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Home / In Brief / In Brief: Economic freefall, Peak foodbank, Electricity first, Fracking back, There were no clever people after all

In Brief: Economic freefall, Peak foodbank, Electricity first, Fracking back, There were no clever people after all

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Economic freefall

Just how bad is Britain’s current economic collapse? 

One indicator can be found in the monthly registration of new vehicles, which are generally higher in September and March when new registration plates are introduced.  Nevertheless, total registrations were down 14.3 percent on this time last year – when the UK was still subject to lockdown.

It is worth noting that vehicles are not registered when they come off the production line.  And so, establishment media claims that falling registrations are due to such things as chip shortages and broken supply chains are not entirely true.  The main reason why registrations are falling is because dealerships are not buying vehicles.  And the reason dealerships are loathe to over-stock is because consumer demand for new cars has been falling remorselessly since 2017.

 

The only growth in sales is for battery-electric and hybrid-electric cars, which accounted for 27.4 percent of new registrations in March.  Meanwhile, diesel car registrations were down 55 percent, and petrol vehicles 26 percent.

For most of us – Russian oligarchs and Tory Chancellors aside – a car is the second most expensive item we will buy.  And throughout the post-war years, car ownership has been a proxy for the health of our consumer-based economy.  For car sales to fall so precipitously, then – exacerbated but not caused by lockdowns – is a real-world indicator of the mess we are in.  Because, while some of the fall in sales may be due to more urbanisation and the convenience of services like Uber, the figures point to a big decline in consumer demand, as increasing numbers of us can neither afford cars nor attract the credit needed to borrow for or lease one.

Worrying as declining car sales are – even if establishment media green-washers pretend that the big story is about EV sales growth – the bigger concern is in the 27.6 percent fall in light commercial vehicle (LCV) registrations.  These are the backbone of the UK’s internal supply chains, moving goods between warehouses and end consumers for just about every type of goods you can think of.  And standard wear and tear in a functioning economy ought to lead to equivalent or greater sales year-on-year.  A decline, therefore, points to a second-order decline in demand – we are no longer just looking at consumers reining in their spending.  Rather, the decline in LCV sales points to falling demand among retailers and trade suppliers too.

This is that economic Wile E. Coyote moment when all of the indicators are telling us that we have run off the cliff, but nobody has looked down yet.  In more concrete terms, employers – particularly SMEs – are always reluctant to start laying off workers, despite the wage bill being their single biggest cost.  In part, this is simple humanity – it is incredibly hard to look someone in the eye and tell them they no longer have a job.  In part, it is because businesses invest a lot of time and effort in training workers, and nobody wants to lose this prior investment.  Instead, businesses tend to make cuts to the smaller cost centres – including extending delivery times and, indeed, keeping an old vehicle running rather than replacing it with a new one.

With the latest rise in fuel, gas and electricity costs, the ability of both consumers and businesses to make savings will be strained to breaking point.  Businesses, remember, do not enjoy a price cap or a kickback from the Chancellor, and so must either eat the cost or attempt to pass it on to consumers who are increasingly reluctant to buy.  And this was all happening before our glorious leaders decided to declare economic war on one of the world’s leading suppliers of fuel and commodities.  It is surely only a matter of time before the actions of P&O Ferries become commonplace across the economy among businesses large and small.

Unemployment is not what it used to be either.  During the stagflationary crisis of the 1970s, the one saving grace was that unemployment benefit was still calculated as a proportion of the average wage and was not subject to the package of duties designed to trip claimants up so that they can be sanctioned and have their benefits removed.  Those losing their jobs in the coming waves of unemployment can look forward to a sudden, massive drop in income which will very likely result in bankruptcy – particularly if they are carrying any kind of debt (the days when they might have claimed the interest on a mortgage are long gone).

