« Markets need Marxism | Main | Marx's relevance today »

October 23, 2015

Comments

Bob

"Reasonable people: delay fiscal austerity until interest rates are above the zero bound. "
That's not reasonable. The only need for austerity is if resource limits are pushed.

Luis Enrique

can somebody help me with the borrowing from China thing? I thought we were paying for that boondoggle via the price we have committed to pay for the electricity, and given that we couldn't give a monkeys how the project finances itself. But all these stories about borrowing from China suggest I am missing something. What?

John Hartley

"Reasonable people: incentivize work and support the low-paid through tax credits. Osborne: cut tax credits."

Incentivise work yes.

The way Osbourne has cut tax Credits is moronic / stupid / political grandstanding / sadistic - take your pick or add more ...

How ever are tax credit the best way rather than a much higer tax band without the nake work intrusion of involving the whole claim - I am not convinced.

Chris

Luis, ref " I thought we were paying for that boondoggle via the price we have committed to pay for the electricity, and given that we couldn't give a monkeys how the project finances itself."

Renewable energy is going to keep dropping in price per unit energy, but we have agreed to pay an artificially high price for electricity, which will be totally uncompetitive at that time.

If it weren't highly likely this would be the case, companies would be asking for permission to build, rather than needing the guarantees.

Anon

Spinning pensioner bonds, as in giving pensioners a better savings option (unambiguously a good thing) - as simply a decision to "borrow more expensively", is just quite ridiculous. The reality of economics is that basically every single issue out there, "reasonable" people can disagree on. Once again this is blatantly a partisan political post, not economics.

Bob

Anon, govt "borrowing" = private sector savings. Gilts are held mostly by foreigners and pension firms.
Cut out the middleman, abolish Gilts and offer good old National Savings directly.
http://www.3spoken.co.uk/2015/09/gilt-issues-considered-harmful.html?m=1

Churm Rincewind

Anon: Why is giving pensioners "a better savings option...unambiguously a good thing"? A good thing for pensioners certainly, but what about everyone else?

Bruce Greig

Luis,

China is one member of consortium building Hinckley Point C. The consortium will get a guaranteed (high) electricity price from the Gov't for some very long period of time (35 years?). Reports have quoted the guaranteed price of about £90/Mwh as being double the current wholesale price of electricity. It does guarantee the consortium roughly double the total cost that they will incur in building, runnning and decommisioning the plant over its entire life. (EDF's early investment presentation showed total costs of £45/Mwh spread over the life of the plant:
https://www.edf.fr/sites/default/files/contrib/groupe-edf/espaces-dedies/espace-finance-en/financial-data/investors-analysts/events/investor-day-workshops/edf_investorday_full_va.pdf)

So we aren't borrowing money in the sense that we have to pay them some money back with interest. But we are still using their capital, and paying them a very high return on that capital. Much higher than if we'd simply borrowed the money (from China or anyone else) by issuing government bonds.

Luis Enrique

Bruce and Chris,

well right, you're not really answering my question which is why, given the facts I mentioned and you describe is more detail, am I reading all these references to us borrowing from China at higher rates than we could via gilts?

the fact we are offering the builders a very high return on capital* was known a long while back when we announced the price we were committing to pay for electricity. So why all this now about "borrowing from the Chinese"? What is Chris referring to in the OP?

* not unreasonably in the sense that the risks they are taking on re. construction going over budget are immense. the unreasonable bit is probably trying to build a nuke plant in the first place given underlying costs, not compensating for implementation risk

Luke

Luis, I think I read that in addition to a guaranteed price for electricity, we are giving some guaranteed return on capital. Not sure where I read that. But if true, may explain the fuss.

Luis Enrique

this reminds me of something people often forget about PPPs etc.

conventional public finance means raising money from the gilts market *and* potentially having to stump up more money if costs over run whereas PPPs and similar are often structured so private lenders will lose money if project goes tits up. You cannot compare true financing cost by comparing borrowing rates on gilts with rates on private finance.

Luis Enrique

thanks Luke.

