Kemi Badenoch criticises ‘fake conversation’ of Brexit damage as UK-Italy trade partnership signed
Fixating on the short-term damage caused by Brexit is a “fake conversation”, the new Business and Trade Secretary has said, adding that it will “take time” for the shape of Britain’s new economic arrangements to become clear.
In her first broadcast interview since business was added to her job brief, Kemi Badenoch told Sky News that she “can’t get in a time machine” and go back into the EU.
She said: “What I find frustrating is that we spend loads of time trying to re-litigate Brexit rather than focusing on solving new issues.”
She was talking after signing a new “trade partnership” with Italy – the first with a European nation post-Brexit.
The deal makes no change to the UK and Italy’s key trading regulations – from tariffs and quotas to customs rules – but she said it would help improve trade between the nations.
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When it was pointed out that the flow of goods and services between Italy and the UK has fallen since Brexit, Mrs Badenoch said: “It is the long-term trend that I need to work towards rather than what happened this year or last year.
“I think that that is actually what I would call a ‘fake conversation’. It’s like asking people who just got married: ‘where’s the baby, where’s the baby?’
“Some things will take time, and some things will happen quickly.
“We lost a lot of time during the pandemic. We lost a lot of time squabbling.
“Now we have a new government that is actually focusing on delivering for the British people.”
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Liz Bates speaks to Richard Tice, the leader of Reform UK, about Brexit voters
Mrs Badenoch, who was trade secretary up until her department was merged with the business brief yesterday, said she understood why many Britons felt Brexit was going badly.
“This is one of the reasons why I’m here,” she said. “We spent so much time having an argument about whether we should have left or stayed in – many years, an entire parliament – but we haven’t actually spent enough time talking about what we can do with having an independent trade policy.
“So I’m not surprised a lot of people are feeling ‘Bregret’ because there are many other economic background factors, that have nothing to do with Brexit, which can make people feel bleak.”
Economic growth no longer ‘Cinderella’ of government
The minister, who has been widely tipped as a future Tory leader, said she liked to see her department as being focused on growth.
The prime minister, she said, “has now created an economic growth department by merging business with trade and I’m here to deliver on that.”
Mrs Badenoch had advocated for the splitting of the Treasury into a fiscal and a growth department during her leadership bid last summer.
She said that was effectively what her department now embodies after Mr Sunak’s reshuffle.
“The Treasury is so focused on all of the other matters that the economic growth bit… just seemed to always be the Cinderella in the department,” she said.
“I thought it was probably better if somebody else was just doing this separately.”
Need for steel?
Asked whether the UK always needed a steel industry, she said: “Nothing is ever a given.”
But she needed to “sit down and look at what exactly has been going on with steel from a business perspective and an industry perspective,” she added.
Asked how the UK would respond to America’s Inflation Reduction Act, a multibillion-dollar scheme to subsidise green industry, Mrs Badenoch said it should be wary of introducing subsidies of its own.
“We are a leader in many areas,” she said. “We can’t always just look at what America is doing and say: ‘well America is doing this, so let’s do the same thing’.
“That is not strategic thinking – what you’re describing is just copying and pasting. That’s not a strategy.”
The business secretary will next week hold talks with dozens of private sector bosses as the government contends with a significant corporate backlash to Labour’s first fiscal event in nearly 15 years.
Sky News has learnt that executives have been invited to join a conference call on Monday with Jonathan Reynolds, in what will represent his first meaningful engagement with employers since Wednesday’s budget statement.
Rachel Reeves, the chancellor, unsettled financial markets with plans for billions of pounds in extra borrowing, and unnerved business leaders by saying she would raise an additional £25bn annually by hiking their national insurance contributions.
An increase in employer NICs had been trailed by officials in advance of the budget, but the lowering of the threshold to just £5,000 has triggered forecasts of a wave of redundancies and even insolvencies across labour-intensive industries.
