Brexit and the waning days of the United Kingdom

[Tamas]

This is never going to happen but still shows the state of things that the so-called government confirms it as a thing they are considering:

GPs could write prescriptions for money off energy bills for the most vulnerable under a plan drawn up by the Treasury, as Liz Truss's team signalled more help with costs now forecast to top £6,000 next year.

The unusual proposal would mean people could consult their doctor for an assessment on whether they are struggling enough to require help with their bills.


A senior government source said the GP plan was "something that we are
interested in looking at" although a "long way off completion".

The idea first reported in the Sun on Sunday was dismissed by the shadow health secretary, Wes Streeting, saying the Conservatives "have lost the plot on the cost of living crisis and haven't got a clue about the level of pressure on the NHS". It would probably be resisted by overstretched doctors.

[Josquius]

It's a win win. Looks like they care about the poor and the cost of energy, and helps to bankrupt the nhs.

[Sheilbh]

Strong Thick of It vibes.


I think it's pretty striking that there's no hint from either campaign of what they'll do - though both have said one version or other of "whatever it takes" - I suspect because they've no idea. I suspect it's going to end up being either Lib Dem style energy furlouogh payments (arguably better because of the price signals?) or Labour style freezing the energy cap and potentially (temporarily?) nationalising energy companies.

I'm not sure there's another option. While I get the desire to focus payments to where they matter the reality is price rises this big will affect everyone and I think there's a strong case for things being universal. Also I think we're only just starting to see the impact on businesses too. There's so many stories in local media about small businesses shutting down because they just can't afford energy bills right now - I'm not sure what to do about them.

[Richard Hakluyt]

An impressively stupid idea 

I assume its just some brainstorming from some Treasury meeting or another; but you never can tell these days.

[Tamas]

I think it's pretty striking that there's no hint from either campaign of what they'll do - though both have said one version or other of "whatever it takes" - I suspect because they've no idea. I suspect it's going to end up being either Lib Dem style energy furlouogh payments (arguably better because of the price signals?) or Labour style freezing the energy cap and potentially (temporarily?) nationalising energy companies.

I'm not sure there's another option. While I get the desire to focus payments to where they matter the reality is price rises this big will affect everyone and I think there's a strong case for things being universal. Also I think we're only just starting to see the impact on businesses too. There's so many stories in local media about small businesses shutting down because they just can't afford energy bills right now - I'm not sure what to do about them.

With the energy price inflation, strikes (in general employees seemingly being in a very good bargaining position despite inflation, relative to past decades at least), what I am worried about is that inflation will spiral out of control and nothing will be done about it.

I know I keep going on about this but I find it ludicrous that the Bank of England themselves admit its going to be around 13% inflation this year then around 10% next year, and they seemingly will stick to thes regular 0.25-0.50 rate hikes with no thought given of a shock therapy to make sure the spiral doesn't, well, spiral out of control.

They are talking about real incomes falling almost 25% in a space of two years. And not just income, but people's savings not kept in assets the Bank of England is trying to preserve the value of with these meagre hikes.

I just don't see how things will not become MUCH worse before (if ever) they become better, and what the general inaction (from BoE as well as the "government") is telling me is that the poor (whose ranks may soon be swelled by many of the currently lower middle class) is being written off as collateral damage to ensuring the boat of economic status quo is not rocked.

[Sheilbh]

With the energy price inflation, strikes (in general employees seemingly being in a very good bargaining position despite inflation, relative to past decades at least), what I am worried about is that inflation will spiral out of control and nothing will be done about it.

I know I keep going on about this but I find it ludicrous that the Bank of England themselves admit its going to be around 13% inflation this year then around 10% next year, and they seemingly will stick to thes regular 0.25-0.50 rate hikes with no thought given of a shock therapy to make sure the spiral doesn't, well, spiral out of control.

