Start fracking. Stop Green Levies.
Updated: Mar 2
Liam Halligan is economics and business editor of GB news. As part of his series "Money Talks" , Liam talks to Steve Baker the Conservative MP for Wycombe. Steve comes from a background which he describes as "ordinary" and "normal" with working class parents, and he is suggesting a more realistic approach to net zero.
The cost of living crisis is a huge issue with the consumer price Index at 5.5% in January 2022. For poorer people the energy price spike will be a huge hit and the amount they spend on food is disproportionately higher. Also, house prices have soared. "We should be looking at how price rises and inflation hit different income groups" he said.
Steve Baker says that enormous sums have been spent throughout the coronovirus crisis. The government only been able to do it because the Bank of England was willing to buy all the bonds it issued. So the Government wasn't actually borrowing money from savers. It was borrowing from a bond market where traders knew they could sell those bonds to the Bank of England.. This meant that the price of the bonds was bid up. The Bank of England didn't worry though because it "printed" shed loads of new money to buy those bonds from traders. Of course, that new money isn't actually printed. It is just a number .... a new balance typed in on a computer. A House of Lords report thought that this might be a dangerous addiction?
We have seen this before with the mortgage market when the amount of money loaned out tripled between 1997 and 2010. Eg: If you asked for £100k then the bank simply creates the debt by typing a balance on your account. They certainly didn't go to their vaults and come back to you with a wheelbarrow full of money for you to go buy a house with. Andy Haldane (former chief economist for Bank of England) has long been saying that this is a bubble waiting to burst.
If inflation comes in and stays in, then under the current mandate, the Bank of England must raise interest rates and reduce money creation. This will burst the bond market bubble. In other words the Government won't be able to print any more new money to buy bonds. Instead they will have to slash spending or change the rules (the mandate) of the BofE so that it will be able to continue to "print" money . We might end up in a very serious situation and we won't know what to do.
Liam questions what the Gov will do? Surely the Gov is going to have to take action to temper the impact of cost of living crisis on ordinary households prior to important local elections in May 2022? Baker says that with ,people would think that Chancellor and Prime Minister would want to abandon the national insurance hike, also take the green levies off energy bills, and also think hard about ways to avoid the anticipated 7% inflation rise. He feels that Boris Johnson is happy to spend without covering it with taxes whereas Chancellor Rishi Sunak is more fiscally conservative.
Baker commented - Sunak is experienced in business, and definitely understands financial system and economics . Tories need to remember what the condition of their constituents is with wages half that of most MP's. Also Government is too big with too many taxes. Politicians make promises that they cannot cover with taxes. Baker would like to see green levies on energy bills scrapped and moved on to the taxpayer so that any subsidies are is a treasury problem. . VAT reduced but it would imply reductions in public spending. Politicians should become more honest about how public services are funded.
Baker says that we need nuclear, We also need gas power stations to cover the gap between renewables and nuclear (especially when the wind does not blow)! . We are sitting on a gold mine of shale gas which we could make us energy secure if only we allowed fracking. Energy costs are high because of Government regs, Some of the energy companies that went bust had lowered their costs to customers by not worrying about what the cost of gas to themselves might be in the future. Costs of energy firms that do go bust are shared amongst surviving companies.
It is madness to think that we can raise taxes to further bale people out from energy costs which are high because of Government decisions and regulations.. We need to change the energy regime now in order to get good quantities of gas.