Sunday , July 14 2024

Who bears responsibility for the costly price cap?

I have been busily buying thermal underwear, fleece lined tops and down filled trousers. My intention is to use the central heating as little as possible. If I heat myself with clothing rather than heat the room where I am sitting, I will save a fortune. But in fact, I will be able to have every radiator in the house on full and walk around in short sleeves. The price of energy is going to be capped. The Government will spend up to £150 billion to subsidise our bills and my little burst of self-reliance will have turned out to be pointless.

But I will stick to my plan regardless. If I can use less heating it will benefit me. Think of the calories burned. It will benefit my finances if I spend less than last year price cap or no.

I oppose price caps. Prices are set by the market by the laws of supply and demand. Energy is in short supply, because we stopped using coal, failed to build nuclear and didn’t exploit the North Sea to the full. We tilted at windmills thinking they were giants who would keep the lights on only to discover that they were midgets who went on strike warming their hands round a brazier every time it was really cold.

I would prefer to spend the full price for a commodity rather than have the Government pay it for me, because it then gives me the choice to pay the price rather than have to pay it later. Because the subsidy we will all receive whether we want it or not will not be free.

The Government borrowed £70 billion to pay for furlough and now will borrow twice that two years later to pay our heating bills. But the present crisis is in part the result of the Covid crisis, so if we are not very careful the Government will have to borrow £300 Billion two years from now to pay for the next crisis.

There comes a point when you realise that it would have been better to tell people to continue working during the pandemic rather than pay them to stay at home. It may have cost lives doing so, but it will cost lives increasing Government debt to unsustainable levels, because we will be unable to afford the things that save lives.

But I fear that just as lockdown was politically unavoidable, so too is furlough two. The BBC would find a poor starving family shivering in its hovel and accuse Liz Truss of mass murder if she did not cap energy prices. Telling us all to wear thermals and jumpers rather than wandering around the house in our underwear would certainly lose the Conservatives the next election. British voters were delighted to be paid furlough to stay at home and they will be delighted to have their energy capped. They will think of it as free money and a bargain at that.

But there are long term consequences to continually bailing out the public each time there is a crisis. It makes the political situation in the UK where each part thinks it has the right to walk away unsustainable.

At some point quite soon, Nicola Sturgeon is going to have to admit that there will neither be an unofficial referendum next October nor that the next General Election will be a de facto referendum on independence. The reason for this is that we will be in the equivalent financially of the pandemic. We will be spending twice as much as furlough and Scottish voters must surely realise that just as they relied on the UK Treasury for furlough so two years later, they will rely on the UK Treasury or else receive heating bills they will most likely not be able to afford. Voting to be cold is not a great slogan for the SNP.

Scotland has lots of renewable energy, but it would remain intermittent even if we were independent, unless Sturgeon can control the wind and make the sun always shine. If Scotland had voted for independence in 2014, we would have had to bail ourselves out in 2020 and in 2022. Small countries can indeed do this, but Scotland at present spends considerably more than we raise in taxes. We could of course change this by spending less and working more, but there are no signs of the SNP doing so.

So Scottish voters must reflect that we have been bailed out twice since 2020 and its not at all sure that the Government of an independent Scotland could have borrowed at the same rate or even at all. Yes, Denmark and Norway can borrow, but we are not in their position and independence would not automatically make us like them. In time Scotland could become like Denmark, but it would require the tough choices and economic realism that I have yet to encounter from either the SNP or independence supporters in general.

But there is something perhaps more important that Scottish commentators are missing. Government debt isn’t some abstract figure that we then dismiss. It has to be paid back. The only reason the markets lend to the UK Government is that they are certain to be repaid. The word for not repaying is default.

When pension funds invest, they rely on Government debt because it is reliable. So, the Government’s promise to repay its debt matters to you individually. If it didn’t you might not receive as high a pension as you expect. Government debt is therefore a promissory note against future tax payers. But these tax payers the Government is assuming will live in Scotland just as much as any other part of the UK.

But there comes a point then where future tax payers cannot escape their obligation to contribute their taxes to paying back the debt that was incurred for their benefit.

There would be legitimate fury in those parts of the UK that pay the most taxes if Scotland were to walk away in 2023 or 2024 having been bailed out in 2020 and 2022 by means of Government borrowing which was borrowed on the assumption that Scottish taxpayers would pay it back because they would be UK taxpayers.

But Scotland cannot afford to leave the UK with former UK taxpayers furious with it. We require the cooperation of our fellow citizens, we require the former UK to recognise Scotland and to encourage its allies to do so.

Just as it is politically untenable for Truss to allow the market to decide the price of heating, so too it is becoming politically untenable for Scottish voters to demand their share of furlough and their share of a price cap on heating, while demanding the right to walk away without repaying any of that debt whenever they please.

The UK Government can certainly make Scottish independence impossible, not merely by failing to allow a legal referendum, but by refusing to negotiate with a Scottish Government that planned to go it alone unilaterally. More importantly the UK Government can insist that the only way Scotland can achieve independence legally is by accepting a population share of the national debt, which means future Scottish taxpayers whether independent or not accepting they pay back what was borrowed on their behalf.

This in itself makes Scottish independence impossible until and unless UK national debt is reduced to a more manageable level. No country could begin life with a debt ratio to GDP of more than 100%, it would involve a default. If the UK insisted that it would view a failure to accept a population share as a default, then it makes Scottish independence impossible at least for decades.

The Scottish Government could alternatively say that it did not need furlough, does not want a price cap on heating bills no longer wants Barnett and would prefer that Scots freeze. After that you can by all means have your referendum.

This article was originally published here.

About Effie Deans

Effie Deans is a pro UK blogger. She spent many years living in Russia and the Soviet Union, but came home to Scotland so as to enjoy living in a multi-party democracy! When not occupied with Scottish politics she writes fiction and thinks about theology, philosophy and Russian literature.

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