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.

This lot like coal

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.

This lot don't

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 ]


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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."

 

(http://www.dailymail.co.uk/debate/article-2157018/Cameron-summits-quads-secrets-save-EU.html)

 

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_consum_dg/groups/dg_digitalassets/@dg/documents/digitalasset/dg_196165.pdf) says "National Savings and Investments (NS&I) is expected to make a contribution to net finance of £2 billion."

 

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):

 

I will chase for a response.

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

 

Answer (same day):
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?

____________________________________________________________

Hansard record of House of Commons debate, 10 July 1975:

Mr. Neubert

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?

§Mr. Barnett

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.

Mr. Nott

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?

§Mr. Barnett

We are, indeed, aware of those problems. That is precisely why we introduced the scheme in this limited way.

Hansard record of House of Lords debate, 4 November 1975:

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?

§Lord JACQUES

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."

 

(http://www.dailymail.co.uk/debate/article-2157018/Cameron-summits-quads-secrets-save-EU.html)

 

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_consum_dg/groups/dg_digitalassets/@dg/documents/digitalasset/dg_196165.pdf) says "National Savings and Investments (NS&I) is expected to make a contribution to net finance of £2 billion."

 

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):

 

I will chase for a response.

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

 

Answer (same day):
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?

__________________________________________________

Hansard record of House of Commons debate, 10 July 1975:

Mr. Neubert

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?

§Mr. Barnett

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.

Mr. Nott

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?

§Mr. Barnett

We are, indeed, aware of those problems. That is precisely why we introduced the scheme in this limited way.

Hansard record of House of Lords debate, 4 November 1975:

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?

§Lord JACQUES

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

Vigilantes in Iceland

Are the ancient ways coming back? Read Katharina Hauptmann's article on World Voices here.

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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.

Nick Drew: Could our lights go out?

Read the first of Nick's superb new series on threats to our energy supply 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. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Nick Drew: Could our lights go out?

Read the first of Nick's superb new series on threats to our energy supply 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. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Securing Energy Supply (1)

When it comes to energy policy-making in the 21st Century, for most developed economies it is built around a 'triad' comprising these elements:

• environmental - reducing the detrimental impact of obtaining usable energy
• economic - delivering 'affordable' energy
• security of supply - delivering energy reliably
  

To state them as briefly as this is to skate lightly over huge complexities, but let us accept that we broadly know what is intended.

Attempts are constantly made to reconcile the three strands, since it is hard to see they can all be delivered at the same time - an issue sometimes referred to as the 'Energy Trilemma'.  We can have cheap, secure energy, but living near a 1970's vintage lignite-fuelled power station degrades and shortens your life.  We can have secure, low-carbon energy, but at tremendous cost.  We can have cheap, low-carbon energy but it may very well not be there when we need it.  The EU's official energy policy claims to square the circle (if a triad can do such a thing) - "fully balanced, integrated and mutually reinforced", claims the EC: but its reasoning is akin to that of the medieval schoolmen and the results not convincing at all.

(Charmingly, they have official nicknames for each leg of the policy triad - see the diagram: the environmental is called 'Kyoto' for obvious reasons; the economic is tagged 'Lisbon', after the conference and treaty of the same name that were intended to deliver competitiveness to the EU in every sphere; and the security moniker is 'Moscow' ... I wonder why ...)

Source:  European Commission

In this and following posts we focus on security, and consider mainly gas and electricity with some comments on oil.  There are two primary aspects: strategic security, against politically-motivated shortages; and day-to-day reliability.

Reliability was until recently not a matter that greatly exercised policy-makers in advanced economies.  Indeed, the enormous fundamental difficulties of continuously (and safely) supplying electricity, gas and oil had been so comprehensively solved, many had forgotten what an achievement it was.  Permanent access on demand to these three commodities - electricity in particular - has become essential to everyday existence, to the point where we cannot really countenance its interruption beyond the shortest of periods.

And permanent access is what we had become accustomed to, often forgetting that continuous supply of a commodity that is subject to all manner of complex contingencies, is a major practical challenge.  This challenge becomes all the greater when the commodity cannot readily be stored.  Compared to the relatively straightforward storage of (e.g.) coal or oil, the difficulty of storing natural gas is great; and of storing electricity very great indeed, almost to the point where we might say it cannot be stored (except in trivial quantities) unless one has access to large-scale hydro-electricity with pumped-water reservoirs - a privilege enjoyed by rather few of world's population.  But the engineers and markets are equal to the task, and the lights stay on.

