Read the next instalment of Nick's disturbing analysis of energy supply threats here on the Energy Page.
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Monday, March 04, 2013
Nick Drew: Politics and future power cuts
Read the next instalment of Nick's disturbing analysis of energy supply threats here on the Energy Page.
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Sunday, March 03, 2013
Securing Energy Supply (2): Politically-Driven Disruptions
In the first part of this series we noted that the provision of oil, gas and particularly electricity, reliably and continuously on demand, is a considerable, if overlooked practical achievement. We further remarked that the days when this can be taken for granted as regards electricity may be numbered in markets where significant amounts of wind-generated capacity are to be accommodated - and that if anyone doubts this, they are invited to follow developments in Germany as it struggles to maintain feasibility.
However, physical reliability is in the gift of the engineers, market-designers and policy-makers: if the populace wants it (and they really, really do), they can vote for it, pay for it, and it will be delivered. We know what it takes and it is in our own hands.
What is not within our collective control is the political will of some to see our supply disrupted: and it is to security of supply against political contingencies that we now turn.
Internal threats to energy security are not necessarily the main focus of macro energy policy, but anyone who lived through the UK miners' strikes of 1972, 1974 and 1984-5 will recall how disruptive they can be. On this blog, Sackerson has drawn attention to concerns being raised in this connection arising from the Government's planned sale into commercial ownership of its Pipeline and Storage System, which delivers a significant proportion of the UK's aviation fuel direct to airports and military airfields, as well as much gasoline and diesel to various depots. The GPSS is fairly invulnerable to the periodic tanker-driver strikes that have bedevilled the UK - but how secure will it be in private-sector hands?
Nor are labour disputes the end of the matter. In the period 2008-2010, 'green' protesters laid siege to a power plant site at Kingsnorth in Kent, with the aim of stopping the development of a new high-tech coal-fired power plant, and they can fairly claim to have been a major factor, if not the only one, in the cancellation of that project. Hostilities resumed again last year, with the week-long occupation of a site in Nottinghamshire, to the end of preventing the commissioning of another new power station - this time a nearly-completed gas-fired plant. These UK manifestations are nothing compared to the actions of German eco-warriors who regularly wreak havoc on all manner of electricity sector operations.
With an eye on the future, many commentators see great potential vulnerability in the 'smart grid' and 'smart metering' systems that are being planned in the power sectors of most advanced economies. Designed to facilitate real-time information-flow and control across entire grids down to the level of individual meters, these systems are believed to be inherently vulnerable to malicious hacking for criminal or political purposes.
The kind of political purposes envisioned are generally held to be cyber-warfare waged by hostile nations; and in the same context, countries such as the USA prevent Chinese investors from taking stakes in energy infrastructure (and other deemed 'strategic' facilities). The UK has a long history of being open to foreign investments in its energy sector: the greater part of UK gas and power supply is in the hands of German, French and Spanish companies, and Far- and Middle-Eastern investors hold many stakes in the energy industry here. The question of our openness to Chinese and Russian investment is yet to be confronted in a specific case; but given that the government is actively courting Chinese investment (inter alia) in putative new (French-built) nuclear plants in this country, it would seem likely that the answer will be 'welcome'.
We have found ourselves contemplating geo-political concerns under the heading of 'internal threats' to energy supplies, which leads us naturally to external political threats. We will start at the least apocalyptic end of the spectrum and consider political factors that can disrupt the normal flow of cross-border energy trade. The UK is a nation long wedded to free trade, and we often fail to realise how much less enthusiastic about it even our close EU neighbours are.
In particular, when it comes to energy, most other European countries will ban exports at the drop of a hat if they deem their own supplies are 'at risk' which, in the case of France, can mean simply that gas storage facilities are not completely full. Of course, banning exports makes a mockery of economic notions that cross-border interconnections and price-following free trade maximises the efficient allocation of a scarce resource. But other nations just don't believe in that, when push comes to shove. Thus, in winter 2004 when a short cold-weather snap hit and the price of UK spot gas rose to a much higher level than French prices, ordinarily one would have expected increased flows from France to the UK, until either the pipeline capacity was full, or prices equalised. In fact, the French regulator instructed French gas companies to pay whatever price was needed to top up already almost-full French storage. As a consequence, French prices leapfrogged those of the UK and gas was exported from short-of-gas Britain to plentifully-supplied France.
