James Watt makes Brewdog offer, triple lock under fire, Rachel Reeves’ parting warning

On the podcast today... An audacious offer from the Brewdog founder James Watt to buy back his old firm. 

A worrying new report from the OECD that the triple lock on state pensions is putting serious pressure on the British economy. 

Plus: We take you inside Rachel Reeves’ final Mansion House dinner, and the warning the outgoing Chancellor has given her successor.

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Transcript

SPEAKER_00 0:00

This is a City AM Studios production.

SPEAKER_01 0:04

Hello and welcome to Business as Usual with me, Matt Kenyon.

SPEAKER_00 0:07

And me, Simon Hunt. Coming up on the podcast, an audacious offer from the Brewdog founder James Watt to buy back his old firm.

SPEAKER_01 0:15

A worrying new report from the OECD has found that the triple lock on state pensions is putting serious pressure on public finances.

SPEAKER_00 0:22

Plus, we take you inside Rachel Reeves' final mansion house dinner and the warning that outgoing Chancellor has given to her successor. Before we start, we need to talk about the CTAM Toast Awards. We've received over 2,000 entries, and our judges have narrowed down the list of best restaurants, bars, coffee shops, and green spaces in the city.

SPEAKER_01 0:44

Now it is up to you, yes, you, the public, to vote for the finalists.

SPEAKER_00 0:48

Who do you think has the best casual dining experience?

SPEAKER_01 0:51

Or where is the best green space in the square mile?

SPEAKER_00 0:54

With 15 categories to vote for, we need your help narrowing down the winner. Welcome back to the podcast. Let's kick off with some big hospitality news this week. James Watt, the founder of Brewdog, that's the brewer and pub chain, has launched a bid to regain control of the firm he founded just months after it was bought by a US rival. Our reporter Felix Armstrong has been following this story. Welcome, Felix. What can you tell us?

SPEAKER_03 1:19

Yeah, so I mean, we did think that the long-running saga about Brewdog was over, but I think we were quite foolish to do so. Um James Watt never really went away after leaving Brewdog last year, and Evans um wants to sell and even once the sale was completed, he you know kept very active. He's launched this second best company, which he'd said uh was going to be its own beer company. We had speculated a few weeks ago that it it might just just be a vehicle potentially for exactly this. Yes, and so he says if his bid fails, then it will just make its own beer, but if he's successful, then it will um act under Brewdog uh if he manages to get it back. And so central, I think, to what Watt's trying to do here is this um equity punk scheme. So that's how Brew Dog kind of had such a rapid rise um those all those years ago. Uh and these were like regular investors who bought in quite small um stakes in the company, and he they got nothing in the deal to Tilway brands, which is the US company that bought it for 33 million. And he's now offered them all a free stake in second best. 43,000 of them have signed up from about 70,000 in total, I think. Um, and he said they're all gonna get their stake in Brewdog, as are um all the current staff of Brewdog if he gets it back.

SPEAKER_01 2:35

I said at the time a few weeks ago, and I was clearly wrong, that I thought it was pretty insulting for him to be going back to his previous uh retail microinvestor in this and asking for money. It appears that actually people are up for this and there is capital behind this offer. Uh, it's quite early to say, but do you think this is a realistic offer? Do you think there's it's serious?

SPEAKER_03 2:54

I don't know. I mean, I should say what would say that he's not asking them for money, these these stakes are free. Fine, okay, so this this is equity that's as opposed to what transferred over from Yeah, in in quite an informal way, but then not having to buy in again.

SPEAKER_01 3:06

Fine, okay, so it's it's more kind of repurposing and and making good on that IOU from before.

SPEAKER_03 3:11

Exactly. And I think he does, he his pride does seem to have been hurt by that, I think, by failing to deliver the colour.

SPEAKER_01 3:16

Because I suppose like as a as a cultural thing, there were there were brew dog festivals. It clearly, I mean, I I would never question his kind of emotional attachment to his own backers. Clearly, that that was real, and that was that was a a a big cohort that he was quite dedicated to. And uh, yeah, I think I think this this is clearly evidence.

