Closing post
Time for a recap:
Harland & Wolff, the owner of the Belfast shipyard that built the Titanic, will enter into administration this week after failing to find new funding, in a blow to UK government hopes of shipbuilding in the city.
The company said on Monday said that it was insolvent and would appoint administrators from Teneo this week.
It said an unspecified number of redundancies at the listed holding company, Harland & Wolff Group, were inevitable, but added that it was hopeful the companies operating its shipyards would be bought. Those core operations would “continue to trade as usual” for now, it added.
The administration raises serious questions for the UK government, which had promised to build three warships at the Belfast yard in an attempt to spread work beyond the two dominant British shipbuilders, BAE Systems and Babcock International.
Unions have urged the government to help.
In other news today…
A group of leading economists have warned Rachel Reeves that cutting public investment in the UK would damage the “foundations of the economy”, as she prepares next month’s budget.
Next budget is crucial. I hope this report and Lords’ Economic affairs committee one will persuade HMT that we need more investment .Markets will not be scared by dropping nonsensical rule that debt ratio must fall in year 5 irrespective of what happens in years 1-4. https://t.co/0Zk1CVrKFM
— Gus O'Donnell (@Gus_ODonnell) September 16, 2024
Accountancy group Deloitte UK is to equalise its maternity and paternity leave allowance
Righmove has reported that the asking prices of UK homes jumped by more than usual this month.
UK car parts maker TI Fluid Systems has rejected a takeover approach from Canadian rival ABC Technologies, a move which has pushed its share price up by 13%.
Over on Wall Street, the Dow Jones industrial average share index has hit a new alltime high.
The Dow, which contains 30 large US companies, is up 173 points or 0.4% at 41,567 points today.
Chipmaker Intel is leading the risers, up 2.2%, following reports that it will win up to$3.5bn of federal grants to manufacture semiconductors for the US government.
Hopes that the US Federal Reserve might announce a steep cut to US interest rates on Wednesday is also cheering traders in New York.
The UK government does not sound keen to step in and rescue Harland & Wolff’s shipyards, despite pressures from unions today to help.
A spokesperson for the Department for Business and Trade said:
“We have been working extensively with all parties to find an outcome for Harland & Wolff that delivers shipbuilding and manufacturing across the UK and protects jobs.
“We are clear that following a thorough review of the company’s financial situation, at present the market is best placed to address these challenges, and providing government funding would have meant a significant risk of losing taxpayer money.
“We know this will be a concerning time for workers, and we strongly encourage all parties to engage with the trade unions before making any further decisions.”
Ministers could have helped the company two months ago, when it asked the government to act as a guarantor for a £200m loan from a consortium of UK banks. They declined, though.
Ulster Unionist Andy Allen, a member of the Legislative Assembly of Northern Ireland, said it is “crucial” the government supports Harland & Wolff in finding a new owner for its Belfast shipyard, as the company moves towards administration.
He said:
“While this outcome may have seemed increasingly likely in recent months, we must find a solution that not only keeps this historic shipyard in east Belfast, but allows it to grow and thrive.
“The yard is more than just a historic landmark; it has a vital role to play in our national defence, particularly in shipbuilding and maintenance.
“Given its strategic importance to our defence infrastructure, the Government must act quickly and decisively to secure its future.
“The workforce’s skills and expertise are invaluable, not just to the yard itself but to our broader economy and defence capabilities.”
Allen added:
“I will continue to work with colleagues, both here and in Westminster, to ensure every support is given to finding a new owner that will make a clear commitment to building on Harland and Wolff’s historic success.
“The Government must actively engage with all interested parties and prioritise this issue.
“We must ensure the yard and its workforce have a viable and sustainable future.”
Unite: Government may need to intervene to protect shipyards
The Unite union is demanding that urgent action is taken to preserve the future of the workforce at Harland & Wolff’s yards in Northern Ireland, Scotland and England.
Unite hopes that a company with a history of shipbuilding will emerge as a buyer for Harland & Wolff’s four UK shipyards, following the news this morning that it will soon enter administration.
Unite Irish regional secretary Susan Fitzgerald says:
“Harland and Wolff is of huge strategic importance and it is essential that all measures are taken to protect the workforce to preserve skills and ensure continuity of employment.
