Consciousness of Sheep
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Windfall hot air
Even now, the political class is treating rising energy prices as temporary – just like they thought inflation was temporary this time last year. They would like you to believe that Russia – which has continued to supply oil and gas (which were expressly excluded from sanctions) to Europe to this day – is responsible for rising prices which began long before the invasion of Ukraine. The reality though, is that increasing energy prices are structural and there is no relief in sight.
Peak oil – the point when industrial civilisation was extracting more oil from the ground than it had ever done before… and would ever do again, occurred in November 2018. The slow decline in output through 2019 was already causing an economic slowdown even before governments around the world over-reacted to the Covid. The over-reaction though, rapidly accelerated the process of decline, causing production to be lost as wells were shut down – some of them permanently – when economic activity crashed during the first round of lockdowns. And when the economy finally reopened, the sudden and massive increase in demand could not be matched by supply, and prices shot up into the stratosphere. The same went for gas, whose use in balancing modern electricity grids and as a feedstock for fertiliser, has left us looking desperately short of both food and power.
In 2022, the world is having to get by on four million barrels of oil a day less than we were consuming prior to the pandemic:
Among the most serious casualties is a growing shortage of diesel fuel – the very lifeblood of the global economy, as it powers all of our heavy lifting in industry, agriculture and transport. In conjunction with lockdown-disrupted supply chains, fuel shortages have sent the cost of transporting goods spiralling upward. And it is this, rather than the “printing” of central bank reserves – which can’t be spent into the economy – which is responsible for the ongoing inflation which is impacting ordinary households across the world.
Most worrying for most households here in the UK is the dramatic increase in the cost of energy itself. Fuel – diesel and petrol – prices have risen to record highs. And since for many people, fuel is “inelastic” – people need it to get to work and there is no easy substitute – we have been cutting back on non-essential travel and on non-essential goods and services in general. But even these price increases pale compared to the massive increases in household electricity and gas bills, which rose £700 in April and are set to rise by another £300 in October.
After more than a decade of falling real incomes for the bottom 50 percent, and stagnating incomes further up the income ladder, we have reached the point at which economic problems morph into political issues. And the party which emerges with a coherent and credible program for managing a prolonged energy supply shortage, will sweep all before it in coming elections.
The problem, of course, is that none of the establishment neoliberal parties seem aware of the scale of the problem, and none are offering a credible response. The governing Tory Party is split, with its neoliberal wing convinced that “the market” – which globally is the cause of energy shortages – will somehow solve the problem, while its “red wall” MPs, increasingly worried about re-election are echoing public calls for more intervention. Meanwhile, Chancellor Sunak, who saw nothing wrong with spending money like a drunken sailor during the lockdowns, looks like a deer trapped in the headlights, unable to balance the needs of the electorate with the excessive desires of his chums in the hedge funds. And all our fast-fading prime minister can manage is to mount inanities about work being the route out of poverty – a proposition which has demonstrably been proved wrong by the massive number of people receiving in-work benefits and, increasingly, turning to foodbanks to make ends meet.
The Tories only saving grace is that the opposition (sic) Labour Party has come to resemble Monty Python’s Norwegian Blue – its putrefying corpse driving away much of its former electoral base, despite Johnson’s lockdown hypocrisy. Under the leadership (sic) of Kier “Keith” Starmer, the party has become so timid that it makes Neil Kinnock – who rolled over and acquiesced in just about everything Thatcher did – look like a radical. Insofar as they are aware of the growing energy crisis, their knee-jerk response has been to call for a windfall tax on energy company profits. But while this may grab a few headlines, it is no substitute for a policy program – the tax is expected to bring in just £3bn, which works out as £115 per household… assuming all of it is distributed to the public. Sunak’s £150 council tax rebate is greater, as was the Welsh Government’s £200 bung to people on low incomes last winter. But, welcome as any additional help may be, it is a drop in the ocean compared to the scale of the unfolding crisis.
For now – and feeding into populist sentiment – we have to rely on political outsiders to act as an opposition. Just as footballer Marcus Radford led the charge against the government over child food poverty during the pandemic, it is “money saving expert” Martin Lewis who has emerged as the official opposition on the energy crisis. In addition to – quite correctly – referring to the energy regulator Ofgem as “a fucking disgrace!” Lewis has made the far more practical call for a big reduction in the standing charge for electricity and gas – the amount every household pays just for the connection to the Grid:
“He… departed the meeting, stating ‘at least get rid of the outrageous charges on the standing charge’ as ‘even if you cut all your usage because you’re desperate, the standing charge is so expensive you’re still paying a huge amount of money for gas and electricity, even if you’re not using it.’”
Under Ofgem’s most recent change to the energy cap, the average daily standing charge for electricity has risen to £0.45 per day and gas has risen to £0.27 per day. That is a combined charge of £262.80 per year – i.e., greater than either Starmer’s £115 windfall tax or Sunak’s £150 council tax rebate combined. Of course, even if the entire standing charge was abolished, we wouldn’t save the entire £262.80 because the cost of operating the Grid would then have to be added to the unit cost of electricity and gas (Although the various “green” subsidies to the energy companies could at least be paid out of general taxation, and now that the UK is out of the EU, the five percent VAT could be removed). But ditching the standing charge would mean that those households which consumed the most would also contribute the most to maintaining the supply.
