TBrexit libertarians control our destinies for at least the next two years, and the extent of the threat they pose to our well-being and security is already becoming apparent. Prime Minister Liz Truss may have swallowed her own words a month ago that she against “handouts” run largest handout in our history, but that was to buy her and her henchmen political breathing space to run their programs. The energy price cap could have been an exciting reversal, but it had a darker purpose.
The intention was issued by Chancellor Kwasi Kwarteng’s resume. dismissal of Sir Tom the Scientist, one of our finest and most dedicated public servants, is now the former Permanent Secretary of the Treasury. kvarteng thinking has been revealed when he blamed “the same old economic managerialism” for leaving Britain “with a sluggish economy and anemic growth”.
“Bold action,” he suggested, “is needed to alleviate this ‘toxic combination’: ‘Reducing taxes, getting money back into people’s pockets, and freeing our business from burdensome taxes and inappropriate regulations.’ Only in this way could investment and growth be opened up. Better that way, he added, than “burrowing into a redistributive struggle for what’s left.”
This is unsubstantiated nonsense – the triumph of ideological faith over evidence and reason. Under these conditions, the Scientist, a model of supposedly old economic managerialism, had to leave. We are at an economic fair run by fairies and fools.
Of course, a two-year £2,500 price cap is welcome. This will remove the threat of desperate choice of heat or food from millions of people. This will also reduce peak inflation to 4% and thus reducing full-year debt service costs by around £20bn – a quarter of our public debt represented by bonds indexed to inflation. It will also partly prevent the risk of a dangerous wage price spiral. But those were the reasons Labor first spoke price ceiling. Libertarians only changed course when they realized that resisting and following their preferred response of tax cuts and floor cuts could lead to their political suppression.
But you don’t win wars and reset the economy with mindless libertarianism. Europe is de facto at war with Russia over Ukraine, as this threatens to limit the price of Russian gas. In response, Putin said in Vladivostok that at the limit Russia will not export anything – no gas, no oil, no food – to Europe. It’s more of an economic war than a battlefield war, but it’s a war nonetheless. Britain’s energy policy is not serious, it betrays the cause.
Energy policy during potentially long supply disruptions must be designed for the long term; should protect business as well as consumers; must be financially sustainable and avoid the risk of power outages. The government’s plan is failing on all counts.
Crucially, this is not financially sustainable: the UK public debt, cowards keep saying, is the lowest in the G7 outside of Germany, so there is room for borrowing. But the dollar, yen and euro are world reserve currencies and Canada works positive balance of payments. The UK is alone, outside of any of the major trading blocs, with a weak, legacy economy. as well as chronic deficit of international payments. It cannot sell at least 100 billion pounds of additional public debt a year to protect living standards, not to increase investment, without the threat of further weakening of the pound or a forced hike in interest rates.
Financial sustainability can be addressed in several ways. BUT additional contingency tax could be imposed on extraordinary profits in the energy sector. In addition, during the war in Ukraine, all gas and oil from British fields should be sold to the government on a cost-plus basis, and not at distorted international prices. Consumers could be told to tighten their belts, and ministers could give a tip and roll out the rationing system if necessary. There should be a government emergency program to build onshore and offshore wind farms – the fastest and cheapest way to increase energy supply – along with an accelerated home isolation program.
For libertarians, every such measure haunts. Thus, they offer unearmarked, albeit generous, assistance to households, but since even they recognize almost unlimited costs, they have limited business assistance to six months. Fearing what might follow, businesses will close the hatches so that Kwarteng’s reversal of the proposed corporate tax hike will have no impact on investment. He also recognizes the risk of blackouts this winter, not alleviated by the uncertain prospect of fracking gas a decade from now.
At least when Britain was in the single market, it was connected via submarine interconnectors to Irish, Dutch, French and Belgian networks; he was also bound by a special deal with Norway. The price was set on the single market, and electricity flowed freely as capacity decreased and flowed between networks.
Now Brexit Britain has instead developed a bureaucratic and expensive auction system, raising electricity prices and exposing us to supply shocks. In addition, U.S. Secretary of Energy Jennifer Granholm required all U.S. refineries exporting gasoline, diesel, and distillates to build up your reserves and not to export – coincided with the shutdown of Russia. This is another threat to supply.
Prior to these challenges, the EU was building up its gas reserves in a process in which we had to take part. But only at the end of August Centrica received welcome to reopen its gas storage Rough in the North Sea; and it can only be brought back into service slowly. It won’t do much this winter.
Thus, libertarians manage energy crises and wage wars. Planning, using state power, levying taxes, regulating, creating reserves and working with other Europeans are all anathema. The same philosophy that leads nowhere will inform “fiscal event” to cut taxes later this month, which will further inflate our public debt for no purpose. Growth is the result of well thought out and ingeniously directed investments by the public and private sectors in an interdependent relationship, rather than making so-called individual “wealth creators” even richer through tax cuts.
The whole project will fail. It’s a pity that whatever damage it does to the Conservative Party, the rest of us are doomed to experience the same catastrophe.