The UK's next crisis?

What would happen if the electricity grid failed? 

Hardly anyone under 50 can remember the last time the UK had less energy than it needed.  Power cuts in the 1970s, were the result of the dispute between the miners and the Heath government.  And while disruptive, the introduction of the “three-day-week” gave a degree of stability, allowing businesses and households to plan ahead.   

Back then, Britain had a largely national economy (the UK had only just joined the EEC).  Governments could operate industrial strategies because the UK was still a major manufacturing nation.  It was also a more self-sufficient country, growing most of the food it needed.  Today things are very different.  The UK today is little more than a tax haven for global financiers, heavily dependent for most its lifestyle on imported food and goods from manufacturing bases around the world in a highly complex global economy.  For example, today, UK agriculture produces less than 60 percent of the food we need, and this makes the people who live in the UK highly vulnerable:

“Populations are far less resilient now than they once were…  There is likely to be a very rapid descent into public disorder unless Government can maintain [the] perception of security…  Any central Government response to the crisis may be too slow, arriving after the local emergency resources and critical utility contingency measures had already been consumed.”

This was the conclusion of a top secret government emergency preparedness exercise – Exercise Hopkinson – which examined the potential impact of a prolonged loss of electricity in Devon and Cornwall caused by damage to the Grid.  What the government planners discovered was that disruption in one critical infrastructure system would rapidly cascade into all other critical systems.  Without electricity, water and sewage could not be pumped.  Communications failed when batteries could not be recharged.  Hospitals could not run once emergency backup generators ran out of fuel.  Transport collapsed as electric fuel pumps stopped working.  Shops could only sell food for cash because electronic payments systems failed… and people could not obtain cash because the cashpoints weren’t working.  Refrigeration failed, preventing chilled and frozen food from being sold for health and safety reasons.  Most businesses were unable to operate, and many key workers chose to stay at home with their families rather than attempt to get to work… no wonder the government tried to bury all references to the exercise.

The cascading critical infrastructure collapse encountered in Exercise Hopkinson has been seen in the real world too.  On 14 August 2003 the entire northwest of the USA and neighbouring regions of Canada were taken out as a result of a power line sagging and making contact with a tree, causing a power surge that cause the shutdown of power stations across the region.  Fortunately, power could be restored in a matter of hours because the Grid infrastructure was intact.  Nevertheless, in this short space of time, a cascade had already begun.  The water and sewage system began to fail immediately.  Filling stations stopped working, leaving people stranded.  Air traffic control failed.  Businesses shut down.

This short-lived but highly disruptive incident gives us a much greater insight into what would happen to us if the UK national grid failed than any comparison with the 1970s.  In those days, we were much more resilient because we were much less dependent on electricity.

Another cascade occurred closer to home when, in September 2000, farmers and lorry drivers staged a week of protests triggered by sharp rises in fuel prices.  A series of rolling road blocks and blockades of oil refineries created a public panic.  This quickly stripped food from supermarket shelves and fuel from filling stations.  Although just 10 percent of the UK’s road deliveries failed, this proved sufficient to bring the country to the edge of collapse.

The fuel protests provided the first glimpse of a country with insufficient supplies of cheap liquid fuels.  This was a phenomenon that had not been experienced since the 1970s.  People back then saw an energy crisis of a different kind, as the OPEC countries limited the supply of oil to international markets.  Indeed, it was the spike in oil prices in the 1970s that opened the way for profitable investment in North Sea oil.

North Sea oil gave Britain a temporary lease of life that allowed successive governments to pretend that it was some kind of great power on the world stage – as it had been a century before.  But it was a facade built solely on oil riches.  As former Welsh First Minister Rhodri Morgan recently observed:

“Back then [since 1983] whoever was running the Government had this amazing ability to spend oil revenues. Governments could afford things.  They didn’t have to worry about where the next few quid was coming from.  The Falklands War was eminently affordable.  Paying the cost of the rocketing unemployment benefit bill, as dole queues doubled, then trebled, wasn’t a problem.”

The North Sea also proved to contain huge reservoirs of natural gas that promised to provide Britain with cheap electricity from a new generation of gas-fired power stations that would replace the aging nuclear and dirty coal-fired power stations.  This also gave the Thatcher government the means to break the mining unions’ stranglehold on the UK economy. 

Between 1979 and 2000, successive UK governments created an energy and transportation infrastructure based around North Sea oil and gas.  Despite warnings that these were finite resources, politicians of all stripes put personal ambition ahead of the long-term needs of the people, and failed to invest in a new, post-fossil fuel energy generation infrastructure.

