Thursday, 23 November 2017

Budget: Raising a Thin Smile

Yes, you guessed, my smile is at the expense of the greens - and of course the rapacious subsidy-farmers who use sincere greens as human shields.

Hammond has taken the very logical step of curtailing the largesse on offer (via our electricity bills) to new green projects. "In order to protect consumers, the government will not introduce new low carbon electricity levies until the burden of [energy] costs are falling. On the basis of the current forecast, this means there will be no new low carbon electricity levies until 2025."  In doing so, he's taking the greenies at their word that renewables are now the cheapest form of new power generation - which isn't true, of course, notwithstanding some major cost-reductions recently in solar and wind technologies; but with boasting like that in the air, Hammod's ruling is an appropriate piece of policy ju-jitsu.  When you've declared that renewables don't need subsidies anymore, complaints about what he's done are just that little bit more difficult ...
The Renewable Energy Association said it welcomes the move to a subsidy-free future, but the industry needs urgent clarity on how the government is planning to bring new projects forward, especially for less developed technologies like tidal and advanced waste-to-energy. The group also called for clarity around carbon pricing after the government offered little detail on the future of the country's tax on carbon dioxide emissions from the power sector. 
Ah yes, "clarity", and "bringing forward".  We should open a scrapbook on all the different euphemisms these disingenuous gits use for "public subsidy".  We can translate "less developed", too - it means "grotesquely uneconomic".  It is earnestly to be hoped that the answer to their question about plans to "bring forward" the wretched Swansea Tidal Lagoon is - no such plan

To round out the picture, it must be noted that Hammond has disappointingly fallen for the Electric Vehicle nonsense.  This article (from a green-supporting perspective) gives rather more detail on the mish-mash of Budget announcements, if you can navigate some even-more-subtle euphemisms and sophistry (I particularly like the idea of "subsidy-free CfDs", which needs careful unpicking).  It gives a good summary of the EV aspects: 
... this budget provided serious support for electric vehicles - £400m more for EV charging networks, £100m for sales incentives, more tax breaks for corporate uses, and more money for R&D. This is a big deal. EVs have an outsized role to play in the low carbon economy. They are a powerful symbol of the cleaner, more attractive infrastructure we have to build. They are extremely popular with the public and can help generate buzz for the wider decarbonisation project. They deliver multiple emission reduction, air quality, and jobs benefits. And they sit at the heart of the smart grids that will enable power sector decarbonisation. Hammond is to be praised for recognising this opportunity and pursuing it. 
For my money (and it is, after all, our money), Hammond has no business putting that kind of cash behind a "powerful symbol [that] can help generate buzz".  And all those supposed benefits can be strongly disputed.

Still, if he's killed the lagoon ...


Tuesday, 21 November 2017

UK Budgets - dull since 2003

Ever since Gordon Brown was Chancellor, now some 20 years ago (!!) Budgets have become a real tedious non-event.

Successive Chancellors have had seemingly little wiggle room since April 2003 when the introduction of tax credits totally gummed up the system. In 2015 the spending on tax credits reached £30 billion - a budget far more than almost any other Government department. Tax and Benefits (mainly pensions) rose to £125 billion.

Then, since the recession, the national debt has climbed and along with it our debt repayments up to a whopping £46 billion a year now - even with record low interest rates (the true next spend is around £33 billion, because the Bank of England owns a lot of the bonds and the interest the Govt owns therefore really goes to itself!).

These two spending items are what economists like to call structural spending. Whether the Government wants to or not, this spending will come out of the coffers. Many bits are tied to agreed laws and cannot really be altered, in the case of Government debt, we have to pay or else default.

This huge take of money from the budget, something like 6%, has come from nowhere. All the cuts made do not even finance it, hence we still have a 4% budget deficit and a big chunk of that is structural deficit which is why it is so hard to close.

Due to the above, successive Chancellors have been faced with the task of raising taxes to try to increase revenues to close the structural deficit or cut spending in other areas to allow room for these items to grow.

This is why we had the 10p tax budget, the pasty tax fiasco and the IR35 nonsense last year. All Chancellors are hamstrung by needing to further raise taxes, more if they want to reduce corporate tax etc.

Which is why all the spending in the budgets is so piddly, a billion on a road or ten billion over 20 years on a railway etc. There is no capacity for anything; unless your are Labour in which case you can add 10% to the national debt and spend away - but there is no evidence that ever works. If you look at USA and UK since the recession, we did austerity and they did Obama splurge. Both economies have grown about the same, but the US now has a much larger national debt - it was not worth it.

