Britain is at risk of an electric shock

A century ago the lights were going out all over Europe. Now the worry is that they might be going out all over Manchester, Edinburgh and Scunthorpe. Britain’s supply of electricity is dangerously close to resurgent demand. The safety margin of capacity has been shrinking and now stands well below the 20 per cent necessary to insure against shocks. When demand rises in winter there is a risk that the margin will disappear altogether. To avert this grim possibility, Britain’s National Grid has just announced measures intended to stave off the risk of looming winter blackouts. The regulated utility plans to pay large users of power to be cut off should demand risk outpacing supply. It also intends to recommission about a dozen mothballed gas-fired power plants to establish a capacity reserve. That such measures should be necessary is an indictment of Britain’s politicians. Governments of all hues have known for years that the country faces a capacity crunch. Thanks to its antiquity and the demands of environmental legislation, roughly a fifth of the existing stock will drop out of the system over the next decade.

One reason this has arisen is that governments have chosen this moment to try to pull off two linked revolutions in the energy market. First they have sought to replace traditional technologies with expensive renewable installations and nuclear plants paid out of higher bills. And alongside this revolution in the means of production is one of economic planning.  Since privatisation in 1990 the industry has been run on market principles. Price controls were abolished and politicians placed their faith in competition to keep prices low and the grid adequately supplied. Now the government is becoming the industry’s Gosplan. Whitehall decides which power stations are built, sets their prices and guarantees financing for their construction. Much of the public debate has focused on prices, which have started to chafe as the cost of the UK’s environmental commitments has increased. But a fairer criticism of the power companies is that they have invested too little in replacing power stations.  One explanation is that the “charmed circle” of utilities is restricting supply in the hope of driving up prices. Another is that they lack incentives to build capacity to meet peak demand because current rules pay little to plants that sit idle. Given the intermittency of renewable energy, such plants are set to multiply in future.

The immediate need is to keep the lights burning. National Grid should do whatever it takes to achieve this until new capacity can be commissioned. This will mean higher bills. But house insurance is never cheap when smoke is pouring from one’s windows. Longer term, the rules have to be rewritten in ways that spur investment in the most efficient manner. The government should ensure a margin of supply is maintained in excess of demand and fix the carbon price at a sensible level. It should then step back and let the market decide how best to deliver capacity in the most efficient way.  Technology should be adopted in more creative ways to balance the supply and demand for electricity. Advances in control systems, smart meters and electricity storage can all play a role in unleashing price signals to smooth demand and save money by requiring less overall generating capacity. The government could also introduce new competition.  In spite of the strains in the system, there is little risk of Britain suffering from the blackouts and three-day week that destroyed Ted Heath’s administration in 1974. However, the current government needs to act to ensure that the lights stay on without the need for emergency measures.

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John Bercow backs referendum on Britain's EU membership

John Bercow, the Speaker of the House of Commons, has indicated he is in favour of a referendum on the UK's membership of the EU to settle the matter once and for all. The speaker, who is meant to remain neutral and not show bias towards any party, indicated he was in favour of Britain staying in the EU but there was a case for the matter to be "laid to rest". The Conservatives have tried to introduce legislation promising an in/out referendum before the end of 2017, while Labour and the Liberal Democrats have said they would only be in favour of a poll in the event of treaty change in Brussels. His declaration may be seen as controversial by MPs who hold strong views on the subject and for whom Bercow is already a divisive figure. Asked for his views on a European poll, he said: "I'm not going to get into the question of the timing because I will leave that for party leaders, but I do happen to think there is quite a strong argument, actually, for there to be a referendum at some suitable point on British membership of the European Union because it seems to me otherwise our membership is fundamentally insecure. And there is a lot to be said for resolving the issue one way or the other. "Now I know there will be Eurosceptics who want a referendum … but there is equally a perfectly respectable case for people who consider themselves very pro-European Union or at any case pro-remaining within it who argue for a referendum as well on the grounds the matter needs to be laid to rest."

