Aurelia Butler

The UK Labour party has pledged to spend £28bn a year on green investments within its first term in power; the Conservatives have attacked the plan as fiscally reckless. The debate will no doubt feature prominently in the next general election campaign. But this is no parochial fight. It is an early instance of a political battle increasingly being fought all over the world: the battle over whether today’s economic demands on governments require them to “go big” or move incrementally.Labour’s approach is self-consciously modelled on US president Joe Biden’s economic policy, as Labour shadow chancellor Rachel Reeves has made clear. “Bidenomics” departs from decades of US economic policy thinking not just in its willingness to be interventionist and redistributive, but in the scale of its interventions, from pandemic support to the green industrial policy of the Inflation Reduction Act.But relative to the size of the two economies, Reeves’s plan dwarfs the IRA. Labour’s £28bn promise amounts to 1.1 per cent of British gross domestic product — proportionately seven times bigger than the IRA’s price tag of 0.15 per cent of US GDP. If enacted, it will also be nearly twice the size of the EU’s post-pandemic recovery facility by the same measure.Yet if Labour’s plan is uniquely big, treat it less as an outlier than a sign of the times. Many countries are increasingly facing up to huge new demands on the public purse, for reasons ranging beyond climate to economic security and defence imperatives.So the questions that arise over Labour’s green package are ones that all countries must soon ask about their own spending intentions. Are fiscal packages amounting to several per cent of GDP economically wise, compared with more incrementalist policies? Are they politically feasible? It’s not hard to find good grounds for scepticism about “going big”. The risk of a government throwing public money at bad projects rises exponentially with the amount of money it has committed to disburse. The potential “shock factor” of going big can also be more fiscally unsustainable — at least if it is funded by deficits rather than higher taxes, and if it is bond markets that are shocked. It may be politically more unsustainable, too. Shifting a large share of society’s resources into new uses means shifting it away from old ones. Going big creates more and harder-hit losers among those who previously benefited.And yet, what choice do we have? Just to decarbonise our energy use, nearly 3 per cent of global GDP needs to be shifted into green energy investments, according to the International Energy Agency. Add to that the capital needed for a successful digital transition, political commitments to more defence spending and safer supply chains, and the cost of making up for rich countries’ decades of declining investment rates. This means the economic task ahead is to find — that is, to reallocate — economic resources amounting to at least 5-10 per cent of our economies. That the bulk of these will be private resources does not make things easier for governments. The political task is to decide how to achieve such a transformation with the greatest possible social consent.Advanced-economy democracies are not well set up for speedy, large reallocations of resources. Our political processes generate legitimacy by taking time and moving incrementally, correcting course, addressing problems and compensating losers along the way. Big, deliberate economic transformations have usually only been possible in deep crisis — wars, as with the new economic settlement post-1945, or protracted economic failures, as with the 1980s shift away from that settlement. Have we arrived at such a moment today? In terms of economic necessity the answer is undoubtedly yes. Politically, it is less clear.The good news is that forceful policies can work. The IRA, while modest in size relative to the investments governments will increasingly have to take on, has been stunningly effective so far. Since last summer, when the law was agreed, the amount US manufacturers have spent on construction has nearly doubled, making the rate of factory-building the highest by a wide margin since records began 20 years ago. And it is not clear what will work at the scale required other than going big. So our times demand not just much greater government commitments, but the statecraft needed to make this politically possible. To think that the resource shifts we have committed to will happen by themselves, let alone as fast as they need, without massive government intervention is the most reckless policy of [email protected] More

The writer is chair of Rockefeller InternationalIn 2010, amid the global boom in billionaire fortunes, I began combing the annual Forbes list for clues to which countries were most vulnerable to anti-rich populist revolts. When I last published the results in 2021, warnings were flashing red for France, where billionaire wealth was rising fast and concentrating in family firms such as LVMH, the luxury goods conglomerate. Earlier this year, LVMH chair Bernard Arnault was a prime target of Paris protests when demonstrators rallying against pension reform stormed his headquarters. LVMH, which has nothing to do with pensions, has become a symbol of the new gilded age. The 2023 Forbes list shows that, worldwide, billionaires are down slightly in numbers and wealth from the pandemic peaks but still up sharply over the past two decades. There were almost 500 billionaires worth a total of less than $1tn in 2000; now there are more than 2,500 worth over $12tn. Billionaires remain a potential protest target, particularly in countries where my warnings still flash red. Ironically, these include most prominently nations with deep socialist roots, including France, Sweden, Russia and India. 