As John Harris – one of the few Guardian columnists still worth reading – explains that the term “cost-of-living crisis” obscures the abject poverty that increasing numbers of Britons have been experiencing at least since the crash of 2008:

“Abstractions such as ‘the cost of living crisis’ do not do enough justice to 2022’s mounting sense of dread; neither does the cliched view of people having to choose between heating and eating, when a lot of people will soon be unable to afford either…

“In the much-maligned 1970s, when trade unions were strong and the welfare state was entering its last years as a dependable safety net, income and wealth inequality were at an all-time low – and though poverty was an issue, it had yet to be allowed to run rampant. Then came the reinvention of Conservatism under Margaret Thatcher. In 1979, about 13% of children lived in relative poverty; by 1992, the figure was 29%. It consistently declined under New Labour, before increasing again after 2010. Thanks to David Cameron and George Osborne, rhetoric about ‘welfare’ reached a new nadir, and policy followed the same trajectory. At the same time, the kind of precarious work that locks people into poverty was allowed to hugely increase.”

Harris though, offers hope of a kind.  After decades of people on the margins being labelled as “scroungers,” attitudes are turning – perhaps because so many more people came face-to-face with the hollowed out neoliberal benefits system during the pandemic:

“In the midst of yet another crisis, we are about to find out who we now are: either the mean, hard-faced country many politicians still believe in, or a society moving in a more compassionate direction…  In the annual British Social Attitudes survey of 2011, 77% agreed that benefits for the unemployed were “too high and discouraged people from finding a job”, as against the idea that they were “too low and caused hardship”. But in the latest survey, that figure had dropped to 45% – the first time since 2000 that it had been the less popular of the two views.”

Whether this will be enough is questionable.  While the majority of the MPs on the government benches are more than happy to hand out state funding to corporations – particularly those which donate to the Tory Party – when it comes to tackling poverty, they remain wedded to austerity.  As with so many of the gathering crises, it is only in the ensuing chaos that government is likely to be moved to act.  And by then it may be too little too late.

Peak foodbank

One of the features of the post-2008 economic landscape has been the massive growth in foodbank usage.  Although foodbanks have been around since the early years of the Blair government, it is only since the return of the Tories in 2010 that foodbank usage has accelerated from around 40,000 emergency food packages distributed in 2010 to 2.5 million in 2021.

Despite lurid tabloid headlines to the contrary, you cannot simply walk in and ask for a food package.  Rather, you must be referred by a professional such as a doctor or a social worker.  And so, the rise in emergency food distribution is a measure – albeit not particularly accurate – of the rise in poverty over the last decade.  Indeed, it is in line with findings from the Institute of Fiscal Studies, that the wages of the bottom half of earners in the UK fell during the period between the Crash and Covid.

The foodbank model though, has emerged during a period in which poverty was essentially a political choice.  A different type of government might, for example, have chosen to increase in-work and out-of-work benefits to a level that prevented all but the tiny minority with complex social and psychological problems from needing support with something as basic as securing enough food.  Instead, the government chose to cut benefits while giving tax cuts and state handouts to the already wealthy.

Today we face an altogether different economic landscape.  As a consequence of the lockdown restrictions – both domestic and international – we now have shortages in a plethora of commodities, including energy and fertiliser.  Market rationing – via price rises – have thus trapped millions of households in the jaws of a tightening vice.  One jaw is the remorseless rise in the price of everything which depends upon energy in its production, transportation and sale.  The other jaw is the increasing shortage of key commodities – including food.  For the moment, both processes result in higher prices which squeeze household expenditure, with those at the top cutting discretionary spending while those at the bottom are forced to cut travel and heating to a bare minimum in order to put food on the table.  A few months from now, this “cost-of-living” crisis is going to morph into something far more dangerous as businesses are obliged to cut their workforce in the face of rising costs and falling sales.  And this was baked in even before the government lost its gamble that economic sanctions would quickly collapse the Russian economy.  Once the current contracts for Russian commodities come to an end, the UK government will have to choose between paying in Roubles or going without such things as fuel, gas, seed oils and grains on a scale that is likely to make the current cost-of-living crisis look like a golden age.

In these circumstances, what is effectively a neoliberal form of food relief will rapidly be overwhelmed by the sheer scale of need.  Neoliberal, because it attempts to maintain individual food consumption.  While it is the foodbank and its donors who choose the food which is handed out, the beneficiaries go off to consume the food in isolation.  But as the coming food crisis accelerates, we will urgently need to switch to the kind of collective food relief which emerged during the depression of 1930s.

