What a change of prime minister could mean for the UK economy

Paul Diggle:

Hello and welcome to Macro Bytes, the economics and politics podcast from Aberdeen with me, Paul Diggle.

Lizzy Galbraith:

And me, Lizzy Galbraith.

Paul Diggle:

So this is the week of English local elections and devolved National Assembly, devolved Parliament elections in Scotland and Wales. We're recording this on the Tuesday. The election itself is on the Thursday. By the time you're listening to it, you may well know the outcome. But even from this perspective on Tuesday, it's pretty likely that Labour will have done badly. The majority of council seats being contested this time around were last contested in 2022. The middle of the Conservatives' ‘Partygate’ saga, so the high, a sort of high watermark for Labour. At that point, they were polling at 35% now. Then nationally, 20% now. Labour, of course, getting squeezed from both sides. Reform in the so-called ‘Red Wall’, Labour heartlands, Greens in London splitting the left vote in certain parts of the country. So the scale of the seat loss could be pretty large in the local elections. And things don't look much better in the devolved parliaments in Scotland and Wales. Labour may lose its over one-century dominance in Wales. And this time a few years ago, Labour probably expected to be coming into power in Holyrood in Scotland. But instead, it seems reasonably likely that the SNP will remain in power as they have been since 2011 in Scotland. So what we're going to talk about on this episode is what all that means economically and politically, especially if, as seems pretty likely at the moment, there is a Labour leadership challenge to Sir Keir Starmer coming out of this election defeat. A challenge, a change of Labour leader and therefore Prime Minister is quite possible, either imminently or as a sort of drawn out process over the summer. So we're going to talk about the runners and riders to succeed Starmer and what they represent from an economics and markets perspective, the sort of economic, business, foreign policy changes that could be coming as well. OK, so with that set up, Lizzy, why don't you start us off by talking through the names in the frame? Who are the runners and riders for a possible next Labour leader and therefore Prime Minister? And what do they sort of represent economically?

Lizzy Galbraith:

Yep, so no real surprises if you have been keeping up with the news recently. I think all of these names all sound fairly familiar at this stage. They're kind of frequently in discussion now across the media. So the first name to mention is the current Health Secretary, Wes Streeting, thought to be one of the more centrist figures in the Labour Party, commonly referred to as sort of the Blairite candidate. He's potentially the one that gilt markets may be most reassured by should he remain in the frame. Leans more towards proposing supply side reforms as the solution to some of the UK's problems. The one that has been most vocally defensive of the UK's fiscal rules as well, it must be said. And the only sitting member of the cabinet that you will hear us talk about today, which is notable, I think it tells us something, I think, about the popularity of government, that the other figures that are deemed to be popular enough with the public to be notable in this race are actually quite far away from government at the moment. So he's more constrained than some of the others, I think, in terms of what he can and can't say. It's very much the notion of Wes Streeting rather than a policy platform that's got him to this point. But to move on, next on our list is former Deputy Prime Minister, Angela Rayner, resigned from cabinet last year as a result of fallout from a tax scandal for the purchase of a second home of hers. That investigation from HMRC is still ongoing but is thought to be concluding fairly soon. And the idea is that following the conclusion of that investigation, assuming that that clears everything up for her, she will then be free to reassert her political ambitions. Now, Rayner is mostly associated with what we call the soft left, which is the largest kind of grouping within the parliamentary Labour Party at the moment, probably the largest grouping among Labour membership as well. And it's a fairly nebulous concept. They don't really have a sort of a set of solid policy ideals. But she was fairly strongly associated with the trade union movement. While she was in government, she's a very strong proponent of workers' rights legislation, which the Labour government has now passed, and is generally thought to be more interventionist, more interested in what we would maybe think as being a traditional Labour domestic policy platform, and is therefore not necessarily as reassuring to gilt markets as maybe a figure like Streeting potentially would be. And then finally, our sort of wildcard here is the Mayor of Greater Manchester, Andy Burnham. And I say wildcard, not because he's unpopular, he's actually the most popular, as polling would suggest, of these three. But he's also not an MP and therefore cannot currently stand in any race that takes place. He would need to find a seat. Burnham used to be in the government way back in the day under Gordon Brown, former health secretary as well, and has also actually been the most vocal so far, and has kicked up the most fuss. Previous comments he made last year, the government being too in hock to gilt markets, did cause a bit of consternation. And he has spent most of his time since trying to row back the impression that he's given and that he is actually the least gilt market friendly of the potential runners and riders we have here. So full spectrum-ish of Labour Party conventional ideology on show with the three. But Burnham, though he gets a lot of attention, does have significant hurdles to overcome should he even want to stand, let alone win a contest.

