Brexit and the waning days of the United Kingdom

[Sheilbh]

Natural gas is how Britain's cut our emissions so much in the last twenty years - we basically shut down coal and moved to gas.

Which is fine. But we have also cut our storage capacity (as in literally locations to store gas) to some of the lowest in Europe - while becoming one of the most gas dependent countries in Europe. And also stopped domestic exploration (which wasn't likely to produce much anyway). I think all of these are maybe defensible on their own but taken together mean we are very exposed.

[Richard Hakluyt]

Giant batteries are being built, was reading about one in Lanarkshire a couple of days back https://www.bbc.co.uk/news/articles/c5yd18q248jo

Like so much British journalism it was alarmingly short on facts and figures. It is a 1GW facilty, which sounds a lot, but is only 30 minutes of UK supply. According to these guys the cost is £800m https://www.scottishconstructionnow.com/articles/ps800m-deal-to-build-europes-largest-battery-storage-projects-in-scotland . That will be useful for balancing in variable windspeed conditions but is essentially useless if the wind drops for a period of days.

[mongers]

I dpn't disagree with his point, though I think some of it is timing, with the 1st generation of nuke plants being on line and the building of AGC nuke plants maturing and so forth there would be a natural lull in the pace of power plant construction. Plus the economic turmoil of 73-74 and later difficulties might have challenged continued long term planning during the decade.

However I do disagree with your second assertion, how is the thatcherite selling off of national infrastructure, British Gas in 1986 and the others, not an implicit ending of long term planning and national energy policy?

Edgerton's point is wider than energy I should say. His book - The Rise and Fall of the British Nation: A Twentieth Century History - is really good on British economic history. It's very revisionist in all sorts of ways but basically (I think very effectively) demolishing the "declinism" narrative that was so important for Thatcherism - and lots of mini-myths within that.

I think I wasn't clear on Thatcher (or Kohl or Mitterrand). It wasn't a comment on their specific policies but that I think they understood that there was a material side to issues like security or energy and I don't think generally they were as careless/insouciant/taking things for granted as we have.
 
.. snip...

Thanks Shelf, that sound like a very interesting book.

On the wider subject of energy security, I think getting rid of all oil power stations, is rather short sighted, it wouldn't have cost much to mothball two or three, but iirc the last one, at a NE port (?) has now been demolished, certainly the usefully located Fawley station on Southampton water has now gone.

Then is all hell broke loose we'd be able to import a few tankers worth a month to give electricity a boost.   

[Tamas]

You guys are depressing. And I am losing hope in this government now. They seem to be looking at themselves as caretakers put there to preserve the status quo, no doubt influenced that way by the myriad of forces interested in doing just that.

[Crazy_Ivan80]

There's a German word for these types of days but we've had a lot this winter where it's short days or very cloudy so very little solar,

Dunkelflaute, iirc

[mongers]

You guys are depressing. And I am losing hope in this government now. They seem to be looking at themselves as caretakers put there to preserve the status quo, no doubt influenced that way by the myriad of forces interested in doing just that.

Look on the bright side, we still have some lovely modernist architecture to remember:


Fawley power station control/admin building.


Fawley power station control room interior.

[Sheilbh]

Giant batteries are being built, was reading about one in Lanarkshire a couple of days back https://www.bbc.co.uk/news/articles/c5yd18q248jo

Yeah. Storage is the solution on renewables but it isn't there yet at scale that we'd need for purely renewables. That's aside from the extra grid capacity we need to build for all that electricity.

In part I think it's a wider problem of Net Zero politics. Adam Tooze made the point recently that basically in the West we still have the climate politics of the 90s and early 2000s. We see it in West-centric terms as a fight between good progressives and bad guy, "activists v carbon criminals" focused on "exposing climate denial, climate skepticisim and Exxon's misdeeds".

The top 20 largest corporate polluters (and it does still include Exxon) are largely state-owned enterprises in emerging markets: China Coal, Saudi Aramco, Gazprom etc. Those companies have been key to driving global growth and lifting hundreds of millions out of poverty in China. It's what I mean when I point out that Europe and the US emit less than China - it's not a counsel to inaction but a really important historic moment. For the first time in centuries, Europe and America aren't the main agents or subjects of history - the world we live in will be determined by policy-makers in Beijing and Delhi. I think that's a profound moment of change.

