Fuel Duty and Interest Rates

[danieldwilliam]

Here follows a thinly veiled rant about fuel prices.

 

I am sorry that fuel prices are going up. I wish we could all enjoy cheap, abundent energy without killing each other over it or destroying the planet. I also wish we could enjoy a wide range of high quality public services and reduce out tax bill.

 

Currently, the two problems are proving intractable. Don’t worry too much about it, I’m working on them and I’ll deliver a solution just as soon as I can.

 

In the meantime.

 

If you live in the country and drive a car, tough.

 

If you live in the country you have voluntarily taken on the risk of higher fuel prices. You did this in exchange for a) a way of living that suited you better than living in an urban set up, b) cheaper housing costs and therefore lower capital outlays, reduced interest payments and a reduced exposure to the risk of interest rate rises.

 

I chose to live in the centre of Edinburgh and I can walk to work, to the shops, to my son’s nursery. I have relatively little direct exposure to fuel prices. I paid extra for my flat. I have taken on an exposure to interest rates. I want to live in the city and avoid the risks of country living.

 

When interest rates go up will country dwellers demand that I receive a mortgage subsidy because I have chosen to take on addition debt?

 

A large part of the cost of motor fuel is taxation. By reducing this tax we must either cuts services or raise taxes, either now or in the future. Country dwellers and motorists, which services are you proposing to cut? Which taxes are you proposing to increase? Not mine I hope. When I paid additional stamp duty on my urban flat did you offer to sack one of your children’s teachers so I could avoid the tax? No? Hands of my kid’s school then.

 

A large part of the difficulty we find ourselves in is caused by our collective and individual failure to understand the risks we were signing up to. We should all do better next time round. This does not start by taking a risk you created for yourself and trying to export it politcally to other people. That sounds like a banker’s strategy.

Comments

[gonzo21.livejournal.com]

Interesting perspective, but as a country-dweller I can assure you that property prices in my neck of the woods ain't significantly cheaper than Edinburgh. In fact probably just as expensive as most places in Edinburgh.

The boom in investment properties/holiday homes has driven country property prices sky-high.

[danieldwilliam.livejournal.com]

Are you making a genuinely like for like comparison of a similar sized property with similar land in a similarly affluent area?

[gonzo21.livejournal.com]

Impossible to say, I haven't sat down and studied the numbers I'm afraid.

I can tell you that at least a third of the properties around these parts (rural perthshire) sell for more than local people can even begin to afford, to folks from the cities who buy them as investments and holiday homes, so, there are so many houses that sit empty for 50 weeks out of the year.

Which is a whole other social justice issue. :)

[danieldwilliam.livejournal.com]

It is a whole different social justice issue and one often gets ignored.

I used to work in rural Gloucestershire where the relative income and capital wealth of commuters to London and landed well-to-dos over shadowed the rural working classes in a way that was not as visible as the experiences of the urban poor but just as troubling.

Unoccupied holiday homes are problematic for me because the solution to the issue of too many homes being used as second homes are to restrict the rights of existing property owners to sell their property to the highest bidder and in the process reduce the value of that property. You prioritise future potential property owners at the expense of current actual owners. I’m not saying that this isn’t the right thing to do but (like fuel duty) it’s an issue with two sides

[gonzo21.livejournal.com]

Yes, it's a problematic issue, created by the boom in people investing in property, creating what I imagined was an unsustainable bubble in property prices. Yet even with this massive crash, I notice property prices continue to edge upwards, just at 1-3% a year, instead of the 10%+ PA return that people were getting.

I think there needs to be a massive adjustment in property values, which will probably only be driven by interest rates going up, and people suddenly realising they can no longer afford their huge mortages on their property portfolios.

(And I think interest rates have to go up, otherwise with all the quantitative easing that's been going on, we're going to wind up with the threat of runaway inflation.)

[andrewducker]

Not this week:
http://www.bbc.co.uk/news/business-12700649

But I'm sure they will at some point in the near future.

[gonzo21.livejournal.com]

I think there may be an argument that despite the financial crash, many people in the UK are better off than they have ever been before, purely thanks to the low interest rates.

