Cracking down on crackdowns

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One of the key weapons in the armoury of a desperate politician is to announce a ‘crackdown’ on something or other. It’s not unique to the Tories – I seem to remember a certain T. Blair announcing ‘crackdowns’ on various perceived sins – although it’s more likely to come from a government which has the power to do something than from an opposition which does not. It was Sunak’s turn yesterday, with his pledge to ‘crack down’ on mob rule. Announcing a crackdown always sounds forceful and macho – although it doesn’t exactly play to Sunak’s visible strengths. Or even his invisible ones. The most useful crackdown would probably be a crackdown on the announcement of crackdowns.

‘Mob rule’ isn’t something which is easily defined either – at least, not by someone who wants to prevent people blocking the streets protesting about climate change or war whilst also joining in with those who use their tractors to block the streets in protest against revisions to farming subsidies. Whilst I would describe neither as ‘mob rule’, in Sunakland it seems that either there are good mobs and bad mobs or else the definition of a mob is such that protests against a Labour government in Wales are magically excluded. And that, of course, is part of the point – it’s really divergence from his own views on which he wishes to crack down.

I’ll admit that I’m not sufficiently familiar with the details of farming finances and subsidies to judge whether the Welsh Government’s proposals are as bad as some farmers are making out. What I do know is that any Brexit promise to maintain the level of farm finance was as false as all the other promises, and that a reduction in funding inevitably leads to replacing previous schemes. George Monbiot argued yesterday that the differences between the English schemes and the Welsh schemes are not as great as they have been presented by some, and that “The main difference is that in Wales, the offer for farmers is better – with more consistent payments and a smoother transition from the old system”. If that were true, it would mean that Sunak was busily supporting farmers who are arguing that a deal better than that which his government has offered isn’t good enough. An entirely normal level of honesty from the current UK government. I suspect that the truth is more nuanced. Farming subsidy schemes are complex and any change means, especially if accompanied by an overall reduction in funds, that some farmers will inevitably lose out, even if the Welsh scheme is indeed better overall than the English equivalent. And that will undoubtedly impact rural communities in Wales, for whom the farming industry is still a key factor.

The easiest ‘solution’ would be to ensure that the pre-Brexit levels and methods of funding were maintained, a matter which is wholly in the hands of one Rishi Sunak. Joining in with protests which are effectively against his own government’s actions is taking a leaf straight out of the playbook of Welsh Labour members in relation to hospital and school reorganisations, so there isn’t a lot of moral high ground for Drakeford et al in this. Although constrained by Westminster decisions on funding, the Welsh Government does have some room for manoeuvre on what is still, officially, a consultation process. I really hope that they will listen carefully and use that room for manoeuvre. It’s doubtful, however, that they will be able to please everybody and still achieve the aims that they’ve set out for themselves. Calling on Sunak to intervene and over-ride whatever is decided in Wales (as some of the protesters have done) is counter-productive for an industry which has more direct influence over what is decided in Cardiff than it does over what is decided in London, and is, instead, playing to the agenda of people whose aims go way beyond reforming farming subsidies.

Sunak’s apparent ‘support’ for Welsh farmers is a double-edged sword, and his real agenda is about party political advantage and undermining Welsh democracy. If English farmers start protesting with tractors in the centre of London, he’ll soon enough be ‘cracking down’ on the ‘mob’.

Meaningless words

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One of the habits of spin merchants and PR teams is to come up with fine-sounding phrases which have an immediate appeal but don’t actually say very much.  This was always central to New Labour, and given his background as a lobbyist, we should not be surprised if Owen Smith follows a similar pattern.

Even so, his call for a new industrial revolution was something of a classic.  It sounds very dramatic, but what on earth does it actually mean?  The Industrial Revolution was a transition from small-scale craft production methods to large scale manufacturing; it brought about huge changes in life style and conditions.  Yet Smith’s new ‘revolution’ seems, when looked at in detail, to be about the government giving out a few subsidies to selected industries.

And that brings us to a second point - is it even within the power of politicians and governments to bring about significant change anyway?  It wasn’t governments which brought about the first industrial revolution; indeed, it wasn’t planned or co-ordinated by anyone.  Governments, unless they want to take control of the “commanding heights of the economy” as the Labour Party used to argue, can do little more than create the conditions under which others control and take advantage of events.  But the consensus position of Labour and Tory alike has been for decades that globalisation is inevitable and we have to adapt to it.  It is, of course, that very globalisation that they so love which has destroyed so much of the manufacturing industry in the UK.

