Transcript: The shifting tectonic plates of UK politics

This is an audio transcript of the FT News Briefing podcast episode: ‘The shifting tectonic plates of UK politics’

Sonja Hutson
Good morning from the Financial Times. Today is Friday, June 21st, and this is your FT News Briefing.

Fishy credit ratings are popping up in commercial real estate, and new polls show the UK could be in for a seismic political shift. Plus is natural hydrogen the next it girl of renewable energy? I’m Sonja Hutson, and here’s the news you need to start your day.

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Credit agencies might have misrated more than $100bn of commercial real estate debt. There’s at least a dozen deals that are in default, but still have the highest credit ratings possible. Highly rated mortgage bonds are often based on a pool of property loans, so it makes sense that a single loan default wouldn’t impact the overall rating. But there has been a rise in so-called single-asset, single-borrower deals in the past decade, which is where — as the name might suggest — mortgage bonds are backed by just one property. There are some parallels here with the lead up to the financial crisis, where credit agencies handed out high ratings to bonds that were backed by subprime borrowers.

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And now to the UK election on July 4th. Several high-profile Conservative party figures allegedly bet on the timing of the upcoming election. That includes the party’s campaign director and Prime Minister Rishi Sunak’s parliamentary secretary. They’re now being investigated by the British Gambling Commission for insider trading. And speaking of bad news, new polling came out this week and to say it’s not great for the Conservatives is a huge understatement. Here to talk to me about it is the FT’s deputy political editor, Jim Pickard. Hi, Jim.

Jim Pickard
Hello.

Sonja Hutson
So tell me what we learned this week from this new set of polls. What were some of the top lines?

Jim Pickard
So things have looked very bad for Rishi Sunak, the Conservative prime minister, for a very long time. But there had been hopes among his team that in the final short campaign of the general election, which is about six weeks, he would be able to turn things around. And instead, the Labour party has maintained a massive poll lead. And the three latest opinion polls have painted a scenario under which the Conservative party would be reduced from that current 350 seats to somewhere between 50 to 150. And you would have a Labour party with an absolutely stonking majority in the House of Commons, able to do basically whatever legislation it wants. And it’s an enormous turnaround because, of course, the Conservative party had been in power in one shape or other since 2010. The Labour party had one of its worst elections for a century in 2019, but somehow they are poised to bounce back in style unless these opinion polls are wrong.

Sonja Hutson
And how would this big win for Labour compare to past elections?

Jim Pickard
Yeah, so the big one is Tony Blair’s landslide victory in 1997, when the Labour party basically reduced the Conservatives to 165 seats. So, I mean, what all three of these polls are suggesting is that the Conservatives would be even worse than that. But the main thing to remember with all of this is that you can ask thousands of people how they gonna vote. But people do sometimes still change their mind on the day or they think, I’m not gonna bother voting. And there is this genuine fear in Labour that if you keep telling everyone every day that the election is already finished and Labour has already won by a ginormous majority, a lot of people will just think, oh, why bother voting at all?

Sonja Hutson
What about the Liberal Democrats? You know, this kind of forever third party in the UK? What does this most recent polling suggest about how they might do on July 4th?

Jim Pickard
Yeah, I mean, the Liberal Democrats are a curious smaller party in UK politics. They’ve joked in the past that they would be like cockroaches surviving a nuclear explosion. They’re always there however much they’re written off, they’ve never really gone beyond the dozen seats. What is really interesting is that these polls are suggesting that they could pick up 50, 60, 70 seats. And in the most extreme situation, they would only be a couple of seats behind the Conservatives. Personally, I don’t think that’s very likely. But that is what one of these polls has said.

Sonja Hutson
Jim, if this polling actually shakes out, what does that mean for the Conservative party going forward? Is it a speed bump that it can come back from, or would this permanently damage the party?

Jim Pickard
So political parties are like big companies, you know, there is no God-given right for their survival party’s rise and fall with the tides of history. I think what will work the Conservative’s favour possibly is that the Labour government will struggle to address a lot of the deep-seated problems that have blighted Britain in recent years. But I think there’s an existential problem coming for the Conservative party, which is the party Reform UK, that under Nigel Farage is to the right of the Conservatives. And I think if you were to say to the Conservative memberships — who tend to be fairly elderly and pretty rightwing — if you were to say to them, would you like Nigel Farage to lead your Conservative party? An awful lot of them would say yes. And so there’s going to be an existential moment in which you could have a real kind of turning of the kaleidoscope, a real historic shift of the tectonic plates in British politics.