I mean. I can remember when interest rates were what, 10-15%? And peoples homes were at risk of being repossessed left right and center. But... it kept house prices from being affected by runaway inflation.

Who would be an economist.

[danieldwilliam.livejournal.com]

Who would be an economist.

Me. Sort of.

Low interest rates have certainly helped compensate for the general trend upwards in prices driven by energy, commodity and food prices.

I think there is a fundamental supply side problem with housing. We just don't have quite enough of it in quite the right places and we seem unable to build more.

[gonzo21.livejournal.com]

Economics always seems like an area to me where if you make one change for the better here, then it causes a dozen bad things to happen over there that you never saw coming.

And yes. I think there may be a fundemental supply problem with lots of things, not just housing. Food and energy.

Plus as the developing world starts to act as markets for medium skilled jobs, as well as basic jobs, it's hard to see how the western countries are going to hold on to anything in the way of wealth.

I mean, like, the way that computer games developers are starting to get rid of expensive programmers in the UK, and hire cheaper programmers in Eastern Europe. Or the Japanese games industry shifting work to China.

It's hard to see what we might be left with at the end of the day.

[andrewducker]

Well, what I suspect we'll see is a drop in quality of life over here (or, hopefully, a stasis in it), as the rest of the planet catches up with us.

If technology keeps moving the way it has been, of course, it'll just mean us increasing our quality of life more slowly, as the rest of the planet accelerates madly in our direction.

But in any case I expect that we'll be getting ever more equal over the coming thirty years, and that this will infuriate those people who think that westerners have an inalienable right to a better lifestyle than the rest of the world.

[gonzo21.livejournal.com]

I think a drop is inevitable. Wages in the UK will have to drop fo rhte UK to remain competitive with emerging middle-classes in the developing world.

Which probably means the annihilation of the middle-class in the UK.

Which in turn, tends to result in fascist governments.

[andrewducker]

I don't think it means the annihilation of the middle class. It may well mean that their quality of life remains stagnant for some time, but I'm not forseeing a collapse any time soon.

[danieldwilliam.livejournal.com]

Like Andrew I’m not too concerned about the middle-classes over the next ten years.

For starters, Western workers are still more productive than non-Western workers and as non-Western workers see their wages go up it narrows the gap between their cheapness and out goodness

Whilst it’s true that there is increasing competition from abroad for higher skilled jobs and this is placing a cost pressure on our wages it does have two advantages that don’t get mentioned as often as they should be.

Firstly, if they are cheaper it means access to cheaper stuff for us. This was true of simple manufactured goods and will be true of more complex manufactured goods and services.

Secondly, as they become wealthier they will buy more of our stuff and it will be the really valuable and hard to reproduce stuff.

This second point helps us in a number of ways.

Firstly, they will just buy more stuff from us. So industries like whisky, oil and gas services in Aberdeen, life science, financial services will all do well.

Secondly, with more wealthy people in the world the fixed costs of things are spread over a wider base. This affects a huge number of things like dealing with Somali pirates (come on Indian Navy), R&D costs (add 100m Indians and 100m Chinese to the 400m Westerners who might buy the next smartphone and you can spread R&D much more widely, cost of internation institutions (I look forward to Eastern European countries contributing more to the cost of the EU or NATO so that I don’t have to).

Thirdly, with more wealthy people in the work doing more thinking technology should move on an increasing pace steadily improving the quality of goods and services and reducing their cost.

This effects will affect different industries differently. There will be winners and losers. Good times for anyone who adds a lot of value to their output in a way that is hard to copy or who sells premium goods or services. Bad times for anyone operating on narrow margins.

So for the next few years things will rough for us, and for the next ten living standards might stagnate on average but there will big variations.

I think the people who will really suffer are the unskilled workers of the West. Unable to compete on price with the Chinese or on wage-adjusted productivity with Eastern Europeans they will struggle for jobs and a middle class that is squeezed, or at least telling itself that it is squeezed, will be increasingly reluctant to provide transfer payments.

Kids, stay in school.

[andrewducker]

Yeah, I agree with all of that.