“Unite has been regularly meeting the government and management to ensure the long-term future of the company’s yards and facilities. It is vital that the right buyer is found, failing that the government should be prepared to intervene
“Workers at Harland & Wolff should be in no doubt that Unite has their back and will leave no stone unturned in securing a long-term viable future for the workforce.”
Unite also reports that over 20 companies have shown an interest in either purchasing all or part of the company or providing an injection of investment, through the process being run by Rothschilds.
Updated
Manufacturing activity expands in New York region for first time in almost a year
Manufacturing activity has expanded in the New York region for first time in almost a year, which may calm fears that the US economy was faltering.
September’s Empire State Manufacturing Survey, produced by the New York Federal Reserve, reports that business conditions in New York state are improving.
The headline general business conditions index rose sixteen points to 11.5, up from -4.7 points in June.
United States Ny Empire State Manufacturing Indexhttps://t.co/OuXXb5tAs8 pic.twitter.com/74fJoRmDuR
— TRADING ECONOMICS (@tEconomics) September 16, 2024
The survey aso found that delivery times and supply availability were steady, and inventories levelled off.
However, the region’s labor market conditions “remained soft”, with employment falling again.
Looking ahead, firms grew more optimistic that conditions would improve in the months ahead, though the capital spending index dipped below zero for the first time since 2020.
BP to sell its US onshore wind business
Energy giant BP is looking for a buyer for its US onshore wind business.
Wind Energy currently has interests in ten onshore wind farms in seven US states – Indiana, Kansas, South Dakota, Colorado, Pennsylvania, Hawaii and Idaho.
In total, they can generate 1.7GW and are already providing power.
BP is selling up as it focuses on Lightsource, the solar power developer it took full ownership of last year. It plans to develop Lightsource as a developer of “cost-competitive, utility-scale renewable power assets worldwide” for solar and onshore wind.
William Lin, executive vice president for gas & low carbon energy at BP, says:
“Renewables are an important part of our strategy as bp transitions to an integrated energy company.
“bp Wind Energy’s assets are high-quality and grid-connected but are not aligned with our plans for growth in Lightsource bp. So we believe the business is likely to be of greater value for another owner. This planned divestment is part of our strategy of continuing to simplify our portfolio and focus on value.“
Deloitte UK equalises paid parenting leave
Accountancy giant Deloitte UK is to equalise its maternity and paternity leave allowance.
It means that from the start of 2025, new fathers at Deloitte UK will get 26 weeks of fully paid leave, the same as new mothers.
Currently, fathers can only take four weeks off with full pay after the birth of their child.
Richard Houston, Deloitte Senior Partner and CEO, says:
“I’m proud of the changes we’re announcing today – they demonstrate both the significance and value we place on looking after our people during some of the most important moments in their lives, as well as our added commitment to equality.”
Deloitte has also told its staff that it would give 12 weeks’ paid leave to staff whose newborn requires neonatal care, while those with long-term caregiving roles for a relative or friend will be given an extra five days of annual leave. Women undergoing fertility treatment will also be given paid leave while they do so.
Updated
Ofcom cracks down on telcos mis-selling full-fibre broadband
The UK’s media regulator is to begin cracking down on telecoms operators misleading consumers with contracts and online information that claims they are buying the fastest broadband service available, full fibre, when they are actually signing up for a slower technology.
Ofcom is to begin enforcing new rules from today that will only allow internet service providers to use terms like “fibre” and “full-fibre” on their websites and in contracts if customers will actually receive fibre optic cables all the way to their home.
The regulator said that companies have used the term fibre “inconsistently” when in fact the so-called “last mile” of technology to consumers’ homes could involve some copper wiring, or wireless connectivity, meaning a significantly slower and less reliable service than customers’ have signed up for.
Ofcom says:
“From today, broadband providers will need to be clear and unambiguous about whether the network they use is a new ‘full-fibre’ network - with fibre all the way to the customer’s home - or a ‘part-fibre’, ‘copper’, or ‘cable’ network.”
“Providers will no longer be able to use the term ‘fibre’ on its own.”
The way telecoms companies market their broadband services in their ad campaigns is covered by the Advertising Standards Authority, the UK ad watchdog.
