The Renewables Stealth Tax

The Non-Fossil Fuel Obligation (NFFO) was introduced by the Conservatives to subsidise nuclear power.  It was replaced by the Renewables Obligation (RO), which excludes nuclear power but buries windmills and other renewables in money.  The Renewables Obligation, in particular, is rather complicated (I've got in trouble before trying to calculate its value) so the Government couldn't effect a neat transition from the NFFO to the RO.  As part of the transition the Government have wound up making a bit of a profit out of some old NFFO contracts.

The Guardian smell a scandal and reported the story today, with condemnation of the windfall from the Conservatives:

"Last night Charles Hendry, the Conservative shadow energy minister, accused the government of using the scheme as a "stealth tax" and warned it would further damage public confidence in environmental measures."

I think this rather misses the point.  The fact that the Government are putting some of the revenue into the general pot doesn't really affect whether it is a stealth tax at all.

The Renewables Obligation imposes a levy on electricity companies who have to buy Renewable Obligation Certificates (ROCs) for a certain percentage of the power they generate.  It is a tax and a pretty hefty one.  It it worth just short of a billion at the moment, more than the Climate Change Levy.  It's just that the revenue is hypothecated and placed straight in the pockets of renewable energy companies.

The sums involved are staggering.  For comparison, in the United States the Energy Information Administration have revealed the subsidies provided to different types of power:  About 25 pence per MWh for coal and about 14 pence per MWh for gas.  Renewables are treated far more generously and receive around £13 per MWh.

At the last online, business to business, auction by e-ROC the average ROC price was £53.27.  A renewable energy company will get one ROC for every MWh they produce.  That £53 is a truly massive subsidy and isn't the only financial advantage renewables are given.  They also get exemptions under the Emissions Trading Scheme and the Climate Change Levy.

All this costs ordinary people a fortune.  Climate change policies constitute 14% of the average domestic electricity bill and 21% of the average business electricity bill.  How many people know that they're paying that much?  That the Government could cut electricity bills significantly overnight if they scrapped these policies?

Is the shocking stealth tax the relatively small amount that the Government are creaming off, where there is at least a small chance it will be spent on something worthwhile, or the huge amounts being pocketed by renewable companies?

Google Chrome

I installed it earlier and it is pretty cool.  Firefox always frustated me, it just seemed clumsy and not quite formed.  I reverted to Internet Explorer.  Explorer does some funny things, though.  It could never quite handle Google Mail reliably.

Google Chrome has a neat, sparse interface and so far it seems to run more cleanly than either of the major browsers.  Good stuff.

Nationalising mortgage lending

A few days back Chris Dillow asked whether mortgages should be nationalised.  After all, innovations in the market haven't exactly turned out well.

I think the missing component in his analysis is risk.  This means, in extremis, what happens when your state goes all Northern Rock?

Politicians and bureacrats are further from playing with their own money than company directors.  Beyond that, they have the taxpayers' pocketbook to play with which makes it less likely a crisis will be restricted to a small one when they are unable to finance attempts to buy themselves out of trouble.  Of course, it would be possible to try and set up the institutions to prevent this happening, by creating artificial little state mortgage companies or giving the power to councils perhaps, but those sorts of walls are always made of paper and collapse under the weight of political pressure.

The root of the current problems in the mortgage market is that those managing it bought their own hype that they had got so good at managing financial risk that they could lend incredibly aggresively.  They were massively over confident.  This is a problem that the public sector is entirely vulnerable to.  The Great Leap Forward is, perhaps, the apogee of lunatic belief that you have cracked some secret and can now ignore basic precautions against disaster.

It seems likely to me that nationalising mortgage lending would lead to fewer minor crises but more frequent complete catastrophes.

Some more reasons to dislike wind power

1.  EU Referendum welcomes a BBC report which goes some way towards acknowledging that Denmark's wind power experiment shouldn't be replicated, particularly in the UK where we aren't connected into other countries and, therefore, able to sell off excess wind energy (at a massive loss) like the Danes do.  Alas, it won't be possible for us to emulate their expensive and surprisingly high emission (primarily because they banned nuclear they emit more greenhouse gas per ton of oil equivalent) energy.

2.  Some great facts in this video, via Iain Murray:

It is a good video.  It sets out how utterly impractical the idea of generating all our power from wind is (the numbers are from the States but I think it scales pretty well).  Funnily enough, though, it actually chooses the standard most favourable to wind, the amount of power produced.