Whilst I agree with Smith’s claim that previous governments (including the Blair and Brown governments of which this claim is an implicit criticism) have been too reliant on financial services and insecure, low-skilled and low-paid jobs, I’m not at all convinced that it is in the power of governments to rebalance the economy back to manufacturing.  At least, I don’t see it as being possible without the government taking a much more interventionist role in the economy than is represented by throwing a few subsidies around.  Perhaps I misjudge him; perhaps he really is planning to try and control the economy in the way the Labour Party used to believe was possible.  Or then again, perhaps it really is no more than a sound-bite after all.

Who subsidises who?

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I referred yesterday to the impact of flows of people to and from Wales on the size of Wales’ fiscal gap.  It’s a point which is worth exploring further.  Movements of people are complex – not all movements at 65+ for instance are from England to Wales; the best we can say is that there is a net flow amongst that demographic.  Similarly, not all movement of young people goes the other way; again, the best we can do is talk about net movement.

But for the sake of simplicity, and to illustrate a point, let us take ‘Dan’ as a notional example.  Dan was born in Wales, received all his education in Wales, and graduated from a Welsh university.  Failing to find a suitable job in Wales, he took himself off to London, where he enjoyed a reasonable career, working his way up the greasy pole to a middle management rôle before retiring at 65.  He then moved back to Wales, and spent the next 20 years living here, although he was in declining health towards the end of his life and needed a lot of hospital treatment.  He died in a care home in the land of his birth.

Using the GERW methodology (and this is not a criticism; I don’t have a better one to use, and it helps to understand Wales' situation), the cost of Dan’s education was paid for entirely out of the Welsh current account, as was the child benefit paid to his parents.  And when he returned to Wales, his state pension, together with all his health costs in his declining years, were also all paid for out of the Welsh account.  From a purely Welsh perspective, Dan was, overall, something of a net burden on the taxpayer.

However, during his working years, all Dan’s income tax and national insurance, as well as the stamp duty when he bought his various homes and the VAT and fuel duty he paid when he spent his earnings, all went into the English current account.  From a purely English perspective, Dan was very much a net contributor to the state’s revenues.

In a very real sense, in this example, Wales gave England a massive subsidy to pay to train Dan and make him work-ready, and then to look after him when he was no longer productive.  English GDP gained at the direct expense of Wales.  Yet, when a notional fiscal transfer was made from England to Wales to cover the Welsh fiscal gap, many people chose to call that transfer a subsidy to Wales as a result of the largesse of English taxpayers.  It’s a perverse way of talking about what looks to me more like a payment for services rendered.

Of course I’ve over-simplified, and even if the whole of the fiscal gap created in this particular way were to be eliminated, there is reason to believe that there would still be a large gap facing Wales.  But what the example illustrates is the cost to Wales of not having the jobs and salaries which would enable those who choose to do so to stay here and contribute to Wales.  Even if we had those jobs, some would still choose to go elsewhere, and some from elsewhere would still choose to come here.  But surely a reasonable aim of policy would be for the net movement to be at or close to zero?

All the parties in the Assembly elections are talking about creating more jobs, and more highly-paid jobs, in Wales, and it’s impossible to argue with that.  Empirical evidence over recent decades, however, would suggest that it’s a great deal easier to talk about it than to do it.  The question for nationalists is whether we believe that this can ever be achieved under current arrangements or whether independence is in fact, not an impossibility until this problem is resolved but rather a key part of resolving the problem.

Not much of an argument

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It’s not often that I find myself defending the leader of the Conservative Assembly group; in fact it may even be a first.  But yesterday’s attack on him for alleged hypocrisy in accepting payments under the Common Agricultural Policy (CAP) whilst advocating leaving the EU seemed to me to be more than a little misplaced.  I see no inconsistency between arguing for a different way of doing things on the one hand and making the best of the current situation on the other.  It would be unkind of me (although that won’t stop me) to point out that the criticism seems to be coming mostly from his own party, but whoever is doing it, attacking him personally for accepting farm subsidies from the EU which are not currently available from the UK Government is a long way removed from grown-up debate.  