With the explosive growth in popularity of digital services such as video streaming, bandwidth-hungry online gaming and the advent of artificial intelligence consumers are increasingly looking for the fastest broadband available.
As of January, 18.7m UK homes have the ability to sign up for full-fibre broadband, about 62% of all homes.
However, to date only around 5m homes have upgraded to take a full fibre connection.
The interim executive chairman of Harland & Wolff, Russell Down, has acknowledged that the move into administration will be “extremely difficult” news for its staff, some of whom will be losing their jobs.
Down also points out that shareholders will also suffer losses – the company’s shares have been suspended at the start of July, and will be cancalled when it enters administration.
Down says:
“The Group faces a very challenging time given the overhang of significant historic losses and its failure to secure long term financing. Good progress has been made to test the market for investor appetite. The Board has reluctantly concluded that the Company’s own future as an AIM-listed company will likely come to an end in the near future, but that the core operations undertaken by the four yards and Islandmagee will continue to trade as usual.
“It is important to recognise that this is extremely difficult news for the Company’s staff directly affected and will impact many others within group. We will work to support our staff through this transition. Unfortunately, extremely difficult decisions have had to be taken to preserve the future of our four yards.
“This will clearly be very unwelcome news for shareholders who have shown significant commitment to the business over the last five years.
“The Board, the senior management and rest of the team are committed to deliver the best outcome for the four yards and communities they serve to ensure their continued operation into the long term under new ownership.”
GMB: Government must provide support for Harland & Wolff yards
The GMB union is urging the government to help save Harland & Wolff’s four shipyards, and the jobs created by them.
Matt Roberts, GMB national officer, says:
“Workers, their families and whole communities now face their lives being thrown into chaos due to chronic failures in industrial strategy and corporate mismanagement.
“All the four Harland & Wolff yards are needed for our future sovereign capabilities in sectors like renewables and shipbuilding.
“The Government must now act to ensure no private company is allowed to cherry pick what parts are retained, in terms of which yards or contracts they wish to save.
“Leaving these vital yards - and the crucial FSS contract with all its promises for UK shipbuilding - to the mercy of the market is not good enough. The Government must provide support and oversight to get the market to the solution we need.”
Updated
Harland & Wolff are aiming to refocus on its “core operations”, which it defines as its four shipbuilding yards and the Islandmagee Gas Storage project.
This means:
-
In Belfast, the company is in discussions with Spanish shipmaker Navantia on a possible plan to resume work on the FSS programme to build three support ships for the Royal Navy.
Significant activity has been undertaken on the Sea Rose FPSO mid life extension work and this is nearly concluded.
In Appledore, Devon, work is continuing on the M55 Project (where Harland & Wolff is converting the HMS Quorn/Atherstone for the Lithuanian Navy).
The Group’s shipyards in Scotland, at Arnish and Methil, have continued to construct barges for recycling company Cory, to be used to ship recyclable and non-recyclable waste on the Thames
Updated
Yesterday, the Sunday Times reported that Harland & Wolff’s finance chief Arun Raman, who quit abruptly last week, is weighing up suing the company for constructive dismissal and racial discrimination.
Last week, Harland & Wolff announced that Raman has tendered his resignation and steps down from the board with immediate effect.
Updated
You can read this morning’s announcement from Harland & Wolff here.
A very long update from Harland & Wolff. Confirms the company is balance sheet insolvent & Teneo are being lined up as administrators. https://t.co/sBnAofdHyp
— JPCampbellBiz (@JP_Biz) September 16, 2024
Full story: Belfast shipyard owner Harland & Wolff to enter administration
Harland & Wolff’s decision to appoint administrators raises serious questions for the UK government, which had pledged to build three warships at the Belfast yard in an attempt to spread work beyond the two dominant British shipbuilders, BAE Systems and Babcock International.
It comes after months of fraught negotiations as Harland & Wolff scrambled to find funding to upgrade the shipyard.
It is the second time in five years that the owner of the Belfast yards has gone under. Oil services company Infrastrata bought the yards out of administration in 2019, before adopting the historic Harland & Wolff name and attempting to reinvent itself as a shipbuilder.
Harland & Wolff has also appointed accountancy firm PwC and legal experts from Simmons & Simmons to investigate its accounts.