Needless to say, there are two strongly-held sides to the doctrinal argument here, and for now we simply record the issue. France is not the only country that has behaved in this way: for many years Germany has imported almost as much gas from the Netherlands and Norway as from Russia. Traditionally, if you were to ask a German gas company which of their main supplier-nations was the least reliable, they would say the Dutch who, when they have production problems, prioritise their local customer-base at the expense of exports. (The Russians, of course, with perennial needs for hard currency, would cheerfully cut off their local customers to maintain exports - at least until the spring of 2012 when Putin was facing an election, and for the first time cut exports to maintain local supplies.)
The politically-based disruptions to energy supplies we have considered here - strikes, green protests, protectionism in times of shortage - can be bad enough. But they are a mere inconvenience as compared to the prospect of large-scale, systematic withholding or blockading of energy deliveries for strategic geopolitical ends. We have seen it before; and we fear it happening again. It is to this we turn next.
[ Continues to Part 3 ]
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
However, physical reliability is in the gift of the engineers, market-designers and policy-makers: if the populace wants it (and they really, really do), they can vote for it, pay for it, and it will be delivered. We know what it takes and it is in our own hands.
What is not within our collective control is the political will of some to see our supply disrupted: and it is to security of supply against political contingencies that we now turn.
 |
| This lot like coal |
Nor are labour disputes the end of the matter. In the period 2008-2010, 'green' protesters laid siege to a power plant site at Kingsnorth in Kent, with the aim of stopping the development of a new high-tech coal-fired power plant, and they can fairly claim to have been a major factor, if not the only one, in the cancellation of that project. Hostilities resumed again last year, with the week-long occupation of a site in Nottinghamshire, to the end of preventing the commissioning of another new power station - this time a nearly-completed gas-fired plant. These UK manifestations are nothing compared to the actions of German eco-warriors who regularly wreak havoc on all manner of electricity sector operations.
 |
| This lot don't |
The kind of political purposes envisioned are generally held to be cyber-warfare waged by hostile nations; and in the same context, countries such as the USA prevent Chinese investors from taking stakes in energy infrastructure (and other deemed 'strategic' facilities). The UK has a long history of being open to foreign investments in its energy sector: the greater part of UK gas and power supply is in the hands of German, French and Spanish companies, and Far- and Middle-Eastern investors hold many stakes in the energy industry here. The question of our openness to Chinese and Russian investment is yet to be confronted in a specific case; but given that the government is actively courting Chinese investment (inter alia) in putative new (French-built) nuclear plants in this country, it would seem likely that the answer will be 'welcome'.
We have found ourselves contemplating geo-political concerns under the heading of 'internal threats' to energy supplies, which leads us naturally to external political threats. We will start at the least apocalyptic end of the spectrum and consider political factors that can disrupt the normal flow of cross-border energy trade. The UK is a nation long wedded to free trade, and we often fail to realise how much less enthusiastic about it even our close EU neighbours are.
In particular, when it comes to energy, most other European countries will ban exports at the drop of a hat if they deem their own supplies are 'at risk' which, in the case of France, can mean simply that gas storage facilities are not completely full. Of course, banning exports makes a mockery of economic notions that cross-border interconnections and price-following free trade maximises the efficient allocation of a scarce resource. But other nations just don't believe in that, when push comes to shove. Thus, in winter 2004 when a short cold-weather snap hit and the price of UK spot gas rose to a much higher level than French prices, ordinarily one would have expected increased flows from France to the UK, until either the pipeline capacity was full, or prices equalised. In fact, the French regulator instructed French gas companies to pay whatever price was needed to top up already almost-full French storage. As a consequence, French prices leapfrogged those of the UK and gas was exported from short-of-gas Britain to plentifully-supplied France.
Needless to say, there are two strongly-held sides to the doctrinal argument here, and for now we simply record the issue. France is not the only country that has behaved in this way: for many years Germany has imported almost as much gas from the Netherlands and Norway as from Russia. Traditionally, if you were to ask a German gas company which of their main supplier-nations was the least reliable, they would say the Dutch who, when they have production problems, prioritise their local customer-base at the expense of exports. (The Russians, of course, with perennial needs for hard currency, would cheerfully cut off their local customers to maintain exports - at least until the spring of 2012 when Putin was facing an election, and for the first time cut exports to maintain local supplies.)