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Focusing on leading markets — 10 developed and 10 emerging — my analysis measures changes in billionaire wealth as a share of gross domestic product. Then it calculates the share that is inherited rather than self-made, the share made by “bad billionaires” in rent-seeking industries like real estate, and the share made by “good billionaires” in productive industries like tech. The idea is that populist revolt is most likely to target wealth perceived as excessively large, unearned or unproductive. France’s billionaire class coexists with the world’s heaviest spending welfare state. Billionaire wealth is rising faster there than in any other developed country in my top 10, nearly doubling over the past five years to 21 per cent of GDP. Inherited fortunes have always been vast in France and now account for 85 per cent of its billionaire wealth, twice the global average. Sweden shares this mix of statist reputation and vast fortunes at the top: its billionaire wealth equals 24 per cent of GDP, nearly two-thirds of it inherited. No other developed countries screen as badly across the board. Japan shows no signs of billionaire bloat. The UK shows little sign, other than a relatively high share of “bad billionaire” wealth, which at 20 per cent of the total is 6 points higher than the developed country average.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

In the US, an explosion of billionaire wealth in the early 2010s foreshadowed the rise of politicians who wanted to “abolish billionaires” or tax them heavily. In the past five years, billionaire wealth rose from 15 per cent to 18 per cent of GDP, and the resulting grievances are prompting president Joe Biden to push for new wealth taxes. Among emerging markets, the 2023 analysis highlights two more nations with strong statist tendencies, India and Russia. In both, total billionaire wealth is at least 20 per cent of GDP — nearly double the average of other developing nations. Russia’s tycoons took a hit early last year from the war in Ukraine and the resulting sanctions. Many, though, have evaded deeper losses by transferring wealth to family or parking their yachts in friendly harbours. Russia has also long been the country with the highest share of “bad billionaire” wealth and still is, at 62 per cent. India, however, ranks worst among the emerging top 10 markets for inherited share of billionaire wealth, at 60 per cent. The least bloated billionaire classes are found in nations such as South Korea and Taiwan, where small states have relied on social and political pressure to restrain wealth inequality or in former socialist states like Poland, which has embraced capitalism. Poland’s billionaire wealth is just 3 per cent of GDP and none of it comes from rent-seeking industry and little from inheritance. 

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

These results suggest that socialist tendencies may backfire by concentrating rather than spreading wealth. Increasing regulation favours big tycoons, who have the lobbyists and money to navigate an expanding thicket of rules. And since 2000, while governments have pumped money into their economies to keep growth alive, much of it wound up fuelling the rise in financial markets instead.Since the 0.01 per cent own most of the financial assets, they gained the most, with billionaires gaining even more than millionaires. The world has its first 12-figure tycoons, and some of the biggest fortunes are now rising in countries with the biggest governments, like France. This should offer some cause for reflection to the many who believe the answer to the current ills of capitalism is an even more supportive government.  More

Jeremy Hunt, UK chancellor, has ruled out giving any direct fiscal support to households struggling with soaring mortgage costs, even though the issue could hit Conservative prospects in the run-up to the next general election.Hunt has concluded that such an intervention would drive up government borrowing and fuel inflationary pressure, causing the Bank of England to put up interest rates even higher, Treasury sources said.Instead, Hunt’s allies said the chancellor would work with the banks to “live up to their responsibilities” to help mortgage borrowers who are finding it tough to meet their monthly payments.Michael Gove, cabinet minister for housing, said ministers would “keep under review” support for households, amid warnings that average mortgage payments for people coming off fixed-rate mortgage deals in 2024 could rise by an average of £2,900 a year.But Gove told the BBC’s Sunday with Laura Kuenssberg that money to address the steep rise in mortgage rates could not be “managed from thin air” and added: “We have to be careful.”He said that adding to the stock of government debt would put pressure on interest rates and the markets wanted to be reassured about the “safety and durability” of the British economy.The Resolution Foundation think-tank said last week that the UK had a worse inflation problem than other countries and that the BoE would need to raise interest rates to almost 6 per cent next year, when a general election is expected.The BoE’s monetary policy committee will meet on Thursday, when it is expected to announce a 13th consecutive rise on the current rate of 4.5 per cent. A quarter-point rise to 4.75 per cent would represent a 15-year high. Hunt, who is under pressure from Tory MPs to cut taxes before the election, has little fiscal room for manoeuvre. Even if he could afford a bailout of mortgage holders — as proposed by the Liberal Democrats — he believes it would be disastrous economically.A Treasury source said: “Borrowing money to subsidise mortgages risks fuelling inflation further, forcing the BoE to respond with higher interest rates. It would be totally self-defeating.”Instead, Hunt is looking to work with banks to try to limit the impact of higher mortgage rates, which will exacerbate the UK’s already acute cost of living crisis and the financial hardship faced by many families.