Bercow said it was a "powerful point" that voters will not have had a say on Britain's place in Europe unless they are older than 57, which would have given them chance to vote on membership of the common market almost four decades ago. He added: "I have in the past, prior to being elected speaker, and I think afterwards, from time to time when pressed, expressed a view on that matter in favour of continued membership but I don't intend to dwell on that point tonight." Bercow also said the Speaker should not be giving constant interviews on live television, but there was a case for the holder of the role to get out and interact more with the public. Bercow made the comments while speaking on digital democracy, arguing it was likely that in future people would be able to vote from home and MPs would be able to vote from their benches in the Commons. During an exchange on possible reforms to parliament, he suggested that MPs could end the ancient tradition of walking through the voting lobbies to say "aye" or "no" to new laws or perhaps opt for a less radical reform of casting their vote digitally in the lobbies.

However, the Speaker stressed that he was only floating ideas and that final decisions on whether to make any changes would be in the hands of parliament. "Would it be so heretical to question whether votes in the future might be taken with the help of modern technology?" he said. Bercow established a commission for digital democracy last year to help look at how to foster engagement in politics over the next 15 or 20 years. In his first speech on the subject, he said: "Many people bank, search for a partner and conduct their most private of business online, treating their mobile phone or tablet as an extension of themselves. "Why should we not enable them to register to vote, cast their vote or express their views on the issues of the day with the same or similar tools, if they so wish? "Indeed, would it really be such an Earth-shattering change for voters to vote electronically in a polling station? Or at home, as they do so now with a postal vote?" His commission's report is due to be completed by 2015, when the UK will mark the 750th anniversary of parliament and the 800th anniversary of the Magna Carta.

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Britain's GDP surpasses pre-recession peak

Britain has reached the “symbolic milestone” of clawing back all the losses it suffered during the Great Recession, a leading think-tank said on Tuesday, while strong manufacturing figures added to evidence that the recovery is broadening out.  The National Institute of Economic and Social Research (NIESR) said the UK economy grew by 0.9pc cent in the three months to May, following growth of 1.1pc in the quarter to April. By this estimate, the level of UK gross domestic product (GDP) is approximately 0.2pc above its previous high-point in January 2008. Jack Meaning, a research fellow at NIESR, said “robust” growth rates over the past twelve months had bought the UK economy back to its pre-recession peak. “The growth has been reasonably broad-based. The pick-ups were initially in consumption but now there is some rebalancing towards investment activity as well,” he said. NIESR’s analysis came as official data showed manufacturing rose at its fastest annual pace in three years in April, indicating a broadening of the expansion.  Industrial production increased by 3pc between April 2013 and April 2014, while manufacturing increased by 4.4pc over the same period, according to the Office for National Statistics (ONS). On a monthly basis, production increased by 0.4pc between March and April. “British factories are booming,” said Chris Williamson, chief economist at Markit. “The official and survey data also help to dispel the notion that the recovery is based purely on consumer credit and the housing market, but is instead being fuelled to a large extent by booming factories and industry.”

All of the main sectors were higher than they were a year ago except for electricity, gas, steam & air conditioning, which saw a decline in output of 11.5pc.  The ONS said that warmer weather probably reduced demand for gas and electricity.  Michael Saunders, chief UK economist at Citibank, described the robust manufacturing growth as a “march of the makers”, while Martin Beck, senior economic advisor to the EY ITEM Club, said the manufacturing sector remained “the golden child of the industrial renaissance”.  Mr Beck said: “A decent expansion in manufacturing output and a continued rebalancing of the economy look set to continue.” However, he added: “One thing lacking in the official data in recent months has been overseas demand, weighed down in part by the strength of the pound.”  Analysts also said yesterday’s data kept the UK economy on track to expand at its fastest annual rate since 2007. NIESR expects the economy to grow by 2.9pc in 2014 and 2.4pc in 2015. A separate report by the Organisation for Economic Co-operation and Development (OECD) said UK growth remained at “above trend rates” in April, suggesting that the recovery is gaining traction.

However, Mr Meaning said that compared to other major countries, the UK was one of the last to surpass pre-recession GDP levels.  “France was marginally earlier than us and America was quite a bit earlier than us. It is the Eurozone counties such as Italy, Spain and Greece that are still below pre-recession peaks,” he said. “I think this is a symbolic milestone. It may give a small confidence effect. But we really need a pick-up in other things such real wage growth, which is still at the same level as it was 2004.”  NIESR expects real wages to regain the 2009 high towards the end of 2018. It also believes GDP per capita will not recover to pre-crisis levels until 2017. Factory output also remains 7pc below its peak, in contrast to services sector output, which is already well above pre-crisis levels.