(A more accurate accusation of hypocrisy would compare his support for farming subsidies to well-off farmers such as himself with his opposition to benefit payments for the poorest in society.  When is a benefit not a benefit? The answer, it seems, is that it depends on to whom it is being paid.)

The spokesperson for Davies is entirely correct to say that the money is effectively funded from the UK’s contributions; and those campaigning for a ‘leave’ vote are equally right in saying that, freed of having to pay the money into the EU, the UK government could simply make the payments direct to UK farmers.  There is no magic money tree in Brussels from which the money springs forth, no more than there is a magic money tree in London from which the block grant to the Assembly springs forth.  In effect, making payments to ‘Brussels’ (or any central government) is, in part, a redistributive mechanism; all countries make payments in and all countries receive payments out, but the proportion of receipts is not the same as the proportion of payments.

On the question of the flow of funds to Wales, the ‘remainers’ are repeatedly asking us to accept that we can trust Brussels more than London to pass funding on to Wales.  I happen to think that they are right on that question (which, incidentally, is part of the reason for a nationalist being more supportive of membership of the EU than of the UK); but that’s because I see the EU as being instinctively more redistributive than the UK.  (It’s not as redistributive as I’d wish, but we’re dealing here with the two options which are on the table, rather than what I might wish for.) 

The issue does, though, draw attention yet again to one of the weaknesses of the ‘remain’ campaign.  I just don’t feel that repeatedly telling us ‘you can trust Brussels more than you can trust us’ is the cleverest argument to be putting.  Politicians supporting continued membership of the EU seem almost afraid to put the underlying argument – that of a deliberately redistributive policy – before us, but that is, in essence, the real difference on this issue.  The ‘leavers’ are playing an essentially selfish hand – we can keep all our money and not pay any to those foreigners across the water - whilst the ‘remainers’ are effectively arguing for a system of active aid to the poorest regions of the EU.  But instead of putting that argument of principle, which actually equates Wales with other countries and nations within the EU and argues for the institution in principle, the ‘remainers’ are responding to selfishness by trying to put a selfish spin on their line as well – ‘we (Wales) will do better in than out’.  It’s not an argument which does much for me.

On the specific of the CAP, there’s another point as well.  As a rule, I tend to argue that trying to predict whether something will or will not change in the future is a dodgy business.  In principle, we can no more be certain that the CAP will continue unchanged than we can be certain that the UK Government would simply replace the CAP subsidies with UK subsidies.  I’ll make an exception in this case, though.  Despite the widespread understanding and agreement that the CAP needs to change, there are so many vested interests and obstacles to change that I think we can be reasonably certain that we will see no significant change any time soon.  However, arguing that the EU is sclerotically unable to make necessary changes doesn’t strike me as the most brilliant argument for continued membership either.

Windy Tories

Tweet It was always understood that the subsidy regime for the wind power industry was intended to create the conditions for the industry to mature, and that, when it was sufficiently mature, the subsidies would be reduced or removed.  And that’s not a policy with which I would particularly quarrel per se.

Whether the industry has actually got to that point or not is another matter.  I don’t believe that it has, but I accept that others may interpret things differently; and it’s not a question which has a simple yes/no answer - it's inevitably a matter of opinion, not fact.  It is, though, a question which doesn’t even seem to have been asked before the Tories announced their latest policy on abolishing subsidies if they win the next election.  The announcement seems to have little to do with energy policy as such, and everything to do with what they think will be popular amongst their target electorate.

The closest that they come to serious consideration of energy policy in the announcement is to declare that, if all currently consented turbines are built, agreed EU targets will have been achieved.  That’s one of those statements by politicians which is ‘true’, but completely misses the point.  The objective of using renewable sources is to reduce carbon emissions, not simply to achieve a negotiated EU target which is, by its nature, inadequate to achieve the necessary level of carbon reduction; but as so often happens, the target seems to be being treated as an end in itself.  Achievement of the agreed target is obscuring the objective which the target was meant to promote. It's a common problem with a target-based approach.

I don’t doubt that the abolition of the subsidies to onshore wind will be welcomed by shire Tories, in Wales as in England, who want all the benefits of clean electricity produced ‘somewhere else’.  But the subsidies (and massive ones at that) paid to keep the cost of producing energy from fossil fuels low will continue unabated – basically because the subsidies are not so visible to the end consumer, and the environmental costs of production are elsewhere.  They are effectively proposing to switch the balance of support to more carbon-intensive sources of electricity.

