Monetary Policy & Inflation | Politics & Geopolitics | UK
Sajid Javid On Inflation, Climate Change & Post-Brexit Britain (Podcast Transcript)
- By Bilal Hafeez
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- 17 min read
This is an edited transcript of our podcast episode with former UK Chancellor Sajid Javid. We discussed the UK response to the pandemic, the UK’s fiscal outlook, climate change, inflation and the UK’s role in a post-Brexit world. While we have tried to make the transcript as accurate as possible, if you do notice any errors, let me know by email.
Bilal Hafeez (03:12):
Now, onto this episode’s guest Sajid Javid. Sajid is currently the conservative member of parliament for Bromsgrove. He’s held two of the four great offices of state in the UK government: Chancellor of the Exchequer and Home Secretary. He was first elected to Parliament in 2010, and before that, he worked at Deutsche Bank and Chase Manhattan bank. At Deutsche, he helped build their emerging market businesses. Sajid was born in Rochdale, Manchester and was raised in Bristol. He read economics and politics at Exeter university. And for those of you who follow UK politics, you’ll know that Sajid is a very principled and thoughtful politician. So, I’m sure you will enjoy our conversation.
Welcome Sajid. It’s great to have you on the podcast and it’s a great honor as well.
Sajid Javid (04:14):
Thank you very much for having me.
How Has the UK Handled the Pandemic So Far?
Bilal Hafeez (04:17):
Great. Well, there’s a lot going on in the world at the moment, and I think the first thing I wanted to ask you was obviously about the pandemic. How do you think the UK has handled the pandemic so far?
Sajid Javid (04:26):
I think, Bilal, it’s clearly been a very challenging situation for countries across the world. And I think particularly in Europe, unlike some of the East Asian countries where they’ve had SARS and other coronaviruses before, it really changed all the pandemic plans the countries had, including the UK. So sadly, of course, we’ve seen a high infection rate and a high death rate compared to some other countries. But in some other ways, the economic response, I think, has been incredibly robust. And of course, the vaccination program really stands out in the UK. I think it’s fair to say that amongst the large countries in the world, the UK is furthest ahead in the vaccination program. And that doesn’t happen by accident. And so it’s definitely a challenging situation. Yeah, there’s definitely things that would be lessons to learn in the future from this, and that’s why the prime minister’s set out a far-ranging deep inquiry to make sure we do that.
But if I may, just to expand, I know a lot of your listeners are particularly interested in the economics of all this. Once the government had decided in the early days that we are going to have these lockdowns and all these big social restrictions of activities – it meant that people can’t consume the way they normally would and producers can’t produce. Of course, your economy is going to be hit. I think my colleagues in the Treasury were sitting there thinking, “Look, how can we best protect the economy, almost put it into some kind of hibernation so that when you come out of these restrictions, you’re just better fit to grow the economy than otherwise.” And I think that’s what Rishi and the team did.
And in my own view, I think they did an incredibly good job in terms of what they announced, those early actions. First of all, saying we’ll spend what it takes – I think it sends a very important message and builds confidence. But then things like the tax deferrals, the rebate programs, of course the furlough scheme, the COVID loans – all of those were designed to keep this economy in a hibernation stage. So, as it thaws (as we now can see, we’re starting to open up and release some of these restrictions) I think companies can get back to business a lot more quickly. Consumers have been protected as well, especially through the furlough program. And for that reason, I think we can see growth for coming back a lot quicker than otherwise.
The UK Fiscal Outlook – Spending Focuses and Taxes
Bilal Hafeez (06:37):
Yep. All good points. One concern many people do have is about the fiscal picture. So obviously there’s been big fiscal deficits in the UK as well as almost every single country in the world. How do you see the fiscal picture in the UK? And for you, obviously you’ve got a lot of experience in these areas. What are the things you’re looking out for as the lockdown ends?