They will examine the “alleged misapplication of remittances in excess of £25m”, following concerns raised by customers, the company says today.
They will also look into “certain other lower value matters (such as the disbursement of funds for little or no corporate benefit)”.
Harland & Wolff to enter administration this week, and cutting jobs
Newsflash: UK shipbuilder Harland & Wolff is preparing to fall into administration this week.
The company, which owns the Belfast shipyard that once built the Titanic, has warned shareholders that its Board has concluded that the Company is insolvent on a balance sheet basis (where a company’s liabilities outweigh its assets).
Accordingly, contingency planning for the making of an administration order and appointment of administrators from Teneo is underway, Harland & Wolff explains.
That process is likely to start this week.
Trading update from Harland & Wolff, confirms the company "is insolvent on a balance sheet basis", with preparations underway for the appointment of administrators from Teneo. "This process will likely commence this week."
— Ryan McAleer (@RyanMcAleerbiz) September 16, 2024
Staff at Harland & Wolff have been told today that jobs are being cut in “non-core and certain central support areas”.
The company warns that “a further reduction in headcount in our core activities may be necessary”.
Harland & Wolff’s future has been uncertain since the UK government decided in July that it would not provide a £200m loan guarantee to the company.
In July the company hired Rothschild & Co to assess strategic options.
Today, it says that “a number of parties” have expressed an interest in buying some of Harland & Wolff’s assets, with a deadline for first-round bids due soon.
The key issue for the company is a major Royal Navy contract, called the Fleet Solid Support (FSS) programme, which Harland & Wolff hopes to hold onto.
Harland & Wolff says it believes it still has a “credible pathway” to continuing core operations built around a four-yard operation delivering the FSS contract.
Updated
The UK jobs market appears to have weakened slightly last month, which may nudge the Bank of England towards lowering interest rates.
The number of new job postings fell by 3.2% month-on-month in August, to 719,721, according to the latest Recruitment & Employment Confederation (REC) and Lightcast Labour Market Tracker.
The report shows there was a “sluggish start” to hiring in summer seasonal roles this year, before a late summer surge in hiring in tourism and hospitality.
REC chief executive Neil Carberry says:
“There is no doubt that the jobs market remains slow by comparison to previous years, with summer holidays also affecting the pace of hiring.
But there is little evidence of a sharp slowdown now.
Firms are waiting for a clear signal on growth plans and the timing of potential additional cost challenges from the new government before making investment decisions, which makes the Budget next month a vital moment.
BT had recruited a former top civil servant to its board, and given him the job of dealing with regulator Ofcom.
Sir Alex Chisholm, a former permanent secretary at the Cabinet Office, is joining BT’s board as an independent non-executive Director with immediate effect.
He will become BT’s designated non-executive director for engaging with Ofcom (who recently fined BT £2.8m for failing to give its EE and Plusnet customers clear contract information before signing them up).
Chisholm says:
“I am pleased to be joining the BT Group Board and I am looking forward to using the lessons and experience gained from my prior roles to contribute to the Board’s discussions and decision-making.”
Chisholm stepped down from the civil service, where he had also worked as chief operating officer, this spring. He’s already taken a psition as chair of energy company EDF.
Energy firm Ovo has announced a fresh £50m energy bills support scheme for the winter months.
Following the government’s decision to cut winter fuel payments for millions of pensioners, Ovo says more funding has been set aside to help cusomers.
It will fund a series of schemes, including direct financial support for customers struggling to pay their bills, temporary reductions in direct debit payments, one-to-one energy saving advice, and free or subsidised upgrades to people’s homes, including insulation, new boilers or heat pumps.
Mohamed El-Erian, one of the signaturies of today’s letter, is concerned that “open divisions” within the Labour Party on fiscal measures have distracted from the broader growth challenge facing the government.
Those divisions include the unpopular decision to begin means-testing the winter fuel payments, meaning many pensioners will lose the benefit.
El-Erian writes on Bloomberg that the government’s “encouraging start” is now at risk:
This is partly the result of the government having to deal with a fiscal inheritance from over a decade of Conservative rule that is worse than expected. It has been complicated by the decision to postpone the budget until October and the release of information on specific policy intentions (such as to cut winter fuel payments for pensioners) without the benefit of the government’s overall plans. Then there are the blunt fiscal rules that pay insufficient attention to different uses of funds and have arbitrary time horizons.