Interestingly Ireland and Iceland actually did full on cuts and real austerity for all and have recovered better overall now with economies in much better shape. As we said at the time, we would suffer long-term for the lack of political will to do the necessary back then.

So tomorrow we will get another spend nothing, gimmicky and fiddly budget - there is no alternative as long as the consensus to payout tax credits and increase the national debt remains in place for our political leaders.  Personally, I don't get why we do tax credits at all, subsidizing the low pay economy is the worst policy we have at the moment, amongst a bad lot - as it only seeks to further accelerate our transformation into a low wage economy.

Monday, 20 November 2017

Irish sense their moment to strike re Brexit

This is a frankly excellent article on the new Irish position re Brexit.

It delivers a few key truth bullets that are very insightful when it comes to understanding where the Irish are and just how much the border issue is going to be the decisive one.

As BQ wrote on the previous post over the weekend, the money situation is quite easy. We pay them vaguely what they want, we owe them £60 billion in payments anyway for the next 5 years, so really the argument is over a few billion here or there on a Government budget of £800 billion per annum. it is a rounding error and in return we get a Free Trade Deal likely worth £50 billion a year plus in benefits.

The EU citizens rights piece appears to have made great progress with the UK caving in a little re the ECJ and the EU retreating from demanding extra-territorial rights for its UK citizens, plus with the end of free movement but allowance for a Common Travel Area, a deal is in sight.

When you read the article, this has made the Irish nervous, they are the last piece of the jigsaw and fear the EU riding-roughshod over them (if only there were a solution to that.....). Their new super Pro-EU PM has also sensed, rightly, that now is the time for a battle. After December and a deal is agreed, the real Brexit tension will be off.

Also, more genuinely, a land border with the EU is a much harder deal to both sell to the Irish (note in the UK the hard border with France even today, versus the no border in the six counties) than anywhere else. The Good Friday Agreement is not just a stick to beat the English with, there are some substantive points that the UK has not really addressed. As such the Irish have gone in strong and demanded Northern Ireland effectively stay in the Single Market and Customs Union.

Although aggressive, this is the neatest bureaucratic solution, politically it is very tough to sell to the DUP who are the co-partners in the UK Government. British Ministers seem reticent to engage, from the Republics view, likely because they see the three issues as one and are doing horse-trading scenarios with the EU. The Republic is understandably not very keen on this, but equally has peeved EU negotiators by upping the ante when things are already fraught.

One thing unacknowledged by the article though is how credible the threat is, after all, if the Irish veto a deal, the default no-deal results in a much worse outcome for the Republic than any other Brexit situation. The danger with brinskmanship for both sides is that one might actually cause the breakdown that both fear so much.

Saturday, 18 November 2017

How much is worth paying

Image result for divorce

So, how much should we pay?
What is the price of the Danegeld ?

Theresa May is edging towards her final figure of £30bn over 5 years. £6bn a year until exit and, some £1-2bn for whatever deal the Uk has ongoing.
Mr Barnier is edging towards £50b. £10bn a year for 5 years

Does either really matter? The cost of bailing out the UK banks in 2008 was £850bn.
HS2 is currently set for £56bn. And will cost much more than that by the time its done.
Just putting in smart motorway signs at J3 of the M4 cost £1 billion.

Its small beer. Really, it is. 

Like an unhinged spouse whatever we pay in the end will be worth it just to be rid of them.

So although the EU is deliberately trying to make the UK  appear weak and defeated. That it is encouraging, even ordering, its Irish member to kick off inconveniently and blaming the UK for the EU's failings to move talks along like grown ups.
Whatever we pay is worth it isn't it?

Because the alternative is to go down the same irrational, destructive, bitter route that the EU wants to pursue. Today they are threatening to withhold our £5bn rebate. 
We could match, like for like. And then go Bunny Boiler loco as well.

Threaten to -

- Cease all EU payments immediately
- Lower corporation tax to 2%
- Reduce VAT to 10% 
- Consider our position in Nato
- Say that the divorce bill is a nonsense and our payments are zero
- Take EU citizens rights off the table. Say this will be the very last, not the first item on any agenda.
- Explain that the Irish border will be a yellow line on the road. If the EU want anything more, they can build it all, and impose it all, on their side.
- Refuse to attend any Brexit meetings until the Irish question is settled to our satisfaction.
- Explain we are heading for WTO. And will do nothing except possibly examine any proposals the EU has for something different. But every day will be a day towards WTO and our own economic survival.
And so on.

 £50 bn to avoid all the grief?
Worth it?

Or, how much would you be prepared to pay them to escape?