Sajid Javid (06:59):
Look, of course, that’s been challenging. The first thing I’d say is that because the government, really ever since the Financial Crisis, but certainly in the last decade, has worked hard to try and get public finances under control – the so-called austerity years of trying to be prudent in the public finances. That did mean when we were entering this crisis, the government had more room for maneuver, more freedom fiscally than otherwise. And that freedom, that flexibility, has clearly helped. And of course, in responding to the crisis, you’ve got all this extra spending – not just the support programs for the economy, but you’re also going to need extra spending, let’s say for health care, for social care and the education system, all that are not dimensional welfare payments. That has meant the deficit, as you say, has ballooned.
The debt-to-GDP has risen to levels that we haven’t seen in decades, close to 100% of GDP at least. But if you look ahead now, for lots of reasons, I think the situation can be bought quickly back under control. Now don’t get me wrong, that doesn’t mean that you’re not going to be running a deficit for a few years. But I think realistically, the deficit will come down from the really high levels we find it at now. I think it can be brought back quite substantially.
And why do I think that? First of all, I think we are seeing it already this year, but certainly by the end of this year, I think we will look back at an extraordinary level of growth. Yes, it’s from a base that was very heavily impacted by a 10% decline in the previous year, but still that growth will lead to a starting of the normalization process and increase in the tax receipts.
But also, I think that growth will be supported by the stimulus that we’ve seen, the record of both fiscal monetary stimuluses. Not just at home, by the way. I think, for example, what the US is doing with the absolutely ginormous stimulus program is going to be helping countries across the world. And so, that’s to be welcomed in a way as well. So thank you President Biden for that. And then also in terms of the record amount of savings we have at home.
How Pandemic Shocks Differ From Wars
Sajid Javid (09:01):
The other thing I point out, by the way, is that some commentators have compared the economic impact of this to what you might see in a war. And I can understand that – clearly, it’s a huge amount of disruption. But there’s one huge difference economically, which is that unlike a war, there’s no physical destruction of capital. So, the capital is there, everything from the roads, the rails, the factories, it’s still there. And as we open up, you’d think it can be brought back into production very, very quickly. And all of this, I think, means that you’ll see a rapid improvement in the fiscal situation.
Let’s also be realistic – you’re going to see longer term, I think, as a result of this, increased need for public spending in certain areas like healthcare. Think of all those non-COVID healthcare problems that have sadly built up over the last year. Probably in education as well, social care, and maybe in some other areas. And that does mean that the government’s going to have to work hard to make sure that revenue’s there. We’ve already seen the Chancellor’s last budget set out a modest increase in taxes, certainly in corporation tax. But I think given the situation, it’s just the fireball. And the key thing with taxes is that yes, there might be this modest increase, but if for the long-term you’re competitive, that’s what matters.
Sajid Javid on Why Inflation Could Pick Up
Bilal Hafeez (10:19):
Yep. Yep, that makes sense. The other thing, aside from the fiscal picture, is many people are starting to get worried about inflation. And inflation, I guess in many ways hasn’t really been a problem for people in office, in government, for a long time, but now it really does feel like something is going on. Do you have a view on inflation?
Sajid Javid (10:34):
No, I do. I am concerned. I’d put myself firmly in that camp. Because let’s look at the facts. There’s been a huge amount of liquidity in the international markets; every major central bank you can name is engaging in money printing of one sort or another. And we’ve seen that already – look at asset prices, particularly financial asset prices as people try to find a home for that money. And not just financial assets, look at the housing market – not just in the UK, in the US, most of Europe. There’s a lot of money around, money’s still cheap. That’s got to have some kind of inflationary impact. The second thing is related more directly to the pandemic. It’s great that the vaccines are working and where we’re starting to go towards, let’s call it a new normal. I don’t think we’re going to go back to the kind of world exactly like we had before. And in this new world, certainly to begin with, you’ll see some kind of social distancing remain, and an impact on supply chains and things.