So Paul, we talk about leadership, but actually one of the more important questions is, which do any of these candidates, should they be successful, pick as their chancellor? And you hear a lot of talk about this notion of Labour leaders needing to offer a balanced ticket, both for political reasons to reassure the party, but also for policy reasons to reassure markets. So what type of chancellor / prime minister combination are we looking at with these three potential candidates? And why does that matter for markets?

Paul Diggle:

Yeah, I think it's really important, as you say, who is at number 11, as well as number 10. There's a sense in which a chancellor appointment could offset some of the doubts gilt markets might have with some of the leaders for the PM role. And remember that Starmer and Reeves are a very important top team combo as well. Reeves has been very important in anchoring the fiscal credibility of this Labour government. And we've seen that at points where speculation increased about her being removed, gilt markets didn't really like it. So I think, and should the contest for the next prime minister be bruising, should markets look twitchy at points, that is going to even more push on this logic of making a sort of pragmatic chancellor pick to try and lower some of that risk premia. So I think it's useful maybe if I just lay out three combinations, most gilt positive, most balanced ticket, highest gilt risk sort of combination to think this through. I would posit that the most gilt-positive team could be something like Wes Streeting and Yvette Cooper, current foreign secretary. So as you said, Lizzy, Streeting is sort of thought as fiscally orthodox, instinctively cautious about reopening questions around the fiscal rules, for example. And then Cooper is generally thought of as a safe, you know, rules respecting potential chancellor, not someone who would lead a sort of frontal assault on the OBR or treasury orthodoxy. Then perhaps the most balanced ticket meeting that sort of logic you were talking about, Lizzy, of satisfying both the party in the back benches, but also the markets could be Rayner plus Wes Streeting at number 11 or Cooper or Pat McFadden, the work and pensions secretary. So Rayner would provide, as you said, that sort of left coded political break from Starmer. But then Streeting, Cooper, McFadden, you'd also sort of get that sort of market reassurance type of dynamic, technocratic reassurance, a seriousness. And then perhaps the riskiest combination from a gilt market perspective would be Burnham plus Ed Miliband. So Burnham has famously talked about not being in hock to the gilt markets, and then Miliband, the energy secretary, would perhaps reintroduce a green investment logic that involves, you know, decent amount of spending, investment spending. Maybe he would not, well, almost certainly he would be less in favour of more North Sea oil and gas extraction, a potential significant source of fiscal revenue for a future government. He was, of course, the sort of the anti-austerity candidate back in 2015. And there was a lot of, there's been a lot of press, a lot of coverage this weekend about allies of Miliband positioning him as a sort of Chancellor kingmaker figure, but as I say, one that could actually run some potential risks with the gilt markets. But why don't we talk, Lizzy, about the actual process then that the party would have to go through to choose that new leader? How would that look?

