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.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
