Avsnitt
-
The Labour Party, like the Conservatives, has committed to borrow only to invest, to fund current spending only from current income, and to get debt as a percentage of GDP down. As ever when it comes to fiscal rules, the devil is in the detail, and these rules are less than they seem. Labour acknowledges that this may take some time, but its promise is that it will meet its fiscal rules by achieving the highest growth rate in the G7.
As with the Conservatives, Labour knows that these fiscal rules leave plenty of wriggle room. The deadline on current spending bites only gradually and that for the debt to be coming down is by the end of its first Parliament. More importantly, current spending on desperately needed capital maintenance could be renamed as “investment” expenditure (as Gordon Brown did with education and health spending), leaving the next generation to pick up the tab for what should come out of current income. For both parties, “growth” is assumed to help fix the problems, with Labour targeting the highest growth rate amongst the G7 by the end of the Parliament. Neither party has any plans to tackle the lack of domestic savings, and hence the almost complete reliance on foreigners to lend them the money.
The fiscal rules allow large scope for fudge. If either party really meant to be fiscally credible, it would need to be willing to entertain either serious tax rises or serious reductions in spending (or both). Fiscal rectitude is easier to announce than it is to deliver. -
What is to be done about the UK’s failing utilities? The current back-stop is special administration, opening up the possibility of wider restructuring. In all cases it is the structure that needs to change if there is to be a stable investment framework for the next couple of decades.
In the case of Thames Water, if the special administer is called in, the assets could be taken over in the short term and passed on to other owners. The trouble is that the current owners are mostly foreign, and the UK is very dependent on foreign investors as it is a net dis-saver. Such dependence creates a big problem: we are beholden to the kindness of strangers to invest in all our utilities, but these investors have many alternative options to place their money.
Special administration would nevertheless provide a great opportunity to break Thames up, both geographically and by service. It need not lead to any increase in government spending other than very short-term guarantees on the debt. There could be a London Water and a Greater Thames Water, divided between sewerage and water supplies, all listed. Separating out sewerage could help to deal with the large CAPEX required through a ring-fenced ten-year improvement programme, with bespoke regulation and longer-term funding and finance arrangements.
A structural approach might also work for Network Rail, with greater integration, bringing the train operators and rolling stock companies back into the frame. For Royal Mail, there is a fundamental structural issue relating to service provision – put letters back into the Post Office as a public service, separated from the parcels delivery service.
Introducing stability and a longer-term approach could at least create a more solid and investable infrastructure, which may then address the challenge of how to make these utilities more attractive to outside investment. Fudging Thames, Network Rail and Royal Mail now will give us another decade of failures and crises, which in turn will turn out worse for foreign investors. -
Saknas det avsnitt?
-
Iron fiscal rules that allow borrowing only for investment might seem like a sensible strategy, but the figures have repeatedly been fiddled to make the UK appear fiscally responsible. Both main political parties have been playing this game for forty years. From Thatcher onwards, Conservatives used privatisation and PFIs (private finance initiatives) to move debt off the public books to the private sector. Gordon Brown opted for the PPP (public–private partnership) model for the London Underground, and perfected the art by re-categorising some public spending (e.g. on health and education) as “investment” in order to meet the requirement to borrow only to invest.
The current approach, however, is much more serious. Governments are now borrowing to maintain our assets, calling this “investment”, as are the utilities. Fixing the school roofs and the hospital buildings, and, for the utilities, the sewers, the potholes, the sad state of the railway infrastructures, patching up the electricity networks, and maintaining the natural environment, should be current expenditure, not treated as new investments. We are borrowing from the next generation to pay for the current maintenance. Capital maintenance should be a current expenditure not a capital one.