Even reforming or removing the standing charge on energy though, is mere tinkering in comparison to the scale of the energy crisis. As I predicted five years ago:
“The energy cap will end up upsetting everyone and solving nothing. This is because, while the failed quasi-market arrangements are an irritant, they are not the true cause of the problem. The same arrangements were in place prior to 2008; when complaints about overcharging and switching supplier were limited to the affluent classes. It isn’t the system that has changed; it is the broader operating environment…
When the electricity system was privatised in 1990, billing issues were not seen as a problem. Britain was awash with cheap North Sea oil and (especially) gas which could be used to generate cheap energy; backed-up by the legacy fleet of coal and nuclear power stations. It was also in the optimistic take-off phase (financial deregulation had occurred just four years previously) of the unsustainable credit bubble that crashed in 2008. The credit boom drove up house prices and flooded the UK with a massive injection of new purchasing power. It seemed like we had entered a new era of cheap energy and rising living standards. Fast forward to 2017 and access to cheap credit has all but dried up for ordinary households. Meanwhile the cheap and abundant oil and gas has gone and the coal and nuclear power stations have been retired. With every day that passes, the UK is becoming more dependent upon far more expensive renewables, nuclear and imported gas. Energy bills are getting harder to pay… There is also an imperative to prevent the likely company failures that will result from a combination of rising energy costs and falling living standards. In another sector just days ago, a British airline company left thousands of people stranded around Europe when it filed for insolvency. That is how private companies crash; suddenly and without prior warning. We simply cannot risk energy companies crashing in a similar fashion. By bringing energy beneath a public umbrella, we can provide the best guarantee that we have (the state’s ability to print currency) to keep the system running.”
Now is the time for a radical break from neoliberal dogma if we are to prevent the energy crisis morphing into full-blown economic and political chaos:
“Because of the graft in the system (in which customers are forced to subsidise investors, and the true cost of various forms of generation are hidden) we desperately need to bring everything back under one roof. Whether this is done as an entirely public enterprise (recreating the old Central Electricity Generating Board) or as some kind of public/private partnership is of lesser importance. What matters is that cost is made transparent and investment decisions are rational. Because if – as seems to be the case – renewables like wind and solar can only operate with gas, coal and nuclear baseload, or hugely expensive storage, then we all need to know that and to make our decisions accordingly. In an energy-scarce environment, we must get the best possible energy return on investment.”
When we look to the political class though, all we see is failed ideology, timidity and vested interests… precisely the factors that, for better or worse, continue to drive people into the arms of populist demagogues who talk a good fight but are no more capable of mitigating the crisis.
When sales growth is bad news
Among the most important functions of establish media is putting a gloss on what might otherwise be a negative story. So it is that my local paper has decided that the high number of post-lockdown vacant lots in Cardiff’s excess of 1980s-style shopping malls is, in fact, a good thing. Empty lots, you see, are not the result of a retail apocalypse that has been gathering pace for more than a decade. Nor, apparently, are they a consequence of so many small businesses going broke during the lockdown or immediately afterward as import costs and supply chain disruption sent prices spiralling upward. In fact, we are told, these empty shops are early evidence of the shopping revival which is about to make the retail sector boom once more:
“Rental listings for the city’s shopping and leisure complexes and arcades give some interesting insights into how sought-after their spaces are. They not only have a wide range of lease valuations and business rates, but also wildly differing numbers of units available.
“It may come as no surprise that St David’s Centre commands the highest rent, while the Capitol Centre has a glut of empty space. But according to listings website Realla, the Capitol also has some lofty rent valuations and a couple of offers to consider — and as we reported recently, it may soon go through a renaissance.”
With rents varying from £15,000 a year in Cardiff’s least desirable centre to £395,000 in the most desirable, an alternative explanation might be that with the cost of doing business rocketing, with fuel and energy bills rising out of control, and with businesses facing higher national and local tax bills, even as consumers have less money to spend on non-essential items, nobody in their right mind is going to rent a shop in a centre whose future is more likely to be as an archaeological ruin rather than a booming emporium. But hey, nobody wants to read bad news…
The same goes for the BBC, who are making the most of a small uptick in retail sales in April. The fact though, that the entire increase seems to be due to more people turning to alcohol and people consuming more alcohol and tobacco – Britain’s two legal drugs – ought to ring alarm bells, since they indicate a stressed-out population, half of whose wages were going backward even before lockdown and are now facing eye-watering increases in the price of essentials like food and heating. Moreover, while the BBC reference the Office for National Statistics (ONS) report that the general trend in sales volumes is still down, they fail to mention that while the volume of sales had risen by one percent year-on-year, the price paid had risen by ten percent!
One piece of forward-looking data reported in the BBC article – which is likely to be more illuminating than ONS estimates which are usually revised downward later on – is the consumer confidence index, which is at its lowest since 1974, when Britain was reeling from the OPEC oil embargo and a bitter domestic miners’ strike. Ironically this level of consumer pessimism may explain why spending has yet to fall off a cliff. Now that it is abundantly clear that prices are going to continue increasing, it makes sense to make any large purchases immediately. It is this rather than state covid handouts – which have already left the consumer economy by now – which is holding sales up for now. But this is also why, when consumers eventually rein in their spending, that the crash in sales will be fast and steep.
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