SPEAKER_00 3:32

What I find really interesting about what what James has said is the timing of it. So just to lift back the curtain of journalism for a brief moment, we should say that you and several other journalists were invited for an interview with the new owners of of Brewdog. And just hours before these interviews were scheduled to take place, uh, Watt makes this announcement. So is is Watt trying to torpedo Til Ray's uh sort of fresh vision uh for Brewdog?

SPEAKER_03 3:58

Yeah, I mean it's pretty spectacular, really. I mean, we're recording this about an hour before the interview with Brewdog, and there's no chance I won't ask any question that doesn't have Watt's name in it now. Yeah. Which he has to do. Yeah, will any journalist ask any question that's not just about this story now?

SPEAKER_01 4:13

I r I really I would be very surprised if that was the case. Yeah. Uh one more thing to talk to you about, Felix. Why is it that Britain's biggest pub chain is being probed for mistreatment of tenants?

SPEAKER_03 4:24

Yeah, so Stonegate, which um runs about 4,500 pubs in the UK, um, is being probed by the pub's code adjudicator um for potentially not a watchdog I knew existed until today. Um yeah, so for potentially um not giving its tenants um the information and the kind of transparency that they need to be able to um organise deals and be able to kind of stand up to this massive PubCo. Um and you're right to say that you haven't heard of this adjudicator because it is essentially just a woman called Fiona Dickey, who was appointed by Business Secretary Peter Carl and is funded by a levy on the companies that she um investigates. And she has um you know some lawyers and support staff, but when we talk about the PCA, this is just Fiona. And I spoke to her earlier, and she's very passionate about this. She says that um obviously these um tenants have to rent these pubs off of Stonegate, and they also are obligated to buy beer from Stonegate. So it's really important that they're given um data like their profit and loss because that um determines what rent they have to pay, and that prospective tenants are given information about the state of repair of these pubs and how kind of profitable they will be as businesses before they agree to take them on. And um, she's worried that Stonegate has not been providing that information. So in this case, the mistreatment amounts to a sort of negligence of tenants. Yes, and um yeah, and uh a lack of transparency that puts these tenants in quite a difficult position.

SPEAKER_01 5:58

So I sort of read it initially as some kind of cruelty.

SPEAKER_00 6:01

Can I just say I'm really disappointed that the pub's code is about the relationship between pub owners and and brewers rather than some kind of code of conduct for how to sip an ale or something. But anyway, there we are. Thanks very much, Felix.

SPEAKER_03 6:13

Thanks so much.

SPEAKER_01 6:16

Now let's talk about pensions. Specifically, the triple lock on the state pension, which is becoming a bit of a drag on the public purse, and certainly not the consensus political issue that it was a few years ago. Now, this week, the OECD has come out with a fairly stark warning that this state pension guarantee is, quote, unusually generous in international comparison and that it needs to be reformed to curb fiscal risks. Our senior city reporter, Sam Norman, has been all over this report. What do you make of it, Sam?

SPEAKER_02 6:48

It's pretty damning. It's it's pretty bad. And this is we're seeing a slow trickling now of the triple lock debate get more mainstream, and maybe not in Westminster, but it's definitely getting more mainstream. People are talking about it more. It's it's still a politically, I think it's quite a consensus in terms of keeping it just because it's such a volatile issue.

SPEAKER_01 7:06

No one party has come out and said we're gonna break rank.

SPEAKER_02 7:10

But I think there is this growing mainstream talk now. And when you've got like, I mean, the OECD, it's one of the world's like leading independent as well, economic organizations. And when they're coming out and saying reform is necessary, that's for literally what they're doing. But it's yeah, it's it's pr it's pretty damning.

SPEAKER_01 7:26

And I suppose what were the bits in the report that you thought were most troubling? What were the starkest warnings and what sort of future do they set out if we keep this triple lock guarantee for for much longer?