Sustainable public finance would (with a few exceptions) require debt to only ever be for investment that genuinely enhances assets and creates new ones, such that the next generation receives better assets. When it comes to the environment, we need to pass it on in a good state, not to simply say we will continue to borrow and live beyond our means. Government needs to explain honestly and openly how it will balance the books. Pretending that our fiscal rules are held with an iron fist whilst actually including the capital maintenance is bad accounting. The numbers are huge. The next debt crisis will follow as the unsustainable is not sustained. -
When it comes to addressing the trilemma of energy policy in the UK (net zero, energy security and customer affordability), there are three overall policy approaches. “Policy option 1” is about setting targets: pick a year by when net zero is to be achieved, and then do whatever is necessary to get there. “Policy option 2” is the other way around, looking at what can be afforded and then at what can be achieved with the available pot of money.
There is a third set of more extreme options of stopping oil and gas now, or just assuming that science and technology will eventually solve the problem. Both are dangerous.
What is now needed is a rational debate and honesty. Politicians need to engage in an open conversation with citizens and to work out how to maximise the benefits from what can be afforded, by making hard choices between the options. -
Network Rail, Royal Mail, and Thames Water are all examples of serious failure, with major economic and social consequences. None has lived up to the ambitions of privatisation, nor are they world-leading examples of efficient management or in good shape to deal with the challenges in their sectors. They demonstrate what has gone wrong with the implementation of privatisation. And they are not the only ones – other companies across the utilities sector have also poorly maintained their assets.
These utility failures have come at a huge cost. If productivity is to be improved, we can no longer afford to have continuing failed companies in the core utilities. The sustainable economy needs infrastructure that is well-maintained, properly financed and accessible to all. No more sticking plaster; we need a rebase now. -
Our politicians may claim that the UK is on its way to net zero electricity, but the potential closure of the Grangemouth oil refinery provides an illustration of why the seemingly good numbers are not quite what they appear. Closing Grangemouth would bring down UK carbon emissions, but this just means a shift in the numbers from territorial to overseas production. To tackle the UK’s carbon emissions, Labour would also prefer to shut down oil and gas production in the North Sea and import it instead. Closing down large energy-intensive plants and oil and gas production in the UK will not make a big impact on global carbon emissions – it could even make it worse.
The further big anomaly in territorial emissions measurement is the Drax power station. Its 12m tonnes of emissions per year are not counted in the UK’s numbers; yet the emissions are in our territory and wood pellet burning is a very questionable approach to tackling climate change.
With a focus on carbon consumption – our carbon footprint – the story changes. A carbon tax on all the goods we buy, if applied at the border, would make a substantial difference when it comes to tackling carbon emissions. There are tentative steps at the EU level (and separately in the UK) to introduce such a tax. While this would take us a lot further forward, it would also result in UK consumers having to pay for the true carbon cost of goods and services, and hence live within our environmental means, as spelt out in my new book Legacy: How to build the sustainable economy. ( https://shorturl.at/fTW57 ) In particular, there could be a really big impact on the cost of electric vehicles, due to the emissions caused by their manufacturing, including the mining and refining of all the minerals and rare earths that go into them.
Closing Grangemouth (and British Steel) is not a “get out of jail” card. Our responsibility to stop causing climate change needs us to take responsibility for our carbon consumption, not our carbon production. -
The political consensus about how the UK will achieve net zero by 2035 is remarkable, centred as it on the assumption that consumer bills must not go up and that instead we will need to borrow from the private sector – from foreigners and future generations. This is built on the further premise that it will all be cheap, and that renewables are a lot cheaper than fossil fuels.
But just because it is a consensus does not mean that it is right. The fundamental reality is that we are living beyond our sustainable means, and if we continue to do so, then we will reap the consequences. As set out in my new book, Legacy: How to Build the Sustainable Economy ( https://shorturl.at/fTW57 ) we need to understand what the sustainable economy actually looks like. It doesn’t mean no economic growth (information technology and genetics will play a big part in that growth), but it will not be achieved by simply thinking that it will come from building more houses and wind turbines. We need to undertake the capital maintenance and look after our existing assets.
