John Redwood's Diary
Cheap energy boosts growth
By johnredwood on July 17, 2024
Cheap plentiful energy is crucial to GDP growth and to the success of any industrial strategy. China achieves it both by relying too much on dirty coal and by buying plenty of discounted oil and gas from countries that are sanctioned by the West for their wars and aggressions in world politics. The USA has achieved it by finding and producing huge quantities of relatively cheap oil and gas for her domestic market, and exporting the surplus to an energy short Europe. Europe has bene lefty struggling with scarce and dear energy. Germany for a time did well out of reliable piped gas from Russia, only to have to make fundamental changes in the wake of the Russian invasion of Ukraine. Relying more on spot market prices rather than agreed long term contract gas proved expensive and troublesome.
The UK has gone for some of the dearest energy in the world by adding to the market costs of the oil, gas and renewable electricity it produces or imports substantial carbon taxes and windfall taxes on producers, and VAT on fuel users. The UK decision to run down its own North Sea oil and gas fields earlier than nature requires has added to costs and imports. The decision to make it difficult or impossible to look for more oil and gas and produce it onshore has added to the strains. The m sot obvious thing a government should do that gives priority to economic growth is to be positive about finding and producing more domestic oil and gas top replace imports. This would not add to world CO2 but reduce it, saving the transport and gas liquefaction generated CO 2 on the imports. A larger UK oil and gas sector would generate a lot of better paid jobs, boost overall UK productivity and contribute substantial tax revenue to the Treasury.
The UK needs to be realistic about the costs of early switching of electricity to renewables from gas. There needs to be more progress globally with improving and lowering the cost of storage of power generated when the weather is good for the purpose. There needs to be proper accounting for the costs of stand by gas power stations for days when wind and sun disappoints. Maybe there needs to be a general move to synthetic fuels s is planned for aviation, so the extra renewable power can be used to manufacture hydrogen and other derivatives that are storable fuels. Green jobs or green led growth will require decisions on what are the winning and affordable technologies and then government assistance in their roll out. Do we, for example, want a full roll out of charging points for electric cars, or would it be better to roll out hydrogen fuel distribution as it will be needed for trucks and could be sued for cars as well, just as petrol and diesel are today.
The immediate task for an Industrial strategy must be to get the taxes and prices for fuel down for manufacturers. The UK is losing its steel industry, has lost all but one of its aluminium plants, is losing ceramics, cement, paper and other heavy energy users thanks to skyhigh energy costs.
The need to reform economic targets to get faster growth
By johnredwood on July 18, 2024
I have written to the Chancellor wishing her success in getting the U.K. economy to grow at the fastest pace of the G7 economies. As she says if we achieve that we can afford better public services and infrastructure. We should also boost the after tax incomes of the many and help business grow profitably.
The task is difficult but not impossible. The U.K. along with the other large European economies in the G7 have fallen way behind the USA in GDP per head, with a much slower growth rate this century. The US has raced ahead on the back of nurturing seven world beating digital giants, going for cheap fossil fuel energy produced domestically which it is also now exporting to Europe, and demonstrating leadership in many areas from pharmaceuticals to defence equipment. The U.K. has higher GDP per head than the EU, and has done relatively better at pharmaceuticals and digital technology than the continent.
I suggest the government look again at the control framework for the U.K. The US has twin targets of 2% inflation and growth in jobs and activity. The U.K. government could regard the 2% inflation target as binding on itself as well as the Bank, as government decisions on pricing public services and managed prices have a direct impact on inflation outturns. It could then complement that with a growth target. 2% would be an attainable improvement on the past. Maybe they would need to adopt 2.5% to give us a good chance of outgrowing the US in the years ahead from the lower base.
Of course government should consider OBR forecasts of debt and deficit, as both need to come down as a percentage of GDP. Relying on their fifth year forecast is not such a good idea, as it is impossible to forecast accurately. If the OBR is too pessimistic it limits unduly choices to pay for a growth strategy.
Polish MEP absolutely dismantles EU Chief Ursula von der Leyen in fiery European Parliament session: “You are the face of the European Green Deal which is destroying the European economy and agriculture, which is leading to Europe becoming an economic backwater”
“You are the face of all the EU’s climate craziness, which leads to us Europeans becoming poorer and poorer”
“Finally you are the face of the migration pact…You are responsible for every rape, every assault & every tragedy caused by the influx of illegal migrants”
“You should go to prison, not the European Commission”
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