There's signs of inflation in the UK which you can see in the increase in service inflation. But the vast majority of inflation we're affected by (less than the EU, more than the US) is goods which is far more exposed to global factors. The BofE's calculation is that over half of inflation in the UK right now is caused by energy prices, about a third is caused by other goods and the rest by services. I'm not sure how shock therapy stops a war in Ukraine or shifts China's zero covid policies.

These are global factors that are affecting every major economy and the key is basically how exposed are you to the European market for gas and global markets.

They are talking about real incomes falling almost 25% in a space of two years. And not just income, but people's savings not kept in assets the Bank of England is trying to preserve the value of with these meagre hikes.

To be clear 80% of the assets people have in the UK are in property and pension funds. Some of the tax advantages have been eroded (especially on property) but those are the two most tax advantageous ways of saving, they're the most widespread - property is most significant for lower income deciles because most people's big asset which they use to fund their retirement is their home. That's different than Germany and maybe other European countries but it's a myth that Brits don't sav - they just save in a different way (and one that I suspect is structured by tax advantages which is through your home and your pension fund).

Of course shock therapy also means an even more severe recession, higher unemployment and re-possession of people's homes on a higher scale. I don't think it's an easy or better option. I'm also not sure that it would work. I think it can make sense in the 70s-90s when the source of inflation was domestic policies. I don't see how shock therapy would help address energy costs plus goods inflation with supply chain shocks. I don't think it'd cut inflation but you'd have that as well as a deeper recession, more unemployment, more repossessions etc.

If anything I think there's actually an argument for keeping rates low - I think the ECB might be taking the right approach. For example lower interest rates would support capital investment that is necessary as a matter of urgency to re-orient energy networks away from Russia and reduce the impact of that cost and also to build up supply chain resilience. And it also supports the domestic economy and individuals who've got debt - high interest rates are more likely to benefit people who can speculate or have other routes of investment than their home and their pension fund. Although I'm not sure there's a route that doesn't benefit the people at the very top (:Marx:)

I just don't see how things will not become MUCH worse before (if ever) they become better, and what the general inaction (from BoE as well as the "government") is telling me is that the poor (whose ranks may soon be swelled by many of the currently lower middle class) is being written off as collateral damage to ensuring the boat of economic status quo is not rocked.

I don't think there's any route out of this that doesn't involve things getting much worse before getting better.

It will disproportionately hit the poor and people on low incomes because they spend more of their income on and more exposed to energy and goods prices. I think the question isn't whether we can stop this being bad, and rather how do we allocate the pain between individuals, businesses and government and how do we protect the most vulnerable.

[Tamas]

I would like to compare your "it's not our fault so inertia is best" post just above, to your complaints about the UK being too complacent and not doing anything about anything. :p

[Sheilbh]

I would like to compare your "it's not our fault so inertia is best" post just above, to your complaints about the UK being too complacent and not doing anything about anything. :p

I think it's really difficult for policy makers especially central bankers and especially in Europe. In large part because we've pissed away a decade of low interest rates on austerity not investment in infrastructure, while also aspiring to net zero.

But I'm not saying do nothing - I think the solution is massive investment in energy transition. My preference in the short term, I think, is the Lib Dem energy furlough because of the point Zanza's made elsewhere of the price signals being important. But I'd also look at state-sponsored program of insulating homes, heat pumps, domestic renewable, district heating etc which will help with people's bills in the long-run and reduce the need for support over time.

I'd be investigating if we can extend the life of nuclear plants (we're shutting them down at the minute, but ours are younger than Finlands which are still operating we just have slightly tighter rules on that), as well as whether we can re-open gas storage and whether there's any projects around LNG that could be speeded up. And I'd follow the EU in looking at liberalising the rules for constructing renewables.

I think that is a sort of approach (which isn't going to happen) that would actually address the underlying big cause of inflation, which is energy, in a way that central bank rates don't.

I think on goods I'm less sure there's much the state should do but I think we should encourage businesses re-orienting their supply chain away from China (especially in the clean energy sector so we don't jump from Russian gas to Chinese renewable manufacturing dependency) for political reasons but also because of covid zero I'm just not sure they're a reliable supplier anymore.

