Investment

Scrap ‘petty and arbitrary’ fiscal rules and invest, Rachel Reeves’ economic advisor says

Published

1 year ago

August 7, 2023

Labour and the Conservatives should drop “petty and arbitrary fiscal rules” holding back growth, a top economist who recently advised the opposition has said.

Jim O’Neill, a former Treasury minister, was appointed by shadow chancellor Rachel Reeves last year to review her party’s business and investment policies.

Writing for The Independent Lord O’Neill – who is best known for coining the economic term Brics – said the UK needed to raise its levels of investment in both the public and private sector if it was to return to strong growth.

Lord O’Neill warned both parties that fiscal rules may be choking off growth

((PA/iStock))

And he argued there had been too much focus on balancing budgets in the short run without looking at the cost of postponing long-term investments.

“The government must start to focus on the net public assets of the country, and not the fiscal position, in order that much-needed investments that create large positive multipliers can be unleashed,” he wrote.

Lord O’Neill said the UK had “vast” infrastructure needs and that a lack of cash for projects like Northern Powerhouse Rail and reopening west London’s Hammersmith Bridge was holding the UK back.

Balanced-budget fiscal rules adopted by both parties could actually be making it harder to balance the books in the long run by choking off growth, he suggested.

The economist said the Office for Budget Responsibility (OBR) should be given powers to work out which public investments would have a “multiplier effect” and actually reduce the budget deficit in the long term by improving productivity and growth.

These spending commitments could then be given the green light without constant reference to the “arbitrary” fiscal rules, he suggested.

“In my view the way to do this, as opposed to ignoring them à la Liz Truss, is to give the OBR much stronger powers in publicly outlining, supported by the Infrastructure Commission, what sorts of investments would have clear, measurable, strong positive multipliers that would create much stronger public assets; and, in the process, probably reducing the fiscal deficit in the future, not boosting it,” he wrote.

“And at the same time, drop such petty and arbitrary fiscal rules that magically claim the deficit in five years’ time will be lower.

“This rarely turns out to be the case, because the introduction of the rule has played a much bigger role in constraining the ability of the government to invest itself, or stimulate investment from the private sector, so that growth ends up being too weak to boost revenues.”

Shadow chancellor Rachel Reeves last year asked Jim O’Neill to review the party’s policies on business and investment

The ex-commercial secretary to the Treasury, whose review for Labour’s shadow chancellor reported at the end of 2022, said the British Business Bank also needed to be given more powers, responsibility and capital from the government to encourage private sector growth.

The warning comes after Labour’s Ms Reeves said her party’s fiscal rules were “non-negotiable” – and that its green investment plan would be scaled back as a result.

Keir Starmer’s party has pledged that day-to-day spending will be completely covered by taxes and that the party will “get debt as a share of our economy falling by the end of the next parliament”.

Describing them as “iron rules”, Sir Keir said in June that “we must accept the consequences” of the policy.

Lord O’Neill was previously the chair of Goldman Sachs asset management, and was given a seat in the House of Lords in 2015 as a Tory peer. He served as economic secretary to the Treasury, a ministerial post, until September 2016. Upon leaving government he also resigned the Tory whip and became an independent crossbencher.

As head of economic research at Goldman Sachs in 2001 he published a paper in which he coined the term “Brics” – Brasil, Russia, India, China – to refer to fast-growing developing economies. The term has since entered widespread usage.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

3 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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