One reason why a collective model is going to be needed is that emergency food parcels tend to include dried and tinned foods which must be heated.  But with the price of energy spiralling upward, few food parcel recipients are going to be able to afford to cook.  The bigger reason though, is simply that cooking at scale is far more efficient than preparing individual meals – this is why, for example, school dinners, at least before they were privatised, were so much cheaper than preparing meals at home.

At different times and in different places, not-for-profit groups have set up “pay-what-you-can-afford” café’s, using donated food from stores and the public, with the altruistic aim of having better off patrons subsidise the meals of the poor.  This is the modern equivalent of a depression era soup kitchen, or perhaps more akin to the state-subsidised “British Restaurants” of World War Two.  Whatever. The quicker we switch from individual to collective means of ensuring everyone gets at least one decent meal a day, the less likely we are to experience food riots and prolonged social disorder.

Electricity first

A common question in the UK just now is, “why if it is gas which is in short supply, is it electricity that is rising in price?”  As my regular readers will already be aware, the answer is because the more we deploy wind turbines, the more dependent we become on gas to keep the electricity flowing when the wind drops.  And while there are often days when wind and nuclear provide almost all of our electricity, there has never been a month during which wind overtook gas as the main fuel for our electricity generation.

Less obviously, because the regulator operates a “wind energy-first” policy, gas generators’ domestic supply divisions struggle to remain profitable.  And so, when the price of gas spikes upward, gas generators have little choice but to pass the price increase on to both business and household consumers.

This dependence upon gas in electricity generation has another somewhat perverse outcome.  In the event that Russian gas, which currently accounts for some 40 percent of European supply, is cut off later in the year, the ensuing rise in prices will leave gas generators better off taking their power stations out of use in the hope that prices somehow fall again.  And this may well be encouraged by the regulator and the government as the preferred option rather than cutting the supply of domestic gas.

The reason for this is simple enough.  Once the domestic supply has been cut, house-to-house safety checks would be required to ensure that every domestic gas appliance is switched off before the gas grid could be activated again.  The alternative would be to risk a wave of gas explosions across the country as people find out the hard way that they forgot to shut down the hot water boiler.

Electricity power cuts, then, are going to be the first indication that the system is out of gas.

Fracking back

There is a belief – though as yet not an established fact – That large parts of the UK contain sufficient quantities of shale gas to resolve at least some of our current energy woes.  A decade or so ago, as the fracking industry in the USA was beginning to take off, the City of London money men began to wonder whether a similar opportunity to fleece investors might arise in the UK too.  And so, they developed the myth of gas as a “transition fuel.”  It wasn’t, they assured protest groups, an attempt to derail the move to renewable energy.  Rather, home-produced shale gas could provide a means to dispense with coal while the scientists and engineers figured out a way of dealing with the intermittency of wind, wave, tide and sunlight.

Unlike the USA though, fracking never really got going in the UK.  In part this was due to the relative lack of open space in the UK – and the fact that many of the otherwise accessible areas which contained shale formations were also national parks and/or areas of outstanding beauty.  There was also a problem with the tortured and twisted geological history of the British Isles.  Where the US shale plays were like massive layer cakes extending over hundreds of miles, British rock layers are bent, twisted, and fractured in all directions.  Drilling a lateral shaft for more than a couple of hundred yards is often impossible.  There were a host of less direct issues such as the potential for earth tremors to cause damage to buildings or the threat of toxic fracking fluids getting into the water table, which made the anti-fracking protest groups particularly popular a decade or so ago.  But none of these was sufficient to bring the embryonic fracking industry to a stop.

What put an end to fracking in the UK was the simple economic fact that it cost more in both energy and money, to bring gas to market than it could be sold for.  Even liquified natural gas shipped from Qatar was cheaper.  It was concerns about the financial case for fracking rather than pressure from protestors which finally dampened the UK government’s enthusiasm for producing UK shale gas.