Lizzy Galbraith:

So firstly, I think it's important to say that for all that you'll see people get quite hung up on the rules of how you sort of trigger a leadership challenge. And it is true that to do that, there is a higher bar in the Labour Party rules than there was for the Conservative Party rules. It's no less of confidence to challenge a sitting Prime Minister, you need to have secured 20% of the parliamentary Labour Party's support to even begin that process. However, it's also fairly unlikely that that is the route by which this would be kicked off. No sitting Labour Prime Minister has ever faced a leadership challenge. The more conventional route here is for Prime Ministers to announce their resignation or a timetable for their departure via parliamentary, but more likely cabinet pressure for them to do so. That is the mechanism by which we saw Tony Blair announce his planned departure from his tenure in office, combination of cabinets, resignations, and kind of public letters, asking for him to set out a timetable for him to go. Obviously, the other way is by the other conventional way, I should say, is by leaders resigning after poor election results. Now, it doesn't appear that that's something that Starmer is likely to do. We've been hearing lots about how he intends to fight any challenge about who's going to resist calls for him to resign. So you would assume that the pressure would need to ramp up fairly significantly beyond this point, beyond a set of poor election results for us to get to that point. But assuming that we do, either via the triggering of the leadership challenge in the way I mentioned, by a candidate securing 20% of the PLP's support, or by Starmer agreeing to set out some sort of timetable for his departure, what you would then see is that all candidates, anyone that wants to run, needs to, first of all, secure, again, 20% of the PLP's support. That's 80 MPs. It's a pretty high bar, particularly for a party that is quite often divided on questions of policy, direction, the balance between ideological conviction and practical constraints. So it's not likely that we'll see many candidates clear that bar at all. After that, they then need to secure 5% of constituency parties' support, or 5% of affiliated party memberships, two of which must be trade unions. So you can see how the bar to actually getting on that final ballot to be voted on by the membership is really quite high. You need quite a broad base of support. It can be challenging, particularly if you're a more centrist candidate, like Streeting is. To secure that trade union support, you probably need to go through the route of securing constituency party support. Other candidates that have stronger relationships with trade unions, possibly the other way around. And then, after you've jumped through all of those hoops, then we get to the election where the Labour Party membership vote on their preferred candidate. And the timeframe for that varies slightly. Labour's leadership body would dictate the terms and the rules of that vote. But generally speaking, we see them take something like five to six weeks. And the real hard deadline here in practical terms is going to be the Labour Party Conference. That comes at the end of September. You would want to see a leader in position for that party conference so they can introduce themselves to the public and the party as the new leader set out their programme for what they're going to do. And obviously, you then move immediately from that party conference in late September into the process for setting up the budget in late autumn. So it's a fairly compressed timeframe we're looking at here. Not a lot of wiggle room. And of course, that really matters if you are Andy Burnham, because he currently is not eligible. He's not an MP. He would need to find a seat, be able to stand. Of course, the NEC blocked his candidacy last time. Have that by-election held. Win it, which is not necessarily a sure thing in this current political environment for a Labour candidate. And then secure that 80 MP support level. Then go to constituency parties. He would need to move very quickly from this week if he were to be on the ballot. Now, it's possible that if we don't see that kind of movement within the next few weeks, then maybe we say, OK, Starmer is actually living to fight another day. He will be imposed over autumn. Do we think that the problems facing Labour from a policy perspective, from a parliamentary perspective, go away in that environment? Probably not. But certainly in a practical sense, you're looking at a fairly compressed timeframe for a leadership election this side of the autumn budget.

Paul Diggle:

