new homes a year by the middle of next decade.
0:25:34 > 0:25:41And stamp duty will be abolished immediately for first-time buyers
0:25:41 > 0:25:42purchasing properties worth up £300,000.
0:25:42 > 0:25:46The young person's railcard will be extended to 26-30-year-olds
0:25:46 > 0:25:50from next year, saving a third on off-peak railfares.
0:25:50 > 0:25:53The NHS in England will receive an extra £2.8 billion worth of extra
0:25:53 > 0:25:55funding for front line services.
0:25:55 > 0:25:57With £350 million available immediately to address
0:25:57 > 0:26:06pressures over this winter.
0:26:10 > 0:26:12The Chancellor proclaimed "maths for everyone" with £600 for each
0:26:12 > 0:26:14additional pupil taking A level or Core maths.
0:26:14 > 0:26:16A £40 million teacher training fund will be established
0:26:16 > 0:26:18for underperforming schools in England, working out
0:26:18 > 0:26:19at £1,000 a teacher.
0:26:19 > 0:26:22And changes to Universal Credit to bring the overall waiting time
0:26:22 > 0:26:26down from six weeks to five.
0:26:26 > 0:26:28Joining us are the Justice Minister Dominic Raab
0:26:28 > 0:26:34and the Shadow Economic Secretary to the Treasury.
0:26:34 > 0:26:40Welcome to both of you. Jonathan Reynolds, I didn't say your name,
0:26:40 > 0:26:45which is important, of course. Dominic Raab, Philip Hammond started
0:26:45 > 0:26:49his statement on the Budget yesterday saying will - there is a
0:26:49 > 0:26:55bright future for Britain. Are the resolution association disagree say
0:26:55 > 0:26:59there'll be 17 years of pay stagnation.Interestingly the
0:26:59 > 0:27:02Resolution Foundation also said that those on the lowest I parks the
0:27:02 > 0:27:07proportion on the lowest pay is at its lowest level since the 1980s. I
0:27:07 > 0:27:10think we have had some headwinds. I think the economists are not quite
0:27:10 > 0:27:12clear between themselves as to some of the forecasts which is
0:27:12 > 0:27:15interesting, the conversation you have just had. The reality is there
0:27:15 > 0:27:20are all these predictions of doom Ian gloom and precession and we have
0:27:20 > 0:27:25modest growth inhe has put in a modest stimulus in and things like
0:27:25 > 0:27:31the £08 billion extra in partnership with the sector on tech and R&D that
0:27:31 > 0:27:35will help boost in the long-term productivity. He dealt with the
0:27:35 > 0:27:41issues around here and now, extending personal allowance, fuel
0:27:41 > 0:27:44duty and laid foundations to deal with the productivity. I think that
0:27:44 > 0:27:47compares the credible, balanced approach he took with John McDonnell
0:27:47 > 0:27:52this morning on the Today programme saying spending and borrowing more
0:27:52 > 0:27:58pays for itself.Right, but wages won't return to the 2007 levels,
0:27:58 > 0:28:03pre-crash levels until 2025. That squeeze is going to really hurt
0:28:03 > 0:28:07families. And it's the longest fall in living standards since records
0:28:07 > 0:28:12began. Is that something you are proud of?I think really conscious
0:28:12 > 0:28:16of the priors on low and middle income fwamlies but I would say the
0:28:16 > 0:28:23average tax pay letter take home £1,075, a basic rate taxpayer than
0:28:23 > 0:28:28under Labour Government in 2010. We had that statistics from the
0:28:28 > 0:28:30Resolution Foundation, the proportion...Except one-third of
0:28:30 > 0:28:33households, this is what you are saying the poorest third of
0:28:33 > 0:28:37households are set to be more thanneds 700 a year worse under the
0:28:37 > 0:28:41plan?Under the enfundamentals of the economy.Answer the questionI
0:28:41 > 0:28:45will answer the first then come back. Inflation has reached its peak
0:28:45 > 0:28:51of 3% in October and is now coming down, so it'll ease the pressure.It
0:28:51 > 0:28:54hasn'tIf you listen to what the Bank of England said last week n
0:28:54 > 0:28:57October the 3% was the peak and it'll start to come back down.It
0:28:57 > 0:29:01hasn't come down yetI'm in the doubting there are pressures, but it
0:29:01 > 0:29:05is not all doom and gloom and it was great to here a Conservative
0:29:05 > 0:29:09Chancellor who didn't vote for Brexit say - come on, there is there
0:29:09 > 0:29:11are risks, but even greater opportunities and we will grasp
0:29:11 > 0:29:16them. We need candour in this country.Well -- can do. Well you
0:29:16 > 0:29:19talk about can do but he talked about a bright future for working
0:29:19 > 0:29:22families and if they are not looking forward to wages getting to the
0:29:22 > 0:29:25stage they were prethe crash, what are they going to be looking forward