Today, renewable energy makes up just 15 percent of the UK energy mix.  Of this, almost all is old hydroelectric generation together with the wood-burning Drax plant in Yorkshire.  Wind and solar power barely scratch the surface.  Indeed, the massive, £2bn Gwynt y Mor offshore windfarm located off the north Wales coast is the second largest offshore windfarm in the world, but delivers just a third of the power generated at the coal-fired Aberthaw power station in south Wales.

For the UK to replace even a sizeable fraction of its coal, gas and oil energy generation with renewables, governments from the 1980s would have needed to have diverted a proportion of North Sea oil revenues into renewables of all kinds.  They didn’t. 

Every year from 1979 on, oil and gas production from the North Sea grew.  Politicians simply assumed that the UK would continue on this trajectory for generations.  And while governments faced some criticism from environmentalists concerned about global warming, they could always deploy the hi-tech card – long before climate change gets out of hand, they told us, carbon capture and storage technology will have been developed, allowing us to burn fossil carbon to our hearts content.

So long as North Sea production continues to grow, governments can spend their time dealing with more immediate problems like the banking crisis and the stalled global economy.

So when might North Sea oil and gas production peak? 

You may be surprised to learn that it already has.  Both oil and gas production peaked in 1999 and has been falling rapidly ever since.  In 2012 the North Sea was producing just half of the gas two fifths of the oil that it had been producing in 2000.  This does not bode well for a country whose critical infrastructure was designed around access to a growing supply of cheap fossil carbon.  Giving evidence to a House of Lords energycommittee hearing, Professor Dieter Helm described the UK energy situation as a “very slow motion car crash”:

“… by 2015 or 2016, the capacity margin in this country will be very close to zero; in fact, I have done some numbers which suggests that it might be below zero. What is going to fill the gap in 2017, 2018, 2019 and 2020? We will be lucky if Hinkley is on the system by 2022 or 2023.  More nuclear power stations are coming off between now and then.  Most of the coal, through emissions control, thankfully, is being closed.  There are not enough wind farms and solar panels to fill that gap in a credible way … it is inescapable that gas is a transitionary fuel and can actually make a big impact quickly.”

The committee themselves acknowledged that:

“There is a growing risk of power cuts in the UK as the margin of electricity generating capacity over peak demand shrinks. It reflects a lack of clarity and consistency in energy policy over many years.”

The UK is becoming increasingly dependent upon imported oil and gas from some of the most unpredictable regions of the world – Russia, Libya, Nigeria and several Gulf States – any one of which may turn the taps off at any moment.  This dependency can only get worse as North Sea production continues to fall.

All of those energy threats that governments thought were problems for future generations are coming home to roost.  The lights are about to go out for the first time in 42 years, and nobody is sure what the consequences will be.

Britain's Coming Energy Crisis by Tim Watkins is available in paperback and Kindle e-book formats.

Austerity will kill the economy

The Household Analogy

The last government failed to fix the roof when the sun was shining.  This was the diagnosis offered by incoming Chancellor George Osborne in 2010.  Now, a new government would be forced to take hard decisions that would be all the more painful.  And, echoing his ideological mistress, Osborne trotted out TINA – There Is No Alternative.

Of course, Osborne was helped by the idiotic note left by outgoing New Labour Chief Secretary to the Treasury Liam Byrne, proclaiming that “I’m afraid there is no money”.  And the remnants of New Labour in opposition quickly signed up to the Tory narrative and the austerity policies visited on the British people by the new ConDem coalition government.

For public consumption, the political leaders built upon the comely image of the small town householder working hard to keep a roof above his head.  The economy as a whole was portrayed as a household just like yours and mine.  If you or I borrow too much money, then we face hard choices.  We must either take a second job to bring in some more money or we must cut back on our spending.  Government, we were told, is exactly the same: “you cannot pay yourself more than you earn”.

Because the New Labour government had racked up huge levels of debt between 2008 and 2010, the only options available, they told us, were those that most householders would recognise – earn more money (i.e. stimulate private sector growth in order to increase tax yields) and cut back on outgoings (i.e. cut public spending programmes).  According to the new government, fortuitously, cutting public spending would clear the way for the private sector to grow.  So this would not be a real hardship.  While some people might lose their public sector jobs, these would soon be replaced by private sector employment.  So, in the long-term, everyone would benefit.