And all of that I think is going to have a bit of an inflationary impact. If restaurants can’t seat the same number of people as before, or if airports can’t have the same quick throughput as before into the planes and off the planes, some of those prices are going to have to rise to offset the increased costs in our supply chains. I would expect governments (whether it’s the UK government or others, but particularly those in Europe and North America) to invest more in preparing for future pandemics. So that might mean lab capacity, PPE capacity, your vaccination production facilities etc. And I don’t think they’d want to rely on supply chains in quite the same way they did this time around. And that means shorter supply chains, which means less competition, which probably means a little bit extra costs. So I think those factors all play into inflation.
And then if I may very quickly, I think even before this pandemic came along, there were some, what I would call, long-term structural reasons or structural factors that might lead to higher inflation than otherwise. And one of those is what many economists have called the big demographic dividend of the last 30 years, particularly from China as they’ve entered the global international trading system. That deflationary effect that was exported by China is over, and so none of us will benefit from that coming forward.
And secondly, climate change. As the world rightly takes the threat of climate change more seriously, it might mean in the short-term, that as you take that externality, carbon, and you start charging for it in one way or another, someone is going to have to pay for that somewhere along the system, and that might be inflationary. So, there’s lots of reasons I’ve given. I think my view is pretty clear that I think inflation is heading north. And I thought the other day, I heard some of the Bank of England’s projections for this year and I thought they were a little bit optimistic.
Sajid Javid on The Importance of Climate Change and the UK Track Record
Bilal Hafeez (13:20):
Yep. No, fair point, yeah. And you mentioned climate change, and I know this is something that you have a keen interest on. What are your thoughts on climate change? Obviously there’s all kinds of these international agreements we see, but how should the UK manage climate change?
Sajid Javid (13:33):
You’re right, I’m very concerned. I’ve long been concerned about this. I think it’s very real, I think it’s a major threat to our livelihoods, and I’m pleased that the UK, for a number of years now, under successive governments, has been taking this seriously. Domestically, compared to 1990 levels, our emissions are down some 41%, which is better than any other major economy. We’ve still got a lot more to do. I was pleased to see Boris Johnson, the prime minister, set out an even more ambitious set of targets for the next decade, which is what we need other countries to do. Often people will say (not just with respect to climate change, but also the related loss of biodiversity, which I’m also very concerned about), that “isn’t it going to cost, Sajid, if we invested, whether it’s a new infrastructure or in other ways to try and combat these threats?”
And yes, there might be some costs, especially in the short-term, but what I also know is that the cost of delay is even higher, right? And for those people that say, “Look, what about our living standards today if we combat this?” I can say to you, actually with certainty, that if you don’t combat this, if you don’t take action collectively across the world, then the impact to your living standards will be very significant; if we leave climate change to take its course without trying to stop the rise in the global temperature. So, I think the kind of investments that the government has already announced – especially in capital investments, for example, how we travel, electrification, how we produce electricity, how we might charge electric vehicles in the future etc. – I think all this kind of investment is welcome.
Results of the UK’s Integrated Review
Sajid Javid (15:12):
The last thing I’ll just say on this is that, clearly, because we all live in the same planet – while we’re one important country, there’re many others – we need everyone to be taking action. And you asked about how the UK is approaching this – I think it’s also through international leadership. There was a big review of UK long-term foreign and security policy called the Integrated Review. It was published just a few weeks back; years of work went into that. And I thought it was very telling that in that report, right at the start, it says that the UK’s number one foreign policy goal is combating climate change and loss of biodiversity. That’s our number one foreign policy goal. And I think we’ve already seen how seriously the UK takes this on the international stage – obviously we have the COP26 coming up this year.
The UK’s International Leadership on Climate Change
Sajid Javid (16:05):
We’ve also got something called the COP15 conference as well, which is on biodiversity and will be held in China later this year. Here, China’s the lead country, but the UK is playing a leading part of that as well. And then of course through the G7, I think we’ll see the UK continue to lead in this. And obviously, in working with other countries, the two countries that are going to be absolutely critical to get a good working relationship on this, is number one, the US (with the change in administration there, I think that’s very positive for tackling climate change) and China, of course. And China is a country where we rightly have a huge number of issues with, particularly on human rights. But when it comes to the planet, I’m glad that there’s a dialogue and a positive dialogue, and that we’re able to have these separate conversations.