0:29:25 > 0:29:31to?I don't accept that. The Resolution Foundation is a
0:29:31 > 0:29:34think-tank and does good work. And I have cited them.Cited the bits you
0:29:34 > 0:29:38like and not what you don't. Can you explain that poorest households are
0:29:38 > 0:29:45going to be £700 a year worse off? We went through and it was
0:29:45 > 0:29:49interesting hearing Robert Chote hark back to the crash, but we have
0:29:49 > 0:29:53dom through, employment at record highs, three-quarters new jobs
0:29:53 > 0:29:57full-time and on things like the national living wage, the extension
0:29:57 > 0:29:59of the personal allowance, cancelling the planned fuel duty
0:29:59 > 0:30:02hike, we are doing things that deal with the pressures of the here and
0:30:02 > 0:30:07now, but also take the long-term investment like infrastructure
0:30:07 > 0:30:11technology, that will boost wages through productivity gains.He did
0:30:11 > 0:30:14the minimum he could the with headroom he had which is little when
0:30:14 > 0:30:18we look at big figures, you talk about the national living wage but
0:30:18 > 0:30:22George Osborne pledged it would reach £9 by 2020, that will not
0:30:22 > 0:30:28happen nowHold on. We are in 2017, it is going up to April £7.83. We
0:30:28 > 0:30:33have produced thatWill approximate hit £9?Well that's forethe
0:30:33 > 0:30:35Chancellor and we've scrutinised what he said yesterday. We can say
0:30:35 > 0:30:41it is going up to £7.83. We are cutting the amount of income tax
0:30:41 > 0:30:44people are pay, the average taxpayer but over £1,000 each year compared
0:30:44 > 0:30:47to 2010 but we have to be balanced and responsibility. We cannot do as
0:30:47 > 0:30:51John McDonnell and Labour said first thing this morning - by throwing
0:30:51 > 0:30:55money at problems, it is not credible. What he has done in
0:30:55 > 0:31:02challenging times is a balanced, credible approach...
0:31:02 > 0:31:08But balance in favour of whom? Philip Hammond has said he wants to
0:31:08 > 0:31:12put £3 billion aside for Brexit preparations, but only £350 million
0:31:12 > 0:31:16extra funding for the NHS this winter. Which is more important to
0:31:16 > 0:31:22you?They are both important.Then why has Brexit got £3 billion and
0:31:22 > 0:31:27the NHS only 350 million?Studies from a standing start and
0:31:27 > 0:31:31contingency plans for Brexit. The NHS is getting huge amounts of extra
0:31:31 > 0:31:38money.Does the NHS not deserve more money?I think the NHS is getting
0:31:38 > 0:31:41extra investment.Not the 4 billion that Simon Stephens said is
0:31:41 > 0:31:47necessary.We have followed Simon Stephens' route map to this. More
0:31:47 > 0:31:53money is going in, but we also need to reform the NHS. Compared to 2010,
0:31:53 > 0:31:58someone is paying two thirds less income tax. The millionaires are
0:31:58 > 0:32:03paying 14% more.Let's look at the other bits of this balanced
0:32:03 > 0:32:07approach, Jonathan Reynolds. Do you oppose the scrapping of stamp duty
0:32:07 > 0:32:10for first-time buyers?If a Labour government presented the figures we
0:32:10 > 0:32:13saw yesterday, Dominic, who I have tremendous respect for, would be
0:32:13 > 0:32:25laying into those figures. The stamp duty cut was an Ed Miliband policy
0:32:25 > 0:32:30originally.It wasn't just his, it was proposed in your manifesto. So
0:32:30 > 0:32:39you support it?Yes, but you have to combine it with mixed supply. The
0:32:39 > 0:32:43beta site, £3 billion, is on the stamp duty cut. Unless you are
0:32:43 > 0:32:50boosting supply % and having more homes for social rent, it will only
0:32:50 > 0:32:54make the situation worse.So how much more would you spend on
0:32:54 > 0:32:56housing?In our investment programme, we have said we would put
0:32:56 > 0:33:01more investment in. The allocation for housing is 25 billion. The
0:33:01 > 0:33:04increase for housing would be 8 billion, because that gives you the
0:33:04 > 0:33:08chance to have more homes for social rent.How many more homes for social
0:33:08 > 0:33:14rent would later be proposing? 100,000.So you are going to be
0:33:14 > 0:33:17adding to the money that the government would borrow. Do you
0:33:17 > 0:33:20think it is acceptable that the Shadow Chancellor couldn't cite what
0:33:20 > 0:33:23the current levels are in terms of servicing the debt, never mind what
0:33:23 > 0:33:26they would be under Labour?I don't think it's fair to ask the Shadow
0:33:26 > 0:33:31Chancellor to pick out a figure from the red book.Hang on, which figure
0:33:31 > 0:33:37in terms of the current levels of servicing the debt?The £46 billion.