SPEAKER_02 7:38

So I think one of the big concerns with it is what it's going to do to the debt pile. So the OECD um recommended like a package of reforms in this. So some of these are fiscal reforms. That's to do with uh the tax base, and one of the biggest ones of those is reforming the triple lock. And then another is uh structural reforms. Now, if you you see when you look at what they're projecting debt as a percent of GDP to get to, I think in 2060 we're looking at 240%. That's worth keeping um all the policies that they stand. Now, if we just implement some of these fiscal reforms, which include uh the pension triple lock reforming and some of the tax changes, it's gonna go down to 185%. Now, it's still obviously going up, but you can look there's a massive difference there in terms of what it's contributing to the debt pile.

SPEAKER_00 8:19

And this comes just a week after the OBR's own report into the future of the UK's finances, where it looks at the state of the UK where it would be in 2075 if the current set of policies were implemented. And they projected that if they k if you kept the triple lock, it would it would be the the our national state pension would account for 9% of GDP. In other words, we would we would go from a government that happens to have a pension service to a pension service that happens to have a government attached to it. It would be insane.

SPEAKER_01 8:49

And by that point, we frankly would not be paying out a state pension. I think that's one of that feels like one of the the sharpest political points that's being made, or definitely one of the starkest, which is that we're paying in to a system which is getting more and more expensive, which so far there hasn't been much political will to talk about serious reform thereof. But most people paying into it who are of working age at the moment, people in their 20s, 30s, early 40s, know deep down that we're probably not going to have a state pension when we are in our 70s or 80s.

SPEAKER_02 9:19

You know what, it just really does lay bare the public finance dilemma that Andy Burnham is inheriting. Now, obviously, visa issues, like discussions around the triple lock. Some very wise people may have been discussing about this for a few years now. There's only a few in this office as well. Well, exactly. But it's only getting more prevalent, and the what he's about to inherit in terms of the pressure on public finances is going to be immense. There's going to be some real tough decisions, I think, in the next three years.

SPEAKER_01 9:41

What do you think it would look like if a political party was to break rank? There has been talk among some of his uh economic advisors uh who are currently advising the incoming PM on his agenda that this is the moment of maximum political capital in which to scrap the triple lock. Obviously, the problem then is that the people who benefit from the triple lock at the moment are the most prolific voters in the UK.

SPEAKER_02 10:03

Exactly.

SPEAKER_01 10:03

What do you think the path would be for a government to start to unwind this policy and how how would they tackle, I suppose, the opposition forces?

SPEAKER_02 10:10

I've really thought about this, and I think it has to be a cross-party thing. And I think it would be silly to be in opposition now and not to maybe not support it, but to let it happen. Like it's it might be politically good in the short term, but you are setting yourself up. If you want to get to get back into government, you want the triple lock gone by the time you get there because it's an issue you're just going to have to face. If Andy Burnham was to turn around in a couple of months' time and uh on the road to budget be like, we're going to reform the triple lock. Um she might not want to endorse the move, but it would be very silly for that to be the one issue she goes after because that's doing the work for you.

SPEAKER_01 10:43

Well, that's the, for instance, the Conservatives or reform at the moment, and you could trash Labour if they were to unwind this policy. You would then, if you were into government, deal with the exact same fiscal arithmetic and eventually have to tackle the same question.

SPEAKER_00 10:58

And and and a few months ago, reform appeared to flirt with the idea of dropping the triple lock themselves, and then abruptly you turned on that. So at the moment, the only mainstream political party that has not committed to the triple lock is actually the Green Party. How are we in a world where the Greens could be perceived as a party of financial responsibility?

SPEAKER_02 11:14

It was a really funny line. Uh well, uh it's a really interesting line, actually, when I was looking through the OECD report, what they know. So there's all this chat around a wealth tax uh from the Greens and from a lot of people in the Burnham camp. Now, they actually said the triple lock has a regressive distributional implications because it benefits wealthier and higher income individuals who tend to live longer. So, what an interesting way of wording uh in terms of like a reverse wealth tax subsequently what a different sort of political goalposts to move. They get anti-life. Yeah, it's I guess. I mean, it's such an interesting line, I thought. But if their point is to sort of spin it in terms of like a wealth tax, but not obviously it wouldn't be a tax, it would be the triple lock is to is benefiting high-income individuals, so we're going to tweak with it. Maybe that was a way forward that would appease the Burnham base and the wealth tax like criers around him. And also maybe that's what the Greens are thinking. Maybe they're ahead of us on one more question for you, Sam.