If these problems have been so impressively solved, how then do we come to talk of reliability in the past tense ?  The new factor is wind-generated power, imposed on electricity systems by politicians responding (as they would see it) to lobbying by 'greens' for 'decarbonisation' of electricity in general, and by turbine manufacturers for wind turbines in particular.  We can fairly say 'imposed' because in almost every instance wind turbines cannot be justified economically per se (without recourse to a highly disputable case based on 'future avoided costs of CO2 emissions'), and thus only exist when installed by fiat and/or developers in receipt of large subsidies.

The characteristic feature of wind-power is 'intermittency', illustrated by the dismal long-term average output from windfarms which in most installations struggles to achieve 25% of its rated (notional) capacity.  If this 25% came in a predictable pattern - as, for example, does the equally low-performing solar power, which always peaks at midday - it could be accommodated fairly readily in a large electricity system.  However, in practice the pattern is near-random, with forward predictability of a few hours at best.

Yet electricity systems must be balanced continuously, and intermittent input in more than de minimis quantities is a challenge, growing ever greater as the amount of wind-power to be accommodated expands.  We considered the consequences of this in the two specific cases of Denmark and Germany in an earlier series of posts.  Summarising: through a combination of good engineering, access to hydro-electricity (in the case of Denmark), and throwing large amounts of money at the problem, to date these two countries have succeeded in accommodating large wind-generation sectors - but, in the case of Germany, only just.  Indeed, it is possible that Germany may be about to demonstrate dramatically the boundaries of what is feasible as regards wind-power: and it will be at levels of wind capacity a lot lower than many greens have hoped and promoted.

In any country or grid-region which must accommodate wind-power without having ready access to hydro, this serious challenge to reliability will persist until cheap and efficient power storage becomes a reality.  Such storage is as eagerly sought as any Holy Grail, but as yet is beyond us.  Thus, as the wind fetish shows little sign of abating in the corridors of power, reliability will become an ever-greater problem in electricity supply.  In some regional systems this might have knock-on consequences for gas reliability, if gas-fired power plant is called upon to meet ever more extreme wind-driven electricity-system balancing duties; but, by and large, gas grid operators (having at least some storage capability) have proven a match for this challenge and as yet, fears over gas security predominantly stem from strategic considerations.

It is to the strategic issues of energy security threatened by political factors that we turn next. 

[Continue to Part 2]

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.

Carbon Balls: don't pick on us for CO2 targets!

See the Energy Page for why the UK shouldn't lead the way in CO2 emissions reduction.

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.

Carbon Balls: don't pick on us for CO2 targets!

See the Energy Page for why the UK shouldn't lead the way in CO2 emissions reduction.

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.

Carbon Balls: crippling the UK economy with eco-nomics

David Rose's article in the Mail on Sunday shows how the proposed Energy Bill currently crashing its way through Parliament sets CO2 emissions targets that could kill off our manufacturing industry. And thanks to what looks like paid influence and bias in access to ministers, the Bill may succeed in becoming law.

But how big a "sinner" is the UK, compared to the rest of the world? Let's take a look.

The countries in the table below (click to enlarge) are responsible for three-quarters of gobal emissions, and (coincidentally, or not) the same proportion of nominal GDP:

(Data sources here and here.)

Let's graph some of the relationships. At 1.47% of the global total, the UK's emissions put it eleventh in the list:

 

You might expect some of the above because of differences in population numbers. But per person, we're still eleventh in the list:

 

 



Understood, nations have different patterns of energy use - and different mixes of energy source.

Perhaps we should look at the relationship between carbon emissions and GDP? Here's what we get when we divide column B by column G:

That puts us in fifteenth place. Maybe it's to do with how the importance of the service sector has increased in the mature (or declining) Western economies.

So far, I can't see a way to stack up the figures that proves why we should lead the way in reducing emissions. Perhaps Rose is right in linking the move to skillful - and dangerous - lobbying and PR.

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.

Road rules in Russia

See James Higham's orthodox guide on World Voices here.

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Russia: Driver etiquette

(Bonus footage for grown-ups!)

Former Tatarstan resident James Higham gives his experience of motoring among the Ivans:

Jesse's running a vid on Russian roads and drivers: http://youtu.be/hlxHPJAONpE. There is a quite violent part in the vid where the driver jumps up, beats a pedestrian who has fallen over and drags him off the road before returning to his car. As a reader noted:

He didn't "trip". It's a common scam in Russia for people to do that in front of cars, then claim they were knocked down. The driver clearly isn't falling for that nonsense and... makes it clear. Good on him.

Jesse speaks of dashcams and it's true we used to run all manner of equipment. One of the most important was the radar detector on the dash or windscreen, afterwards made illegal. It was basically war over there between drivers and the GAI [afterwards renamed], i.e. the traffic police, and between drivers themselves. The GAI would take to hiding behind roadside kiosks and the like and spring out at you after having tracked you with radar guns. So there was this phenomenon where traffic as a whole would go at breakneck speed, slow to 40 kph - the whole road full of traffic, not just some cars - and then speed up again - that's how people got around.