Time will tell whether this is really the election-winning strategy that they hope; but it is certainly not much of a carbon reduction strategy.

(As an aside, it’s interesting to note that, having declined to devolve planning control over wind turbines to the Assembly in the interests of maintaining a ‘national’ strategy for EnglandandWales, they are also proposing to devolve all control over all wind projects to local authorities.  There’s nothing like consistency in politics – and this is indeed nothing like consistency.)

Subsidising coal, oil, and gas

Tweet This report is worth a read.  It’s not exactly recent (November 2013) but it’s one of those things that I’ve only just got around to reading.

One of the frequent refrains of the opponents of wind farms is that they wouldn’t be built if it weren’t for the subsidies.  Take away the subsidies and no one would ever build a wind farm again.  Like all good propaganda, it has the advantage of being true, as far as it goes.  It isn’t the whole truth though, and they get away with it only because the subsidies for renewable energy are more obvious than the subsidies for other forms of energy.

What this report highlights is that when the subject is looked at more comprehensively, it becomes clear that for every £1 spent to support renewable energy, £6 is spent on fossil fuel subsidies.  The total subsidy, just to the producers of fossil fuels (i.e. without counting consumer subsidies) amounted to some $523 billion worldwide in 2011.  The subsidies aren’t always obvious, and take many forms, some of which are set out in the report.  But the basic message is clear – we are paying more to subsidise fossil fuel then we are to subsidise renewable energy – it’s the complete reverse of the claims made by those opposing renewable energy schemes.

Now, of course, statistics can be selected and it’s important to compare like with like.  We also need to consider the state of development of different technologies.

So, for instance, the world uses much more fossil fuel than renewable energy; even if the subsidy per kilowatt hour were to be the same, one would therefore expect a higher total to go on fossil fuels than on renewables.  In fact, given that renewables is a newer and still developing technology, the subsidy per kilowatt hour is generally likely to be higher than in the case of fossil fuels.

That is not, however, enough to “prove” the point which the antis make.  Subsidies – any sort of subsidies – for fossil fuel encourage their continued use, and mean that renewable energy is competing with subsidised fossil fuel and that people are still being incentivised to continue using fossil fuel.  Take away those subsidies completely, and the requirement for any subsidy for developing new technologies reduces dramatically.

So why does it happen?  At its simplest, the governments paying subsidies are afraid of exposing us to reality when it comes to the cost of energy.  Energy represents such a large proportion of household and industrial costs that governments believe that paying the true cost would be an enormous price shock.  So they take all sorts of actions to reduce and/or hide the costs.  We still pay in the end of course through taxation.  We just delude ourselves.

It can’t continue indefinitely though.  Sooner or later we need to face up to the real cost of our demand for energy.  Perhaps then we’ll do what we really need to do, which is to reduce our demand rather than play games with the price.

When is a subsidy not a subsidy?

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I don’t know whether the strike price which the UK government has agreed for the electricity to be produced by Hinkley C is too high or not.  But then, neither does the government know; it’s a long-term commitment and only time will tell.  I’m not alone, though, in suspecting that the real beneficiaries will be the French and Chinese governments, which effectively own and control the companies involved.

The UK government has said all along that new nuclear power stations would not receive any subsidies from the UK government.  In a sense they’ve stuck to that commitment; they’ve merely intervened in the market to fix the price for the next half-century or so.  But the difference between paying a direct subsidy out of tax revenues and compelling consumers to pay an inflated price for their electricity bills is a fine one.  Cutting out the middleman (i.e. the government) doesn’t really make it any less of a subsidy.  It does though alter the nature of the “tax”.  An inflated price collected through electricity bills taxes people based on their consumption rather than on their ability to pay - it’s a more regressive tax when implemented in this fashion.

I’m not sure that it’s the whole story on the question of subsidy either.  What I’ve not seen much coverage of is the arrangements for eventual decommissioning.  In theory, the energy prices are set at a high enough level which allows companies to set aside a sum of money during the operational phase to pay for the work at the end.  But there are two problems with that approach.