The politically-based disruptions to energy supplies we have considered here - strikes, green protests, protectionism in times of shortage - can be bad enough. But they are a mere inconvenience as compared to the prospect of large-scale, systematic withholding or blockading of energy deliveries for strategic geopolitical ends. We have seen it before; and we fear it happening again. It is to this we turn next.
[ Continues to Part 3 ]
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Fighting the Government for savers and against inflation (1)
I am going to return to the fight on National Savings Index-Linked Certificates. As background, I give below the text of some of the relevant emails between myself and my Member of Parliament, Mr John Hemming (Liberal Democrat member for Birmingham Yardley):
11 June 2012:
Dear Mr Hemming
As one of your constituents, I should be grateful if you would ask questions in Parliament re the Government's intentions in respect of preserving our life savings against the ravages of inflation. This is especially a matter of concern because of continuing enormous financial support for the banking system, here and in other countries (latterly Spain) that seems destined to burst out as high inflation at some future point.
I note that Mr Cameron's private secretary has written recently to all members of the Cabinet saying, among other things:
"The Prime Minister wants to ensure that the Government as a whole is giving the highest priority to addressing the cost of living."
If this is so, why did National Savings & Investments withdraw Index-Linked Savings Certificates from sale on 19 July 2010, when they had previously been continuously available since 1975, a year in which RPI was 24.2%? Is this an indication that the Government expects RPI to be even worse than that figure in the intermediate future?
And why were these Certificates, somewhat grudgingly reintroduced (5-year term only) on 12 May 2011, withdrawn again on 7 September? Why are they not available now?
It is also worrying that the Government's 2011 Budget Plan (as given in Red Book Annexe B, page 90 - http://www.direct.gov.uk/prod_
Is this a sign that the Government is purely concerned about targets for government borrowing and not at all exercised about the protection of HMG's subjects' money savings, which in many cases have been built up slowly and with difficulty over many years. Why should simple savers have to accept risks to the real value of their deferred spending, as though they were speculators?
Is the Prime Minister's leaked pronouncement a misleading dog-whistle to the electorate, or is he really willing to put our money where his mouth is?
Yours faithfully
Answer (same day):
I will write to the chancellor about this.
2 July 2012:
Dear Mr Hemming
May I ask whether the Chancellor has responded on this matter, and if not, when and in what terms did you write to him? Surely he cannot disregard the issue?
Answer (same day):
22 July 2012:
Dear Mr Hemming
As you have now asked the Chancellor twice for a response on inflation-protected savings, without success, may I respectfully request that you table a Parliamentary question to be asked at the first available opportunity?
Yours faithfully
Answer (same day):
No problem. The first opportunity will be in September. I will ask my researcher to work on drafting that with you.
I was not contacted by Mr Hemming or his researcher re tabling a Parliamentary question. But Mr Hemming had wriiten on 2 July to the Chancellor, George Osborne, and on 4 August I received a copy of a letter (dated 25 July 2012) to Mr Hemming from the Commercial Secretary to the Treasury, Lord Sassoon.
Cover letter from Mr Hemming to me (2 August 2012): (click to enlarge)
Main text of the above:
Re: JAMH21291 Protection of Savings
This is a short letter to confirm that we have received the enclosed response to the above enquiry from to the [sic] Her Majesty's Treasury.
The treasury has set out the reasons Savings Certificates were withdran from sale, owing, it seems, to them being over subscribed, and has set out other methods in which it is supporting savers.
It is also worth noting that the economic situation has improved, with Inflation currently running at 2.4%, much closer to target than a year ago.
I trust this information is useful to you, but if you have any further concerns please do not hesitate to contact me again.
Letter from Lord Sassoon to Mr John Hemming MP, 25 July 2012:
Main text of the above:
Dear Mr Hemming
Thank you for your letter of 2 July to George Osborne regarding correspondence from your constituent [...] about National Savings and Investments (NS&I). I am replying as Minister responsible for this policy area.
I appreciate that your constituent is concerned about savings in the current climate of relatively high inflation and low interest rates and is disappointed that Savings Certificates are no longer on sale. It is important, though, to recognise that inflation has come down from 5.2 per cent in September 2011 to 2.4 per cent in June 2012. The Government continues to give priority to reducing the impact of rising prices on families and businesses including through the recently announced deferral of fuel duty increases, which means that petrol prices will be 10p per litre lower than they would have been under the previous Government's plans.