Tim Blackwell

"Reasonable people: raise the minimum wage carefully and on the basis of evidence and research. Osborne: jack it up as political grandstanding."

Yes, but also - he wants the money.

For each pound of NLW paid gross to a tax credits claimant earning £11,000 or more **

* the employer pays £1.138 in salary and employer's NI
* a profitable employer pays 22.8p less in corporation tax
* employee pays tax and NI of 32p
* employee's tax credits are reduced by 48p

Net cost to employer is 91p of which the exchequer receives 71p and the employee 20p.

If the claimant is on housing benefit, they may lose a further 13p

If they pay a council tax reduction they may lose a further 4p (or more, if a local taper has been set higher).

** assuming claimant is still receiving some tax credits after NLW applies.

Metatone

@Luis Enrique - but very few PPP contracts are actually arranged so that private lenders lose money if it goes tits up. Partially because (as in this case) private lenders simply stay away until offered a sweetheart deal.

Luis Enrique

Metatone, ok but if debt is guaranteed why aren't returns close to gilts? If we have risk free lending at risk premium prices then agree have problem

Chris E

"Spinning pensioner bonds, as in giving pensioners a better savings option (unambiguously a good thing) - as simply a decision to "borrow more expensively", is just quite ridiculous."

Why is it 'unambigously a good thing' - if you want to help pensioners help the poorest - don't introduce something which adds to the government balance sheet whilst simultaneously being a handout to the richest pensioners.

Bill Posters

From the top of the ladder you look at things with a broad perspective. A narrow focus effects balance. This could be fatal on the job.

Osborne's actions as chancellor are unreasonable.

More interestingly how is it possible for Osborne to come to power and execute policy that is counter to the best interests of the nation.

The list of mechanisms which allow this are long and various. First past the post elections, class system, elite education ...

There is a long history of governments doing things against the national interest.

Sometimes this is a good thing. In May 1940 the Tory party decided against suing for peace with Germany and opted instead to fight on at any cost against hopeless odds.

Osborne is a product of the system and not an aberration from it.

Katie Hopkins studied economics and may be more numerate than Osborne. She is more qualified to be chancellor.

How self aware is Osborne compared to Katie Hopkins. To what extent are the schticks of Osborne and Katie Hopkins deliberately crafted.

Does Osborne 'drink the kool-aid'. If he does what flavour is it exactly?

From Arse To Elbow

Amazing. 17 comments before anyone mentioned Katie Hopkins. She's losing her touch.

Jim M.

@ FATE

We live in hope.

Theophrastus

"Renewable energy is going to keep dropping in price per unit energy, but we have agreed to pay an artificially high price for electricity, which will be totally uncompetitive at that time."

You are comparing apples and pears. Nuclear is part of the mix because it provides the baseload which renewables will not be able to provide - at least in the next 30 years or so.

gastro george

Baseload is a myth.

Bob

How come France has variable baseload and has to export or import depending on the time in the year? Complete bullshit.

gastro george

To expand, the concept that a country requires something called "baseload" is a myth. Of course generation by different means needs to be used to balance ongoing demand, but that balancing doesn't require anything called baseload.

Like the country's credit card, baseload has the advantage of being an easily understandable concept, while being incorrect. It also fits in nicely with the nuclear industry's generation pattern - which is why they tend to use it a lot.

JohnR

Quite right. Baseload as a concept is overused in argument.
However, remove the constant generation of power (gas/nuclear/coal) and another method of balancing the system IS needed.
Say hello to demand-side balancing.
Basically, turn off some consumers.
Modern technology does not bend itself willingly to "brown outs". Washing machines, televisions, dish-washers, computers etc, all work quite happily at voltages from 115V to over 300V, the power supply units cope easily with that. So it's off for some. Or off for those who can generate their own power (and get paid for both agreeing to be "offed" AND for generating their own power!!
So, renewables can provide the "base" load. But. Cold, no wind and no sun, happen fairly often. So "baseload" can be seen as needed for those NOT so rare events where wind and sun cannot provide.

The comments to this entry are closed.

blogs I like

Why S&M?

Blog powered by Typepad