Category Archives: Society

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.

Standard
Asia, China, Japan, Politics, Society, United States

The embroilment over the Senkaku Islands between Japan and China…

SENKAKU ISLANDS

Intro: Japan and China, and America’s delicate balancing act

The row between Japan and China over the Senkaku islands is escalating. It has implications for almost everyone.

The Senkaku (or to China the Diaoyu) is an obscure archipelago comprising a tiny chain of five uninhabited islets and three barren rocks, located hundreds of miles from land. To an outside observer this might seem an unlikely prize given the awkwardness of the island’s geographical position, but with everything from oil revenues to regional clout at stake, the dispute in Asia is cause for grave concern.

The history concerning ownership of the islands is important to understand. Whilst Beijing maintains that the islands were claimed by China in the 1300s, Tokyo insists they were classed as an international no man’s land until Japan seized control and took them over in 1895. The political dispute has been rumbling on since the 1970s, but the pressure has steadily increased in recent years as a newly rich and empowered China has sought to flex its regional muscles by attempting to extend its influence in the US-dominated Pacific.

Last year, Japan stoked tensions with the announcement by the Governor of Tokyo of plans to use public money to purchase the islands from their private owner. That hardly gave notice of Japan’s intention to defuse ongoing tensions. Now, though, it is China that has upped the ante. Last week, Beijing declared a new ‘air defence identification zone’ covering a swathe of the South China Sea, including the disputed islands. The order from China requires all aircraft entering the sector to submit flight plans or face ‘defensive emergency measures’. This was always going to be contentious, if not provocative for Tokyo, as the area overlaps with one of Japan’s own air defence zones.

Indeed, Tokyo’s response was swift and uncompromising. The Prime Minister, Shinzo Abe, derided the plan as being ‘unenforceable’ and of having ‘no validity’. Two Japanese long-haul airlines which initially complied with Beijing’s demands were soon persuaded to withdraw their co-operation.

The reaction of the United States, however, has been imperative here. Because Washington has a post-war commitment to the defence of Japanese territory (which includes the Senkaku Islands), and given its recent foreign policy ‘pivot to Asia’, Beijing’s moves are increasingly being interpreted as a test of resolve for Barack Obama and of Mr Abe. America’s orientation towards Asia has stemmed from China’s rising power.

The U.S. has acted decisively. This week, it sent two unarmed B52s through the zone without notifying the Chinese authorities.

In an attempt to pacify tensions being inflamed still further, the Pentagon quickly claimed the flight was a long-planned training mission. For many analysts, though, the message is crystal clear – particularly given that it came days after the Defence Secretary, Chuck Hagel, denounced Beijing’s move as a ‘destabilising attempt to alter the status quo in the region’. Mr Hagel stated, too, that American military operations or its foreign policy on Asia would not change.

America’s intervention and move has been the right one, simply on the premise that China cannot be allowed to throw its weight around. If Beijing has a case then it must be sought through the correct legal channels, not implemented and administered unilaterally because of its desire to control.

Japan must also bear some responsibility in provoking tensions as flashpoints have become commonly frequent. In equal fashion it has shown itself too ready to indulge in rhetorical chest-beating with Mr Abe at times exhibiting disturbingly nationalist leanings. For the U.S., maintaining regional balance is paramount, and it should not been seen to be endorsing posturing from either side.

The diplomatic task facing the US in Asia is as difficult and perilous as any it is currently faced with. The Senkaku Islands may be just a few distant and remote rocks, but the chances are they could become the fulcrum upon which one of the greatest challenges of 21st century geopolitics lie. With both Beijing and Tokyo under growing domestic pressure for a show of strength abroad, and with the inevitable disruption that China’s economic rise will cause, America must be sure of its approach in maintaining regional balance.

At the heart of the dispute are eight uninhabited islands and rocks in the East China Sea. They have a total area of about 7 sq km and lie north-east of Taiwan, east of the Chinese mainland and south-west of Japan's southern-most prefecture, Okinawa. The islands are controlled by Japan.

At the heart of the dispute are eight uninhabited islands and rocks in the East China Sea. They have a total area of about 7 sq km and lie north-east of Taiwan, east of the Chinese mainland and south-west of Japan’s southern-most prefecture, Okinawa. The islands are controlled by Japan.

Related issue:

In response to an article published on The Economist, dated 20 October, 2012, entitled: ‘Rattling the supply chains’, MD wrote:

‘The simmering tensions between Beijing and Tokyo over the Senkaku islands has prompted questions over what the high-profile dispute could mean for proposed trade talks between Asia’s two largest economies and South Korea, as well as for regional trade overall.

An announcement in May of this year was made of plans to open formal trade negotiations between Seoul, Tokyo and Beijing. They agreed to begin the talks by the end of 2012 but this deadline has lately been called into question, with many analysts believing that two of the three parties might not even make it to the negotiating table.

The tensions between China and Japan stem from a territorial dispute over a series of tiny islands in the East China Sea, an area to which both countries have now laid claim. The islands – known as Senkaku in Japan and the Diaoyu in China – have symbolic significance, with their surrounding waters said to be rich in natural gas deposits.

The row, which has intensified rapidly in recent weeks, reached new heights in the past few days when Chinese finance officials pulled out of attending annual meetings with the IMF and World Bank that were being hosted by Tokyo. How the disagreement will be resolved remains unclear, as well as what the broader trade implications could be. The tri-lateral trade agreement with South Korea, for instance, might be under threat.

However, despite their disagreements, Chinese and Japanese officials have made clear that the proposed free trade agreement could have major benefits for both economies. Regardless of his insistence that his country will not cede sovereignty of the disputed territory, Japanese Prime Minister Yoshihiko Noda has openly acknowledged the value of eliminating trade barriers with Asia’s most powerful country. In the last decade alone, trade between the two nations has tripled, reaching more than $340 billion. A continuing row is not only likely to damage what has been a healthy relationship over the past ten years but could prove troublesome for the wider Asia region. Regional trade could be affected; ties between many countries could radically change because, invariably, any major trade relationship will always involve Japan and China.

Some of the predicted effects are beginning to surface. Japanese car exports to China have suffered since the dispute began and according to the latest JPMorgan Chase projections, could decrease by as much as 70 per cent in the final quarter of this year.’

Standard
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.

Standard