In practice, the policy has been catastrophic.  High-paid, high-skilled jobs have been lost in favour of low-paid, low-skilled jobs that are often part-time or zero-hours.  Wages outside the top five percent have stagnated, while the incomes of the most vulnerable – the working poor, the sick and disabled, people with mental illness, together with women who look after disabled children or older relatives – have fallen dramatically.  Private sector growth has been anaemic at best; with employment maintained only at the expense of falling productivity – leaving UK companies unable to compete in international markets. 

Public services are being hit by the unforeseen consequences of cuts.  For example, despite promising to protect the National Health Service, the government has succeeded in creating a series of crises in Accident and Emergency departments as a direct result of the cuts they made to adult social care services, which have removed many of the community-based beds where hospital patients would normally be moved once they were well enough.

For the foreseeable future we can expect even more of the same because both the Tories and the Labour opposition are signed up to the “economy as a household” narrative that dictates austerity as the only road back to prosperity.  For the most part, the majority of the 650 members of parliament, adopting this model of the economy is no more than idiocy – they simply do not know any better, and have never bothered to think about the problem.  For a handful, however, it is a cynical manipulation designed to dupe the public into accepting an ideological attack on social security and public services.  Because, whatever else our increasingly globalized economy is, it most certainly is not a household.

Even within a household, we might observe that working more and spending less are not the only options open to us.  We might, for example, consolidate our debts.  A household may have access to a credit card deal offering zero percent interest on an existing balance.  We could use this to “park” our debt until such time as our circumstances have improved enough to begin paying it off.  Government does not need a credit card.  It is able to borrow at close to zero percent interest anyway.  So, there is actually nothing to stop government from borrowing new loans at zero percent interest in order to pay off debt that currently attracts higher rates of interest.

There is, though, a critically important way in which government is unlike any household you or I have lived in – governments have printing presses.  If you or I were to try to solve our difficulties by using a good colour photocopier to print out counterfeit £20 notes, we would end up in jail.  This is because since 1844 it has been illegal for anyone other than the central bank to print money in the UK.  So one thing the government could do that a household cannot do is to print new money as an alternative to borrowing it.

Okay, we have heard this line before.  Wasn’t it Labour Prime Minister James Callaghan back in 1979 who told us that we could no longer print money to spend our way out of recession?  In those days, printing new money appeared to cause higher inflation.  So – and this is a key reason why the mainstream parties are signed up to austerity – if government today printed more money, wouldn’t this simply result in high inflation that would, ultimately, be worse than the privations of austerity?

Although we experience inflation as increasing prices, it is actually a form of currency devaluation.  Just as the Roman Emperors devalued their currency by reducing the quantities of gold and silver in the coins, allowing them to mint more, so in the modern world, printing more money without a corresponding growth in the economy can have the same effect – more money chasing the same goods and services leads to price increases.  To this, there is an important feedback mechanism – velocity.  If we expect prices to increase tomorrow, we are more likely to purchase today.  So, as inflation takes hold, the velocity (or rate) at which we spend increases.  This has a result similar to printing new money called the “multiplier effect”.  Suppose I earn an extra pound.  I might decide to spend it on some flowers for my wife.  This means that the florist now has an extra pound.  So the florist decides that when she goes for out a meal that evening, she will add the pound to the tip she leaves for the waiter.  The extra pound allows the waiter to take a taxi home.  The extra taxi fare allows the taxi driver to buy a magazine.  And so on.  One extra pound is spent over and over, having the effect of growing the amount of money in circulation at any time.

Now, the first thing to say about inflation is it is not necessarily a bad thing.  If you are a saver, inflation is a bad thing because you need to secure an interest rate that is at least the same as the rate of inflation just to break even.  But in the wider economy, we are better off if savers are encouraged to take risks, as this is the only way of encouraging investment in new (and potentially risky) business ventures.  So, inflation can help move investors’ money from unproductive asset speculation into productive capital investment.  If, on the other hand, you are a borrower, then inflation works for you by cutting the real value of the money you borrow.  When people take out mortgages, it is usually the first five years or so that are the most difficult.  Having borrowed some multiple of their earnings, they are committed to making that payment every month.  However, over time, as inflation increases, their wages increase accordingly.  But the monthly payment remains the same.  Over time, the mortgage gets easier and easier to pay off.  At a global level, the same is true of government debt.  As inflation increases, so government finds it easier to pay it off.

In any case, we should be very cautious about making comparisons with the way the national economy operated in the 1970s and the way the global economy operates today.  In this booklet I will make the case that the changes we have witnessed in the past thirty-five years make the comparison entirely unhelpful.  These changes have been so profound as to render the currency of today totally different to the money we used in the 1970s.  Indeed, one of the key failings of modern politics is the failure to understand this transformation.