NS&I provide cost-effective retail debt finance to Government. The money invested in their products contributes to the Government's overall debt financing remit. In doing this, NS&I follow a policy of balancing the interest of savers and the taxpayer with the stability of the financial services market. While doing so they aim to meet the financing objective set each year by HM Treasury.
It might be helpful if I explain the reasons why NS&I withdrew their Savings Certificates.
In July 2010, the popularity of both their index-linked and Fixed-interest Savings Certificates reached unprecedented levels and sales volumes far exceeded those either anticipated or required by NS&I to meet their financing target set by HM Treasury. Because of this, they took the difficult decision to take Certificates off sale on 18 July 2010. This change however did not affect existing customers.
The March 2011 budget confirmed NS&I's Net Financing target for 2011-12 as £2 billion with a range of £0-4 billion. To achieve this, they needed inflows of some £14 billion from sales and reinvestments during the year which gave them the ability to reintroduce one 5-year term of Savings Certificates on 12 May 2011. Their aim was to keep them on sale for a sustained period of time to enable as many savers as possible to invest.
As they expected, the Savings Certificates proved very popular and in just under four months they had received over 500,000 transactions. In order to stay within the Net Financing target range for the year, at this point they had to withdraw the certificates from sale.
Existing NS&I Savings Certificates customers can, on maturity, keep their investment for another term of the same length. Alternatively, they can reinvest into any of the other Savings Certificates terms and issues on offer to existing customers.
In more general terms, the Government wants a saving system based on freedom, fairness and responsibility, which is both affordable and effective.
To support and encourage savers the Government has:
- ensured the amount that people can save tax-free is not eroded by inflation by indexing the amount that can be paid into ISAs each year. This means that the Government has increased ISA limits by £600 this year, including an extra £300 for cash ISAs;
- announced at Budget 2012 that Government will work with industry to improve competitiveness and transparency in the ISA market, particularly by encouraging the industry to work towards faster ISA transfers;
- introduced Junior ISAs, offering parent a clear, simple and tax-free way to save for their child's future;
- confirmed that employees will have a new duty to automatically enrol qualifying employees into a pension scheme from October 2012. This has the potantial to encourage 5 to 8 million more people to start saving or save more into a workplace pension scheme. The Government is also establishing the National Employment Savings Trust (NEST) to provide a low-cost, high-quality pension scheme for individuals not currently served by the market;
- set up the Money Advice Service to offer free and impartial information and advice on all money matters available online at www.moneyadviceservice.org.uk , face-to-face, or by calling its helpline on 0300 500 5000. The Money Advice Service also launched a financial health check to help people proactively manage their money. It also publishes comparative tables of savings accounts and the interest rates offered; and
- given individuals more choice over the use of their pension savings to provide a retirement income by removing the effective requirement to purchase an annuity by age 75.
Please pass on my thanks to Mr Norfolk for taking the trouble to make us aware of these concerns.
Yours sincerely
James Sassoon
LORD SASSOON
Email from me to Mr John Hemming MP, 05 August 2012:
Dear Mr Hemming
Thank you for forwarding Lord Sassoon's letter, which arrived here yesterday. It is not at all up to the standard that I would expect from a Treasury mind; in fact, it is little short of a disgrace.
The first page confirms what I suspected, that the present Government is concerned only with its own funding needs and not at all with what should be its commitment to savers, not to say the currency (which according to the BoE's own website has lost 99% of its value since 1900). As you know, National Savings Index-Linked Certificates were introduced in 1975, a year in which RPI inflation was, as I said to you before, 24.2%. If the government of the day could bring in this product at such a time of crisis and galloping inflation, I cannot see any justification for the present hiatus.
The point about the present level of inflation is useless. Savers need to know for sure that their money retains its spending power over the chosen period, not to be informed from time to time that RPI may have temporarily dipped.
The second page slides further downhill into irrelevant party political nonsense. To be specific about its failures to address the subject, I will take each of Lord Sassoon's points in order:
- The cash ISA limit has nothing whatever to do with maintaining the purchasing power of cash.
- ISA transfers, ditto.
- Junior ISAs, ditto.
- The NEST pension scheme is not a savings vehicle but an investment vehicle, a distinction that surely cannot have escaped someone with Lord Sassoon's background in the financial services industry. The nearest to cash within pension funds is either money market funds (which have a big fat question mark over them at the moment, I can tell you as an IFA) or bank/building society cash funds that (a) usually offer a significantly lower rate than cash ISAs and (b) are (except perhaps for SIPPs) not covered by the FSCS in the way that individually held accounts are (see the Pensions Advisory Service's article here).