0:33:37 > 0:33:43Then you can do it. Is it acceptable that the Chancellor can't?There
0:33:43 > 0:33:45would be a variability to the cost of borrowing under a Labour
0:33:45 > 0:33:49government. The point that John is trying to make, which is worth
0:33:49 > 0:33:53making, is that if you look at the crucial topline news in the Budget,
0:33:53 > 0:33:56the big downgrade to growth, the country has to do something
0:33:56 > 0:34:00different. And bringing forward investment into infrastructure,
0:34:00 > 0:34:03housing and transport is the right thing to do. If you look at the long
0:34:03 > 0:34:08term effect on the tax base of this continuing, we will have huge
0:34:08 > 0:34:13problems.In terms of money for the NHS, did you welcome the £2.8
0:34:13 > 0:34:17billion proposal by Philip Hammond? We want to see more than that. We
0:34:17 > 0:34:20want to see something equivalent to what the NHS itself has said it
0:34:20 > 0:34:25needs. It is not always about extra borrowing, there is also a point
0:34:25 > 0:34:28around choices and priorities. More money going to Brexit that the NHS
0:34:28 > 0:34:33does not sound like the right thing to do. More money going into alcohol
0:34:33 > 0:34:39duty than fixing Universal Credit, those are bad choices. If look at
0:34:39 > 0:34:42the envelope the Chancellor had, he has made poor choices.What do you
0:34:42 > 0:34:49say to it being not the right choices?You have a vast credibility
0:34:49 > 0:34:54gap between a balanced approach, yes we need a stimulus, but with overall
0:34:54 > 0:34:58public finances. We have a Labour Shadow Chancellor who reckons that
0:34:58 > 0:35:01spending and borrowing pays for itself. That is just not credible
0:35:01 > 0:35:05and it is dawning on many people that these are false promises. It is
0:35:05 > 0:35:10a con.What was a con about George Osborne saying he would eliminate
0:35:10 > 0:35:15the deficit by 2015 and it will now not be eliminated until 2031.Well,
0:35:15 > 0:35:20that was a target.A target that you miss every year in terms of
0:35:20 > 0:35:26eliminating it. And it was to be £35 billion. When you talk about trust,
0:35:26 > 0:35:30what is the point of saying to people, bear the pain now of
0:35:30 > 0:35:33austerity because we are going to remove it for future generations? It
0:35:33 > 0:35:39is still going to be there.Well, hold on. That is based on
0:35:39 > 0:35:44projections made in 2010. We would say, look at the 3 million new jobs.
0:35:44 > 0:35:49Look at the extra money we have made sure working people have in their
0:35:49 > 0:35:52pay packets. Look at the extra investment in the NHS. If you
0:35:52 > 0:35:56compare that what John McDonnell said this morning he said that
0:35:56 > 0:36:03spending and borrowing pays for itself. That be credible.Is
0:36:03 > 0:36:07government spending and borrowing now paying for itself?The economy
0:36:07 > 0:36:16has not hit rock bottom.Our point is, if you can get a bigger return
0:36:16 > 0:36:20for the taxpayer by borrowing at record low levels, that is something
0:36:20 > 0:36:24you should consider. And that was what was ruled out under the George
0:36:24 > 0:36:27Osborne has Charter. Now members of your Cabinet are coming forward with
0:36:27 > 0:36:34plans on housing...But not to say borrowing pays for itself.You said
0:36:34 > 0:36:38earlier that that is perhaps what Philip Hammond should have done, to
0:36:38 > 0:36:41have thrown away the red box and the red book in terms of constraint and
0:36:41 > 0:36:48spent more.I would reconfigure the red box. The government has not
0:36:48 > 0:36:53separated out current spending from capital spending. The only way to
0:36:53 > 0:36:56raise productivity, and it is a puzzle, but the key thing the Bank
0:36:56 > 0:37:00of England identifies is that you have to raise investment. Investment
0:37:00 > 0:37:03in things like hard and soft infrastructure and human capital, if
0:37:03 > 0:37:06you count that as capital spending, you can borrow at very low rates and
0:37:06 > 0:37:10invest in something which will be paid off in the future. And you can
0:37:10 > 0:37:12separate out from current spending so that you don't scare financial
0:37:12 > 0:37:19markets. That is something where he could have done more, given how dire
0:37:19 > 0:37:25our productivity prospects are. But it does require reconfiguring how we
0:37:25 > 0:37:31think about the deficit.So is Labour's plan credible if you
0:37:31 > 0:37:35reconfigured the red box in the way you have?I think their plan goes a
0:37:35 > 0:37:41bit further from the manifesto. The sense of borrowing and nationalising
0:37:41 > 0:37:44major infrastructure, there is a huge cost associated there.Which
0:37:44 > 0:37:51they have not given us.Yes. That is a problematic area to me. I am
0:37:51 > 0:37:54describing something which is more straightforward. Private firms are
0:37:54 > 0:37:58not investing in part because public investment has been slashed to less
0:37:58 > 0:38:04than 2% of GDP. It used to be over 3% of GDP before the crisis. Sorry
0:38:04 > 0:38:08telecoms company cannot put in a better fibre line unless the
0:38:08 > 0:38:11government gives them that basic structure. We can't have better jobs
0:38:11 > 0:38:15in the future unless there is more investment in technical education.