In this booklet I will argue that in seeking to avoid the ghosts of the 1970s, modern policy makers are creating an even bigger crisis by generating a dangerous deflation in which money is destroyed and spending grinds to a halt.  In the face of a massively over-extended banking sector, this process – which is fuelled by austerity economics – threatens to bring the whole economic system crashing to the ground.

You can read the rest of Tim Watkins' new book, Austerity here.

1992, 1983… or 1922?

In the fallout of Labour’s worst election defeat in a generation there is much speculation about which previous election defeat it most resembles.

Superficially, the pre-election idiocy of Miliband’s concrete block appeared to have a similar effect to Neil Kinnock’s triumphalist speech at the Sheffield Rally on the eve of the 1992 general election.   There were other parallels with 1992 as well.  Most notably, in the run up to that election the opinion polls were predicting a Labour win.  However, the exit poll taken on the day suggested that the result would be much tighter.  Initially, the pundits thought a minority Labour government would be the outcome.  However, as the night wore on and the results came in, a Tory minority government looked more likely.  And when the dust settled and the last votes were counted, we ended up with a Tory government with very narrow majority similar to today.

But these parallels are too superficial, and serve to obscure deeper seated problems for Labour.  Indeed, just five years on in 1997 Labour secured a spectacular majority – something that is highly unlikely to be repeated in 2020.  This has caused some commentators to wonder if Labour’s predicament today might be similar to that facing Michael Foot following the spectacular defeat in 1983.  Labour went into that election a divided force.  The left – championed by Tony Benn – were pulling in one direction while the old guard of the right – championed by the likes of Denis Healy – wanted to go the opposite way.  The manifesto that was finally cobbled together, and on which the hapless Foot went into the election came to be termed “the longest suicide note in history”.  It was so out of touch with popular opinion that it gave the Thatcher government (basking in their triumph over Argentina in the Falklands War) an even bigger majority than they had won in their landslide 1979 victory.  Indeed, it ushered in a further fourteen years of Tory government.

It is my view that neither of these examples fully reflects the crisis that the Labour Party currently faces.  It is not just that they seem unable to find a credible leader – Miliband was no worse than any other leadership pretender.  Nor is it just that Labour is a divided force with the so-called “Blairites” on one side and an old-left on the other – although there is also a truth to this.  Both the divide in the ranks and the inability to choose a credible leader are actually the symptoms of a much deeper existential crisis that can be summed up in the simple question, “what is Labour for?”

The fact that none of the Labour leadership contenders can offer a coherent narrative of the issues facing the country they claim to want to lead, still less a credible alternative to the Tory austerity programme, beyond a stream of buzz words such as “aspiration” and “hard-working families” illustrates the bankruptcy of a once great party.  The fact that the nearest they can get to a genuine political debate is an argument about whether they need to go back to 1997 or 1945 is evidence that they are now a spent force.  This, for me, suggests an entirely different election parallel – and, indeed a different party… 1922.

1922 marks the real beginning of an independent Labour Party as a force in British politics.  Indeed, just two years later the Labour Party formed its first (minority) government.  However, it is not this Labour Party’s fortunes that are a parallel for the Labour Party of today.  Rather, the parallel is with the Liberal Party of 1922.  For 1922 was the year that the Tories finally rebelled against the Liberal-Tory coalition that was first formed in 1915 to prosecute the First World War.  The result of the ensuing general election was a Tory victory and the end of the Liberal Party as a party of government (with the brief exception of some posts outside the war cabinet 1940-45) prior to its recent brief period as a junior coalition party.

To understand the parallels between Labour today and the Liberals then, we need to go back to their respective election victories in 1906 and 1997.  In both 1906 and 1997, the Tory Party was tired and internally divided – in 1906 over the Empire, in 1997 over Europe.  In the face of these failing Tory governments, opposition parties were swept into power on radical programmes.  Indeed, many Liberals in 1906 even referred to their party as “New Liberals” in the same way as Labour supporters referred to “New Labour” in 1997.

The 1906 Liberal Government was one of the most radical reforming administrations that Britain has ever seen – perhaps second only to the Labour Government of 1945-51.  It introduced a raft of social reforms including the first state pensions.  It also broke the power of the House of Lords, removing their ability to prevent the Commons from introducing legislation.  After 1911, the Lords would become a secondary chamber – revising, but ultimately having to pass government legislation.  It is easy to dismiss the New Labour government as being anything but radical given its decline throughout the 2000s.  However, it is worth remembering that New Labour introduced sweeping reforms.  They introduced the Human Rights Act.  They created the devolved governments in Scotland, Wales, London and Northern Ireland.  They introduced the minimum wage.  And they finally rid the House of Lords of its hereditary peers.