We're more efficient, and locality is still useful (even in these days of hyper-communication). This will presumably change with time (at least the former will), but for the moment I'm not too worried.

[drplokta]

A four bedroom detached house with an acre of land in inner London would cost you £20 million or so. How much in rural Perthshire?

[gonzo21.livejournal.com]

1-2 million at a guess.

Can't really compare inner London prices with urban prices across the board though can you?

[danieldwilliam.livejournal.com]

A quick and unscientific look at property websites says I can buy a 4 bedroom, large family house in a good part of Edinburgh, with a large garden but not, perhaps an acre, for £1.3m. (Makes mental note to win lottery and make an offer.)

For the just a little more money (1.8m) I can buy a 5 bedroom family house, with 7 cottages to be rented out in 10 acres of land.

[buddleia.livejournal.com]

I agree in principle and as I don't drive and live in London that makes sense. However, I think it's worth acknowledging that geographical mobility amongst those most seriously hit by fuel and other prices is not as high as you imply!

[danieldwilliam.livejournal.com]

Would you like to say more about the geographical mobilty point?

I'm conscious that I've ranted and I'd like to sense and fact check myself.

[buddleia.livejournal.com]

There are doubtless a fair few well-off families who did consciously 'move to the country' for the reasons you list and, yeah, they might reasonably be expected to accept that petrol use is going to be a bigger expense and accept it as a trade-off. My guess, however, is that the vast majority of people in this country do not have that option, or at least for them it's neither a simple nor cheap matter. I appreciate your point/rant, but it does imply that a simple decision can be made by a household in the town or country to pick one over the other with reference to various prices. My mum didn't decide to move to London to raise a family, for transport or any other reason; she lived there already and had no reasonable route elsewhere. This is a pattern I naturally see everywhere in my economic class, but I think it is fairly normal.

[danieldwilliam.livejournal.com]

That is absolutely a fair point and I'm being very deliberatly simplistic and partisan in my rant.

People often end up where they are because of just life

There are counter-arguments to the point of view I've expressed along the lines of social cohesion and living wages and the cost of living which I would normally be much more in favour of. I'd much, much rather spend the money needed to adjust fuel duty on rural bus and rail links or social housing near places of employment, or both

I think what upsets me about the fuel duty lobby is the refusal to accept that fuel prices, barring real technological innvoation, are going to go up and up.

[buddleia.livejournal.com]

I think probably most people would agree with you on all of that. But there is a lot of self-defeating and false opposition created over a notional town/country divide, when most of our issues are connected far more to social and financial issues which are just not that simple.

And, hey, the whole point of a rant is that it's simplistic!

[danieldwilliam.livejournal.com]

I currently live in Edinburgh and I grew up in Australia, both are, demographically similar, in that most of the population live in very densely populated cities and there is a large, very sparsely populated near-wilderness. The thing that also links the two countries is that a lot of the soul of the country stems from it’s wild areas. You could cut out about half of the landmass of Australia and actually increase it’s GDP but it wouldn’t be the same place. Ditto some parts of the Highlands and Islands and Scotland. Communities aren’t just about money.

My mum grew up in Stroud and many of her relatives were rural poor and lived in much worse conditions than their cousins in the East End of London. “Lovely views,” she used to say, “but you can’t eat them” I agree with you that real division we should be focusing on is economic rather than geographic.

However, on this very narrow issue tcheucters may have to get used to taking the bus.

[ciphergoth.livejournal.com]

A global Pigovian tax on fuels to cover CO2 emissions is long overdue!

Co2 Taxes

[danieldwilliam.livejournal.com]

It is the big failure of the European Union Emmisions Trading Scheme that it doesn't cover non-industrial heating and non-electric transport both of which account for about one third of energy and therefore carbon emissions.

Specifically, I find it bad design that the hydro-carbons we burn to turn in to electricty to power a train are subject to the EU ETS price but if I burn the same hydro-carbons much less efficiently in my car I am not taxed.

I'm a big fan of the idea of Green Manhattan

http://www.newyorker.com/archive/2004/10/18/041018fa_fact_owen?currentPage=all