Will the UK Parliament’s Unanimous Support for Climate Change Policy Continue?
Bilal Hafeez (16:52):
And you mentioned the importance of climate change, and you mentioned the report that puts climate change at the top. When you speak to colleagues in the House of Commons on both sides of the aisle, is your sense that other people in Parliament have a similar view of the importance of climate change?
Sajid Javid (17:07):
Yes, but I’d say the following. I think it was in 2019, yes, when Theresa May was there, we had this historic vote in Parliament, which was the vote for net zero by 2050. And that was, as it sounds, putting into legislation the requirement that the UK must be net zero emitter by 2050. Now that got almost unanimous support in Parliament. So, every political party, every political leader supported it. And I think, top of my head, well over 90% of MPs voted for it. So, it’s hard to find anything else in Parliament that is so clear in terms of Parliament’s view.
Now that said, I would also say that when it comes to making decisions this important, the easy bit is actually agreeing to do something 30 years from now. That’s the easy bit. It’s easy to agree to say, “Look, over the next 10, 20, 30 years, we’re going to do X.” The heart of it, of course, is how do you get there? And that requires lots of other decisions that will come to Parliament over the next 20 to 30 years and Parliament is going to then have to make those decisions to make that net zero commitment a reality. And that’s just my way of saying to you, yes, I think the commitment is there in Parliament, but to be frank, the easy bit has been presented but the harder, heavy lifting is yet to come.
UK’s Global Role in a Post-Brexit World
Bilal Hafeez (18:40):
Yeah. No, understood. And speaking about heavy lifting, obviously UK is now living in the post-Brexit world, the UK has left the EU. How do you see the UK’s global role in a post-Brexit world?
Sajid Javid (18:55):
I’m really excited about it because look, first of all, actually I start by saying this, is that when we had that Brexit debate a few years ago now, and some of your listeners might remember, there were almost two versions of Brexit. Even within the Brexit camp, where there was a, let’s call it “the Farage view”, which was about a Britain probably that never existed: let’s go back to a Britain where we can pull the drawbridge up and not have much immigration and be inward-looking and insular and isolationist. That was the Farage view. The other view, which I would call the globalist, “global Britain” view, the open and welcoming view, was basically what Boris Johnson was talking about. And he was very clear that with Brexit, it doesn’t mean that Britain is stepping off the world stage. If anything, it is taking an even more strident step onto the world stage, and standing up for the challenges to the world and playing its part. And the global Britain that he envisaged was open and welcoming, whether it’s open and welcoming to investment, to talent, to skills.
New Measures to Attract International Talent to UK
Sajid Javid (20:02):
Look at some of the decisions, for example, on talent and skills that the government has made with Boris Johnson as prime minister. Where we’ve said, as a country, if you are a British national overseas passport holder in Hong Kong, and you feel that you can’t live there anymore because China has violated the treaty that is signed with the UK, then you are welcomed to come to Britain. That’s up to four million people in theory, and Britain is opening its arms to those people. It’s the right thing to do morally, but also I think economically it could be for Britain. We’ve also had global talent visas, for example, that are being issued and things like that. So yes, we’ve left the EU, but what I see is a Britain that’s going to remain open and welcoming. I think that’s great in many ways, not at least for our prosperity. And also, I think partly what global Britain means is recognizing that as a country, you could perhaps say that the UK too small a country to be the rule maker for the world, but it’s also too big to be a rule taker.