Don’t get me wrong. Fiscal prudence is a critical part of any long-term growth strategy. Yet its pursuit must be designed as an integral part of the growth mission and not a distant relative or, even worse, a separate endeavor.
The former CEO of bond-trading giant Pimco adds that the UK needs to “double down on releasing the brakes on current drivers of growth and promoting future engines”, adding:
The economy has a cyclical window to pursue the all-important secular growth mission with inflation down sharply and business sentiment on the way up. Failure to do so will make tomorrow’s fiscal conversation significantly more problematic while rendering even more elusive the high, inclusive and sustainable growth that so many need.
Advice piles up for Rachel Reeves
This morning’s letter is part of a volley of advice hitting Rachel Reeves’s desk before next month’s budget.
The Organisation for Economic Co-operation and Development has warned the chancellor that “significant action” is needed to stabilise the public finances.
That action could include scrapping stamp duty and reining in the pension triple lock, to help the government handle spending pressures from higher health, pension and climate change costs.
The Times reports:
The OECD’s researchers said that the “expensive” triple lock should be scaled back to increasing pension entitlements to an average of inflation and wages growth. At present, pensions rise by whatever is highest out of 2.5 per cent, inflation and pay growth. The International Monetary Fund similarly has recommended curbing the generosity of the triple lock.
The Resolution Foundation has called for Reeves to raise over £20bn through changes to capital gains tax, inheritance tax and national insurance in next month’s budget.
Resolution argued that its proposals would raise large sums of money while still meeting a “triple tax test” of making the system more efficient, ensuring the tax rises hit the better off, and not breaking Labour’s 2024 manifesto commitments.
Another UK takeover drama is grinding towards its climax.
Darktrace, the cybersecurity firm, will leave the FTSE 100 index on 1 October, after its shareholders accepted a $5.3bn takeover offer from US private equity business Thoma Bravo.
A timetable released this morning shows that the last day of dealings in Darktrace shares will be September 30, with its stock market listing set to be cancelled before 8.00am on 2 October.
Earlier this month, Darktraace announced that Poppy Gustafsson, the company’s co-founder and chief executive, will leave once the sale goes through.
US dollar weakens as markets anticipate large interest rate cut
The US dollar is weakening this morning as traders anticipate a big cut to interest rates across the Atlantic later this week.
The pound has gained half a cent to $1.3170, and the euro is up almost half a cent at $1.1115 – both one week highs.
The US Federal Reserve will set interest rates on Wednesday; this morning, the money markets indicate there’s a 60% chance that the Fed will take dramatic action and slash rates by half of one percent.
A smaller, quarter-point, rate cut is now only a 40% chance, having been odds-on last week.
While you were asleep, the chances of a 50bps cut just went up to 61% on CME FedWatch. $tlt $tmf pic.twitter.com/HT9D7tBOeN
— Shaun Lee ₿ (@ShaunXperience) September 16, 2024
Kathleen Brooks, research director at XTB, says the case is building for a large cut by the Fed:
The case for a 50bp rate cut boils down to two things: first, the economic conditions and second, the risk of the Fed falling behind the curve. The economic data is getting weak in the US. The Citi economic surprise index for the US is close to its lowest level since 2015, the labour market is cooling and there are signs of distress in the manufacturing sector, which has been languishing in contraction territory since April.
The Fed’s preferred measure of inflation, the core PCE index, has fallen from 5% in 2023 to 2.6% now, which is close enough to the Fed’s 2% target rate. An article in the Wall Street Journal on Thursday spurred speculation that the Fed may start big with its rate cutting cycle. It argued that a key consideration at the Fed is falling behind the curve and letting a soft-landing slip through its grasp.
The unemployment rate might be ticking higher, but at 4.2% it is hardly in recession territory. Likewise, the latest GDP estimate from the Atlanta Fed’s GDPNow tool, is predicting growth of 2.5% annualized for Q3, which would be the envy of Europe. There is an argument that why would the Fed risk a rapid rise in the unemployment rate by taking its time cutting interest rates?
