Pretty poor on the energy policy front too. And levelling up is no longer even on the agenda.
Today’s mini-budget deserves a quick comment in this blog, not least because of the close connections with energy issues.
Let’s begin with a few quotes
FT Robert Shrimsley described it as “… a stunning repudiation of the economic strategy of the last two Tory premiers …” and its “dismissal of the central importance of sound public finances” as a rejection of core Conservative principles.
The UK is "pursuing the worst macroeconomic policies of any major country in a long time" says former US Treasury chief Larry Summers.
Why it is likely to fail in its own objectives
Governments cannot mandate growth; if they could we would not be worrying about it now. GDP growth would already be with us.
· Under the right conditions a fiscal stimulus can boost GDP, but tax giveaways to the wealthy are among the least effective polices as wealthy people have a higher propensity to save rather than spend. They also have a higher propensity to spend on imports and to spend on foreign holidays.
· Purely in macro-economic terms, a fiscal stimulus that benefits lower incomes is more likely to stimulate spending.
· The economy already has severe supply side constraints, especially evident in labour shortages. But the apparent pursuit of a trade war with Europe will simply make things worse, and reduce our economic potential further.
· Unfunded tax cuts will simply increase the risks of further currency devaluation (with sterling already 2% lower today), and inflation.
Energy matters too
The crisis in gas prices, and possibly in supply adequacy, matters for two immediate reasons:
· affordability of energy, particularly for the poor and vulnerable.
· sufficient gas to meet demand and “keep the lights on”.
A blanket subsidy for energy prices is an inefficient means of protecting the vulnerable, with a high cost for only very limited protection. The sensible strategy would have been much more targeted support, either through social security, or, better still, through so-called “rising block” tariffs which allow initial tranches of supply at a much lower price, but with a higher price for higher levels of consumption, which provides a bigger incentive to avoid waste. This would also be more consistent with net-zero objectives for the sector.
The practicalities of this are not helped by the many dysfunctional features of a “quasi-competitive” energy market.
Finally passing up the opportunity for at least some level of windfall taxation in the sector has merely added to the already extreme macro-economic risks that we face.