And we don't have a sort of fleshed out set of policy proposals from all these runners and riders at this point. I mean, it's early days. There's not actually a leadership race, an explicit leadership race happening yet. But we do have a sort of, as we said, a set of known positions. There's policies in the zeitgeist. There's vibes around what these candidates represent. So let's talk about some of those policy areas and try and nail down specifics. I suppose the first really big one from a macro and markets perspective is fiscal policy, the fiscal rules, the overall tax and spending envelope, the role of the OBR. Because all these candidates, they're not making outright big bang fiscal loosening the centrepiece for fear of the bond markets. But clearly one of the big Labour backbench frustrations has been with the overall size of the fiscal envelope, which has, for example, limited welfare spending and the sort of the sacred primacy of the fiscal rules and the repeated misery of the Chancellor sort of promising no tax increases and then having to come back and do tax increases. And remember, too, that the sort of the departmental spending plans Reeves has laid out even now don't look particularly credible in the medium-to-long run. They're just too tight. Whoever the next Chancellor is, they're going to have to deal now or later with those spending plans and the growing fiscal spending pressures, which only amount welfare, defence, energy support. So both Rayner and Burnham, they've talked about taking defence spending out of the fiscal rules, sort of doing a defence investment carve out that would look a little bit like what Germany did when it loosened the Schwarze Null, sort of its balanced budget fiscal rule. And, you know, in Germany's case, it went down OK with European bond markets. But importantly, Germany's fiscal position is just much stronger than the UK's, where the challenges, I think, are much greater. And remember, that is the binding constraint. It's not the fiscal rules themselves. All they're meant to do is keep the government operating within an envelope that the gilt market will accept. Rayner has a sort of critique of the OBR and the fiscal rules, which is that she doesn't want to abolish the Office of Budget Responsibility by any means, sort of repeat that sort of Truss-style sidelining of the OBR. But you've heard her argue that the OBR forecast horizon is too short. And as a result, the wider sort of social benefits of investment isn't properly captured. So even some things that look like spending, given the appropriate time horizon, would actually look like productive investment, early spending or a certain type of welfare payment. I think, though, the important point is, while, as I've said, the fiscal rules aren't an end in themselves, and Rayner would underline that, nor is loosening or reformulating them a solution in itself. It is all about what the gilt market will bear. And in the context of the OBR forecast, and in the context of the UK being particularly exposed to the energy shock, that might not be all that much. So I guess for all these candidates, the likely play is to muddle through broadly within Reeves framework, perhaps carving out certain priorities, delaying a lot of the hard choices, hoping for an improvement in the economic position in the forecast, and justifying the inevitable deterioration against the headroom being due to the energy shock.

Lizzy Galbraith:

Yeah, I think that question of defence spending carve out is particularly interesting. As you said, Paul, the context between the UK's fiscal position and Germany's is really quite different. But even some of the more basic questions around a policy like that, actually, when you start thinking about them in detail become quite difficult to answer. The one that springs to my mind is actually what are we counting as defence? Is it, are we truly talking about defence in the traditional way in terms of the capital spending with the MOD users to fund its new defence capabilities? Or are we having more of a NATO style debate about what that is? Are we broadening out that definition to include what we will probably term more resilience type spending on infrastructure, potentially even on renewables given some of the events in the Gulf that have brought in energy security back into the forefront of people's minds. So it sounds like a fairly simple, straightforward policy. It might not actually be quite as easy to answer how you would define the terms of that investment proposition, particularly, as you said, in an environment where there's an awful lot of competing fiscal pressures coming from a lot of different departments at the moment.

Paul Diggle:

Well, let's talk about the flip side of spending then, which is tax and revenue raising. What revenue raisers are potentially on the table, Lizzy? Now, particularly noting that we had this leaked Rayner memo when she was still in government on potential tax increases. So what kind of things are on that list or what's Burnham or Streeting thinking of?

Lizzy Galbraith:

