Plans to "solve the energy crisis"

The EU and, we are assured, newly-minted PM Liz Truss, are hatching plans to cater for - I can't immediately think of a better phrase - the energy crisis this winter and maybe beyond.  Well, they certainly have to do something: "Devil take the hindmost" doesn't count as public policy (even if a handful of commenters seem to favour the bracing Nietzschean approach). 

Whatever these plans turn out to be in detail, by definition they will be epic in scope and scale.  In such extreme and complex circumstances, with so many moving parts, I don't trust any bureaucrat to do anything adroit; so we may be equally sure the "unintended consequences" will be monstrous.  We could all guess at a few.  Greta thinks she can guess, too - and she's not happy.

I particularly don't trust the EU in general, and Germany in particular, to do anything half-way intelligent by way of intervening in markets that are international (electricity, carbon) if not global (oil, gas, coal).    As opined here many times before, there is a profound shortfall in German understanding of how markets actually work, which is inevitably and amply reflected in Brussels.  

Come to that, the much-hyped G7 plan for a "cap on oil prices" also sounds cracked.

And do we trust Truss, to invoke a recent coinage?   

But of course we await details on all of this high-minded blundering; so perhaps we should calmly wait and watch, with equanimity and an open mind ...   

ND

German economy harmed by ... pensioners?

So the story is:  the Greek tourism industry is suggesting German pensioners winter in Greece, to save on fuel bills (and indeed bills for food and almost everything else).  Fair enough - it has more logic than the blarney the Irish tourist board feeds to Americans ("we know you all like to think you have Irish roots, so you all need to come 'home' at least twice a year wearing a clip-on ginger beard and a silly green hat" etc etc, cue twiddledy-dee music).  And of course the association of German travel agents agrees, and suggests a government subsidy for the travel. 

But ... 

Opposition politicians have said the idea has to be treated with caution, not least because it could have a negative effect on Germany’s economy.

Wow.  If that's what they think is going to harm the German economy, they have a very big surprise coming.  

Is any politician, anywhere in the West, levelling with voters on how bad it's going to be?  Don't they need to, in order to get the public best-positioned for whatever can be done by individuals, or inevitably will have to be done by government?  Or is everyone relying on the local equivalent of Martin Lewis, in the hope he's best placed to break the bad news?

ND

Sunak's Package: Lots Bad - Anything Good? Updated

We may not have received full details yet, but here are a couple of immediate thoughts - to the negative.

• Crass bad politics in the presentation of it:  why spend a week saying, oooh, all our instincts are against a windfall tax, that's no way to behave, that's a nasty leftie idea - and then say, oh, alright then, if you insist; how about £5 billion?   But we don't enjoy doing it, mind.  When you give something away, do it with good grace and get the full credit.
• Oil & gas production isn't the only energy windfall sector:  but I haven't read anything about hitting the other really big windfall-winners, namely nukes, and windfarms / solar / biomass etc that are subsidised via ROCs rather than CfDs - which is the majority.  These guys - with costs that don't go up but sales prices that really do, and subsidy payments that carry on regardless (apart form the nukes) - have been making out like gangsters.  And why did they need subsidies in the first place?  Why, to make investing in renewables 'low risk'.  OK, so no windfall rewards, then ... surely?  Nobody, ever, should be getting windfalls on the back of public subsidy.

Anyone spot anything to get enthusiastic about?

Incidentally, it's still not clear to me Johnson is remotely seized with the horror that is to come next winter.  This was an opportunity for making some serious preparations.  If you're going to give large cash sums by way of rebates, now is the exact time to start priming the populace for what may be coming next.  Johnson's sole strategy is Micawber, but there ain't anything good gonna turn up before the next GE that I can see.  So he's destined to be permanently on the back foot: one of the worst things I can say about a politician, particularly one who's in power.

Open thread - go for it!  

ND 

UPDATE:  Channel 4 reckons he's coming back again shortly for another £3bn from "electricity companies".  I trust this gets to the second point above.  Presumably it all points to the plan being rushed out to cover for the Gray report.  What a bloody shambles.

Has Simon Jenkins completely lost it?

I always wonder about Simon Jenkins.  He writes crisply, with an air of massive authority, and the Graun gives him absolutely free rein.  Sometimes I like his stuff; other times he goes pompous soft-left and it's annoying.

Anyhow, today he's gone 100% populist pig-ignorant. 

Forget a gimmicky windfall tax. Energy companies should be forced to slash bills instead ... The answer must be to slash the price cap and demand the companies spend their profits directly on cutting bills. The wimps of Ofgem, the industry regulator, must become tigers. They know that these companies – and their executives – are now wealthy. They know investment is not at issue: they are distributing massive profits and buying back shares. Unless the west goes collectively mad, energy supplies, and profits with them, will return to normal. For now, the priority is simply to bring the price of energy down, and at the government’s command. Yes, all consumers, rich and poor, would benefit; but it would not cost the exchequer a penny, and it would instantly relieve the cost of living at source.

Well, that's embarrassing.  It would seem he thinks it's energy suppliers who are making the windfalls: seeing that it is only they who are subject to the cap and regulated by Ofgem.  Has he somehow not noticed that suppliers have been dropping like flies?