The first is the (comparatively!) minor little issue that nobody knows what the cost of decommissioning will be 50 years hence.  And therefore nobody knows how large a fund is needed to pay for it.  All we can say with any degree of certainty is that all those involved have a clear incentive to underestimate rather than overestimate that cost.

The second is a rather more important one – this is simply not the way the capitalism operates, even when the “capitalists” are the French and Chinese governments.  Capitalism makes its profits and then walks away.  I have zero confidence that any arrangements put in place can guarantee that these costs will not fall back on the taxpayer when the plant eventually closes.  And I have a fairly high degree of confidence that all, or at the very least a significant proportion, of those costs will fall back on the taxpayer.

In making the agreement announced last week, the government is not only committing all of us to a hugely increased price for energy and putting a significant and important part of energy generation in the hands of foreign governments; it’s also leaving a big clear-up bill to our children and grandchildren.

Innovative subsidies

Tweet Time and time again, the UK government has reiterated one key message on nuclear energy.  It has pledged repeatedly that new stations will be allowed only “provided they receive no public subsidy”.

The reality is rather different; ministers and civil servants are beavering away in the background, finding ever more creative ways of paying subsidies in disguised form.

The most obvious way in which there will clearly be a massive subsidy to any new nuclear power stations is that the government, or rather the taxpayer, is effectively underwriting the cost of future decommissioning.  They don’t admit that of course, but it’s completely inevitable.  Unless the costs are known in advance (which they’re not) and paid for up front (which the government can’t insist on, not least because they’re unquantifiable), then no private company will ever be able to commit to pay those costs after the useful life of those stations has come to an end.

How could it?  The income stream will have ended; the profits will all have been taken.  The capitalist model of enterprise simply isn’t suitable for a scenario where there are unquantifiable but large costs to be paid for decades after the end of profitable operation.  So, whatever they say now, if new nuclear power plants are built, “we” will be paying the costs.

The second most obvious way of providing disguised subsidies is through price-fixing.  New nuclear power stations will be built only if the government is prepared to guarantee the price which will be paid for all the electricity produced.  For a Conservative government in particular, this is a massive intervention in the operation of a free market – and again, it is we who will be paying the subsidy.

Vince Cable has this week come up with another way of disguising a subsidy as something else.  He launched a new “skills strategy” to provide the specialist training which the companies involved would otherwise have to pay for themselves.

Best of all, in this particular initiative, is that it’s described as part of a strategy to “support successful sectors”.  If they are that “successful”, why do they need government support?

And that is part of a much wider problem, which appears in one form or another on an almost daily basis.  Leaders in business sector after business sector – the same people who are often arguing that the government should cut welfare spending faster so as to reduce taxes on them – are calling for government to spend money in ways which will benefit their businesses.

Whether it’s training, infrastructure, or whatever, these “successful” businesses are all seeking to externalise as much as they can of their own costs, whilst maximising their own profits and rewards.

It might be argued that “that’s what capitalists do” – and that would be an entirely fair point.  It would also explain why pro-capitalist politicians, in all parties, are so quick to support such calls for spending to benefit business.  But why do the rest of us fall for it?

Capitalism is supposed to be about risk and reward; but increasingly the capitalists take the rewards without taking any risks – they externalise those to us.  That is effectively what the builders of new nuclear power stations will be doing – taking maximum rewards whilst sharing their risks amongst the rest of us.  And it happens because they, either directly or through their political friends, have the power - and we don’t.

Hidden subsidies

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Local newspapers across Wales provide an important service to their readers and communities; they are far and away the most popular source for local news and information.  They’re well-read too; often better read within their areas than their larger cousins, enjoying a high level of market penetration.

Many are struggling financially, however, and depend heavily on advertising revenue.  The call from several politicians from multiple parties this week for the Welsh Government not to remove the obligation on Welsh local authorities to advertise traffic orders in local weeklies is entirely understandable in that context.  But, as reported, it seems as though maintaining the newspapers’ revenue is the only reason for making that call, and that makes it sound more like a back-door subsidy than a sensible advertising policy.

There’s nothing wrong with the government deciding that local papers provide such a valuable service that it justifies using public money to keep them afloat.  But it would be far more honest to do that openly and transparently.  Ordering local councils to buy advertising which is otherwise deemed unnecessary would merely serve to create a delusion that the papers are commercially successful when they’re not.