Another fantasy Budget based on guesswork
Ah, those Budget traditions. Where would we be without them? Top of the list must come the Augustinian projection for the fall in the gap between spending and income, a mysterious process whereby a few years out it magically falls close to zero. This has not actually happened since Gordon Brown claimed to have balanced the Budget by fiddling the figures, all those years ago, but here it is once more. At least with Brown, you knew whose Budget it was. Rishi Sunak’s is, essentially, his master’s voice. The idea of treasury independence is laughable.
On the published charts, there is nothing so vulgar as actual numbers, merely a projection of both government income and spending as a percentage of future gross domestic product, itself a guess, or estimate as the Office for Budget Responsibility prefers to call it. Its first estimate is for a Panglossian 6.5 per cent growth figure for the current year. It is a measure of how the OBR is now viewed as the nearest thing we have to an economic oracle that this remarkable figure has not been widely questioned. Where the Treasury forecasts were (obviously) an inside job, the OBR stands slightly outside the process, transferring its credibility to the chancellor of the day.
Its latest projection is positively glowing, especially when set against its last one, made in the gloom of last March, when the 2021/22 deficit was going to be a pandemic-driven 10.3 per cent, followed by an unsustainable 4.5 per cent for 2022/23. The last financial year turned out to be less ghastly than feared (a 7.9 per cent deficit) and this year’s 3.3 per cent looks manageable, assuming its growth estimate is right. Thereafter, the magic is set to work, with the deficit falling to 2.4 per cent, then 1.7, and finally to a mere 1.5 per cent by 2026/27.
These are, remember, projected percentages of projections, which is why nobody believes the later numbers. They are just there to show how responsible the government intends to be, other things being equal. Things never are, especially with a financially incontinent prime minister, a chancellor too weak to stand up to him, and the next general election to win. Still, we take great comfort in the ritual projections. Along with the traditional aspiration to roll back the state, it’s just part of the Budget show, after all. St Augustine would understand.
Drax it! We’re not green after all
They feel rather hard-done-by at Drax, owners of what used to be Britain’s largest coal-fired power station. Just when they should be flaunting their charms at the Glasgow greenfeast, along come the spoilsports from S&P, the ratings agency, and drop the company from their Global Clean Energy Index. The compilers have now decided that Drax isn’t really green after all. Given the company’s immense efforts to stop burning any more of the coal beneath their feet, the Draxers are understandably upset.
So far, this setback has not been translated into damage to the shares of this £2bn company, which boasts of providing 11 per cent of the UK’s “renewable” electricity. Perhaps it’s just a slow-burn reaction, but S&P is not the only outfit questioning whether brown might be a better colour to describe the new, coal-free Drax. An outfit called Ember has decided that Drax’s Selby plant is the third-largest emitter of CO2 in Europe, after Belchatow in Poland and Neurath in Germany, both burners of low-grade coal.
The trouble is, Ember may have a point. Instead of coal, Drax now burns wood, which is not obviously a better fuel than coal for CO2 emissions. The trees are cut in north America, turned into wood pellets, shipped across the Atlantic and stored in carefully-controlled domes (lest the pellets spontaneously combust) before going into the old coal furnaces. Under the UK rules, the trees are considered as renewable – which they are, of course, if you wait long enough – and so this bizarre process attracts grants (about £800m so far, and counting) and allows electricity supply companies to claim they are selling green electricity.
So how green is green here? Not green enough, say S&P, although navigating through last month’s “consultation on index universe expansion” is enough to make anyone go green about the gills. Drax is advertising enthusiastically that it is part of the solution rather than the problem, but its whole process looks uncomfortably like subsidy farming. Not a great basis on which to build a long-term business.
The name’s Bond, Aston Martin Bond
The buyers of shares in Aston Martin Lagonda at the launch three years ago have discovered the hard way that dreaming can be expensive. Successive falls in the share price and recapitalisations almost wiped them out. Now we are being offered another way to risk our money on this iconic brand name in the form of bonds to help finance Aston’s new HQ at Silverstone. Fortunately for the Aston Martinista, the return on the bonds does not depend on their actually winning anything in the ferociously competitive world of Formula One. They carry a coupon of 7 per cent, last for five years, and if the demand is there, could raise up to £250m. The risk is even higher than the performance of the cars, and the near-100-page prospectus seems almost designed to discourage buyers, in contrast to that of the share sale. Seems about right.