Sonja Hutson
Jim Pickard is the FT’s deputy political editor. Thanks, Jim.

Jim Pickard
Thank you very much.

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Sonja Hutson
The Philippines is rebuilding an old warship in the South China Sea, and it’s making China furious. That’s because it’s in a reef in the contested waters that China claims to control. The Philippines intentionally grounded the Sierra Madre back in 1999, partly to help reinforce its own claim to the area, and it left a crew of Marines on board. But now the ship is basically rusting away and could break apart. Manila says it’s only trying to repair the ship, but China has responded by using water cannons and trying to block aid and supplies. The current stand-off makes the Sierra Madre the most dangerous flashpoint in the Indo-Pacific right now.

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For years, policymakers and industry experts have said that natural hydrogen might just be the next big thing in clean energy. But only one tiny town in western Africa is really making use of it. So what’s holding people back from tapping into this renewable resource? The FT’s Rachel Miller joins me now to talk about it. Hey, Rachel.

Rachel Millard
Hi. How are you doing? Thanks for having me on.

Sonja Hutson
Glad to have you. So, Rachel, tell me about this town in Mali. What’s its history with natural hydrogen?

Rachel Millard
So this particular town in Mali has a very intriguing back story in that back in the 1980s. People were looking for water there and they seemed to accidentally come across some hydrogen deposits, which is a very striking thing to have found, because it’s generally been assumed that you wouldn’t get natural, significant accumulations of hydrogen underground. So there’s a lot of interest in that town at the moment, because it seems like maybe it’s not a one-off. It’s actually one example of a place that has natural hydrogen. And if that turns out there are natural hydrogen deposits all over the world, then that could be a huge thing for the energy transition.

Sonja Hutson
And how exactly did they know that they had found hydrogen there?

Rachel Millard
Well, the story goes that they were, as I say, looking for water, and they thought they had hit a dry well. And then somebody lit a cigarette near it and they set it on fire. And sometime later they started using the gas to generate electricity for the town.

Sonja Hutson
That’s a pretty clear sign. So for people in the energy sector, how are they thinking about the potential for natural hydrogen?

Rachel Millard
Well, it’s really interesting. So I should say that hydrogen is a gas that’s used reasonably widely at the moment in sectors such as refineries and other big industrial sectors. But currently, it’s made mostly by spending lots of money on equipment and processes to extract it from water or from natural gas. So it’s a very energy-intensive process and — depending on how you make it — can emit a lot of carbon dioxide. And the sort of new thing that Mali points is actually it could be the case that you don’t need to spend all this money extracting it from water or gas in this complicated way, because actually it could just be underground, naturally occurring.

Sonja Hutson
Yeah. And you mentioned that’s the big hope here. Do we know of any other places where people have found natural hydrogen?

Rachel Millard
So there have been quite a few finds over the past few years, or at least potential finds. And people need to do some more exploration and more drilling to work out how much is really down there and how much is extractable. But certainly, there have been potential fines in Australia, France, the US and other places.

Sonja Hutson
In theory, then, this new process could be pretty significant. Can this type of hydrogen energy be brought to scale?

Rachel Millard
So there’s a bit of a distinction between hydrogen start-ups who are working in the natural hydrogen space in particular. So who are looking for naturally occurring ocean underground and those who are trying to produce hydrogen in the other ways I’ve outlined, so from natural gas or from water or from other ways. They’re all essentially, however, trying to overcome the same obstacles which are finding long-term agreement, so long term customers who will place the kind of orders they need that mean they can get the financing in place and also to make sure they have got the equipment in place they need to do that work. And at the moment, both of those things are not quite in place because although there is a great global push on decarbonisation that hasn’t necessarily been backed up by all the sort of financial incentives that you need to actually make that happen.

Sonja Hutson
Rachel Millard is a clean energy correspondent for the FT. Thanks, Rachel.

Rachel Millard
Thank you so much.

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Sonja Hutson
You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

The FT News Briefing is produced by Kasia Broussalian, Fiona Symon, Mark Filippino and me, Sonja Hutson. Our engineer is Monica Lopez and our intern is Prakriti Panwar. We had help this week from Denise Guerra, Kyra Assibey-Bonsu, Sam Giovinco, Breen Turner, Saffeya Ahmed, Ethan Plotkin, David da Silva, Michael Lello, Peter Barber, and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

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