0:38:15 > 0:38:19That is why there is a good argument for putting investment in human
0:38:19 > 0:38:23capital, people as well as hard and soft infrastructure, and that would
0:38:23 > 0:38:26go a long way without going into some of the more politically
0:38:26 > 0:38:33disputed areas.But it is interesting that Labour still trails
0:38:33 > 0:38:37in terms of Corbyn and McDonnell versus Hammond and May when it comes
0:38:37 > 0:38:43to trust in the economy.There are eight points behind.If you look at
0:38:43 > 0:38:49under 50s, we now lead on the economy, so we have seen a change in
0:38:49 > 0:38:52perception. In 1997, we were trailing on the economy and we still
0:38:52 > 0:38:58won a landslide victory.Is that what you are predicting?I wouldn't
0:38:58 > 0:39:02go as far as that!Thank you both very much.
0:39:02 > 0:39:05Now, "Trust me, I'm an Economist" - it's not a phrase I suppose my guest
0:39:05 > 0:39:07of the day Linda Yueh utters everyday.
0:39:07 > 0:39:10And economists have had a rough ride of it of late.
0:39:10 > 0:39:12Blamed for not predicting the financial crisis nine years ago,
0:39:12 > 0:39:15a good number then got criticised for scare-mongering over what might
0:39:15 > 0:39:16happen after Brexit.
0:39:16 > 0:39:17But is that fair?
0:39:17 > 0:39:23Here's Ellie.
0:39:23 > 0:39:28It was a question that baffled lots of us, even the Queen, who famously
0:39:28 > 0:39:32asked, how did no one predict the financial crisis? She got an answer
0:39:32 > 0:39:41of sorts, and then said what we were all thinking.The people have got a
0:39:41 > 0:39:47bit lax, have they?Maybe it wasn't that simple.A bit like geologists
0:39:47 > 0:39:50and earthquakes, we know where the fault lines are, we have a good idea
0:39:50 > 0:39:54of where the earthquake will happen, but within a few years, we don't
0:39:54 > 0:39:59know exactly when and which region will be the most. It was like that
0:39:59 > 0:40:03in the lead up to the financial crisis. If you read any of the
0:40:03 > 0:40:06journals and policy papers, it was clear that we understood the risks.
0:40:06 > 0:40:14We just didn't know exactly where the earthquake hit.Today a woman
0:40:14 > 0:40:17rang the BBC and said she heard there was a hurricane on the way.
0:40:17 > 0:40:23Don't worry, there isn't. Here is another analogy. Economists can
0:40:23 > 0:40:26forecast based on certain conditions, but we shouldn't think
0:40:26 > 0:40:32of them as predicting the future. There is another problem too.The
0:40:32 > 0:40:34essential fear of financial economics is that you can't predict
0:40:34 > 0:40:38things like the financial crisis because it is in the nature of such
0:40:38 > 0:40:41predictions that the result of predicting it in a reliable way
0:40:41 > 0:40:45would mean that it wouldn't happen. So if I tell you the stock market is
0:40:45 > 0:40:49going to drop by 20% tomorrow, then you will not have your money in the
0:40:49 > 0:40:54market tomorrow. So it will drop the day before or the day before that,
0:40:54 > 0:40:57so I will not be right and the crash I predict will not happen.So is
0:40:57 > 0:41:02that what happened after the EU referendum?You have a situation
0:41:02 > 0:41:06today where you have a Conservative Chancellor and a Labour Chancellor
0:41:06 > 0:41:10both saying to the country that there will be a big hole in the
0:41:10 > 0:41:13finances...Brexiteers called a product fear, a consensus among
0:41:13 > 0:41:18economics types including the then Chancellor that Brexit and the vote
0:41:18 > 0:41:22to leave would damage the British economy.Economists overplayed their
0:41:22 > 0:41:26hand significantly on Brexit in two key ways. They claimed to be experts
0:41:26 > 0:41:31about matters that they weren't expert in, namely what some of the
0:41:31 > 0:41:34political implications would be both of staying in the EU and of leaving.
0:41:34 > 0:41:39And secondly, when things didn't play out as they expected, they
0:41:39 > 0:41:41tried to suggest that that was something to do with the economic
0:41:41 > 0:41:45models that they were using instead of taking on the chin that they had
0:41:45 > 0:41:51got wrong what the economy believed would be the long term implications.
0:41:51 > 0:41:55Economics and predictions. That's what this was about yesterday. The
0:41:55 > 0:41:59Budget was full of forecasts and policies based on forecasts. But
0:41:59 > 0:42:05maybe if the politicians who don't use economics properly.The choices
0:42:05 > 0:42:09they make may not fully reflect the consensus of economics. They may be
0:42:09 > 0:42:14a result of their own private preferences, or the result of the
0:42:14 > 0:42:17way they have to confront their own parties, or the political agenda in
0:42:17 > 0:42:21front of them. It seems to me that the best politicians are ones who
0:42:21 > 0:42:24can understand what the science says, whether it's on global warming
0:42:24 > 0:42:30or smoking or the impact of introducing trade costs, and
0:42:30 > 0:42:34confront that and design policies designed to deal with the real
0:42:34 > 0:42:38risks.When it comes to predicting, maybe it's not economics at fault,
0:42:38 > 0:42:43but the economists themselves, politicians and the public's
0:42:43 > 0:42:46unpredictable behaviour that makes it so difficult.
