Blain’s Morning Porridge 30th July 2024: The UK finally admits it broke – how are we going to fix it?
“Broke is temporary. You don’t need to stay Poor.”
The UK is even more broke that we thought. Chancellor Rachel Reeves is determined to address the crisis. However, austerity is pointless unless it’s accompanied by genuine fiscal reform and policies designed to foster growth, jobs, and wealth creation. That’s a bigger challenge than just cutting spending.
But first: Blain’s Pub to Club Swim.
Since we are now in Dog Days of Summer I thought it time to announce a new Charity Project. I try to limit Charity events to every couple of years as I don’t want to appear greedy by asking you, the readers, to pay for the Morning Porridge and give to the charities I support.
As some of you may know as few years ago – when still comparatively young – my dodgy ticker had a bit of a moment. A complex operation went awry, followed by a massive heart attack that I remember very little about, leaving my family with PTSD as I went through months of recovery. It was the excellence of the staff, surgeons, doctors and nurses in the Cardiac Team at Southampton Hospital that put me on the road to recovery. I joined a local charity, Wessex Heartbeat, which helps patients and their families through treatment and recovery. Take a look at their website: Heartbeat. (I recently retired as a Trustee to focus on launching Wind Shift Capital.)
This year’s event is Bill’s Pub to Club Swim – from the famous Jolly Sailor Pub on the River Hamble to the excellent Royal Southern Yacht Club. It’s only a couple of miles, but for an old bond dog who enjoys too many good lunches, it’s enough to be doing me some good. Some of my chums from our swimming group, the Hamble Hard Nipplers, will be joining me.
Please check out my Just Giving Page: https://www.justgiving.com/page/billspubtoclubswim
Thanks!
Bill
Today’s Porridge: Tightening our belts in the UK
Now we know. The UK is broke. No Sh*t Sherlock.
Yesterday in Parliament was revelatory. Rachel Reeves was more than a bit fierce and demonstrated she is willing to be unpopular by slashing pensioner fuel contributions, stopping welfare reform, cancelling projects while shooting former Chancellor Jeremy Hunt a couple of furious stares that would have curdled milk. She was angry, and that is probably exactly what the UK needs. It’s what markets wanted to hear – not only is the UK now politically stable, but government sounds determined to address its financial issues of burgeoning debt and spending. (Brilliant, let’s sell more Gilts! Er, no… let’s not.)
No more “running the country as a secondary consideration to ruling the party” from the Tories, or “let’s knock down the DEI Jenga Tower”, nonsense from the Liberals – but a“how the f*ck do we make this place work” shirt-sleeves rolled-up approach from Sir Kier Starmer’s Government. Unpopular and perhaps dangerous choices need to be made. The cuts Labour will enact are going to hurt.
Is it politics or economics?
The political noise yesterday kind of puts the recent UK election in context. There was a lot of stuff that didn’t make a whole lot of sense. It was long on political points scoring about taxes and spending, but short real policies on growth, recovery, productivity and trade. The issues that defined the election included:
Why did Rishi Sunak choose what looked like the worst possible moment to announce an election he was bound to lose?
Despite the dire state of the nation’s finances, why did former Chancellor James Hunt give away £20 bln in a 2p cut to national insurance rates shortly before in a blunt election bribe – knowing he would likely still lose?
And why did Labour not attack harder on issues like how full the prisons were – and are now holding their hands up in mock horror at the sheer enormity of the spending black hole they have “discovered” at the Heart of Government.
Methinks there was more than just a bit of political drama going on. It leaves us today:
- The Tories are furious that Labour is painting them as the party of fiscal and monetary incompetence. (To be fair, it rather looks like Labour has a point.)
- Labour think they’ve hit the motherlode, preparing to blame Tory ineptitude in perpetuity for what is to come… You can guarantee the coming years of austerity spending, infrastructure cuts, and the consequences that will inevitably follow from their decision to honour independent pay review bodies, will all be blamed on Liz Truss, Hunt et al.
I would simply caution Chancellor Reeves what will define this new government is its’ success in addressing the problems… not pinning them on the Tories (no matter how richly they deserve it.)
It’s not looking good for the Tories: Yesterday, ex-chancellor Hunt accused current Chancellor Reeves of “providing incorrect information” to Parliament, (ie telling made-up porkies (US readers: porky = porky pie = lie)), about the $22 bln budget hole. However, last night the Office for Budget Responsibility (OBR) weighed in with a letter confirming a £21.9 bln “net pressure” – which I have been gleefully told is OBR speak for enormous, gaping black hole – in the Departmental Expenditure Limits set by Treasury. Ok, Rachel Reeves exaggerated by £100mm when she said it was £22 bln. There is no smoke without fire…
You have to wonder where all the money went. Simple – among the projects abandoned y’day was the Stonehenge Tunnel. £166mm has already been spent on the planning process. Chancellor Reeves is very aware that’s where the UK budget friction squanders the money – a rotten, not-fit-for-purpose, scholoritc planning system.
Markets will be watching the settlement with Junior Doctors. They will receive a walloping 22.3% wage increase over 2 years. The government has made the call that getting NHS waiting lists down requires motivated and satisfied staff, and has agreed to honour the recommenations of the independent pay review bodies. They are probably right. In the case of Junior Doctors there is little doubt they are underpaid – in the real terms down 25% over the last 14 years.