Unfortunately, we don't just need power, we need it when we want it.  Unless we're willing to accept the lights going out on a cold, still evening (and there are lots of those, see page 13 of this PDF).  In that regard wind is nearly completely useless.  So, unless you outsource the need to produce reliable power to other countries (like Denmark) or are prepared to accept the massive cost and reduction in efficiency that comes with maintaining huge quantities of back up power 

Increasing the stamp duty threshold

Well, it's here. The incredible economic package that is going to turn around the Government's electoral fortunes.

There are measures to help out some families facing repossession but the headline policy is that for a year the stamp duty threshold has been raised from £125,000 to £175,000. Stamp duty works on a slab basis so all this is meaningless for any home purchase outside that band (i.e. most homes in London and the South East). Putting this plan into action will cost around £600 million.

It won't do much to help the property market. There are too many other, much more important, variables at play. As Chris Dillow has shown Lamont's stamp duty holiday didn't do much for the market in 1992.

There is no particular reason why the Government should want to prop up house prices anyway. High prices that kept young people off the ladder were hardly a great social boon.

Does that mean pushing the threshold up is a bad idea?

Not really. This will, at a fairly low cost in the grand scheme of things, be a considerable boon to a lot of young families on the early rungs of the housing ladder. They will be able to keep £1,750 of their own money that the Government would otherwise have purloined. People in that situation often have a great many financial strains: taking care of a growing family or just furnishing their new home. £1,750 would make their lives significantly easier and helping them out is a legitimate social objective.

Nick Robinson asks "who pays?"

Well, at last year's budget public spending was increased by around £30 billion. There is a problem with the deficit but to ask "who pays?" about a puny little £0.6 billion tax cut when a spending rise that is around fifty times as large has been pushed through each year for the last five years clearly completely misses the point.

Some of that increased spending would be hard to avoid in an economic downturn, such as benefits, and inflation obviously pushes up spending as well. The main cause of increases in spending, though, is the decisions made in the various budgets and spending reviews. Those are the decisions that ate up economic growth and the proceeds of tax rises year after year and created the current deficits. Not the few shoddy tax cuts we've enjoyed. The Government can easily fund this tax cut if they stop growing public spending so quickly.

In the end, the problem with these tax cuts isn't that they won't do much to help the housing market or that they can't be funded. It's that this pissant tax cut doesn't even approach the kind of scale that would be needed to make a dent after a decade of rising taxes. That's the proper criticism of the proposal advanced today.

The National Consumer Council on supermarkets

The new National Consumer Council (NCC) report on supermarkets has a fatal contradiction at its heart.

It spends a lot of time discussing the amount of information offered to consumers. The NCC want more and clearer labelling setting out the amount of salt, sugar, fat and other unhealthy things in each product. That is a reasonable thing to lobby for and if you look at the report cards you'll see that most of the supermarkets are making progress in the area - either in their colour codes on the front or in the GDAs on the back.

The negative headline on the report comes from their other priority, which is that supermarkets should stop making unhealthy products generally alluring. For that reason, they are opposed to promotions for unhealthy products and stores that stock sweets at the counter. Many of the shops are doing worse on that measure. They keep having the temerity to offer me half price Coke and offer sweets at the till.

That is where the contradiction appears. If you think that labelling is important then you are assuming that people are good at making decisions about the kind of food they eat. That they care about their health and, if properly informed, know how to eat healthily. Or, you think that people should be free to decide for themselves how important healthy eating is to them. That's why you value giving them information, it allows them to make as much use of their remarkable ability to decide for themselves as possible.

By contrast, if you think that having sweets at the counter, or offering people discounts, will cause them to want things they shouldn't, and we should intervene to stop that happening, then you don't really respect their ability to decide for themselves at all. You think they're simpletons who can't possibly decide for themselves or are so pathetically vulnerable to pester power that they will be terrorised unless you hide the jelly babies in the corner. When Sainsburys take a pound off the price of my Coke they make me worse off.

The report tries to take both positions.

Despite this report being a mish-mash of contradictions and dismal, patronising paternalism I paid for it, so did you. It's a quango. Just like the equally awful energywatch. Why can't these bodies be scrapped? If anyone really wants this bilge to be produced they can fund it themselves

The Daily Mash calls the report just right:

"BRITAIN'S supermarkets were last night accused of stocking the products their customers want to buy.

The National Consumer Council claimed the stores are deliberately selling a range of items that are not only competitively priced but tasted lovely.

"Meanwhile they go around filling their fruit and veg aisles with thousands of deadly scorpions. Probably."

A spokesman for Asda said: "The National Consumer Council seems to have confused us with something that is not a business."