Anthony Peters, SwissInvest strategist
Party conferences rarely, if ever, make it into the news outside the country in which they take place and party conferences of opposition parties in non-election years are of even less relevance to foreign readers. Nevertheless, I suspect that that Red Ed’s barnstorming speech at this year’s conference of the UK’s Labour Party might be different.
Please let me summarise. (UK readers might choose to switch off here as print, broadcast and social media are already groaning under the weight of comment but, alas, here we go.) The Rt.Hon. Ed Milliboy has already been found scouting around the fringes of what was once the Blairite centre-centre-left in order to recreate left-left-centre politics and now fairly simply declared that he wanted to reintroduce socialism into Britain.
From expropriating house builders of land banks they haven’t built on (highly populist) to increasing taxation on the banks (even more populist) to freezing domestic energy prices for the first 20 months after an election victory (populism verging on demagoguery) and lowering the voting age to 16 (cool, man, if I can get out of bed), it was all there.
It sounded to me as though we had been transported back to the 1970s and had Ed been wearing a polyester suit, a kipper tie and been sporting a perm, it might have been. The rapturous applause in the hall came from the hands of largely the same audience of party faithful which had not so long ago given Tony Blair his standing ovations.
So, there we are. The headline grabber was of course the promise to freeze household energy prices. How cool is that? The reaction has been swift and, with exception of the left wing press which was cautious and which tried to focus on the other parts of his speech, uniformly dismissive.
I admit that, as a market animal, I have a natural scepticism when it comes to governments trying to intervene in price formation but I can understand their desire to do so.
However, energy is a bad place to start.
Capping investment
The globally determined short-term price volatility married to the long investment cycle are difficult enough to manage without having Red Ed on the barricades. He served in the government of that invisible Scotsman who abolished the boom and bust cycle and who saved the world as Secretary of State for Energy and Climate Change which means to me that he should know better, especially since he was materially involved in insuring that such a large part of the overall domestic energy bill is made up of central government taxation and anti-greenhouse levies.
All across Europe, the energy infrastructure is ageing and a significant increase in capital expenditure will be needed in the coming decade. Capping revenues is not conducive to fostering capital investment and, should wholesale prices rise and push companies into an operating loss, they’ll surely be tempted to simply switch their generators off. Let there be darkness!.
Efficient allocation of capital theory aside, any sniff of capital invested in utilities not being correctly rewarded on a risk-adjusted basis and it will happily go elsewhere. Next step, nationalise the energy companies, that is the means of production. Still no cash? Nationalise the banks, that is the means of exchange…..and so on and so forth. I was thinking of dubbing the Labour leader “Mollande” but next to him the French President is suddenly beginning to look like a neo-centrist revisionist as today’s budget announcements are likely to demonstrate.
France is currently estimated to have a tax burden to GDP of around 45% as opposed to Germany at 40½% and the UK at 39%, Switzerland at 29½% and the US at 27%. Look at these numbers and try to create in your head a table of where private sector job creation is at its most vibrant. I rest that particular case.
I might be a bit old fashioned but I know that austerity doesn’t work. I also know that deficit spending doesn’t work. Conservatism doesn’t work and nor does socialism. People work. It’s not a shortage of opportunities which creates inequality but the differential in motivation. You can offer, or even enforce, the former but the latter is out of anyone’s control, other than that of the individual concerned but I shall desist from becoming ideological on the matter.
On a more practical note, Milliboy very conveniently forgot to mention that UK domestic gas prices, as high as they are, are amongst the very cheapest in Europe and electricity pricing is also more than just fairly competitive. Maybe I should forget trying to compare him to Hollande and should think more along the lines of a mix between King Lear and King Canute. Well, he has to win the next election first and that is a year and half away.
Away from politics, the Case Shiller was ever so mildly below expectation but still pretty much in line. It looks as though the American recovery is decelerating without showing any imminent signs of wishing to go into anything akin to reverse.
With Tuesday having been nearly as quiet as Monday which had been just as quiet as Friday, there is certainly hope that Wednesday will be a bit more inspiring.