The political consensus will not deliver the fundamental transition needed to address climate change. Listen to my podcast to understand the consequences of what will happen if we continue along the current path of selfish living beyond our means… -
It’s time for climate realism. The political rhetoric of low costs and ever-falling energy bills has inevitably collided with the reality of the actual costs of the transition. Renewables might be zero marginal cost, but this ignores not only the fixed and sunk costs, but also the intermittency problem and the need for subsidies and the associated back-up for a long time to come. The supply chain supporting the new electricity and transport technologies stretches to mining and refining in China, South East Asia and Russia. Very little is mined, refined or fabricated in the UK, and these supply chains are far from net zero. The consumer will need to pay the costs to fund all these investments; costs that are now higher due to the higher interest rates.
The narrative needs to be changed. It’s not going to be an almost free lunch. If it is, then we can stop the subsidies right now. But we can’t and we shouldn’t. Net zero realism requires honesty about the actual costs that need to be paid, and the necessity of reducing our carbon consumption and measuring our emissions properly. To really help reduce global emissions, there are three things we in the UK should focus on: offshore wind; carbon capture and storage (CCS); and scientific research to develop decarbonising technologies. Concentrating on these globally significant investments rather than trying to do everything is the best way to make the UK’s contribution. If we are not going to be honest, the risk is that the rise of AfD in Germany and the farmers’ party in the Netherlands, and the Republican march in the US will sink the whole project, with all the terrible consequences that may follow.
For more on this, read my paper: Net Zero Realism - https://dieterhelm.co.uk/natural-capital-environment/net-zero-realism/ -
The Treasury gets accused of not spending enough on school roofs, on health to cut the waiting lists, on local government and social care, on subsidising battery factories and steel plants, and these are corralled together to blame it for the deep structural problems in the British economy. But are these really the Treasury’s fault?
There may be issues with how the Treasury functions – for example, its focus on cash, and on siloed cost–benefit analysis undertaken government department by department. But these are details that could be sorted out. What really matters is that the Treasury faces the unenviable task of holding the fiscal line when faced with huge demands for more and more spending, on almost everything. It is not only the usual suspects above, but net zero, immigration, and bailing out local government as well. Neither political party is suggesting that taxes are going to go up to pay for all this.
Unless and until we understand that we have to pay, and that we have to start living within our economic and environmental means in the sustainable economy, then we need to stop blaming the Treasury for our cake-ism. Ultimately, it is us and our unsustainable economy that are at fault. -
Air traffic control, school buildings, the railways, potholes in the roads, leaking water pipes, local electricity networks failing when the wind blows from the wrong direction. Why does it feel that everything in Britain is broken? The real problem is a lack of capital maintenance. The assets need to be maintained and fixed when they break, paid for from current spending – not from new investment. Avoiding capital maintenance to save money is short-sighted. A functioning society and a functioning economy need the core infrastructures to be kept in a good condition, and the costs of not doing so are asymmetrically high.
Part of the blame lies with the regulators for not forcing utility companies to pay for the maintenance. But we don’t want to pay higher taxes or higher customer bills to restore the currently poorly maintained infrastructures. This problem can be solved, if we can learn to live within our means in the sustainable economy. To do this, we need a full audit of the assets we have and to budget for the long-term costs of maintaining them continually and properly. -
Labour has been busy setting out its plans for the economy, and its pitch to potential voters, of no new income or wealth taxes. Instead, the essential improvements to public services will all be paid for through economic growth. But are the proposed policies to deliver this growth coherent? This prompts two questions: where will the growth come from, and where will the money come from to underpin the investment to deliver that economic growth?
Labour is betting on a couple of things – housebuilding, including building on the green belt; and “green” investment and net zero for the power sector by 2030! Even the Conservatives’ ambition of 2035 is extremely tight.
These policies will be against a very different economic background to that of the past 30 years of very low interest rates. With the current interest rate at 5%, the costs are much higher, presenting a whole new ballpark. Moreover, it is not at all clear where the money is going to come from for all the investment needed. This podcast looks at the reality behind Labour’s proposals -
“Unlocking” and “unleashing” funds is not as straightforward as UK politicians would have us believe. The simple fact is that there are few UK savings to invest. Households don’t save very much; the corporate sector does not retain earnings; and the government borrows increasingly greater sums.
As a result, we are relying on money from investors abroad to invest. Worse, foreigners lend us the money to consume beyond our means as imports exceed exports by a wide margin.