Edit: Basically my position is the same as it's been for the last 12 years We need more investment and we need more state action from fiscal policy and less reliance on central banks as the solution to and cause of all the economy's problems

Edit: But I'm a little pessimistic/worried about this more generally - I think there's a lot to Helen Thompson's argument here which has big implications for the UK and everyone else in the world

A winter energy reckoning looms for the west
World economic growth still requires fossil fuel production but long-term climate ambitions must stay in place
HELEN THOMPSONAdd to myFT
Helen Thompson AUGUST 19 2022
The writer is professor of political economy at the University of Cambridge and author of 'Disorder: Hard Times in the 21st Century'

Across the world, politicians are ever more desperately looking to contain the explosive consequences of the energy crisis. In those parts of Asia, the Middle East and Africa already mired in multiple economic and political difficulties, the crisis is proving catastrophic.

Those who import liquid natural gas must now compete with European latecomers to the LNG market seeking an alternative to pipelined Russian gas. In early summer, Pakistan was unable to complete a single LNG tender. In poor countries, a large proportion of the state's resources go on subsidising energy consumption. At prevailing prices, some cannot: earlier this month, the Sri Lankan Electricity Board imposed a 264 per cent increase on the country's poorest energy users.

In Europe, governments want to alleviate the dire pressures on households as well as energy-intensive and small businesses, while letting spiralling prices, pleas to consume less and fear about the coming winter drive down demand. Fiscally, this means state funding to reduce rising energy bills by subsidising distributors, as in France, or transferring money to citizens to pay those bills, as in the UK.

What is not available anywhere is a quick means for increasing the physical supply of energy. This crisis is not an inadvertent consequence of the pandemic or Russia's brutal war against Ukraine. It has much deeper roots in two structural problems.

First, unpalatable as this reality is for climate and ecological reasons, world economic growth still requires fossil fuel production. Without more investment and exploration, there is unlikely to be sufficient supply in the medium term to meet likely demand. The present gas crisis has its origins in the Chinese-driven surge in gas consumption during 2021. Demand grew so rapidly that it was only available for European and Asian purchase at very high prices. Meanwhile, respite from rising oil prices this year has only materialised when the economic data from China is unpropitious. In the International Energy Agency's judgment, it is quite possible that global oil production will be inadequate to meet demand as soon as next year.

For much of the 2010s, the world economy got by on the shale oil boom. Without US production more than doubling between 2010 and 2019, the world would have been trapped in a permanent oil crisis since 2005, when conventional crude oil production — oil drilled without hydraulic fracturing or from tar sands — stagnated.

But American shale cannot expand at the same rate again. Although the largest US shale oil formation — the Permian Basin in western Texas and south-eastern New Mexico — is projected to reach record output next month, overall US output is still more than 1mn barrels per day below what it was in 2019. Even in the Permian, daily production per well is declining.

More offshore drilling, of the kind opened up in the Gulf of Mexico and Alaska by the Inflation Reduction Act, will require higher prices, or investors willing to pour in capital regardless of the prospects for profit. The best geological prospects for a game changer akin to what happened in the 2010s lie with the huge Bazhenov shale oil formation in Siberia. But western sanctions mean that the prospect of western oil majors helping Russia technologically is a geopolitical dead end.

Second, little can be done that would immediately accelerate the transition from fossil fuels. Britain's planned micro nuclear reactors will not be completed until the 2030s. Running electricity grids on solar and wind base loads will require technological breakthroughs on storage. It is impossible to plan with any confidence what progress will have materialised in 10 years, let alone next year. But precisely because an energy transition is essential to reduce fossil fuel consumption, large-scale, blue-sky investment is imperative.

The only way forward is realism for the short term, recognising that there is no way back to cheap energy, allied to radical, long-term ambition. A grasp of geopolitical realities is also essential. The US remains by some distance the world's dominant power. Its naval power guarantees open waters for international trade. World credit markets depend on dollars. But Washington does not have the power to direct China and India's energy relations with Russia.