SPEAKER_01 12:09

If this was to be because I think you're right to say that the consensus has wobbled on this issue. I think it was unbreakable before. Now it looks, as I say, a little bit wobbly, and it could be that the dam bursts. What's the tipping point for this policy where it becomes, I suppose, an inevitability in Westminster that it has to be talked about more seriously?

SPEAKER_02 12:27

I mean, it's only gonna get more, it's gonna get worse just by nature of it being a triple lock, by nature of the three requirements, it's going to get I I think we saw it briefly halted in the pandemic just because it would have been absurd to have it when you've got a lot of. Yeah, sort of like 11% inflation at one stage. So do we need um some sort of like I mean we could we could have seen it with if uh the energy crisis uh with Middle East war really kicked off, we could have seen some sort of outliers there, maybe not big enough. But could we see something like that happen again that causes a rethink? Maybe. Or could we get to a budget where the pennies are so tight that they have to make a real big swing to just get back on a stable footing?

SPEAKER_00 13:03

I think I'll just close this conversation with one statistic. At the moment, one pound in every two pound paid in income tax goes directly to the retired. That's the current state of play. It's only going to get worse after that. So leave leave on that note. That's where your tax money is going. Thank you very much, Sam, for joining us.

SPEAKER_02 13:19

Thanks, guys.

SPEAKER_00 13:24

And finally, this week, Lumerie's in the Square Mile gathered to hear Rachel Reeves give her annual and final mansion house speech. She made a pretty firm defence of her record as Chancellor and issued a warning to her successor, whoever that may be. Our deputy editor Charlie Conci was there at the mansion, is now with us in the house. Um Charlie, what was the atmosphere like in the room? I gather um tuna tartare was served, which sounds like a very subtle pun from the City London Corporation there.

SPEAKER_04 13:52

Tuna Tartare was served on a bed of cream cheese, which wasn't the most pleasant way to start the evening. But the the atmosphere was a strange one. These events are always slightly archaic, tradition-heavy affairs. The the Chancellor comes into a slow hand clap from all attendees, which in the context felt a little bit mocky. Yeah, there was some smiles going round. Um, I think everyone was conscious of the kind of elephant in the room with this night in particular, in that Reeves was there in name as Chancellor, but perhaps in name only. Um, the big question, I mean, among people in attendance was really who's going to be delivering this speech next year. Um, that was the uh the main question on everyone's lips. I think the the mood of the Chancellor was very much in kind of pitching for job mode. Um you could see how she framed her speech was very sort of devolution first. She talked about her own record. I think Simon, as you revealed in the paper yesterday, she used the word I um quite a lot. Um so this was very much a personal Reeves-based speech. Um looking forward to the appointments next week.

SPEAKER_00 15:03

Sixty mentions of the or uses of the personal pronoun in that in that speech. Which is interesting because I've I've been to dinners before given by Rachel Reeves as Chancellor, and it does confirm the view that's quite widely shared in Westminster that in public she's often quite sort of nervous, a bit awkward, but actually behind closed doors, she can be a bit more fun, lighthearted. It didn't seem like that though, in her last speech. It was all a bit a bit serious, a bit dry. That's right.

SPEAKER_04 15:28

Interestingly, I was I was having this conversation with um a treasury official last night who's saying, you know, they're sad to see her go. She's been a great boss, and by all accounts, she's an incredibly warm, charming person behind the scenes. But as you say, sometimes doesn't quite convey that. Um, whilst public speaking, I think the the same probably could be said for last night as well. This was quite a motive personally for her speech. It was very much going back on her record and hammering home those points that we know so well. It was all the greatest hits, it was fastest growth in the G7 at the quarter at the first quarter of this year, it was productivity up. Things we have heard a lot of before. Um, but it is an interesting, interesting theme you hear of lots of people that do deal with the Chancellor that um she does have those slightly different personalities in public and private.