- The Money Advice Service is also irrelevant to the purchasing power of cash savings.
- Changes to the requirement to purchase an annuity at age 75, ditto.
Sir, you have established something of a reputation as an MP who is prepared to ask awkward questions in Parliament, irrespective of party political aspects. This question is inconvenient to the present administration, but crucial to the financial wellbeing of many people throughout the country. I do not think it is ethical for the government to take the view that the man in the street must be forced to accept investment risk, merely when he decides to set aside some money for tomorrow instead of spending it today. His prudence should not be seen as an opportunity to shear his fleece with inflation.
May I respectfully request that you take this further to PMQs or Questions to Ministers, and make a proper fuss?
Yours faithfully
Parliament is not sitting at the moment.
I will look at the letter later next week (I am at a funeral on Monday) and come back to you on this. The sovereign debt issue is a very serious issue, however
Email from me to Mr John Hemming MP, today (03 March 2013):
Dear Mr Hemming
Thank you for your reply to my previous email.
Now that:
- the British Government creditworthiness has been downgraded by Moody's,and
- the pound has dropped, and
- inflation looks set to rise further, especially for imports;
- may I ask you to pursue my query vigorously in Parliament?
May I also draw your attention to two passages in Hansard from 1975 that make it perfectly clear that Government recognises the moral obligation to protect the value of savers' money?
____________________________________________________________
Does the Minister accept that the opportunity to invest in inflation-proof schemes is an act of belated social justice to millions of people who have seen their savings irreversibly damaged during the recent rapid rise in the rate of inflation? Will he make recompense to many of them by easing up on his vindictive attacks on the principle of savings embodied in the capital transfer tax and the wealth tax?
The hon. Gentleman has put his supplementary question at the wrong time, because National Savings are rising very well at present. I am sure he will be delighted to hear that. As to what he called "belated social justice", I am sure he will pay due attention to the fact that the scheme was introduced by a Labour Government and not by a Conservative Government.
Is the Chief Secretary confident that a further extension of index-linked schemes—which are welcome to savers—will not cause a diversion of funds away from deposits with building societies, leading to a rise in the mortgage interest rate?
We are, indeed, aware of those problems. That is precisely why we introduced the scheme in this limited way.
Lord LEE of NEWTON
My Lords, does my noble friend agree that while the index-linked schemes are extremely good value for money, it would be a good idea—as inflation has been rather rampant—to increase the maximum amount that can be invested in them?
My Lords, the Government have two conflicting obligations. One is an obligation to the taxpayer to buy goods and services as economically as possible, and secondly there are certain social obligations. The Government believe that by the action they have taken they have got the right balance.
_____________________________________________________
On 22 July last year, you offered to allow me to work with your researcher to draft a Parliamentary question on this subject. May I ask whether that offer is still open?
Yours sincerely
Fighting the Government for savers and against inflation (1)
I am going to return to the fight on National Savings Index-Linked Certificates. As background, I give below the text of some of the relevant emails between myself and my Member of Parliament, Mr John Hemming (Liberal Democrat member for Birmingham Yardley):
11 June 2012:
Dear Mr Hemming
As one of your constituents, I should be grateful if you would ask questions in Parliament re the Government's intentions in respect of preserving our life savings against the ravages of inflation. This is especially a matter of concern because of continuing enormous financial support for the banking system, here and in other countries (latterly Spain) that seems destined to burst out as high inflation at some future point.
I note that Mr Cameron's private secretary has written recently to all members of the Cabinet saying, among other things:
"The Prime Minister wants to ensure that the Government as a whole is giving the highest priority to addressing the cost of living."
If this is so, why did National Savings & Investments withdraw Index-Linked Savings Certificates from sale on 19 July 2010, when they had previously been continuously available since 1975, a year in which RPI was 24.2%? Is this an indication that the Government expects RPI to be even worse than that figure in the intermediate future?
And why were these Certificates, somewhat grudgingly reintroduced (5-year term only) on 12 May 2011, withdrawn again on 7 September? Why are they not available now?
It is also worrying that the Government's 2011 Budget Plan (as given in Red Book Annexe B, page 90 - http://www.direct.gov.uk/prod_
Is this a sign that the Government is purely concerned about targets for government borrowing and not at all exercised about the protection of HMG's subjects' money savings, which in many cases have been built up slowly and with difficulty over many years. Why should simple savers have to accept risks to the real value of their deferred spending, as though they were speculators?