Then came WAR!  The Liberals effectively blundered their way into an Eastern European conflict that offered no benefit and many serious problems to an already over-stretched British Empire.  Although not allied to Russia and France – and thus unable to steer their policy – senior Liberals including Asquith and Churchill were only too happy to enter the war against Germany.  Others – most notably Lloyd George – needed some pretext on which to go to war.  New Labour’s war was a much more cynical and calculated affair that involved far more deceit than had the First World War.  The Iraq war was about the USA’s addiction to oil.  The aim, quite simply, was to install a pro-western regime that would continue to provide the USA with oil.  This was deceitfully dressed up as a war against a dictator who had been party to the attack on the World Trade Centre in September 2001, and who had developed weapons of mass destruction that could target London within 45 minutes.  At least the Lloyd-George Liberals of August 1914 could point to the reality of the German invasion of Belgium as a pretext for war.

The First World War split the Liberals just as the invasion of Iraq was to split Labour.  As Kenneth O. Morgan reflects:

“There was a big argument over conscription in the winter of 1915-1916. Here was a fundamental issue for Liberals. How wholeheartedly were they committed to fighting the war? The Home Secretary, a Liberal, John Simon, resigned. Asquith seemed dilatory, unable to make up his mind. Lloyd George was working with the Conservatives. In the end, military conscription was introduced for all males between 18 and 45 years of age but it was a hugely divisive factor within the Liberal Party. It embodied the key principle between, if you like, total war on the one hand and civil liberties on the other hand, rather the kind of argument we have had in Britain latterly which exercised us in the House of Lords about counter terrorism legislation. How do you strike the balance between security and freedom? And during this period, a group of Liberals drew up a list of perhaps a hundred backbencher Liberals who said if there was a crisis, a showdown, they would support Lloyd George as Prime Minister and not Asquith.”

One of the key reasons for the Labour defeat and the LibDem gains in 2010 were the large number of Labour voters who chose to vote LibDem in the belief that a Labour-LibDem coalition government would be less authoritarian and warmongering than a Labour majority government – although, as it turned out, such tactical voting in a First Past The Post system can have results diametrically opposite to those desired.  However, it is the post war years that should be most worrying for today’s Labour Party.  In 1915, the Liberals had been forced into coalition with the Tories.  And when the war ended, the coalition continued at the expense of Liberal Party unity.  Internally divided, the Liberals faced a challenge from the left from an emerging minority party… Labour. 

Similarly, today an internally divided Labour Party finds itself outflanked on the social democratic left by the Scottish National Party, the English Green Party and Plaid Cymru in Wales.  At the same time, it finds itself outflanked on the populist right by UKIP.  And while none of these smaller parties look set to form a government any time soon, as with Labour in relation to the Liberals in the 1920s, they can secure enough votes and seats to keep Labour out of office.

By 1922 it was far from clear what the Liberal Party was for.  This is not to take anything away from the reforms they brought about.  It is simply to state that they no longer spoke for any sizable constituency in the UK that was not more effectively represented elsewhere.  In 2015, Labour faces a similar problem.  It can still present itself as the party that introduced devolution, the minimum wage and the NHS.  But these are all fading into history.  And outweighing these historic relics is a party internally divided and unable to define its purpose, let alone appeal to any sizeable proportion of the electorate.

What Labour experienced in May 1915 was the end of the Blairite coalition of interests that secured electoral success in 1997.  Labour can no longer articulate the political interests of its core working class support without alienating a whole swathe of middle England.  On the other hand, where it has attempted to appeal to middle England it simply served to drive its core voters into the arms of the Greens, SNP, Plaid Cymru and UKIP.

Labour may well be reduced to obscurity within the next decade.  Nor is it inconceivable that they will be replaced by a social democratic alliance (Greens and Nationalists) on the left or a populist UKIP on the right as the second party in UK politics.  If they are to avoid this, Labour will need to do much more than elect a new leader or engage in internal navel-gazing.  Only by reaching out to the whole plethora of campaigning groups, trades unions, and single issue groups can Labour hope to weld together a new coalition of interests that can deliver a future Labour government.  

Of one thing we can be sure, if the next Labour leader serves up more of the same, then – like the Liberals before them – Labour will be a long way along the road to oblivion.