0:42:46 > 0:42:47Joining us now is Joe Gladstone,
0:42:47 > 0:42:53a behavioural economist from University College London.
0:42:53 > 0:42:58Why do economists keep getting it wrong?One reason is that it is
0:42:58 > 0:43:01difficult to predict the future with economic models because economists
0:43:01 > 0:43:05want to have a theory of everything. They want to turn people into little
0:43:05 > 0:43:08robots that always try and maximise their own well-being. But you and I
0:43:08 > 0:43:13know that that is not how people behave. Humans are irrational. They
0:43:13 > 0:43:16make mistakes, and if these models don't take that into account, what
0:43:16 > 0:43:22do they tell us?We know that humans are not rational, so what is the
0:43:22 > 0:43:27point of all this forecasting?I am not sure sometimes. You know the
0:43:27 > 0:43:29phrase that economic forecasting exists to make astrology look
0:43:29 > 0:43:36respectable! The problem with policy is that you need to have some basis
0:43:36 > 0:43:41to decide how the economy will be in the future. There is a need to make
0:43:41 > 0:43:44forecasts, but I don't like the excessive reliance on forecasts. The
0:43:44 > 0:43:47other thing I don't like about forecasts generally is that they
0:43:47 > 0:43:53rely too much on simple models of how people, if you have a tax cut,
0:43:53 > 0:43:56people will spend more, but that is not true. A lot of people save if
0:43:56 > 0:43:59they are struggling. Why would you spend more even if you have a tax
0:43:59 > 0:44:04cut? If you put that together, it requires rethinking the basis of
0:44:04 > 0:44:07economic forecasting, but also accepting that the likes of the
0:44:07 > 0:44:13Treasury and the OBR need something to say the economy is expanding or
0:44:13 > 0:44:16shrinking, but we should not put too much stress on it being our future.
0:44:16 > 0:44:21And it is not just people who don't behave in a linear way. Markets
0:44:21 > 0:44:24don't always function properly. Some would say they haven't functioned
0:44:24 > 0:44:30well at all over the last decade. That is true. People and markets are
0:44:30 > 0:44:34imperfect and these models are not good at distinguishing between them.
0:44:34 > 0:44:38If we could all predict the future with some wheezy model, we would set
0:44:38 > 0:44:41up a hedge funds and be a billionaire next year.I would not
0:44:41 > 0:44:48be sitting here.It is just that complexity, the chaos of all these
0:44:48 > 0:44:52individuals with their complex minds and personalities and
0:44:52 > 0:44:55individualisms, and then the market, which is also complex and follow
0:44:55 > 0:44:59normal ways of doing things.
0:44:59 > 0:45:03People want to see evidence of what policies are based on and there has
0:45:03 > 0:45:08to be some forecasting. Do we help the situation by criticising it and
0:45:08 > 0:45:12dismissing and saying - all forecasts are wrong, so I'm it never
0:45:12 > 0:45:16going to believe anything you say or does it make the job of economic
0:45:16 > 0:45:19forecasting more difficult?First we have to accept the world is
0:45:19 > 0:45:23uncertain and we cannot know with a huge degree of accuracy what is
0:45:23 > 0:45:28going to happen in future, we have to accept that. The best models we
0:45:28 > 0:45:33have are probably from economists, there is not an alternative, we
0:45:33 > 0:45:36cannot go to psychologists or sociologists and say - tell us what
0:45:36 > 0:45:39the economy is going to do. We have to accept the limitations of what we
0:45:39 > 0:45:43have and figure out how you can explain that to the public that the
0:45:43 > 0:45:47world is uncertain and this model is the best thing we have.We wouldn't
0:45:47 > 0:45:50be better off without economic forecasting. How could it be be made
0:45:50 > 0:45:55better? ? I think one way it could be made better is right now it tends
0:45:55 > 0:46:00to extrapolate a lot from the past. Almost every single model is saying
0:46:00 > 0:46:06what happened in the past.If you have not had a recession in the last
0:46:06 > 0:46:11eight years you are unlikely to predict one. So the first thing to
0:46:11 > 0:46:17do is redress the reliance on ex-traplation. Looking at Government
0:46:17 > 0:46:23spending gives you a better in the of US it is called of dynamic
0:46:23 > 0:46:28scoring. You put it policy out and cost tonne that basis.Do you need
0:46:28 > 0:46:32more time? Do you have a tax cut or rise, when policies come and you
0:46:32 > 0:46:37have in place for one or two years, is it long enough to say it it has
0:46:37 > 0:46:42worked or failedIt is tricky and what I'm described also takes a lot
0:46:42 > 0:46:47more preparation before you roll out policies so you can decide on the
0:46:47 > 0:46:53impact but politicians work on four or five year cycles, and it
0:46:53 > 0:46:56generally isn't a luxury they have. And everybody says they have their
0:46:56 > 0:47:01own economic expert to back up whatever their policy is. You can
0:47:01 > 0:47:04pretty well forecast and predict whatever economics you like, because
0:47:04 > 0:47:06there will be an economic expert to back it up?There is varyings in
0:47:06 > 0:47:10opinion and it is possible to find an speshgts who is likely to support
0:47:10 > 0:47:14your case. But at the same time, there is Bert and worse science.
