Category Archives: Government

Britain, Economic, Energy, European Union, Government, Politics, Society

Reduction in energy bills following the removal of green levies – a step in the right direction…

ENERGY BILLS

Householders will be somewhat relieved to hear that the UK government will be pegging back the recent increases made to electricity prices by all the major suppliers. The reduction is being made because the government is removing some of the green levies applied to bills to pay for policies designed to either reduce energy use or to encourage renewable energy development. These levies can be as much as 11 per cent that are directly added on to domestic bills. The impact of green levies on suppliers is to be lessened and the savings passed on to consumers. Utility bills will still go up by an average of around £70, rather than £123, a saving of about £50 this winter.

Changes are being made to two of these levies, the Energy Company Obligation, which commits energy firms under statute to assist with the costs and installation of better insulation, and the Warm Home Discount, which reduces bills for elderly consumers over 75. The idea is to transfer some of the money raised to pay from these schemes to general taxation so the taxpayer rather than the energy consumer foots the bill.

These charges are not being scrapped, but diverted. According to Ed Davey, the Energy Secretary, this will cost the taxpayer somewhere in the region of £600 million. The problem, however, goes much further than the bills themselves. Whilst Labour have proposed a freeze or cap on bills from 2015, this is wholly unrealistic since energy companies cannot control wholesale costs and will be required to invest for the future. The dilemma of market failure arising, something which is still to be investigated, will be attributable to Labour – because when the party took office in 1997, there were 17 companies in the energy sector that kept the market competitive. By the time Labour left office in 2010, there were just six remaining. Most analysts now perceive the energy market as operating like a cartel where energy prices are effectively rigged.

All the main political parties must share some responsibility for the confusing mess that passes for an energy policy. They are now engaged in a political battle over who can promise the lowest prices. Yet, the biggest problem concerns energy security.

Next winter looks certain to be affected by a coalescence of factors that will alter the capacity of the electricity system. A recently published report from the Royal Academy of Engineering suggests that the mothballing of gas-fired power plants and decarbonisation targets could lead to a ‘significant reduction in the resilience of the system’.

Undoubtedly, the cheapest way to generate electricity at the moment is by burning coal. The global price of coal has dropped substantially in recent months as coal mines in many parts of the world, including America, remain under-exploited. Yet, amendments to the UK Energy Bill are expected to force coal stations to close earlier than planned. In addition, there are also doubts in the medium term over the nuclear power programme planned at Hinkley Point, with questions in Brussels over the payments of subsidies to French and Chinese companies. Future supply, then, is the critical issue: energy consumers may be pleased to see their bills go up less than originally planned, even though many will still be paying for it through taxation. But they will be appalled if the lights go out. And for those who believe that green energy is greatly over-valued will complain that the government is just shifting the burden from one set of people to another.

The finer details of the changes also reveal that homebuyers will become eligible for a £1,000 contribution towards insulating their new home. Mr Davey has said this will be paid via a reduction in the stamp duty paid on the purchase price.

The changes to energy bills might just cause the energy companies and the government to be more transparent about exactly what makes up the unit price of gas and electricity on our bills. Hopefully, that might lead to them being more sensitive to that information, delivering consumers a far better deal in the longer term.

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European Union, Government, Politics, Scotland

Scottish Government’s white paper on an independent Scotland published…

SCOTLAND

The Scottish Government’s white paper that runs to 670 pages is an insight into what an independent Scotland will look like. The Referendum for Scottish independence will be held in September 2014.

The Scottish Government’s white paper that runs to 670 pages is an insight into what an independent Scotland will look like. The Referendum for Scottish independence will be held in September 2014.

For all the pro-Unionist harping, it could never have been expected that, for all its length, the independence white paper could provide clear, definitive answers on many key issues including the status of our membership of the European Union.

Scotland’s First Minister Alex Salmond, like many of us, will be convinced that the EU would wish for a resource abundant independent Scotland to be a member. The assertion that Scotland should continue to be regarded as still being within the EU while negotiations are held on the terms and conditions of our membership as a separate state are pointedly correct, though Unionists will probably play hard and fast with the notion that conviction and assertion are not the same as hard and fast constitutional fact. Yet, the United Kingdom itself has no written constitution.

Mr Salmond’s assertions have also been challenged by comments last week from the Spanish prime minister, Mariano Rajoy,  to the effect that, if a ‘region’ opted to leave a member state, it would ‘remain outside the European Union’. It would then, he added, require the agreement of all 28 EU members before it was allowed to join. Scotland, however, is not a mere extension or region of England but a country in its own right. Mr Rajoy has missed the point completely, though he may have been speaking bluntly and loudly enough for Catalan nationalists to hear what he was implying. Whether he speaks with the authority of the Treaty of the European Union (TEU) behind him is highly debateable.

Of course, numerous voices have been raised and will continue to be raised in support of the premise that a region choosing to secede from a member state automatically ceases to be part of the EU. Consider the comments made by José Manual Barroso, the president of the European Commission, or Romano Prodi, his predecessor, to the effect that a secessional territory ‘would no longer be a member.’ Or the unequivocal statement, too, from Viviane Reding, commissioner in charge of justice and vice-president of the Commission, who wrote to the Spanish government last year insisting that… ‘Catalonia, if seceded from Spain, could not remain in the European Union as a separate member’.