UK car parts supplier TI Fluid rejects bid from Canada's ABC Technologies
In the City, UK manufacturer TI Fluid Systems has rejected a takeover approach from Canadian rival ABC Technologies.
TI Fluid Systems, which makes products for vehicle manufacturers such as brake lines and fuel systems, has become the latest UK company to receive – and try to fend off – a takeover offer.
It told shareholders this morning it had received two “unsolicited, highly preliminary and non-binding” cash offers from ABC Technologies in recent weeks.
The second, received on 4 September, was worth 176p per TI share – a premium of 20.7% to the closing share price of 145.8 pence last Friday.
But, TI is urging shareholders to take no action, saying:
The Board of TI Fluid Systems considered the Proposal in detail with its advisers and unanimously concluded that it significantly undervalued TI Fluid Systems and its prospects, and accordingly the Proposal was rejected early last week.
The Board is confident in the strategy and prospects of the Company.
Shares in TI Fluid Systems have jumped by 12% in early trading, to 163p each.
Manufacturing yet to see lift off from Labour government
The introduction of the new Labour government has yet to result in an immediate boost in manufacturing performance but businesses are expecting greater political stability will drive better performance across the coming year.
Make UK, which represents 20,000 manufacturing firms in the UK, found that output decreased to -2% in the third quarter of the year, down from the 9% growth experienced in the previous quarter.
This was the first time output turned negative in four years. However, it did expect output to increase by 33% in the next quarter.
The survey of more than 300 companies found that six in 10 believed that the new government would lead to better economic growth in the next 12 months and only 6% of firms expected it to drop.
Fhaheen Khan, senior economist at Make UK, says:
“This quarter presents a tale of two halves with output turning negative and recruitment taking a dip, yet investment remains positive and business confidence continues to climb.
“With an autumn budget and spending review fast approaching, now is the time for government to pick up the pace and deliver on pre-election promises, most notably the publication of a long-term robust industrial strategy.”
Elsewhere in the economy, the gap in rents paid by those in the north and south of England has closed to its lowest level in at least 11 years.
In its latest monthly lettings index, the property company Hamptons reported that the average rent paid by tenants in the north of England in August was £960 a month, an increase of 9.6% compared with the same period last year.
This was 37% (£357) lower than the £1,317 that the average renter in the south of the country pays – the smallest percentage gap since Hamptons began publishing the index in 2013.
Even through the asking prices for UK houses are rising, it’s “paramount” that sellers price their property correctly when they put it on the market, warns property agent Emma Fildes of Brickweaver.
Being too greedy can be counter-productive, especially when buyers have more stock to choose from:
Spurred on by encouraging yet potentially misleading House Price Indices and a base rate cut, sellers hit the autumn market brimming with pricing confidence. Average prices increased by 0.8% (+£2,974) this month to £370,759.
— Emma Fildes (@emmafildes) September 16, 2024
The number of agreed sales was also up, rising 27% on… pic.twitter.com/4SbMsJFDYR
Asking prices for UK homes rise sharply in September
Asking prices for homes in the UK are rising twice as fast as normal this month, as falling mortgage rates stimulate demand.
Property website Rightmove has reported this morning that the average price of homes coming to the market rose by 0.8% to £370,759 this month.
Prices usually rise in September, but this year’s increase is double the long-term average.
Rightmove reports that the traditionally busier Autumn market appears to have started early, as increased activity in the market encourages sellers to lift prices.
According to Rightmove, the number of sales being agreed is up by 27% year on year, with 14% more sellers in the market than a year ago.
That suggests that both buyers and sellers are seeing a window of opportunity, as mortgage rates have been trending down, and real wages have been rising this year.
Rightmove’s Tim Bannister says:
“The autumn action has started early with a strong rebound in activity from both buyers and sellers compared to the subdued market at this time last year, continuing the momentum from the better-than-expected summer market.
The certainty of a new government followed by the first Bank Rate cut in four years invigorated the market, opening a window of opportunity for movers to act. Some of this will be pent-up demand from those who had to hit the pause button until now. However, windows of opportunity tend to need a momentum of good news to stay open, and there are still uncertainties ahead which could cause some of the current market activity to ease.”