0:47:14 > 0:47:18Things are moving forward there, a gold standard in terms of these
0:47:18 > 0:47:20field experiments or natural experiments, so, it isn't like we
0:47:20 > 0:47:23are just walking around in the dark. There is the science out there. The
0:47:23 > 0:47:26problem is that that science is complicated. It is difficult to
0:47:26 > 0:47:30explain to the public. It is difficult to turn into a policy
0:47:30 > 0:47:33sound bite and so, that's really the problem we have in politicians using
0:47:33 > 0:47:36this information.Thank you very much. Well economics may be
0:47:36 > 0:47:39difficult to forecast but I have to say politics hasn't been that easy
0:47:39 > 0:47:49to forecast either.
0:47:51 > 0:47:53Is Germanys facing one of the worst political crisis of its modern
0:47:53 > 0:47:55history?
0:47:55 > 0:47:57Angela Merkel's party have failed to form a coalition.
0:47:57 > 0:47:59Last weekend, efforts to forge a three-way coalition
0:47:59 > 0:48:01with the pro-business Free Democrats and the Greens collapsed,
0:48:01 > 0:48:08raising fears across Europe of a prolonged leadership vacuum.
0:48:08 > 0:48:13Today Germany's President has urged the social Democrats. Led by former
0:48:13 > 0:48:17EU president, Martin Schulz, to reconsider their oppies to joining a
0:48:17 > 0:48:19new grand coalition with their Christian Democrat party. What are
0:48:19 > 0:48:23the options for Germany now and what impact does it have for the UK and
0:48:23 > 0:48:28Brexit?
0:48:28 > 0:48:31Joining me now are journalists, John F Jungclaussen from Die Zeit
0:48:31 > 0:48:32and Stefanie Bolzen from Die Welt.
0:48:32 > 0:48:38How unpress departmented is the situation in Germany now?It is
0:48:38 > 0:48:41unprecedenteded. We haven't had this kind of situation but there are ways
0:48:41 > 0:48:45to deal with T the constitution is very clear about the next step that
0:48:45 > 0:48:49needs to be taken here. -- to deal with it.Angela Merkel has suggested
0:48:49 > 0:48:54she would rather have another election. Well that's what she said,
0:48:54 > 0:48:58than govern in a minority government. How likely is it for new
0:48:58 > 0:49:03elections? The is fluid. I wouldn't bet on anything for the time being
0:49:03 > 0:49:07but doesn't look like a new election now. The reason being - for today,
0:49:07 > 0:49:11tomorrow we could be in a different situation. I like the caveat, in
0:49:11 > 0:49:21temples predists. Dump -- in terms of predictions.But Angela Merkel is
0:49:21 > 0:49:26in a comfortable position because it is the SPDs, they cannot risk
0:49:26 > 0:49:29elections, because the German public sees them as the one that is have to
0:49:29 > 0:49:34move. If they don't come into a co-laylies with Angela Merkel or
0:49:34 > 0:49:38support a minority Government and therefore trigger new elections they
0:49:38 > 0:49:44will be hammered in 2018That is That's the dilemma for the SPD. Is
0:49:44 > 0:49:49Angela Merkel really in a comfortable position. This must have
0:49:49 > 0:49:57come as a shock, she was said tonight leader to ruffal trump. And
0:49:57 > 0:50:03it hasn't happened?Yes -- to rival Donald Trump. Well before the last
0:50:03 > 0:50:06election her personal popularity ratings were extraordinary. Over 52%
0:50:06 > 0:50:10of the population favoured her as a leader. Of course that was not
0:50:10 > 0:50:15reflected in the outcome of the election. But there is a great deal
0:50:15 > 0:50:19of goodwill that people have and that's why I think she would opt for
0:50:19 > 0:50:24a new election, if she had it her way.Right she's obviously banking
0:50:24 > 0:50:28on the fact that people voted for parties perhaps thinking she would
0:50:28 > 0:50:33walk it, would put their vote behind her but it is a massive gamble to go
0:50:33 > 0:50:38for another election?It is,It is, it is something unprecedented in
0:50:38 > 0:50:43Germany. The Germans don't want T they don't want instable. Thankfully
0:50:43 > 0:50:46the economy is going well. Data growth is coming, low unemployment
0:50:46 > 0:50:49it is not the economic pressure for the time being but talking about
0:50:49 > 0:50:53Angela Merkel, she has been there for 12 years now, it was always to
0:50:53 > 0:50:56be expected sooner or later people thought she ought to go. The
0:50:56 > 0:51:00question is, when is she going and there is no successor at the horizon
0:51:00 > 0:51:05for the time being.Germany often spends time putting coalitions
0:51:05 > 0:51:08together and we don't quite have that experience in this country.
