High energy costs are a choice – and an act of national self-harm
Governments like to claim that globalisation means that our destiny is beyond their control. That’s wrong
Cruising up the Channel last week before docking in the Netherlands, was a Chinese vessel that carried 7,000 electric cars. All were manufactured in China, all will undercut rival products made in Europe, and all benefited from state subsidies and energy prices far lower than those in Britain.
Nothing demonstrates better the absurdity of the myth of international free trade, the failure of the model of globalisation pursued by Western governments for more than two decades, and green policies that have driven industrial production from countries with higher environmental standards to those with little or none.
In Britain, policy has deliberately increased the cost of energy. Yet expensive energy makes British goods less competitive. In foreign markets and at home, British companies lose out to foreign rivals, with cheaper inputs, lower labour market standards, and higher carbon emissions.
Many consider this progress, but it will soon come to be seen as serious economic, social and geopolitical self-harm.
Throughout the 1980s and 1990s Britain generally had the third most competitive industrial electricity costs of the G7 economies. But since then we have performed far worse. In the five years before Tony Blair became prime minister, our industrial electricity costs were around 9 per cent higher than the average of the advanced economies comprising the International Energy Agency. By 2010, they were nearly 23 per cent higher, and for the past five years have risen to 52 per cent higher.
Most European countries have seen prices rise dramatically since Russia invaded Ukraine. But compare British prices with specific countries and the difference is shocking. Our industrial electricity prices are three times higher than in America and Canada.
They are more than twice as high as in Korea and New Zealand. They are about twice as high as those in European countries – Finland, France and Sweden – with a strong nuclear energy sector, and much higher than those – like Germany and Poland – still using coal to generate power.
In China, responsible for 53 per cent of global coal consumption, and where coal generates 61 per cent of electricity, industrial electricity prices are around a quarter of those in Britain. Add to this low Chinese labour costs and the enormous subsidies provided through cheap loans and steel, and it is clear that this is not free or fair trade at all. Meanwhile, emissions associated with imports to Britain from China have risen 62 per cent since the late 1990s.
We can blame China for abusing the world trading system it joined almost a quarter of a century ago – and indeed the European Union is threatening to impose tariffs on Chinese electric vehicles – but the real problem is with Western naivety.
China was always going to flout the rules and use the system to its own advantage, and for years Western governments turned a blind eye as it did so: stealing industrial secrets, subsidising whole sectors and dumping surplus goods.
These electric cars are really only a more visible example of what has been going on across industry for at least two decades. One result has been the empowerment of China – a strategic threat and a hostile state – to the extent that it openly backs Russia in Ukraine, undermines international institutions, such as the World Health Organisation, corrupts and sets debt traps for foreign governments, threatens Taiwan and even India, and talks up confrontation in the Pacific with America.
Another result has been the enfeeblement of our own industry. Not all global free traders are content to watch China abuse the system in the way it does, but most are at best neutral in response to the decline of industrial production in Britain and elsewhere. Their response is to cite economic theory, and explain that “comparative advantage” means we should be relaxed about other countries dominating manufacturing, because we will dominate other sectors, such as financial and professional services.
Nobody sane argues for national self-sufficiency, and trade does make us richer. But it is a simplification – and a case of putting theory before reality – to say we should not care about what is made or done where.
The pandemic demonstrated the danger of stretched supply chains that include hostile states. But in slower, less visible fashion, the transfer of industry from Britain to the East has caused our trade deficit to widen further – with all the consequences that follow – our productivity problems to deepen and our regional disparities to worsen.
It has also caused our labour market to bifurcate, with fewer mid-skilled, mid-paid jobs than before.
Despite everything, Britain remains a stronger manufacturing force than many recognise. We are the eighth biggest manufacturer in the world and investment is growing at the secondhighest rate in the G7 since the introduction of the super-deduction tax nearly three years ago. But to really change our economy – to export more, improve productivity, rebalance across regions and sectors, and increase the number of good, well-paid jobs – we need to do more.
This must mean reform right across the economy. The super-deduction is an example of how tax reform can aid rebalancing, but there is so much more to do.
British industrial strategy cannot involve the fiscal firepower provided by American subsidies, but it can focus investment, join up decision-making, and protect strategic industries. It can reshape supply chains and move first with regulatory frameworks for developing industries in life sciences and tech. It can invest in secure energy through new nuclear and our own oil and gas.
And it can reform post-18 education to provide the technical education and training the country – and millions of our people – need to thrive.
But we must also overcome our greatest blind spots. We do need to reduce our dependence on foreign fossil fuels – not least because we should not rely on autocracies for energy – but policy must never run ahead of technology, and our net-zero targets are simply unrealistic and self-destructive.
And so too must we get real about trade. It is time to junk the dogma about globalisation and free trade and return to the real world. Unless we do so, economic decline and political instability awaits.
We must overcome our greatest blind spots. We need to reduce our dependence on foreign fossil fuels