This coming winter will bring a reckoning. Western governments must either invite economic misery on a scale that would test the fabric of democratic politics in any country, or face the fact that energy supply constrains the means by which Ukraine can be defended.

[Sheilbh]

Also on UK not doing enough and being complacent I'm thrilled to see a close ally of Truss (who's in the Treasury) apparently doesn't want Johnson and Zahawi to sign off on new nuclear because the "quantum is sufficient to materially affect spending and fiscal choices for an incoming government, especially in the context of wider pressures on the public finances." It's £6 billion which is not nothing, but not enormous.

And again we're in the position where we want to get to net zero, we don't want the lights to go off but there can't be any new large-scale solar or onshore wind for reasons, we won't build the new inter-connector to France and nuclear is too expensive. It may be that that all adds up and we can do everything we want to without blackouts on the back of off-shore wind alone - but it seems like a very narrow path that basically requires literally nothing to go wrong at any point for the next few decades pls

Edit: Just thinking about the inertia point as well -  I think path dependence really matters. We may wish our economy were structured otherwise but the reality is, as I say, that about 80% of wealth in this country is stored in property (60% of which are owner-occupied) or pension funds. I think that means for very obvious reasons policy makers and institutions are going to prioritise those assets - to shift that you need to shift how most people hold wealth. There have been a lot of tax changes that make buy-to-let far less attractive, which I think is probably a good idea.

But beyond that I'm not sure that people's wealth mainly being in owning physical property and having investments in pension funds is necessarily a bad thing. Probably worth noting that one of the few things British politics has arguably got right has been pensions reform - under New Labour but with Tory backing and not much meddling afterwards (though I worry about its effects on the economy given an ageing population). The UK is generally assessed as having one of the more sustainable pension systems in Europe/the developed world in part because pension fund investment is so heavily favoured from a tax perspective in a way that other assets aren't.

[Josquius]

Do any democracies actually do well with planning for the future?
It's one of the key advantages of dictatorships really. They don't have to stress about the next election cycle.
The tories of course take this short termism to extremes

[Sheilbh]

That's always been a complaint/fear about democracy up there with the fears of unconstrained democratic rule and the mob or voters who don't know what's really good for them being bought off. It's all there from the very beginning.

I don't actually think there's much to it. I tend to think plans for the long-term are basically pointless because things change a lot if not here then in other parts of the world that affect us all, with technology, economic shifts etc. The strength of democracy is it's ability to change - what lasts isn't necessarily because of a long-term plan but because it works and attracts sustained political support.

My thought is less that democracies aren't great at long-term planning but that at the moment they're not very good at acting because they have often given up responsibility. Decisions have been moved from democratically accountable politicians to technocrats, successful ideologies have tried to entrench their position in constitutional documents or over-riding law as in the EU. In many ways we are where we are because reality has intervened through a Russian war, a pandemic and an insular turn by China (and the US?) and we're having to adjust from a long-term plan of how globalisation was meant to work through ever increasing inter-dependence. In my view the problem isn't that democracies don't plan for the long term but that democratic decision-making has been hollowed out in the west over the last 40 years.

[Sheilbh]

Article on polling about Scottish, Welsh and Northern Irish attitudes to independence/unification for Sunak and Truss - they've made a big story out of a 2% difference but basically it's all the same as it is now.

Striking thing and one for Tamas and garbon on the UK possibly dying of neglect were these English numbers (interestingly the wider survey had about 25% backing English independence - which is about the same level as Wales):

A survey of English voters by YouGov found mixed feelings about nationalism elsewhere in the United Kingdom. By a margin of two to one they do not think there should be another independence referendum in Scotland but 40 per cent think there will be one. They also agree with the SNP and with Scottish voters that the decision on whether to hold a vote should be Scotland's.