Another hazard was the official cavalcade with the President or a minister and police would clear the highway ahead of them coming through. If you failed to get out of the way, they would physically get you out of the way - never happened to me but did to people I knew. There's a definite hierarchy on the road and people act in character. If you're pulled up [again not me but I was told tales] and instead of trying to placate the officers, you ask, "You really wish to do this, do you?" this is often sufficient to make them think they have someone on their hands they weren't told about. Cars often had separate reg plates to designate who they were and I was once in one of these. When we were stopped, they saw these and the document and waved us through.

Long traffic jams are not unknown either through total, helpless disorganization of the road system. What's unusual here are the orderly lanes - more on that further down:

 

I once [I claim accidentally] ran a Mercedes who was trying to butt in ahead of me off the road. Later, I was told I was still lucky to be alive or not beaten up. I think it surprised the Merc driver. I once tooted the police to get a move on and I think that is not done either there or here. My own position varied - being British bought me a fair bit but it also brought out prejudice in those who saw an easy touch and those wanting to make a point. As my car was a souped up Lada, if they didn't know I was foreign, then I had to conform to the unwritten road code or be stomped on.

The vid above shows people beating on others but that was less the case as far as I saw it than just the sheer number of accidents. On the stretch going into town [6km], it was unusual to see less than three or four bingles of some kind, often a multiple car pile up. There were many reasons for this. Part of it is that the car culture for all was still a relatively recent phenomenon in 1999/2000 and credit was only just coming in to blight the Russian people even further. The result of the influx of new cars on the never-never, along with woeful driver training, women on the roads now and the scam of money under the counter for licences - all these, plus the police corruption in taking bribes for pulling a driver up and fining him or her - these contributed to the mayhem.

Then there were the roads and their state. Designed for a more leisurely era, the cities had to catch up with the C20th and when four or five roads, potholed, pockmarked, with crumbling edges, all converged in one place, when the general population waiting for buses had not taken it onboard that pedestrians should not swarm onto the road when five lanes of traffic were also doing that - there were the conditions for further mayhem.

You can see the converging traffic all trying to get across our main bridge in Kazan:

 

Then there is the attitude of Russians that what they are doing at that time takes precedence over all else, combined with the word "just". So, if you were in heavy traffic and wanted to turn right across traffic into a new supermarket, you just went, you thought you'd just squeeze through that gap, you just expected the traffic rushing towards you from the lights would politely stop and wait for you with a cheery wave of the hand. I think you saw in that clip the cheery waves of hands.

Driving on Russian roads is like our concept of what it must have been like in the wild west. I've seen cars happily driving along footpaths, going up on grassy embankments, going every which way to get through. In fact I developed the ability to get through with applied aggression mixed with caution. It was useful to appear to be a nutter as people would let you through ... or else block you and beat you up. Frankly, with no lanes on most roads because the markings are worn away during winter and under heavy traffic, drivers tend to self-activate lanes as you saw in the second pic above. And equally, there are drivers who ignore all that.

How can all this be? Well, for the reasons given above plus the demoralization of the Russian people over decades. Where they were is where we are going ourselves in the UK but we are still in the early stages where people still care about fines and doing the right thing and all that. In Russia, the laws got to such a ridiculous stage where there were even laws against the laws, to the point where it was literally impossible to drive legally. The very fact that there was a small space ahead only for the whole column of traffic to pass through, meaning you crossed a double line, made you liable to a fine and points. Most times the police would not try to intervene but if they were short of money in the coffers that week, then the police car would be stationed the other side of that gap and they'd randomly pull over motorists in a steady stream of revenue.

 

There was an unwritten rule that you flashed your lights to cars coming the other way if the GAI were hiding back behind you half a kilometre or so and if he flashed back, it was to say thank you. So drivers do work together, it's not total war and in carparks, people tend to help each other out, especially in winter. They made the flashing of lights illegal. The State knew all about this and how it was diverted to private pockets and to be sure, I didn't mind this as I knew my "fine" was going to that man and his family, or else to booze but that was better than to the State.

Defending the State for the moment, it was impossible to keep the roads pothole free - the winter put paid to beautiful road surfaces. There was a year in which a German firm tendered for road repair with a 20 year surface guarantee but the cost was way beyond anything the State was prepared to pay on mere roads which people use.

And so the mayhem goes on, total gridlock at peak hour, frayed tempers and sometimes violence. The clip above is actually Russians trying to sensationalize - the fights are less overall, the actual accidents far more.

 

Brave girls - things can come out of nowhere in Russia:

 

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.