0:51:08 > 0:51:11Whep we had the coalition it happened relatively quickly compared
0:51:11 > 0:51:15to Germany. That does leave a bit of a vacuum doesn't it, in terms of
0:51:15 > 0:51:21Europe and when we look at Brexit, what impact will it have?Well, I
0:51:21 > 0:51:26think it is one thing one cannot repeat often enough on British
0:51:26 > 0:51:29television, is that Brexit is not on top of the list of any German
0:51:29 > 0:51:38Government.We've gathered that. Good. I think what is more important
0:51:38 > 0:51:43is issues that are coming up in Europe next year, such as elections
0:51:43 > 0:51:47in it lane the threat of the rising -- Italy and the threat of the
0:51:47 > 0:51:51rising populist right there. The euro needs to be sorted out. There
0:51:51 > 0:51:55is the issue of migrants who are still drowning in the Mediterranean.
0:51:55 > 0:51:59What Brexit has done to Europe, is that Europe is coming closer
0:51:59 > 0:52:05together. The 27 are closing ranks, very successfully, I think. And
0:52:05 > 0:52:13there are a lot of issues that need sorting out and I think for those
0:52:13 > 0:52:16issues, a weak government in Berlin is a lot more difficult to sort out
0:52:16 > 0:52:23than Brexit. I don't think Brexit will be affected by this situation.
0:52:23 > 0:52:27Except if the SPD under Martin Schulz, the left-of-centre party
0:52:27 > 0:52:31decide they want to get into a coalition and there was to be a
0:52:31 > 0:52:35grand coalition with Angela Merkel, we know Martin Schulz is not a fan
0:52:35 > 0:52:39of Brexit. Could he make things difficult if he were part of a if
0:52:39 > 0:52:44you tour German Government?At the end of the day in Britain there is a
0:52:44 > 0:52:49lot of delusion about how much would change if the Liberal Democrats
0:52:49 > 0:52:54pro-business would be in the coalition. It always be a very prong
0:52:54 > 0:52:57pro-European Government. It won't make much of a difference. It won't
0:52:57 > 0:53:00make a difference for the December council, whether Angela Merkel is
0:53:00 > 0:53:04there or not. It is not in the hands of the Germans to say - OK, you pay
0:53:04 > 0:53:08£10 billion less, it is not.Really? But the Germans are so important.
0:53:08 > 0:53:12There was much made of the relationship at the same time
0:53:12 > 0:53:14between David Cameron and Angela Merkel and people thought she'd let
0:53:14 > 0:53:17him down and there is still sort of hope that Angela Merkel will be the
0:53:17 > 0:53:20ones that will go over the heads of everybody else and perhaps push
0:53:20 > 0:53:24things along. When she's distracted and it is not top of her list, has
0:53:24 > 0:53:29it gone?A lot was made of it in Britain, yes, but not so much in
0:53:29 > 0:53:34Germany and Berlin or Brussels.Are you worried about this dilemma,
0:53:34 > 0:53:41really in Germany and this Ince stability while -- instability while
0:53:41 > 0:53:49she tries to decide for a coalition or another election?Well I'm more
0:53:49 > 0:53:56worried now. Well Michel Barnier, the EU negotiator he has delegated
0:53:56 > 0:54:01authority a mandate given to him to negotiate so on aspects that Britain
0:54:01 > 0:54:05would like something more bespoke, whether around Northern Ireland or
0:54:05 > 0:54:10Ireland or the divorce bill or trade deals, the thought was he could get
0:54:10 > 0:54:13that authority, perhaps, from Merkel or from Macron and so people should
0:54:13 > 0:54:20matter. But if it turns out that the EU is really, a really unified
0:54:20 > 0:54:23force, and it doesn't matter who is actually in charge, I think that's
0:54:23 > 0:54:29going to make the British position, you know, harder to read.But
0:54:29 > 0:54:32whatever point of the process you look at. We are in the position
0:54:32 > 0:54:37where Britain has to come up and pay and agree on citizens' rights and
0:54:37 > 0:54:42thor Northern Irish bored in phase 2 we might be in different territory
0:54:42 > 0:54:44because national interests will kick in and persons and people will
0:54:44 > 0:54:49decide but that's not the point yet. Right, thank you both very much.
0:54:49 > 0:54:53So is it now "Funny Phil"?
0:54:53 > 0:54:55That might be overstating it.
0:54:55 > 0:54:57The Chancellor belied his "Spreadsheet Phil" nickname
0:54:57 > 0:55:00as he peppered his Budget statement with a series of jokes
0:55:00 > 0:55:02at the expense of everyone from Theresa May and Michael Gove
0:55:02 > 0:55:03to Jeremy Clarkson and Lewis Hamilton.
0:55:07 > 0:55:10I did take the precaution of asking my right honourable friend
0:55:10 > 0:55:12to bring a pack of cough sweets, just in case.
0:55:12 > 0:55:15LAUGHTER just in case.
0:55:19 > 0:55:23Mr Deputy Speaker, I shall first report to the House on the economic
0:55:23 > 0:55:24forecast of the independent OBR.