Yeah, so the Rayner list is quite interesting. This was something that was published in the run up to last year's spring statement where the government needed to find some additional revenue raisers in order to meet its fiscal rules. And these tax proposals were reportedly what Rayner had submitted to the Treasury to give them some ideas. In the end, they didn't go for any of them. But they do, I think, give a bit of a flavour of the kind of politician she is and the kind of approach she instinctively has towards fiscal policy. So some of the things that she wanted to see the Treasury pursue were looking at the AIM inheritance tax exemption, removing the dividend allowance or possibly lowering it, higher tax on dividends, looking at freezing the additional rates, increasing the bank surcharge back to 5%. That, of course, was cut a few years ago from its original 8%. So going halfway back to where it originally was. And really, I think it's about returning back to that conversation that we see the Labour Party get into a lot, which is the balance between taxing wealth and income. Rayner clearly feels that there are ways to tax wealth that the Labour Party has not fully explored, stopping short of something that would be quite so overt as a full wealth tax, but looking at some of these smaller tax changes that you can maybe make that address that question. Now, for Burnham, we've not seen too much from him so far, but his big proposal on the tax front is to look at inheritance tax increases specifically to pay for social care. Now, we don't have any costings on this. Not entirely clear you can raise enough just through inheritance tax alone for a full social care policy. This, of course, has been a debate for a long time in Westminster, how you pay for a sustainable social care policy. We've yet to find any answers that really thread the needle between what is acceptable to the public and what makes fiscal sense. So very tricky one there if Burnham has to have to explain that policy in more detail, which he may have to do. And of course, it's also worth noting that previous attempts by Labour governments to alter inheritance tax have been met with some scepticism by the OBR. They haven't scored those changes particularly well. They factored in an awful lot of behavioural changes into their forecast, which quite dramatically reduced the revenue that you get from some of these changes after a few years. So again, the OBR might be looming quite large in the minds of some of these candidates as they set out some of these policies, because certainly previous attempts to introduce smaller versions of some of these tax tweaks have not been viewed particularly positively when they've been scored. And that's one of the reasons why Reeves has had to make these repeated tax changes at fiscal events. It’s partly because it’s kind of nibbling away at the edges and the OBR doesn’t see these as being particularly sustainable in the long term. And just to round things off, Streeting, understandably, I think, has been very quiet on this front. He is, as you've mentioned, Paul, a sitting cabinet minister. It's not really part of his brief to start waxing lyrical on what he would do on tax policy. So he is far more constrained than the other two in terms of what he can or cannot say. But suffice to say, he's previously been very defensive of the current fiscal rules, very, very much advocating for them to remain in place. So you would assume that he would be very much inclined to, I think, defend the choices that Reeves has had to make by and large. I'm sure there are critiques that he will make should we see him in a leadership contest. But I don't think we're going to see him advocating for sort of a wholesale ripping up of fiscal strategy going forward.

Paul Diggle:

And you mentioned, Lizzy, a potential increase in the bank surcharge, one potential quid pro quo the government could offer in exchange for that would be a degree of regulatory relaxation, which could also help the government's fiscal position at the same time. And that is to change the way that bank gilt holdings are treated for capital purposes, lowering bank capital cost on gilt holdings by taking a portion of them out of the capital calculation. So you don't need to hold as much capital against that sort of risk position. And this is a proposal that has been sort of floating around. It would mean commercial banks likely end up holding more gilts, potentially bringing the UK more into line with continental banking systems where there is quite a strong home bias in holding local sovereign paper. It could push down therefore on bond term premia in the UK, lowering the UK government's funding costs. And it would make that funding base a little bit more domestic because one of the weaknesses of the gilt market, one of the reasons there's been a significant amount of gilt volatility has been the dependence on international investors, which then can be quite flighty. So if you're reliant on the kindness of strangers, as it were, the issue is, or one of many issues is it would put the government in opposition to Bank of England, which actually argued against such changes. And they would argue interest rate risk exists and banks need to hold capital against it. I mean, even the Trump administration in the US actually decided against a similar proposal for the US banking system. And then you talk about that as well, Lizzy, also raising inheritance tax on AIM shares. And again, the concern there from a market perspective is that you would be increasing the cost of capital for small UK firms at a time when other initiatives from government are seeking to strengthen the UK capital markets, you would sort of be pushing back against that policy.

Lizzy Galbraith:

