UK economy: grim now, better later

There’s nothing like a spot of rebranding to cover the skid-marks from a policy U-turn, so it’s farewell to the Oil & Gas Authority, and a warmish welcome for the North Sea Transition Authority. Transition, see? We’re not going back on our previous pledges about oil and gas, but we are transitioning away from the black stuff, complete with new logo, notepaper, HR staff and (doubtless) swishier desktops. Almost simultaneously, Shell signalled that it may be transitioning back to the Cambo field, that North Sea prospect the company abandoned as uneconomic. Never mind that the oil price had risen by a half since it first decided Cambo was worth doing; that was then, this is now.

Now, the extent of the financial pain we must endure to stop the physical pain being inflicted on Ukraine is starting to become clear. If the West is going to save this benighted country, living standards here are going to take the biggest hit in 40 years. But rather than try and set the conditions for the growth which the UK needs, the Chancellor is sticking to the ferocious rise in corporation tax, the gesture of 5p off a litre of petrol, and the widely-criticised 1.25p rise in National Insurance contributions (plus the other 1.25p from employers).

The nonsense of proposing to cut 1p off income tax next year did not escape the Institute for Fiscal Studies. Not known for its hyperbole, the IFS describes the chancellor as a “fiscal illusionist.” Bringing the two income taxes to the same starting point is long overdue, but raising one while cutting the other just seems perverse.

Much more important is the political gamble from the tyrant in the Kremlin. His analysis that the Nato nations are not prepared to do more than offer tea, sympathy and clever weaponry to save Ukraine looks more ragged by the day. He had calculated that we may be outraged today, but that we lack the attention span necessary for a war of attrition, and that the atrocities will quickly fade onto the foreign pages of the papers and After The Break on the TV news.

Ukraine’s misery would give way to the routine domestic drama of the poor being unable to afford to boil their potatoes, the antics of the Metropolitan Police, abuse in care homes or the permanent crisis in the NHS. As the months tick by towards the next election, it becomes progressively harder to sustain a commitment to the austerity needed to win the great crude oil war.

So far, Putin has miscalculated spectacularly, but when it comes to suffering, the Russian people have practiced beyond anything seen in western Europe for 70 years. It is unlikely that the lack of a Big Mac, or a further 10 per cent off already pitiful living standards, would impact their stoicism. The harder question is whether western Europe can bear the pain of the £2 litre of four-star and roaring gas bills without widespread strikes or the collapse of an oil embargo once the war is off the front pages.

The prize, should we prove able to bear a lower standard of living long enough, is an emasculated regime in Moscow, a Ukraine free to build back better, and the prospect of falling oil and gas prices. With or without Russia, cheaper energy will drive economic growth.

Covid has done more to modernise the UK economy than half a dozen Budgets like this one. Economic value is being added from sitting in front of computer screens in a way which would have seemed absurdly futuristic even at the start of 2020. That most sensitive of signals, the stock market, is anticipating a much more prosperous future than the standard indicators used by chancellors are implying. At the same time, the state is able to borrow very large amounts cheaply, despite the prospect of rising Bank rate and quantatitive tightening from the Bank of England.

This coming financial year is going to be horrid. Provided we can bear it, next year could be rather good. It is also, of course, the year we run up to the next election. Funny thing, eh?

Someone’s got to be summoned

There is a lot wrong with Britain’s housebuilding industry. Shoddy homes, financial sharp practice with ground rents, the creation of lifeless estates from green fields, and a cartel of the big beasts, according to Michael Gove, the housing minister. Steady on, that’s jolly unfair, the builders protest as one (so to speak).

This implies we get together to fix prices, a suggestion that the CEO of the Home Builders Federation says is “entirely unfounded“. It does seem a bit much when collusion is hardly necessary, given that price transparency comes with the territory. Gove’s comments are part of the cladding wars, raging as a result of the Grenfell disaster, where investigation has revealed structural cracks in the building regulations which will take billions of pounds to fix.

The problem for the half dozen companies which dominate the industry is that they make such easy targets. They have already committed to cover their own remediation costs – they could hardly do otherwise, short of going bust – but they are drawing the line at paying for the sins of other developers who have long since taken the money and run to somewhere beyond Gove’s reach.

To concentrate their minds, he has threatened that they might be refused planning permission for their next estate if they don’t pony up by the end of this week. In some ways, this might be a good thing, allowing others into the business with different, and perhaps better, ideas of how to build new houses. However, failing to take responsibility for the failings of others would be a legislative novelty. At the very least, the courts would give Gove a run for our money.