The Bank of England could give the housing market another boost on Thursday, when it sets interest rates. However, the City expect the BoE to leave interest rates on hold; there’s just a 30% chance of a rate cut this week.
Bloomberg explain why the eight economists want to change the mandate of the Office for Budget Responsibility:
The OBR currently operates with a five-year timeframe and a paper it recently released showed that the gains from infrastructure investment over that time horizon are reasonably small. Over a long time horizon, the investment starts to look much more attractive.
Economist professor Danny Blanchflower, a former member of the Bank of England’s monetary policy committee, is backing this morning’s letter:
Great letter happy to support also
— Professor Danny Blanchflower economist & fisherman (@D_Blanchflower) September 15, 2024
"The government has inherited spending plans that imply substantial real-terms cuts in public investment. We don't see how the planned “decade of national renewal” can take place if these cuts are delivered, repeating past mistakes"
— Jonathan Portes (@jdportes) September 15, 2024
Me & others in FT: https://t.co/OnPZdSBqgp
The Treasury have told the FT said the chancellor “has vowed to lead the most pro-growth, pro-business Treasury in the country’s history”.
In response to this morning’s letter, the Treasury say Reeves has “set out her commitment to the current fiscal rules and will set out precise details at the Budget”.
Introduction: Rachel Reeves urged to change fiscal rules to allow more investment
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
A group of leading economists are today urging chancellor Rachel Reeves to tear up the UK’s fiscal rules in next month’s budget, to allow the government to borrow more to fix the country’s public infrastructure.
In a letter published this morning, the group warn that under-investment has led to a “vicious circle of stagnation and decline” in Britain, weakening the economy and creating greater social and environmental problems.
Reeves, they fear, risks repeating “the mistakes of the past” by sticking with spending plans set by the previous government that imply substantial real-terms cuts in public investment over the current parliament.
They warn:
We do not see how the planned “decade of national renewal” can take place if these cuts are delivered.
To follow through on these plans would be to repeat the mistakes of the past, where investment cuts made in the name of fiscal prudence have damaged the foundations of the economy and undermined the UK’s long-term fiscal sustainability.
The letter is signed by Lord Gus O’Donnell, former Cabinet Secretary, Lord Jim O’Neill, former Commercial Secretary to the Treasury, professor Mariana Mazzucato of University College London, Mohamed El-Erian, former chief executive of Pimco, Sir Anton Muscatelli, chair of the Royal Economic Society, Professor Simon Wren-Lewis emeritus professor of Economics, University of Oxford, Professor Jonathan Portes, professor of Economics and Public Policy at King’s College London, and Professor Susan Newman, head of economics at The Open University.
The eight put their finger on the problem: The UK government’s current debt rules create an “inbuilt bias” against investment, by forcing ministers to show debt will fall as a share of the economy at a five-year horizon.
In their letter, published in the Financial Times, they say:
A more responsible approach, which better reflects the significant long-term benefits of increased public investment, will require changes to our fiscal rules and to the mandate for the Office for Budget Responsibility.
Reeves’s other fiscal rule is that government can only borrow to invest in capital projects, rather than to fund day-to-day spending, as she laid out in her Mais Lecture in March. That approach, the chancellor argues, will mark a break from a “short-termist approach that disregards the importance of public investment”.
The chancellor is expected to raise taxes, cut spending and get tough on benefits in October’s budget, having warned of a £22bn ‘black hole” of overspend by Whitehall departments.
But…O’Donnell, O’Neill, Mazzucato, El-Erian, Muscatelli, Wren-Lewis, Portes, and Newman warn that cuts to investment must be avoided.
They write:
In the upcoming Budget it is essential that the government recognises the important role that public investment must play in the decade of national renewal.
Further cuts to public investment must be avoided, a strategy for substantially increasing public investment adopted, and a process initiated to implement a pro-investment fiscal framework that focuses on long-term fiscal sustainability.
UK spending cuts would damage ‘foundations of the economy’, Reeves told https://t.co/5K1W8zxsiE
— FT for Schools (@ft4s) September 15, 2024
The agenda
7am BST: Germany’s wholesale price index data for August
10am BST: Eurozone trade data for July
1.30pm BST: Empire State survey of US manufacturing
Updated