Yeah, there's definitely no easy answers to a lot of these fiscal questions that any leader, current or future is going to have to grapple with. And I think some of the international developments that we're seeing are not necessarily helping that. So energy and the extent to which the government is going to have to support consumers energy bills going into the autumn, I think it's going to be a major question. And during any contest, it's become one of those sort of unavoidable near-term fiscal decisions that just not going to be able to put off at the Budget. Now, at the moment, the consensus across governments, across the Labour Party, broadly speaking, is to keep energy support measures targeted to the least well off. And there is certainly on the soft left and further to the left of the party than that, I think also some scrutiny of utility companies profit making as well, which we may see a bit of a resurgence of going into the autumn when we expect some of these decisions to be made. But suffice to say, it feels like the consensus currently around targeted support for consumers, not a particularly broad brush approach, certainly not a policy platform that would imply that all consumers are going to be in receipt of fiscal support beyond the energy price cap come autumn. Now, the question I have going into any leadership contest is going to be whether that targeted approach is actually going to stand up to the demands of the Labour Party membership, particularly as we start seeing those price caps start creeping up over the summer and into the autumn. We're very confident now that we are going to see energy prices rise as a result of the pressures stemming from the conflict in the Middle East. So can this instinct for looking for fairly fiscally targeted measures that focus on the least well off actually stand up to political pressures going into the autumn? I think that's going to be really quite challenging for any leader with any type of instinct on this, because, of course, energy support will be fairly expensive in any capacity.

Paul Diggle:

What do we think about European policy, Lizzy? So to what extent is yet another reset on Labour and broader UK relations with Europe going to form part of potential future leaders’ policy platforms?

Lizzy Galbraith:

Yeah, we have seen quite a few resets at this point, not least in the last 18 months. We've definitely had our fair share of attempted resets, attempted reform packages as well. Not all of them with the greatest of success, I have to say. Europe's a quite interesting one for the Labour Party in general, as a party that is, as you said at the start, facing pressure from reform on the right, obviously very much a pro-Brexit party, and the Greens on the left, which is very much the opposite, very much advocating for a return into Europe and a closer relationship there. And I think the political gravity in the UK has now shifted away from a deep suspicion of close relationships with the EU in general. You obviously still have voters that are still very strongly in favour of Brexit and deeply suspicious of moving back into a closer relationship with the EU. But the centre of gravity does appear to have changed based on the polling we have. So candidates may look to strike this as a bit of a point of difference. There are some potential measures here that could have a positive impact on future growth prospects, and that might be a very tempting proposition. So they may look to dial up some of the ambition of the future relationship reset beyond the fairly incrementalist approach that we've seen so far. Streeting has been the most forthright on this. He's previously spoken about being in favour of like a Swiss-style arrangement with Europe, which would imply a much closer relationship than the one we have right now. Of course, Streeting has his own interests in doing this. He has a very small minority in his London constituency, and he's under pressure from the left, not the right. So he is probably more comfortable in terms of his own political situation in terms of pushing for that. Whereas Rayner, although she did vote and campaign for Remain and has spoken quite critically of the current Brexit settlement, is more under pressure in her constituency from Reform. Her constituency did vote as a majority to leave. So she's probably going to be more cautious in terms of articulating that future relationship and the length to which she's comfortable with than Streeting is. But of course, the constraints here exist for any candidate, which is that Europe, in exchange for that closer relationship, has two priorities. And the first is a more relaxed migration arrangement, particularly youth migration with the UK. And it's particularly interested in securing lower university fees for European students in the UK who currently have to pay international fees. That's a tricky one for the UK because universities are generally fairly cash-strapped at the moment. They use those fees as a very important revenue source. And there's not really a way that the government can replace that lost revenue if they make an agreement like that. And the other issue is that any type of serious realignment with the EU, in line with that sort of Swiss-style arrangement that some in the party talk about, that implies that you would be paying cohesion payments to the EU. That's what all of those types of arrangements imply. And there's no way that the EU would make an exception for the UK because that would undermine everyone else's payments as well. And that's a slope that they don't want to be going down at this stage. So there are still, for any candidate, regardless of political will here, I think serious hurdles to overcome for a meaningfully closer relationship on that migration question and on that payments question as well. So to tie some of this up, how do we think about that European question from an economic and markets perspective, Paul? How much of a difference would that type of closer relationship actually make?