But I think it's also there in domestic politics of climate. I think we're still behaving as if it's a fight between progressives v bad guys. What we need is more commitments, more stretching targets. I think it's wrong - our legal commitment to reaching Net Zero was supported by all parties at the fag end of Theresa May's government. Then Boris Johnson came in and made them more ambitious because if there was one thing he wanted to position himself as more ambitious than May. The SNP did similar, Labour are doing similar. They're all behaving as if it's a matter of "climate denial, climate skepticism" - and it's just a matter of making bolder commitments. When what is needed is the really, really detailed work on how to do it (and how to do it in a way that maintains public support as it interacts with people's lives ie through the ICE transition, heat pump/boiler transition).

You guys are depressing. And I am losing hope in this government now. They seem to be looking at themselves as caretakers put there to preserve the status quo, no doubt influenced that way by the myriad of forces interested in doing just that.

The only hope I really have is that in his career as a politician, Starmer has form for fairly radical course-correction.

I'm slightly astonished by it to be honest particularly on the economics/Treasury and Rachel Reeves. Labour's entire plan was based on growth - achieving good growth through increased productivity was necessary for everything else. I didn't think that they really had no ideas on growth. I genuinely think that they bought the argument that all the Tories' problems weren't reflected structural issues in Britain's economy (and place in the world) but just because they were bad and populist. So if you weren't bad and populist everything would be good again - we would return to the New Labour NICE (non-inflationary continuous expansion) days that ended in 2005. There was a very good piece in the Economist recently about Starmer's government mistaking process for ends - for example the latest commission on social care.

Six months in that's not happened and we have government writing to regulators asking for ideas to promote growth and today the Chancellor writing to all government departments instructing them to "cease anti-growth measures". Meanwhile the Chancellor's off to China as the great growth hope. It's continuity Osborne-ism, except we're outside the EU now and Donald Trump's about to become president. I'm not sure it worked as a strategy in 2012, I'm even less sure in 2025.

There are lots of ideas out there (from left and right) on growth. There's loads of "shovel-ready" plans too. But all of them require action, reform, taking on vested interests which this government seems to have no appetite for. I think a lot of Labour's thinking on growth was done in a deflationary low-interest environment - but that's been changed since 2022 (and not just Truss).

But I think it's a little kind to focus on the myriad of forces. Labour have a massive majority if they chose to use it and a lot of issues are of its own making. I don't think it would help much, for example, but changing the relationship with the EU would have an impact - but the government ruled out all the policy changes that would be required to do that. Labour ruled out tax increases "on workers" which meant the tax they were left with was basically payroll taxes (a literal tax on workers) which is now having an impact particularly in lower paid sectors like retail, hospitality but also social care. They talked a lot about the need to improve public services but an awful lot of that NI tax has been spent on pay deals with the public sector - so there's no cash for the reform to improve services. Meanwhile they're unpicking the education reforms of the last 25 year (where there's been broad consensus across multiple Labour and Tory Education Secretaries), despite the fact that they've seen performance in English schools on numeracy, literacy etc significantly increase internationally and also significantly improve compared to Scotland and Wales that didn't do those reforms.

I remember reading a story when Sue Gray joined Labour's leadership team as Chief of Staff when they were in opposition briefing that she was shocked at how few plans and ideas there were and that they were nowhere near prepared for government. At the time I thought it was just defensive briefing on her part. Now I'm not so sure...

[mongers]

Tulip Siddiq is on her way out, will Starmer sack her or hope she resigns? 

[Sheilbh]

Yeah I don't quite know how they thought it was a good idea to appoint her a minister (especially in that role). Even aside from the stories currently coming out (though I think all were declared and have just been investigated properly), he 2017 Channel 4 clip of her threatening a reporter is bad.

At the minute Starmer seems content with the line that they've beefed up the "ethical standards" and she's reported herself to the standards commissioner which is the right process which will now be followed. I'm not sure that's sustainable - or that we're reaching the point where allowing her to hang on does more damage.

It's very striking in comparison to how quickly Lou Haigh was fired.

[Richard Hakluyt]

The yield rate on British bonds has been rising over the past few days, there have been a few nerves on display as a consequence. What I didn't know (have I just been careless skimming the news or was it simply not covered by the Guardian or the BBC?) is that the Bank of England has been engaged in quantitive tightening https://neweconomics.org/2024/09/bank-of-englands-quantitative-tightening-could-cost-treasury-over-96bn-over-next-four-years

 

No wonder the economy is flatlining.

[Sheilbh]

Not just the BofE, the Fed and ECB too.

To be clear I think Truss and Kwarteng were wildly incompetent and her cease and desist to Starmer to stop her saying she crashed the economy is very funny. But QT was a big part of that crisis. The day before Kwarteng's budget (which was expansionary), the BofE announced they were starting the first stage of QT to unwind QE but also for anti-inflationary reasons.