Is the Prime Minister's leaked pronouncement a misleading dog-whistle to the electorate, or is he really willing to put our money where his mouth is?
Yours faithfully
Answer (same day):
I will write to the chancellor about this.
2 July 2012:
Dear Mr Hemming
May I ask whether the Chancellor has responded on this matter, and if not, when and in what terms did you write to him? Surely he cannot disregard the issue?
Answer (same day):
22 July 2012:
Dear Mr Hemming
As you have now asked the Chancellor twice for a response on inflation-protected savings, without success, may I respectfully request that you table a Parliamentary question to be asked at the first available opportunity?
Yours faithfully
Answer (same day):
No problem. The first opportunity will be in September. I will ask my researcher to work on drafting that with you.
I was not contacted by Mr Hemming or his researcher re tabling a Parliamentary question. But Mr Hemming had wriiten on 2 July to the Chancellor, George Osborne, and on 4 August I received a copy of a letter (dated 25 July 2012) to Mr Hemming from the Commercial Secretary to the Treasury, Lord Sassoon.
Cover letter from Mr Hemming to me (2 August 2012): (click to enlarge)
Main text of the above:
Re: JAMH21291 Protection of Savings
This is a short letter to confirm that we have received the enclosed response to the above enquiry from to the [sic] Her Majesty's Treasury.
The treasury has set out the reasons Savings Certificates were withdran from sale, owing, it seems, to them being over subscribed, and has set out other methods in which it is supporting savers.
It is also worth noting that the economic situation has improved, with Inflation currently running at 2.4%, much closer to target than a year ago.
I trust this information is useful to you, but if you have any further concerns please do not hesitate to contact me again.
Letter from Lord Sassoon to Mr John Hemming MP, 25 July 2012:
Main text of the above:
Dear Mr Hemming
Thank you for your letter of 2 July to George Osborne regarding correspondence from your constituent [...] about National Savings and Investments (NS&I). I am replying as Minister responsible for this policy area.
I appreciate that your constituent is concerned about savings in the current climate of relatively high inflation and low interest rates and is disappointed that Savings Certificates are no longer on sale. It is important, though, to recognise that inflation has come down from 5.2 per cent in September 2011 to 2.4 per cent in June 2012. The Government continues to give priority to reducing the impact of rising prices on families and businesses including through the recently announced deferral of fuel duty increases, which means that petrol prices will be 10p per litre lower than they would have been under the previous Government's plans.
NS&I provide cost-effective retail debt finance to Government. The money invested in their products contributes to the Government's overall debt financing remit. In doing this, NS&I follow a policy of balancing the interest of savers and the taxpayer with the stability of the financial services market. While doing so they aim to meet the financing objective set each year by HM Treasury.
It might be helpful if I explain the reasons why NS&I withdrew their Savings Certificates.
In July 2010, the popularity of both their index-linked and Fixed-interest Savings Certificates reached unprecedented levels and sales volumes far exceeded those either anticipated or required by NS&I to meet their financing target set by HM Treasury. Because of this, they took the difficult decision to take Certificates off sale on 18 July 2010. This change however did not affect existing customers.
The March 2011 budget confirmed NS&I's Net Financing target for 2011-12 as £2 billion with a range of £0-4 billion. To achieve this, they needed inflows of some £14 billion from sales and reinvestments during the year which gave them the ability to reintroduce one 5-year term of Savings Certificates on 12 May 2011. Their aim was to keep them on sale for a sustained period of time to enable as many savers as possible to invest.
As they expected, the Savings Certificates proved very popular and in just under four months they had received over 500,000 transactions. In order to stay within the Net Financing target range for the year, at this point they had to withdraw the certificates from sale.
Existing NS&I Savings Certificates customers can, on maturity, keep their investment for another term of the same length. Alternatively, they can reinvest into any of the other Savings Certificates terms and issues on offer to existing customers.
In more general terms, the Government wants a saving system based on freedom, fairness and responsibility, which is both affordable and effective.