It’s somewhere in the middle in terms of its size and influence. And that, I think, puts it into a pretty good place to be maybe a broker, an international broker. It’s not a member of the EU; it’s not a member of any other alliance that dictates its foreign policy – it’s a country that can actually play this broker role, given its history, its diplomatic reach, its interest in global affairs, its research capability, its language etc., where Britain can say, when it comes to the world’s biggest problems (we talked about climate change, biodiversity, the dealing with this pandemic, global rules for trade, arms control, all these big issues), I think the UK uniquely is positioned to be the world’s broker. It can bring people together, to get them around the table as a multilateralist and say, “Listen, we’ve got a lot of problems in this world, but we’re better off dealing with them together.” And the UK, for all resources I’ve said, I just think is in a unique position to help deal with them.
Possible Future Global Alliances
Bilal Hafeez (22:06):
Do you think that the UK should form some kind of alliance with other liberal democracies like Japan, Canada, maybe even India? Because in some ways you have this block of the US, you have the EU block, you have China as the three big blocks.
Sajid Javid (22:22):
Yeah. It’s something actually the prime minister has talked about. In fact, he first talked about it, if I remember correctly, when he was the foreign secretary. And I agree, and I think he’s referred to it as maybe the D10, the D12, depending on how many countries. And you mentioned a bunch of countries, which would all be legitimate candidates for that, and there are others. But basically, let’s say an alliance of the world’s leading of democracies. Why? I think one of the key reasons would be is that in the world today, we are seeing, I think sadly, an emergence of a closed world and an open world – the open world being the democracies, and the key representative of the closed world being China. And it’s really important that when it comes to human rights, when it comes to democracies and elections and a representative government and freedom of speech, that the people that believe in that, the countries that represent those values, work together.
And if anyone wants an example of that right here and now, just to look at what we saw very recently over Belarus, where we saw a civilian airliner going between two EU, two NATO countries, and was in effect, forcibly docked and forced to land by military jets so that an authoritarian, hardline dictatorship could remove a brave journalist who was speaking out the truth. The democratic world cannot let that go without a response. And there’s been a response so far. It was notable that the UK was the very first country to come out and ban flights over the Belarusian airspace, ban their national airline, and possibly take more action. But the EU’s now done the same, the US has done the same. So it’s really important that these democracies, whether they are in Europe or whether it’s our friends in India or the US, that we all work together. And so I do think there’s a very strong case for that.
Bilal Hafeez (24:19):
Yeah. We’ve talked about lots of big and heavy topics. I just wanted to round off with a final question on a more personal note. Obviously in the UK, the lockdown restrictions have been eased up. Hopefully come June, as we go into the summer, the restrictions will be almost completely lifted. What’s some of the first things you plan to do with the family after lockdown restrictions are lifted?
Sajid Javid (24:41):
There’s so much that I would have wanted to do in the last year, but sadly couldn’t. What would be one of the first? I’d love to take my mum on a nice holiday. Yeah. I think like a lot of us, if your parents didn’t live near you, we probably didn’t get to see as much as of them as we would have wanted, or other elderly relatives. And it’s been particularly hard, I think on older people, as we know that the virus sadly has been particularly tough on them. But now that we’ve got vaccinations and things are opening up – as travel opens up, I’d love to take my mum on a nice holiday somewhere. And I think the condition for her might be that if I take that, I don’t just want to go out and eat, I did miss her parottas and samosas and things as well. So there might have to be some of those in the bargain as well.
Bilal Hafeez (25:22):
Yeah. That’s a quid pro quo, nice. Yeah. Okay. With that, that’s excellent. I do always enjoy speaking to you because you’re one of the few people in politics I find who has really well-informed views on some of the big issues across multiple different domains. So it’s been really fun chatting to you.
Sajid Javid (25:39):
Thank you. It’s my pleasure. Thanks for inviting me.
Bilal Hafeez (25:41):
Okay. Good stuff. And have a great rest of the year. And hopefully you’ll have a happy and safe time after lockdown gets lifted.
Sajid Javid (25:48):
Thank you. Good. And keep your excellent research coming.
Bilal Hafeez (25:50):
Great. Thanks a lot, Saj.