But, according to Articles 49 and 50 of the TEU, the EU Commission has no say in who ceases to be a member or becomes a member. This is a matter that is entirely left to the European Council and the European Parliament. The First Minister might invoke Article 48 of the TEU which provides for treaty amendment in the event of the council failing to unanimously agree, though any such change would still require agreement ‘by common accord on the part of the representatives of the governments of the member states’. Here, Spain may invoke its right to exercise a veto. None of this immediately precludes Scotland becoming a full EU member, but it is a hurdle Mr Salmond will need to clear if Scotland is to retain full EU membership rights if negotiating after a Yes vote following next September’s referendum on whether Scotland should become an independent country.

Unionists have been knocked down a peg too when it comes to the other thorny issue of a currency union. Bank of England governor Mark Carney says he would welcome the opportunity to hold talks with the Scottish Government. Mr Carney is the only person within the British establishment thus far that has had the decency to admit such dialogue should take place. Other than Pound Sterling being as much Scottish as it is England’s apparent inalienable right to continue using sterling after Scottish independence, Mr Salmond’s government should accept this opportunity with alacrity and get round a table with Mr Carney and officials from the Bank of England.

– The writer seeks an independent Scotland

Get your hands on a copy of Scotland’s Future:

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Banking, Britain, Business, Economic, Financial Markets, Government, Society

Banking practices of the Royal Bank of Scotland referred to City regulators…

DAMNING REPORTS

The latest accusations being levelled at the Royal Bank of Scotland are as incriminating as any in its recent chequered history.

Small and Medium Sized Enterprises (SMEs) have long complained that they cannot get the loans they need, despite protestations by the banks to the contrary. A newly released report from Sir Andrew Large, a former deputy governor of the Bank of England, on the bank’s small-business-lending, confirms that much of the criticism levied at the bank in recent times is justified and the taxpayer-rescued institution must explain why it has not been doing all it could to assist Britain’s economic recovery. In normal circumstances, such practices would be worrying enough for the newly installed chief executive of the bank, Ross McEwan.

But these are not normal circumstances; Mr McEwan is also faced with a more troubling contention. According to another published document from Lawrence Tomlinson – deemed a successful businessman and ‘entrepreneur in residence’ at the Department of Business – RBS may have sunk to even greater depths in its condescending and haughty treatment of Britain’s SMEs. Contemptuous, because not only has the bank been transferring perfectly legitimate and profitable companies into its high-risk Global Restructuring Group (GRG), but the West Register (the bank’s property division), has reportedly been acquiring their assets on the cheap after imposing deliberate and exorbitantly high fees on them. Many companies in this high-risk category, deemed perfectly viable, have been unable to pay these fees imposed and as such have found themselves having their assets taken over by the bank at heavily discounted prices.

Both these reports must be put into context. Prior to 2008, RBS had been reckless over a number of years in its dealings, over-extending loans to many small firms that did not justify such levels of confidence. As the bank now struggles to repair its balance sheet, bad debts are continually being written off and lending practices have been tightened.

The findings contained within these reports have left many feeling aghast, not least Mr Tomlinson himself. His inquiries and formal deliberations suggest something altogether more serious. Vince Cable, the Business Secretary, has acted quickly and sent the evidence to City regulators. For his part, Mr McEwan has called in the law firm Clifford Chance to conduct an internal review of the bank’s practices. Such deviant and acute methods would be inexcusable from any bank, but from one that is largely owned and controlled by the state makes matters even worse.

COMMENT & ANALYSIS

The claims made in Lawrence Tomlinson’s report into the way the Global Restructuring Group at the Royal Bank of Scotland has dealt with struggling enterprises are truly dire.

It rightly is a matter that needs to be examined by the regulators the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

Forcing struggling firms into insolvency when there may have been a chance of survival is bad enough. Ruthlessly seizing property and assets for its own gain is immoral and much worse.

Yet, should we be surprised? RBS had a hand in almost all the post-crisis scandals, including Libor fixing, interest rate swaps and the sale of payment protection insurance. The bank is also being sued by investors for failing fully to disclose the parlous state of its finances ahead of the £12bn rights issue to shareholders in 2008.

Tomlinson and the Department of Business also have some questions to answer. The in-situ ‘entrepreneur in residence’, for example, is a little mysterious. How was he chosen for this appointment, what is the scope of his role and how much did he tell civil servants and the Secretary of State, Vince Cable, about his own business affairs before he took on this rather curious role?

What also of the poor judgement by Tomlinson not to disclose that NatWest, RBS’s main operating offshoot, had granted him an overdraft and that in the last couple of years he was engaged in a major refinancing operation? Financial analysts will find it extraordinary that this was not considered a relevant factor either by Tomlinson or the Department for Business, and that it was not disclosed in the report. Making a strong case against the predatory behaviour of RBS is one thing, the dealings and judgments of Mr Tomlinson are clearly and significantly related.

The published accounts of Tomlinson’s business LNT Group are, even by the standards of many private empires, on the opaque side. They show a group that is indebted and making losses, with a host of intercompany relationships that are difficult to untangle.

The main product of Tomlinson’s dealings looks to be the design and building of new care homes, something the UK badly needs. But this is a notoriously difficult sector in which to operate – as was seen from the fate of Southern Cross – and management often has to choose between keeping costs under control and maintaining high standards of care.

Before giving Mr Tomlinson a government imprimatur one should trust that Vince Cable and his Department looked carefully at all his dealings before approving the appointment.

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