To support and encourage savers the Government has:
- ensured the amount that people can save tax-free is not eroded by inflation by indexing the amount that can be paid into ISAs each year. This means that the Government has increased ISA limits by £600 this year, including an extra £300 for cash ISAs;
- announced at Budget 2012 that Government will work with industry to improve competitiveness and transparency in the ISA market, particularly by encouraging the industry to work towards faster ISA transfers;
- introduced Junior ISAs, offering parent a clear, simple and tax-free way to save for their child's future;
- confirmed that employees will have a new duty to automatically enrol qualifying employees into a pension scheme from October 2012. This has the potantial to encourage 5 to 8 million more people to start saving or save more into a workplace pension scheme. The Government is also establishing the National Employment Savings Trust (NEST) to provide a low-cost, high-quality pension scheme for individuals not currently served by the market;
- set up the Money Advice Service to offer free and impartial information and advice on all money matters available online at www.moneyadviceservice.org.uk , face-to-face, or by calling its helpline on 0300 500 5000. The Money Advice Service also launched a financial health check to help people proactively manage their money. It also publishes comparative tables of savings accounts and the interest rates offered; and
- given individuals more choice over the use of their pension savings to provide a retirement income by removing the effective requirement to purchase an annuity by age 75.
Please pass on my thanks to Mr Norfolk for taking the trouble to make us aware of these concerns.
Yours sincerely
James Sassoon
LORD SASSOON
Email from me to Mr John Hemming MP, 05 August 2012:
Dear Mr Hemming
Thank you for forwarding Lord Sassoon's letter, which arrived here yesterday. It is not at all up to the standard that I would expect from a Treasury mind; in fact, it is little short of a disgrace.
The first page confirms what I suspected, that the present Government is concerned only with its own funding needs and not at all with what should be its commitment to savers, not to say the currency (which according to the BoE's own website has lost 99% of its value since 1900). As you know, National Savings Index-Linked Certificates were introduced in 1975, a year in which RPI inflation was, as I said to you before, 24.2%. If the government of the day could bring in this product at such a time of crisis and galloping inflation, I cannot see any justification for the present hiatus.
The point about the present level of inflation is useless. Savers need to know for sure that their money retains its spending power over the chosen period, not to be informed from time to time that RPI may have temporarily dipped.
The second page slides further downhill into irrelevant party political nonsense. To be specific about its failures to address the subject, I will take each of Lord Sassoon's points in order:
- The cash ISA limit has nothing whatever to do with maintaining the purchasing power of cash.
- ISA transfers, ditto.
- Junior ISAs, ditto.
- The NEST pension scheme is not a savings vehicle but an investment vehicle, a distinction that surely cannot have escaped someone with Lord Sassoon's background in the financial services industry. The nearest to cash within pension funds is either money market funds (which have a big fat question mark over them at the moment, I can tell you as an IFA) or bank/building society cash funds that (a) usually offer a significantly lower rate than cash ISAs and (b) are (except perhaps for SIPPs) not covered by the FSCS in the way that individually held accounts are (see the Pensions Advisory Service's article here).
- The Money Advice Service is also irrelevant to the purchasing power of cash savings.
- Changes to the requirement to purchase an annuity at age 75, ditto.
Sir, you have established something of a reputation as an MP who is prepared to ask awkward questions in Parliament, irrespective of party political aspects. This question is inconvenient to the present administration, but crucial to the financial wellbeing of many people throughout the country. I do not think it is ethical for the government to take the view that the man in the street must be forced to accept investment risk, merely when he decides to set aside some money for tomorrow instead of spending it today. His prudence should not be seen as an opportunity to shear his fleece with inflation.
May I respectfully request that you take this further to PMQs or Questions to Ministers, and make a proper fuss?
Yours faithfully
Parliament is not sitting at the moment.
I will look at the letter later next week (I am at a funeral on Monday) and come back to you on this. The sovereign debt issue is a very serious issue, however
Email from me to Mr John Hemming MP, today (03 March 2013):
Dear Mr Hemming
Thank you for your reply to my previous email.
Now that:
- the British Government creditworthiness has been downgraded by Moody's,and
- the pound has dropped, and
- inflation looks set to rise further, especially for imports;
- may I ask you to pursue my query vigorously in Parliament?
May I also draw your attention to two passages in Hansard from 1975 that make it perfectly clear that Government recognises the moral obligation to protect the value of savers' money?
__________________________________________________
Does the Minister accept that the opportunity to invest in inflation-proof schemes is an act of belated social justice to millions of people who have seen their savings irreversibly damaged during the recent rapid rise in the rate of inflation? Will he make recompense to many of them by easing up on his vindictive attacks on the principle of savings embodied in the capital transfer tax and the wealth tax?