This had a particular impact on pension funds who buy government bonds as a stable market. The combination of the BofE announcing it was going to sell £80billion of its bonds into the secondary market and a very expansionary budget destabilised that market. The BofE made some moves but basically wasn't willing to prop up the bond market or reverse it's newly announced policy on QT (it is striking that Truss and Kwarteng went, while Bailey is still in place and selling a further £100 billion bonds into the secondary market at the minute). From what I've read the comms and market expectations have been managed better since autumn 2022, but I do still see a fair bit of criticism of Bailey particular over expectation-setting and occasionally being a bit too interesting for a central banker.

The goal is disinflation but it's not clear to me that QT has had much impact on inflation as opposed to actual pricing factors (particularly in energy markets) and general rate rises. But I think you're right. We had a couple of decades of what Mervyn King's described as the NICE era (non-inflationary continuous expansion) - which I think was easy mode for economic policy makers. Then QE which was more challenging but with very low rates would have been a really good time to invest in infrastructure, capex spending etc (which, like the rest of Europe, we eschewed in favour of austerity). Now we're in more challenging times with QT, supply shocks and the balance of payments matters again in a way that I think could see a sterling crisis at some point.

Having said all that, as I say, Truss and Kwarteng were disasters. There is a very difficult and different context. I think it's not a million miles from what MacMillan, Callaghan, Healey etc would recognise. I'm very, very unsure that Rachel Reeves is up to it.

Having said that I'm not sure there's a clear Labour alternative who is better placed to take over the Treasury and I think it sort of goes to that security point - I slightly feel that we have a lot of politicians who came up in relatively benign times, facing a very different world they're not necessarily prepared for.#

Edit: Incidentally one other slight Truss comparison I keep thinking of is that she had this massively expansionary, expensive budget with loads of tax cuts - but the other bit of her plan which Kwarteng kept referring to was structural, supply side reforms to unlock growth. She did the sugar rush stuff first, not the difficult, more politically contentious reform stuff. I think the markets looked at that - after 12 years of Tory promises to do some of this stuff - and decided it wasn't credible. I think Labour, having campaigned on growth, really need to be focusing on that because they're in danger of heading down a sort of negative of the Truss path: big talk on growth without actually doing anything, but fiscal responsibility so instead raising taxes and cutting spending in each budget. The worst of all worlds flatlining growth and contractionary fiscal and monetary policy - while a lanky Bloomsbury bisexual spins in his grave.

[Richard Hakluyt]

I found it interesting that Reeves and Bailey were on the same plane to China at the same time as the opposition were screaming about how she should cancel the trip to reassure bond markets here. Arguably being cooped up on the same plane as Bailey was the best place to be to possibly influence matters.

You have jogged my memory re the QT during the Truss government. The problem is that that government for me was the "dream time" and my brain has largely excised it from my memory; their stupidity and incompetence was just too much for me to cope with, part of me just couldn't believe it 

I think you are right about recent inflation not being simply a monetary phenomenon; we have perhaps become too accustomed to always think that as a society. The disruption caused by Ukraine felt like a real increase to me, ie things were genuinely more expensive and living standards would therefore take a hit.

[Tamas]

I didn't know QT was happening already during Truss but QT at least in the US was started due to inflation I think. Flatlining the economy was the idea behind it. Whether it's been overdone in the UK is another matter (maybe we would be worried about inflation still if it hasn't been done).

[Sheilbh]

The BofE was, I believe, the first big-ish central bank to start QT - I think until them the only one that had started down that path was New Zealand. I suspect some lessons were learned particularly about setting expectations from the UK.

I think you're right that disinflation has to be a part of it but I'd note that the BofE's position has been consistent that it is not active monetary policy for inflation targeting. That's delivered through rates.

In the UK flatlining the economy is part of it. I've mentioned but I think the UK is the only big European economy where you could see risks of a price-wage spiral. We're still at full employment and wage increases have consistently come in higher than the BofE was expecting - I actually think Labour's increase on employer NI may have more of an impact on that and allow for rate cuts (not because inflation changes but because central bank fears of wages will diminish).

I don't think we'd still be having serious inflation because I think 99% of inflation in the last few years have material global causes to do with Ukraine, energy prices, food prices, post-covid shocks in the Chinese and US economy. I think, as is the norm, pretty middle of the pack on this:


But it's tough to say it's nothing to do with it because the UK went early but the other central banks have a similar policy in the last couple of years.