As beggars, we can’t be choosy about who lends to us and on what terms. Investment is a voluntary activity. We can continue to beg the foreigners or turn ourselves into savers. We’ve witnessed the result of financial engineering by, and poor regulation of, a major utility company, with investors being asked to stump up at least £1 billion to salvage Thames Water. These same investors have lots of potential opportunities to invest elsewhere.
The obvious solution, while hugely unpalatable, is for the UK to stop being beggars: to live within our external balance of payments means, to save for retirement and almost all of our investment needs, to retain earnings, and to change the tax incentives on companies. The government would need to change its behaviour too, running surpluses not deficits. This is unpalatable because it will mean lowering the standard of living in the UK and paying higher taxes. We can be choosers only if we choose to save and live within our means. -
The net zero electricity targets in the UK are fast-approaching. On current policies, there is little chance that we get there by 2035, let alone Labour’s 2030. UK energy infrastructure is not designed around intermittent wind, intermittent solar, active demand management, around electric car charging, air conditioning and heat pumps and decentralised home generation. A radical system change is required in both the electricity transmission and distribution systems. This is all going to cost a lot more than our leaders would have us believe.
The supply chains for the transition are not UK-based, so we are reliant on the critical imports for net zero – the minerals, refined products, batteries, solar panels, wind turbines and much else. We run a very large trade deficit, so foreigners will also have to lend us the money to pay for these imports. We don’t even have enough skilled people – when it comes to smart meters, for example, we are still at 50% coverage only, even though the aim had been to install meters in all households by 2019/20. It is going to take twice as long and twice the cost for even this part of the net zero infrastructure to be completed.
How will the required changes be financed? Who will pay the dividends, interest and capital, including the capital maintenance? In a high-interest, high-inflation world, the economics changes significantly. It’s hard to see how all the investment needed will be delivered. Something has to give. Either we have to pay higher taxes, higher energy bills and start switching from consumption to saving, or the net zero targets will inevitably slip back. Time for our leaders to spell out what it would really take to get to net zero. -
The government would have us believe that not only can we get to net zero in electricity by 2035, but that it won’t cost very much. All the green investment needed will be paid for through borrowing, and the returns on that investment will pay back the initial outlay and the interest. The problem with this approach is that it is not us, the polluters, who pay for the damage we have caused to the environment, but rather that debt will be passed on to the next generation. This is the result of the shift from pay-as-you-go, the approach that existed from 1945 to the end of the 1970s, with each generation effectively paying through their utility bills for the investment and capital maintenance of the systems (an “intergenerational contract”), to pay-when-delivered, the approach adopted during the Thatcher government in the 1980s and the great privatisation boom. The understanding was then that newly privatised utilities would borrow and pay back from the returns they made from the future customers. Forty years later, and this appetite for debt has become addictive.
This podcast looks at the risks of this borrowing, with the result that we are living beyond our means, what this means for the next generation, and what we need to do now to mitigate this. -
The science on climate change is pretty clear and not new. The latest IPPC report is pretty dire in its predictions, but our understanding of the science is not new – it has been around since the 19th century.
Alongside this science and increasing understanding, however, is what is happening on the ground – a different universe altogether.
This podcast looks at this reality, and why now is the time to get real about the implications of a world of 1.5ºC+ within our lifetimes, not only in terms of the likely costs, but also what it means in terms changing our behaviour. -
What role can the UK seriously can play in tackling climate change? The “delusion of grandeur” we have been led to believe is that we can do it all. This delusion is falling away – when it comes to green technology, the UK is not the envy of the world in the twenty-first century. The US is positioning itself to play a major role in this, through its Inflation Reduction Act, the Chips Act and the Infrastructure Act. The UK can’t match this scale of initiative. The EU, too, is big, and is likely to allow member governments to play a large role similar to that being carved out in the US.