0:55:24 > 0:55:26This is the bit with the long "economicy" words in it.
0:55:26 > 0:55:30LAUGHTER
0:55:30 > 0:55:33Mr Speaker, if they carry on like that, there will be plenty
0:55:33 > 0:55:35of others join Kesa Dugdale in saying, "I'm Labour,
0:55:35 > 0:55:45get me out of here."
0:55:50 > 0:55:53Mr Deputy Speaker, I know that Jeremy Clarkson doesn't
0:55:53 > 0:55:55like them, but there are many other reasons to pursue this
0:55:55 > 0:55:58technology, so today we step up our support for it.
0:55:58 > 0:56:00Sorry, Jeremy, but definitely not the first time you've been
0:56:00 > 0:56:03snubbed by Hammond and May.
0:56:03 > 0:56:04More maths for everyone.
0:56:04 > 0:56:07Mr Speaker, don't let anyone say I don't know how to show
0:56:07 > 0:56:08the nation a good time.
0:56:08 > 0:56:10Joining us now is the the former Labour media adviser
0:56:10 > 0:56:13Ayesha Hazarika, who now works as a stand up comedian
0:56:13 > 0:56:14and Evening Standard columnist.
0:56:14 > 0:56:16Someone shouted out - it's the way you tell them, Phil. I suppose
0:56:16 > 0:56:20delivery is everything. But actually maybe from a low bar, some of the
0:56:20 > 0:56:25jokes weren't bad?I'll say fair's fair, the bar is low, I know that, I
0:56:25 > 0:56:28used to write jokes for the House of Commons, it is like you are limboing
0:56:28 > 0:56:32underneath it. I thought he did quite well. Remember the odds were
0:56:32 > 0:56:35stacked against him. He had a horrific lead into the Budget,
0:56:35 > 0:56:38everyone saying it is the worst Budget preparation in the history of
0:56:38 > 0:56:43time, he is hopeless for the chop. So you forget, the House of Commons'
0:56:43 > 0:56:46Chamber is actually mainly really dull T comes alive on a number of
0:56:46 > 0:56:51occasions and Budget Day is one of them. It becomes a stage. It becomes
0:56:51 > 0:56:54a place of theatre and what people want is good political lines but
0:56:54 > 0:56:59they want to have a bit of a laugh as well. They at least want their
0:56:59 > 0:57:03principal to try to make jokes, you know the phrase "God loves a trier."
0:57:03 > 0:57:07It is true on Budget Day in the House of Commons.How hard do you
0:57:07 > 0:57:11think his joke writers had to work? I would suspect they would've spent
0:57:11 > 0:57:15a vast amount of time working on the jokes. I actually got a nice text
0:57:15 > 0:57:18from one of his advisors late last night saying - gosh, you should have
0:57:18 > 0:57:22seen the ones that didn't make the cult.I'd love to have seen those,
0:57:22 > 0:57:26actually. You could use them yourself, actuallySteady, on, Jo.
0:57:26 > 0:57:30Sorry. In terms of delivery you can only work with what you've got. Does
0:57:30 > 0:57:37he deliver it well or not?Well, look, he is not a natural gag
0:57:37 > 0:57:42machine, not Phil Giggles Hammond but the way he worked them well, the
0:57:42 > 0:57:48maths jokes, the best way if you are not funny is to be self-deprecating,
0:57:48 > 0:57:51everybody thinks he is dull and boring, so he used that. But
0:57:51 > 0:57:55remember, jokes don't mask the truth behind the politics.Do you think it
0:57:55 > 0:57:58was a dissfraction the grim backdrop?I think part of it must
0:57:58 > 0:58:02have been. Because he delivered the jokes pretty early on and I think a
0:58:02 > 0:58:06lot of us were sitting there watching thinking - wait, did he
0:58:06 > 0:58:11downgrade z...He did it in about one minute and then all talked
0:58:11 > 0:58:16about.I suspect this is all part of the delivery. We'll face a brighter
0:58:16 > 0:58:21future, let's accept some of this and maybe have a few giggles. I have
0:58:21 > 0:58:27to say sometimes I groaned a bit. What about the strep sill, I thought
0:58:27 > 0:58:36it was too staged -- strepsil.It was a bit laboured. Remember with
0:58:36 > 0:58:39William Hague, it was a bit laboured.
0:58:39 > 0:58:41Time to find out the answer to our quiz.
0:58:41 > 0:58:43The question was, what important milestone
0:58:43 > 0:58:44has Shadow Education Secretary Angela Rayner
0:58:44 > 0:58:45just passed in her life?
0:58:45 > 0:58:48Was it: She's just bought her first house, she's got a degree, she's
0:58:48 > 0:58:50passed her driving test or she's become a grandmother?
0:58:50 > 0:58:52So what's the correct answer?
0:58:52 > 0:58:56D.She has become a grandmother at the grand-old age of 37.She's
0:58:56 > 0:59:01Granegela.Is that what she wants to be known?Yes.
0:59:01 > 0:59:02That's all for today.
0:59:02 > 0:59:05Thanks to our guests.