It is not just panic over the self-inflicted end of gas imports from Russia which has resulted in renewed ministerial interest in UK fracking.  The massive spike in gas prices resulting from two years of lockdowns and restrictions had already raised the price of gas to a level where fracking might just turn a profit.  With far higher prices yet to come as a consequence of the sanctions on Russia, the City of London wide boys are once again sniffing an opportunity to raid the nation’s pension funds in pursuit of the mythical UK shale gas bonanza.

But wait a minute… when it comes to solving the UK’s growing energy crisis, cost is a far more important factor than quantity.  Even if there are the claimed hundreds of years’ worth of gas deposits beneath the British Isles, if they can only be recovered at a cost far higher than today’s spot market prices, then there will be insufficient economic demand to convert them into a financial profit.

This, of course, is the central proposition of an energy-based economics.  A complex economy built upon the surplus energy from previously cheap fossil fuels, requires even more cheap surplus energy to maintain itself.  Attempting to add more expensive energy – such as UK shale gas – to the mix does nothing to prevent an economic unravelling, but merely wastes surplus energy which might be better used elsewhere.  In effect, UK fracking will hasten rather than prevent the UK’s economic collapse.

There were no clever people after all

A competent government would be expected to have developed a contingency plan prior to imposing near comprehensive sanctions on one of the world’s last remaining major fossil fuel exporters.  The UK, unfortunately, has a clown show for a government together with an opposition in name only.  And so, with Russia insisting that future contracts for gas and a growing list of essential commodities will have to be paid for in Roubles, the government has belatedly cobbled together an attempt at a plan to address energy security.  Readers who remember just how well the UK’s pandemic planning worked out two years ago will have some idea of what is likely to happen when the same people are put in charge of keeping the lights on.

Trusting the science, sadly, is not something that ministers have done in relation to energy for several decades.  Instead, they have bought into the science fiction peddled by economists and the fourth industrial revolution/great reset crowd at Davos.  Had they taken the time to talk to physicists and engineers, they would have been quickly disabused of the notion that it is possible to run an advanced, oil-based economy on wind and sunlight.  This is not to say that we cannot have an economy based on renewable energy, it is just that we cannot have this economy – and especially the obscene levels of inequality which, in the end are no more than fossil fuel energy in monetary form.

This will not, of course, prevent the government from attempting to build out new wind farms.  Although it is worth noting that many of the essential minerals involved in the manufacture of wind turbines come from… er… Russia.  So good luck with that.  But even if a way around the sanctions can be found, it takes several years and billions of pounds to build out a Grid-scale wind farm such as Hornsea in the North Sea or Gwynt y Môr off the north Wales coast – two of the biggest offshore windfarms on Earth.

Nuclear will, of course, feature big in the government’s plan.  The government has already announced additional state funding to kick start the paused Sizewell C and Wylfa nuclear power plants, and we can also expect state funding for the small modular reactors being touted by Rolls-Royce.  Even if these turn out to be as cheap as Rolls-Royce promise, however, we are again looking years into the future before they begin providing us with Grid-scale electricity.  Moreover, Britain’s ageing fleet of operational nuclear power stations are coming to the end of their lives far faster than even the most optimistic build times suggest they can be replaced.

Fracking (see above) may turn out to be quicker to develop, since onshore drilling of the kind seen in the USA is far cheaper than the kind of offshore oil and gas drilling the UK is used to.  Even so, there are questions about how quickly machinery and equipment and an appropriately skilled workforce can be deployed to make the promise of fracking a reality – if it can’t be done at scale within a matter of months, then we face a winter energy crisis anyway.  And it should go without saying that if the price of fracked gas is higher than current spot market prices, then it will do nothing to prevent an energy crisis and an economic collapse.

As with so many of the crises now overtaking us, it would have been best if we had began addressing energy security when we were first warned about it back in the 1950s.  At the very least, we ought to have seen the writing on the wall during the oil crises and the ensuing inflation of the 1970s.  But at every turn, we chose to follow the siren voices of those who were out to turn a quick profit at the expense of future stability – forever hoping that clever people somewhere else would sort out the mess when the time comes.  Well, the time has come, and it turns out that there were no clever people after all…

As you made it to the end…

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