The problem is one group of workers getting an eye-watering pay hike sets other workers a’thinking. The prospect of a damaging wage-inflation cycle can’t be underestimated. An even bigger concern may be the consequences of further public pay demand on the UK’s long-term unfunded pensions – which will require taxes to rise or workers to work for longer.
However, the key issue is not Austerity. We know austerity is short-term pain, but we’ve never seen Austerity convert into burgeoning growth. Nope. Austerity cuts services, leaves the vulnerable more vulnerable, the poor poorer, and the nation diminished. To achieve any upside, austerity needs to be a focused programme of redirection of the nation’s spending, alongside growth and job creation – the route out of austerity.
There is much the UK could be doing to boost the economy, compensating for the negativity Austerity will create. Concepts like a privately funded Housing Fund (which I’ve previously written about in the Porridge) to build inner city flats, energy transition and green subsidies – which will cost, but are not sunk costs as they create growth, and instead of simply cutting spending, let’s have some discussion about making spending efficient.
One major project – which only Labour can address – is turning around and relaunching the NHS. With a bit of thought, effort, imagination and the will to slice through the bureaucracy and inertia, a new fit for purpose NHS could become a national game changer.
Rachel Reeves may have been honest about the problems yesterday, but that’s no help unless she has solutions also. Good luck to her…
Out of time and back to the day job!
Bill Blain
CEO and Founder,
Wind Shift Capital
3 Comments
Comments are closed.
One thing is certain, it won’t be fixed by Ed Milliband setting up Great British Energy, to instal a huge fleet of wind turbines in the North Sea, and elsewhere.
Apparently this is intended not only to drive towards Net Zero, but also apparently to reduce the cost of energy to the both consumers and industry in the UK. But clearly, as I will explain in the following, he and his advisors have not even begun to think things through.
The problem with the proposed massive expansion of both on- and off-shore wind generation is that the wind speed is not only intermittent but it is highly variable, and the response of a turbine to that variability is highly non-linear in that the potential output is proportional to the cubic power of the wind speed. Because of this cubic power relationship, the available power from the blades of a wind turbine at higher than average wind speeds is vastly greater than at lower speeds.
The average wind speed in the North Sea obviously varies from place to place but at the height of 10 meters it averages roughly 10 meters/sec, and so we can use this rounded figure for illustrative purposes. Thus a wind turbine designed to generate 1.0 megawatts at the “nominal“ average of 10 metres/sec, would at double that “nominal” average speed be capable of outputting circa 8.0 megawatts, though the actual power exported to the grid would be limited by the design of the associated generator and the cabling. However, at a wind speed of half that “nominal“ average it would be down to 0.125 megawatts, and a quarter, i.e. at 2.5 meters/sec, would as low as 0.016 megawatts.
Note that measured statistics show that a wind speed of a quarter of the average is likely to occur about 2% of the time. Although geographic sharing will be possible such low wind speeds, and need to be catered for since they are likely to occur every seven weeks or so.
Clearly, the more heavily we rely on wind power alone to enable us to approach nett zero, then the greater the “nominal” total installed capacity of the turbine fleet would need to be. This implies that the turbines would have to spend an increased proportion of the time feathering their blades and failing to harvest more and more of the available wind power. Thus not only would we have to invest a larger and larger amount of capital to cope with days with lower and lower wind speeds, but crucially the return on each £ million of that capital would decrease at a similar rate.
It is no wonder then that private capital is fighting shy of making such a commitment and leaving it to Great British Energy to do the running. The idea that we as a country can afford, in these straightened times, to get even half way towards the net zero target by the installation of wind generators alone is just ludicrous. As is the idea that Ed Milliband can reduce the price of energy to the consumer by this route.
But it would seem that better alternative might be available! This would be to adopt an integrated solution whereby the offshore generators would export DC rather than AC to the shore and both the generators themselves, and the associated export cabling, would be uprated to cope with wind speeds well above the average, thereby obviating the requirement to feather the turbine blades immediately as soon as the current power demand is met.
Onshore any power needed to meet the demand of the National Grid would be converted there and then to AC, but with any excess being retained as DC and used it to produce hydrogen by electrolysis. This hydrogen would be accumulated in gasometers as short term buffer storage and thereafter converted by chemical reaction to ammonia which could be then be piped around the country and used to fire the current fleet of gas turbine generators. Since these are already connected to the grid this would reduce the number of new pylons needing to be installed across the countryside.
But the ramifications of such a plan need to be considered in fine detail here and now, and well before GBE place any contracts directed at their wind power alone concept. This is because the optimum size of turbine generators attached to the wind turbines, as well as the cabling to the shore would need to be increased in order to allow the full range of available wind power to be harvested.
Alastair
I might have to ask you to co-author something on Wind with me. I love the wind – it powers my yacht, but it is a fickle and unreliable mistress.. and I don’t believe the full costs of O&M are recognised.
BB
No problem, but I am sure that you would be able to find more qualified engineers to explain the problem of diminishing returns with a wind-alone solution. My problem with the above was the lack of access graphics which would have made the explanation so much easier; just draw a simple y=x*3 graph and you are home and dry.
If you were to drive eastwards over the hill from New Luce in what was Wigtownshire, past Dranigower farm and towards the Three Lochs Caravan Park, you would see a vast array of wind turbines, too many to bother trying to count. Chances are though that large numbers are likely to be shut down.
The current market model, with companies competing for access to the grid, inevitably introduces inefficiencies, and the answer has to involve hydrogen in one way or another. But I just don’t see it as a practical solution in its “raw” form.