Sectors such as retail and hospitality, which employ substantial numbers of part-time workers, have been particularly vocal in their condemnation of the move.
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On Friday, the Financial Times published comments made by the chief executive of Barclays in which he defended Ms Reeves.
“I think they’ve done an admirable job of balancing spending, borrowing and taxation in order to drive the fundamental objective of growth,” CS Venkatakrishnan said.
His was a rare voice among prominent business figures in backing the chancellor, however, with many questioning whether the government had a meaningful plan to grow the economy.
Mr Reynolds held a similar call with business leaders within days of general election victory, and over 100 bosses are understood to have been invited to Monday’s discussion.
A spokesman for the Department for Business and Trade declined to comment ahead of Monday’s call.
First things first: don’t panic.
What you need to know is this. The budget has not gone down well in financial markets. Indeed, it’s gone down about as badly as any budget in recent years, save for Liz Truss’s mini-budget.
The pound is weaker. Government bond yields (essentially, the interest rate the exchequer pays on its debt) have gone up.
That’s precisely the opposite market reaction to the one chancellors like to see after they commend their fiscal statements to the house.
In hindsight, perhaps we shouldn’t be surprised.
After all, the new government just committed itself to considerably more borrowing than its predecessors – about £140bn more borrowing in the coming years. And that money has to be borrowed from someone – namely, financial markets.
But those financial markets are now reassessing how keen they are to lend to the UK.
The upshot is that the pound has fallen quite sharply (the biggest two-day fall in trade-weighted sterling in 18 months) and gilt yields – the interest rate paid by the government – have risen quite sharply.
This was all beginning to crystallise shortly after the budget speech, with yields beginning to rise and the pound beginning to weaken, the moment investors and economists got their hands on the budget documentation.
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Chancellor challenged over gilt yield spike
But the falls in the pound and the rises in the bond yields accelerated today.
This is not, to be absolutely clear, the kind of response any chancellor wants to see after a budget – let alone their first budget in office.
Indeed, I can’t remember another budget which saw as hostile a market response as this one in many years – save for one.
That exception is, of course, the Liz Truss/Kwasi Kwarteng mini-budget of 2022. And here is where you’ll find the silver lining for Keir Starmer and Rachel Reeves.
The rises in gilt yields and falls in sterling in recent hours and days are still far shy of what took place in the run up and aftermath of the mini-budget. This does not yet feel like a crisis moment for UK markets.
But nor is it anything like good news for the government. In fact, it’s pretty awful. Because higher borrowing rates for UK debt mean it (well, us) will end up paying considerably more to service our debt in the coming years.
Rachel Reeves leaving 11 Downing Street before the budget. Pic: PA
And that debt is about to balloon dramatically because of the plans laid down by the chancellor this week.
And this is where things get particularly sticky for Ms Reeves.
In that budget documentation, the Office for Budget Responsibility said the chancellor could afford to see those gilt yields rise by about 1.3 percentage points, but then when they exceeded this level, the so-called “headroom” she had against her fiscal rules would evaporate.
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In other words, she’d break those rules – which, recall, are considerably less strict than the ones she inherited from Jeremy Hunt.
Which raises the question: where are those gilt yields right now? How close are they to the danger zone where the chancellor ends up breaking her rules?
Short answer: worryingly close. Because, right now, the yield on five-year government debt (which is the maturity the OBR focuses on most) is more than halfway towards that danger zone – only 56 basis points away from hitting the point where debt interest costs eat up any leeway the chancellor has to avoid breaking her rules.
Now, we are not in crisis territory yet. Nor can every move in currencies and bonds be attributed to this budget.
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Markets are volatile right now. There’s lots going on: a US election next week and a Bank of England decision on interest rates next week.
The chancellor could get lucky. Gilt yields could settle in the coming days. But, right now, the UK, with its high level of public and private debt, with its new government which has just pledged to borrow many billions more in the coming years, is being closely scrutinised by the “bond vigilantes”.
A Halloween nightmare for any chancellor.
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