The hon. Gentleman has put his supplementary question at the wrong time, because National Savings are rising very well at present. I am sure he will be delighted to hear that. As to what he called "belated social justice", I am sure he will pay due attention to the fact that the scheme was introduced by a Labour Government and not by a Conservative Government.
Is the Chief Secretary confident that a further extension of index-linked schemes—which are welcome to savers—will not cause a diversion of funds away from deposits with building societies, leading to a rise in the mortgage interest rate?
We are, indeed, aware of those problems. That is precisely why we introduced the scheme in this limited way.
Lord LEE of NEWTON
My Lords, does my noble friend agree that while the index-linked schemes are extremely good value for money, it would be a good idea—as inflation has been rather rampant—to increase the maximum amount that can be invested in them?
My Lords, the Government have two conflicting obligations. One is an obligation to the taxpayer to buy goods and services as economically as possible, and secondly there are certain social obligations. The Government believe that by the action they have taken they have got the right balance.
________________________________________________
On 22 July last year, you offered to allow me to work with your researcher to draft a Parliamentary question on this subject. May I ask whether that offer is still open?
Yours sincerely
Wednesday, February 27, 2013
Vigilantes in Iceland
Are the ancient ways coming back? Read Katharina Hauptmann's article on World Voices here.
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy.
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy.
Iceland: Rise of the vigilantes
Over the past years I’ve come to notice a worrying trend here in Iceland. A trend that some people probably won’t dare to talk about publicly. I’m talking about vigilantism, something one certainly wouldn’t connect with Iceland. On multiple occasions I’ve experienced that people here take the law into their own hands. It seems that many people don’t consider the measures or punishment executed by police and law as satisfactory.
And by vigilantism I’m talking about having certain people beaten up or threatened. If you piss off the wrong people, they will call somebody who will teach you a lesson.
I had one of my first experiences with this practice a few years ago, when my former boss and owner of the bar I worked at went bankrupt, cheated a lot of employees of their money and ended up owing a lot of people a lot of money. This shady guy “fell down the stairs.”
Another incident happened at another bar I used to work. Some drugged-up maniac went crazy attacking a few guests. So a few calls were made to ensure he wouldn’t ever come back. I can only imagine what that means.
And these cases are not exceptions.
If you become victim of any kind of injustice, it is not so difficult to find the culprit as Reykjavík (and anywhere else in Iceland) is a rather small and tight-knit community.
Somebody is harassing you, you call somebody to teach the thug a lesson. Somebody owes you money or stole your car? No matter if you need a debt paid or just revenge, all you need to do is make that call.
In public this vigilante practice is of course not accepted, but behind closed doors some people seek this form of extrajudicial punishment.
I argued about this with some Icelandic friends of mine as I am still shocked and appalled by this frontier justice every time I come across it. To me, taking the law into one’s own hands is just inappropriate, a relic of the Wild West, and I don’t find it acceptable for an advanced Western country like Iceland in the 21st century.
One should leave punishment up to the legal authorities.
My friends disagreed with me because the authorities never take the appropriate measures, according to them. “The police don’t do anything. They won’t help you” is an argument I’ve heard very often in the almost seven years that I’ve lived here.
It seems that many Icelanders don’t have any trust in their police or the legal system and therefore just “solve” their issues among themselves.
Granted, from my personal experience I can say that I do not have much faith in the Icelandic police either as they seem to be infuriatingly passive when it matters.
And talking about insufficient punishment—a few court decisions of late have caused public outcry such as the more than pathetic verdict by the Supreme Court in a case of sexual assault. Reading this article by Iceland Review guest contributor Herdís Helga Schopka shows perfectly why people feel let down by the legal system and why they feel like they need to take matters into their own hands.
I can really understand the wish for revenge (as petty as it may be) and the need for real justice.
But hiring a bunch of thugs to physically hurt somebody else cannot be the answer. I mean, this is Iceland (Iceland, the world’s most peaceful country with a very low crime rate) in 2013, for crying out loud, not some mafia infested, gun-slinging place.
I guess those vigilante methods are an inheritance of the Icelandic Viking ancestors.
Does the end justify the means?
By Katharina Hauptmann. This article first appeared in Icelandic Review here (htp: Nourishing Obscurity).
Reproduced with the kind permission of the author. All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy.
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