Paul Diggle:

I mean, potentially more than most other policies. If you're looking for growth levers, this is a pretty obvious one, the politics aside, to pull. Especially if we're talking about some of the chunkier stuff like rejoining the single market. Although that probably requires manifesto commitments that any future Labour leader then runs on a subsequent general election to then get the validation to do something as momentous, as large as rejoining some of the EU institutions in that way. But the markets might give you some of the credit for it upfront. And the OBR would certainly score it pretty well. I mean, essentially, it's the equivalent of lowering taxes without having the fiscal hit, but by lowering some of those trade barriers to your largest trading partner. So it's the obvious low hanging fruit. It has always been the obvious low hanging sort of growth fruit. It's just the politics, of course, extremely difficult whether you're actually able to pick that fruit, but maybe Labour going into a next election under a new leader is able to position themselves to do that, as you were saying. So yeah, higher potential growth would be the outcome and particular benefits for certain sectors, autos, manufacturing, pharmaceuticals, chemicals, those that are most hurt by the increase in trade barriers with the EU. But maybe Lizzy, the last policy area we should talk about is foreign and defence policy. And what sort of changes could we see on those fronts?

Lizzy Galbraith:

I find this quite interesting, actually, because it's been one of the areas that we've seen the most speculation and sort of candidate positioning on in the media, this kind of question of defence policy, which I think tells us a lot about the international environment that politicians kind of feel that we're living through at the moment, that they need to prioritise their credentials in that area so strongly at the moment. So yeah, we're seeing a lot of speculation of that in the press at the moment, as we've already mentioned, some of that includes how you pay for defence, looking at that potential carve out question. And I think it is also being brought from concern that the government is not necessarily moving fast enough to keep kind of pace with events, as maybe some of these MPs would like, progressing the defence spending review, looking at how they're going to meet NATO spending commitments in future years as well. Some of these questions remain unresolved. So I think there are genuine questions that some of these candidates are looking to answer. They're not necessarily simple. Some of them actually, though, do seem to have sort of broad consensus across the party. And the one in particular is very strong support for Ukraine, both because there's a very strong conviction across the Labour Party that that is the right thing to do. But also, I think, because they see kind of political gain in that, a weakness in Reform’s position on that. Farage has previously, prior to the invasion of Ukraine, been relatively complimentary about Russian President Putin. And of course, the Green Party as well, have not taken a strong position on future NATO membership as an example. So I think they do also see political advantages in holding that position. So very strong support for Ukraine going to be a feature regardless. Also worth noting that Rayner and Burnham, in particular, live in bits of the country that send quite a lot of people into the military. Quite a lot of soldiers come from those parts of the UK. So they're going to be very interested in shoring up career opportunities in the military, advertising that as a way to achieve sort of genuine career progression, starting from as a school graduate and going through the system. So I think Rayner, in particular, seems to see interesting ways to sort of develop her labour market policies through that defence lens as well. Probably less of a change elsewhere, to be honest. I think there's going to be some areas where the status quo is probably maintained. China policy is probably going to be one of them. We did, in opposition, see Labour talk a lot about human rights focused foreign policy that would have implied a different approach to some countries or a kind of a less cosy relationship with some countries. And that hasn't really materialised. We've sort of seen continuity throughout. So I don't think, even though we might see rhetoric around policy shifts, we're not necessarily going to get it. And that might even be true of the US, where some Labour Party members have been fairly critical of Starmer's attempted closeness with the US as his avoidance of criticism of President Trump. They would like to see more of that. I think because of the political considerations there, we're very unlikely to see that. And that might actually be a good litmus test for any politicians in a leadership campaign, whether they can withstand some of that pressure and demonstrate that they are kind of a mature leader that's able to sort of take some of these international pressures and kind of move with them rather than sort of against them. So I think that could be quite an interesting area of policy to watch and an interesting test for some of these candidates as well.

Paul Diggle:

Brilliant. Well, much to watch. No doubt we will return to this topic of UK politics and markets and gilt markets again, but that's about all we have time for at the moment. Please let me remind you to like and subscribe to Macro Bytes on your podcast platform of choice. But until next time, goodbye and good luck out there.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer, investment, recommendation or solicitation to deal in any of the investments or products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication, and do not necessarily reflect those of Aberdeen. The value of investments and the income from them can go down as well as up, and investors get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates and provide no guarantee of future results.