In this global context, what is the UK’s role in climate change mitigation? Rather than try to do everything, the UK should focus on the three areas that it is good at: offshore wind; carbon capture and storage (CCS); and research. In this podcast, I explain why, and how concentrating on these three comparative advantages will enable us to make a serious contribution to mitigating climate change globally – the only thing that really matters. -
Getting to net zero is necessary but it will not be cheap. Everyone is clamouring for government subsidies: steel, battery factories, offshore wind, farmers, and customers and SMEs hit by high energy prices, as well as new nuclear power, CCS offshore, and hydrogen. The great gas price crisis is already easing, but not the demand for state support. It’s a lobbyists’ dream.
Both main political parties in the UK are in this “subsidy game”. The Labour Party also has Great British Energy and its fast-track “mission” to get to zero emissions in electricity by 2030, requiring a lot of fast-tracked extra subsidies.
It’s not just the UK. The US has its Inflation Reduction Act, Infrastructure Act and the Chips Act – state interventions not seen since Franklin Roosevelt’s New Deal. Europe is playing catch-up, looking to water down its competition policy limits on state aid.
In this subsidy world, what should we do? Listen to this podcast to find out more. -
Keir Starmer, Leader of the Opposition, has come up with his five missions to match Rishi Sunak’s five pledges. But taking a look at two specifically – the highest sustained economic growth in the G7 and zero carbon electricity by 2030 (not just net zero) – are these missions both credible and deliverable?
While there are some positives – in particular a longer-term horizon and a focus on infrastructure – there are serious flaws in both. On economic growth, the performance of the rest of the G7 is obviously out of Starmer’s control, and it is not clear what “sustained” actually means. There is also the awkward question of where all the money is going to come from for all this investment. Given the poor current savings record in the UK, it relies overwhelmingly on foreigners. On zero-carbon electricity, is it seriously possible to effect such a radical reform of the system within six years if Labour wins, and if the next election is in 2024? Planning law, planning law implementation, the supply chains, the networks and all the rest?
The good news is that we now have a serious debate about what needs to be done to achieve an economic revival and tackle climate change. The bad news is that no politician seems to be willing to engage with the fundamental realities: we don’t save and we rely on foreigner investors, preferring to live well beyond our diminished post-BREXIT means. -
What was privatisation really all about? Its advocates thought private sector meant efficiency, versus the failing, inefficient, public sector entities. But now looking at our neighbours in Europe - for example, in water - the evidence does not suggest that we have achieved the promised nirvana. UK utilities are not the envy of the world.
Two more profound features of the past 30 years of privatisation have since emerged. First, the move from pay-as-you-go to pay-when-delivered. Under pay-as-you-go, current customers paid for the investment and the next generation benefited from the new infrastructure. They in turn would pay for the investment for the next generation, and so on. Under pay-when-delivered, future customers would pay for the new investments, and the balance sheets would be the way of raising the finance. But that is not what happened: the balance sheets have instead been used for financial engineering, mortgaging the assets and paying out dividends to shareholders. There is now no more money in the balance sheets to pay for new assets. We are being forced back to pay-as-you-go but with the added millstone of all the debt on the balance sheets as well.
The second, related feature, is that the investment has had to come not from the UK savers, but from foreign investors who now own most of our core utilities and infrastructure networks. We sell them the ‘family silver’ to live beyond our means. But will we be able to afford to pay them back on their investment? Given the current cost of living crisis and state of the UK economy, the returns on investment are looking less secure. -
While each of the current challenges in our core services (NHS, Royal Mail, water, rail, etc) may have has its own explanations, causes and proposed fixes, together they ultimately add up to a systemic problem. Sticking plasters are not going to deliver the decent services a civilised society should expect to have.
It’s not that we don’t know how to fix these problems, but rather we are not prepared to do what is necessary to put them right. As a society, we need to pay for these services and save to pay for the investment required and the ongoing maintenance. We prefer consumption now, selfishly expecting future generations to pay.
What would living within our means really look like? What are the essential components of a sustainable economy? In this podcast, I outline the important ones: the polluter-pays principle; public money for public goods; investment in infrastructure through funding and finance; and proper saving for the future. The reality is proving inescapable, and we need to stop living beyond our means. - Visa fler