Making his excuses for him; perhaps he has primary producers in mind?  Nothing to do with Ofgem or the retail cap, mind; but OK, well invent a new cap on their prices and for one thing you can say goodbye to all our imports, at the very least.  That's 60% + of our gas.    

I do look forward to his scheme for capping the astonishing profits of renewable generators still on the ROCs subsidy, though ...  Seriously: if people like Jenkins understand as little as he does, both on the principles and the details, some very strange populist cries are likely to be gaining traction, with the scope for some particularly crass political decisions being made.

What a plonker.

ND 

 

Axing those 91,000 Civil Servants

We learn that Johnson has packed off all his ministers to come up with bright ideas for saving a bob or two, thereby to forestall the the current and fast-growing economic crisis.  I'm sure we've all suffered fatuous "initiatives" like this at work, and had cause to marvel at the inanity of it all.  If your Chancellor doesn't have advisers of the calibre of a Keynes to come up with the broad macro-strokes that will be required, there's just no point.   We gather this particular "idea" is attributable to the execrable Rees-Mogg.  If BJ imagines saving a couple of billions by axing 91,000 civil servants will contribute anything meaningful, he's as stupid as anyone ever imagined.

(a) None of us want a bloated civil service, nor a bunch of workshy WFHers on the payroll; but unless by some miracle he can identify exactly those 91,000 people who are collectively & personally responsible (haha) for the global crisis we now face it will have purely disruptive consequences - and broad-spectrum ones at that - at exactly the time he's enough on his plate;

(b) I'm no expert on how public finance accounting works, but I don't see how it will save money for a good few years; 

(c) If he wants a diversionary tactic against voters noticing his own crass behaviour and manifest unfitness for office, there are many better ones, at infinitely less cost, to be had.  The only diverting that will happen will be of governmental time and energies.

As we know from covid, when the shit really hits the fan, the government cheerfully moves the whole nation onto the public payroll anyway.  The shit that's almost certainly going to happen between now and the next election makes this an entirely spurious 'policy'.

Discuss!

ND

The most politically astute tax cut for Budget 2014: Employers NI

With an election coming up and a budget to plan for in a few weeks time, the Government is scratching around for candy to offer the masses in a desperate, if doomed, attempt to prevent a Labour Government coming to power next year.

Whilst the Liberal Democrats are all too keen on raising the tax free threshold to £12,500, there is precious little the Government can do in terms of the basic or higher rates of income tax. Changing these thresholds costs billions, as does raising the tax free threshold. Far more than any offset that will come through higher growth.

Plus tax cuts like these fail on some of the basics, they don't really encourage new jobs or investment. Whilst being a success for the very low paid - few of whom vote for either Tories or the Lib Dems if we are being honest - the benefits are very limited for those on average incomes. Worse, on higher incomes, all sorts of manoeuvres such as withdrawal of child tax benefit, removal of the free allowance at £100,000 anyway, conspire to push the tax ceiling to nearer 50% in any event.

The small return of cash to people is always welcome, however it is limited in its impact to help the 'cost of living crisis' as the vast sums returned are spread over so many millions that it ends up being a few pounds a week here or there. How this will turn into an election winning formula is unclear.

However, there is a saviour at hand in the form of removing another stealth tax. All employers pay this and it is a bewilderingly complicated formula to work out who should pay what. A classic example of the mess that our tax system has become with constant fiddling.

Nonetheless, companies pay around 12% on each employee they employ and this is a direct tax on employment. Not only that, it is a direct tax on salaries as companies staff costs are by default higher and they have a negative incentive to pay people more, as it has a double cost for them to give pay rise.

Cutting this rate by 2% would reduce companies costs of employment and potentially increase growth in the job market. Furthermore, with the right kind of 'nudge' messaging to the business community which is firmly behind the Government, it can also be used as a way to begin the process of increasing pay in a more sustainable way than has happened over the past couple of years. Companies would not be expected to pass on all of the saving, but sharing the benefit with employees would be a win-win compromise.

It's the only pro-growth cut that can please business and all employees at the same time.

Austerity, again and again

An interesting piece of politics from the Chancellor today. Of course, as in any business, the finance director should always be the naysayer and the one with the most negative view of the future. This leaves others in the business, or in this case the Government, to think more optimistic things and yet have their view tempered by reality.

Today though George Osborne's target is Ed Milliband and also the British public. From the recent run of good economic data people could be forgiven for thinking always sorted. However, as the Chancellor is keen to point out, we are not even half way there to clearing the deficit - never mind trying to actually lower the national debt!

The Labour reply is non-sensical, something about economic failure which does not wash with the current facts and waffle about sorting out the cost of living crisis, with funds from the magic money tree.

The Tories though also face a quandary the largest spending departments of the Government are social security and health care. Both of these could provide the £25 billion we need to cut, yet neither can be touched. Some areas are already creaking, lawyers are on strike today as legal aid has been slashed - rightly for some, but for others justice will be harder to come by now with no funds. The Tories too have ruled out further tax hikes, sensible given the already huge tax burden placed on Country.

So its an interesting positioning and good politics to remind the people of the UK of the difficult situation being faced at a macro-economic level and also the lack of choice that there really is about future budgets.