English voters think it more likely than not that the Scots would vote for independence, with more thinking this would happen under Truss (28 per cent) than under Sunak (26 per cent) or Starmer (22 per cent)

While only one in seven English voters would be pleased if the Scots left the UK, a total of 42 per cent would either be pleased or would not care.

A majority, 55 per cent, are untroubled by the prospect of a united Ireland, though the number who would be upset (35 per cent) is nearly double the number (18 per cent) who would be pleased.

[Sheilbh]

Looks like sanctions and self-sanctioning have broadly had the effect we wanted:

Britain imports no energy from Russia for first time on record
ONS data shows UK government had achieved aim of phasing out Russian oil imports by end of 2022 by June
Larry Elliott Economics editor
Wed 24 Aug 2022 12.35 BST
Last modified on Wed 24 Aug 2022 12.56 BST

Britain is importing no energy from Russia for the first time on record after trade between the two countries collapsed after the Kremlin ordered invasion of Ukraine in February.

Figures from the Office for National Statistics (ONS) released six months after the start of the war found that in June the UK's imports from Russia were down by 97% and stood at only £33m as sanctions took effect.

The ONS data shows that by June the UK government had already achieved its objective of phasing out Russian oil imports by the end of 2022 and ending imports of liquefied natural gas as soon as possible after that.

In the 12 months leading up to the war, the UK imported an average of £499m of fuel from Russia but this figure has dropped to zero, the first time this has happened since modern records began in 1997. The ONS said the UK had been compensating by increasing imports of refined oil from Saudi Arabia, Kuwait, the Netherlands and Belgium.

Imports of other Russian goods – including vodka – have also been wiped out in the aftermath of the invasion of Ukraine. Bans were announced on a range of Russian products including iron and steel, silver, gold, wood products and high-end goods, and high additional tariffs on other items.

Exports from the UK to Russia also fell sharply but to a lesser extent than imports because some goods – such as pharmaceutical products – were exempt from the sanctions regime imposed after the invasion on 24 February.

The ONS said exports stood at £83m in June – a drop of 67% compared with the 12-month average of £251m a month in the year leading up to the war.

Exports of most commodities to Russia decreased substantially between February and June, with machinery and transport equipment decreasing by £118m (91.3%).

Chemicals were the only commodity exported to Russia that increased over this period, driven by an increase of £39.1m (61.8%) in exports of medicinal and pharmaceutical products

"The economic sanctions applied by the UK government are likely to have driven the decreases in imports from and exports to Russia; however self-sanctioning, whereby traders voluntarily seek alternatives to Russian goods, is also likely a factor," the ONS said.

And I think this is the right message from Johnson (on a surprise and probably valedictory visit to Kyiv today) - also Labour comments are positive:

Comparing the costs of Russia's war, he said: "If we're paying in our energy bills for the evils of Vladimir Putin, the people of Ukraine are paying in their blood."

[...]

Speaking from Kyiv, Johnson said: "What happens in Ukraine matters to us all, which is why I am here today to deliver the message that the United Kingdom is with you and will be with you for the days and months ahead, and you can and will win."

[...]

Labour also released messages of support for Ukraine on its independence day. David Lammy, the shadow foreign secretary, said his party "stands in full solidarity with the Ukrainian people in their righteous struggle for democracy over dictatorship". He called on the UK government and new prime minister to have a "laser-like focus on maintaining public support for the Ukrainian people, both in Britain and across the international community.

"At home, we need to freeze energy bills, insulate homes, and invest in green energy to limit the domestic impact of the conflict, which is exacerbating the cost of living emergency created by 12 years of failed Conservative energy policy," Lammy said.

"Internationally, Britain needs to secure new diplomatic channels to work with our European partners to wean ourselves off Russia's gas and to exert maximum pressure on Putin."

[Tamas]

[Josquius]

They're pushing the imperial idiocy. Some majorly loaded questions here. I let them know what I think anyway.

https://beisgovuk.citizenspace.com/opss/measurements/