The Treasury said it was in regular contact with banks “to understand their position and current lending conditions”; Hunt convened a meeting with lenders to discuss the mortgage situation in December.“The chancellor made clear his expectation that lenders should live up to their responsibilities and support any mortgage borrowers who are finding it tough right now,” said one Hunt ally.BoE governor Andrew Bailey said last week that inflation was “taking a lot longer” than hoped to come down, and a central bank survey found that public confidence in its ability to control inflation had fallen to its lowest level since records began. The Resolution Foundation estimated in a report that 1.6mn fixed-rate mortgages are due to expire in 2024. More

The factory in Kiryat Gat is due to open in 2027, to operate through 2035 at least and to employ thousands of people, Israel’s Finance Ministry said. Under the deal Intel will pay a 7.5% tax rate, up from the current 5%, the ministry added.During its almost five decades of operations in Israel, Intel has grown to become the country’s largest privately held employer and exporter and a leader of the local electronics and information industry, according to the company’s website. In 2017, Intel bought Israel-based Mobileye Global Inc, which develops and deploys advanced driver-assistance systems, for $15 billion. Intel took Mobileye public last year.Announcing the deal in televised remarks to his cabinet, Netanyahu called it “a tremendous achievement for the Israeli economy – 90 billion shekels ($25 billion) – the largest investment ever by an international company in Israel”.In a statement, Intel said its Israel operations had “played a crucial role” in the company’s global success. “Our intention to expand manufacturing capacity in Israel is driven by our commitment to meeting future manufacturing needs … and we appreciate the continued support of the Israeli government,” it said. More

Earlier this month, Nigeria’s markets regulator ordered Binance to halt its operations in the country, saying local unit “Binance Nigeria Limited” that courted Nigerian investors through a website was not registered or regulated, making it illegal.Binance, the world’s biggest cryptocurrency exchange, has faced a string of setbacks recently, announcing plans to leave the Netherlands, Cyprus, Canada and Australia, and being charged by the U.S. Securities and Exchange Commission (SEC).The SEC sued Binance and Zhao earlier this month alleging that the company artificially inflated its trading volumes, diverted customer funds, and misled investors about its market surveillance controls. Binance disputes the SEC charges. More

Will the US yield curve invert further? The gap between short- and long-term US government borrowing costs this week reached its widest point since the banking turmoil in March, a spread which may widen further next week as investors coalesce around the view that the Federal Reserve will keep interest rates higher for longer. The US yield curve — which measures the difference between two- and 10-year Treasury yields — reached a three-month low on Friday of minus 97 basis points. This pattern, known as an inverted yield curve, is closely watched because it has preceded every US recession in the past 50 years. The curve has been inverted since last year. Two-year yields move with interest rate expectations, while 10-year yields move with growth and inflation. So when investors see higher interest rates crushing economic growth, the yield curve inverts. The depth of an inversion does not indicate the severity or length of a recession, but it does suggest increasing conviction in the market that the Fed’s rate-hiking will hamper economic growth. The inversion has deepened this week, and is likely to deepen further, after the Fed on Wednesday signalled its willingness to raise interest rates another two times this year, even as it paused its hiking cycle in June. The bank’s “dot plot” showed that most officials expected interest rates to be at 5.6 per cent by the end of the year, up from the current range of 5 to 5.25 per cent. The Fed’s hawkishness this week forced investors, who have long bet that the central bank would cut interest rates by year-end, to remove those bets. Kate DuguidWhat will the Bank of England do to tame inflation?Markets are bracing for another busy week in the UK, with May’s inflation data on Wednesday ahead of the Bank of England’s next rate decision on Thursday and retail sales figures on Friday. Annual price growth is expected to have eased to 8.5 per cent for the year to May, according to economists polled by Reuters, a touch lower than the rise of 8.7 per cent in April. Markets will be closely watching the level of core inflation — which strips out volatile food and energy prices — after it unexpectedly surged to 6.8 per cent last month. Economists at Pantheon Macroeconomics predict that headline inflation in May will have dropped in line with consensus estimates, driven mainly by easing non-core fuel and food prices, while they expect a surge in service inflation driven by transport costs. Markets have recently been considering the possibility of the BoE’s monetary policy committee raising the benchmark rate by 50 basis points next week, after stronger than expected wages data shocked the market last week, pushing two-year government bond yields to their highest level since 2008. But consensus still rests on a 0.25 percentage point rise to 4.75 per cent. Futures markets are pricing in at least three further rate rises this year, peaking at 5.73 per cent by the end of December. Mary McDougallWill China’s benchmark interest rate fall next week? The People’s Bank of China (PBoC) cut both the seven-day reverse repo rate and the one-year medium term lending facility (MLF) rate by 0.1 percentage points this week. Economists are now forecasting an equivalent fall for the country’s one-year loan prime rate (LPR), which serves as the country’s benchmark interest rate.The LPR is not set by the central bank but is calculated by adding the MLF rate to a spread based on the loans extended by China’s largest banks to their best customers — and normally a cut in the MLF is followed by an equivalent move for the LPR. However, the PBoC can also pressure banks to lower the cost of lending even more through so-called “window guidance” behind the scenes.Despite this possibility, analysts at Goldman Sachs are forecasting only a 0.1 percentage point reduction for the one-year LPR, as well as the five-year LPR, on June 20. Instead of a bigger cut, they argue that “a combination of monetary policy easing and fiscal policy support could be more effective to support overall economic growth”. “The reduction in interest rates could set the stage for additional fiscal support and property easing in coming months, should growth remain disappointing,” they added.However, widespread expectations for a 0.1 percentage point drop and broad disappointment with the expectation of policy support from Beijing so far this year mean that a bigger fall in the LPRs could easily spark a rally for Chinese equities. Hudson Lockett More