SPEAKER_01 16:16

Did you get an early sense from this dinner about how her legacy is going to form as she departs number 11? And I suppose as well, did you get a sense of people's fears and expectations, perhaps even hopes about the next Chancellor?

SPEAKER_04 16:29

Well, I think we've you know we've covered a lot of the fears and the things that will define her legacy over the past couple of years. I think the the really enduring things are gonna be that national insurance, that first budget when yes, there had been some some kind of laying the turf in advance, doom and gloom, but that 25 billion national insurance hike is probably gonna be the defining factor of that from a business side. Um there certainly hasn't been a huge amount of warmth towards her in some of the conversations we've had up to now. I think in the room itself, there's always that slightly sort of retrospective warmth when a public figure does look like or has stepped out of the um of frontline active duty. She got a very long, extended applause. I think there might have even been a couple of cheers. Um, so I think there was a there was a sort of admiration for having done the job. Her legacy, I think, will still be defined by some of those policy moves early on um after the election, particularly that first budget. Those promises not to come back with a second round of tax cuts, and then obviously coming back and doing that um the following year. So those will be the enduring things, and you can see that really play out in less so the legacy, the kind of you know, soft legacy. You can see that in just business confidence at the moment, some of the surveys that are coming right out on uh business investment intentions as well. So those kind of hard numbers always speak probably louder than in some of the softer words.

SPEAKER_00 17:51

Who does the city want to be the person giving the next mansion house speech? I saw um Bloomberg, I think, ran a poll earlier this week of uh City Execs, and it found that Ed Miliban was the least popular of all of the possible contenders.

SPEAKER_04 18:06

Uh Ed Miliban, from the conversations I've been having, I think we've been having across the newsroom, does not seem to be a popular choice. There's a perception that he is quite dogmatic, um, I think largely sort of fuelled by uh his policy in the North Sea, sort of failing or refusing to grant fresh exploration licenses. You can see some softening of that himself. He's been kind of been you know showing a bit of leg and saying that there may be fresh gas exploration licenses. Um but that I think is the enduring view of Miliband that um this is a man from the same wing of the party perhaps as Burnham, but who is quite ideologically uh dedicated to some of those policies that he has talked about in the past. In terms of who might be in favour, we heard quite warm words, not necessarily last night, but a few weeks ago when West Streeting seemed to be a sort of more prominent name in the conversation. Um, I think that the speech he gave on progressive capitalism seemed to go down quite well with city executives. Um interestingly, the the names that appear to be coming up now, um Yvette Cooper being one and Shibana Mahmood the other. Um Shabana Mahmoud, a couple of reports overnight that she is now edging ahead of Miliband in the race. Um people close to Miliband being reported as people being people close to Burnham rather being reported as um believing that they have now seen off the threat of a um a Miliband Chancellorship. Um Mahmoud is from the a sort of more right-wing area of the party. She might be seen as slightly more willing to to engage with the city on on its own terms and um be a bit more welcoming to kind of city executives as opposed to Miliband, who has got that slightly um tarnished legacy.

SPEAKER_01 19:50

It does feel really striking and probably quite unprecedented that we are now just a few days out from whoever this chancellor is being appointed. And not only do we not know who that person's gonna be, it doesn't actually seem that Andy Burnham knows for sure who that's gonna be, but we will be covering it uh extensively as uh as Burnham takes power next week. Charlie, thank you very much for joining us. Thank you for having me. Well, that is all we have time for today. Thank you as ever for listening to Business as Usual.

SPEAKER_00 20:14

And don't forget to subscribe to City AM's daily newsletter and of course to download our free app.

SPEAKER_01 20:19

It has got everything that the expensive ones have, but this time it's free. We'll be back in your podcast feeds tomorrow at 6am. But for now, goodbye.

SPEAKER_00 20:27

Goodbye.