XL collapse a pointer for things to come

Probably the last thing that the government wanted to here is the collapse of a holiday company leaving thousands of people either stranded or with holidays they were looking forward to now cancelled.

It brings thoughts of recession closer to home and will not help the school of thought that thinks we are talking ourselves into negative growth.

Firstly though there is the company itself.The administrator of XL is talking of significant redundancies,it employs 1700 people in the UK and their jobs are at risk.Added to that the secondary jobs that any travel business supports and these will not be insignificant figures.

Secondly the failure will lead to a lack of confidence in the travel industry and there are already rumours of other business's teetering on the edge.

The company is blaming the high cost of aviation fuel and had already announced that it was cutting back on some of its business to concentrate on the American and European markets.It is always the low cost carriers that will be hit first and with the main holiday season tailing off,cash flow will be tight and there is little in the way of refinance around due to the global tightening of credit markets.

Two weeks ago,Barclays announced that it would be withdrawing financing based on fuel future positions but it seems that the bulk of the financing came from an Icelandic outfit and the Guardian is reporting that

an announcement was made by Icelandic transport group Eimskipafelag Islands - known as Eimskip - and referred to a loan it had made when it sold XL Leisure to a management buyout in 2006. Eimskip had made a loan guarantee of €207m (£165m) to the buyers of the airline and was concerned that the "conditions in the aviation market and information of the operation of XL" would make it more likely that it had to honour the guarantee.
To protect itself, Eimskip had lined up a group of "significant investors" - led by local multimillionaire businessmen and father and son duo Bjorgolfur Gudmundsson and Bjorgolfur Thor Bjorgolfsson to takeover the loan.

Nevertheless the travel industry will be under close scrutiny over the next few weeks and months

Energy policy and why no windfall tax

It would be safe to say that the government's energy announcements yesterday have not set the world alight.The main issues being that first of all this is going to take time to implement,some estimates are saying that less than 150,000 are going to be able to take up the insulation schemes that may reduce bills by up to £300 a year.
Secondly it is becoming that the energy companies may simply be passing this cost onto the consumer.

The Independent this morning reports that

David Porter, chief executive of the Association of Electricity Producers, warned that whenever costs were imposed on an industry "the bill to some extent always ends up with the customer". Mr Porter, whose members include E.ON, Centrica, EDF, Scottish and Southern Energy and RWE Npower, said: "In the end, somebody has got to pay for this." Electricity suppliers "will try to contain this because they have to, but it remains to be seen just how much of it ends up on the customer's bill in the longer run".

Undoubtedly the question will arise as to why the government did not revert to the tactics of the windfall tax.

Writing in this morning's FT,Ed Crooks concludes that even though

Gordon Brown began hatching his plan to drag more money out of energy suppliers to help with fuel bills even before he was prime minister, in autumn 2006.

That he has ended with a programme that falls well short of many Labour supporters’ ambitions is a testament to the vigour with which the energy companies have fought their corner, and to the formidable administrative difficulties involved in making them pay.

As I have written before,the policy is an example of some medium term thinking as opposed to short term headline hitting measures.
Brown now has to be on his guard against a cold winter and deaths of old people.The headlines will be cutting and savage if that happens

Brown rejects short termism

It may not have been what the electorate wanted to hear ,but Gordon Brown's comments at the CBI in Glasgow last night were some of his better pronouncements on the economy.

Rejecting short term gimmicky solutions,in this case one off payments to alleviate the cost of fuel,he said that the solutions were long term by way of reducing our consumption of fossil fuels.

“Not short-term gimmicks or giveaways - but firm steps towards making every home in Britain more energy efficient, thus reducing bills not just temporarily, but permanently.
“Because you cannot address a long term problem - the supply and demand for oil- with a short term gimmick like a fuel duty stabiliser.”

No doubt also a sideways swipe at the Tories fuel duty stabiliser.Is this the first steps to realising that the market price can influence our fuel consumption?
Yesterday's figures on new car sales,despite the slump in sales showed that we are downsizing on our petrol consumption by shunning the 4*4 and other uneconomical vehicles.

About turn on fuel duty

So the latest U turn comes as the government announces that the planned 2p rise in fuel duty will now be abandoned.
Should we be surprised? Probably not but what will this due to the already beleagured public revenues.

Vince Cable believes that it will leave a hole of around £1b arguing that they should be

looking in the autumn at what's happening to oil prices, what's happening with government revenue and making considered decision then".

However not so as it seems that the revenue from higher oil prices will more than offset the loss of income.

Connect the words Glasgow East and Fuel duty

Middle England up in arms over green taxes on cars

Middle England is agast at the government this morning,the Mail ,the Express and the Telegraph all up in arms over the revelations that green taxes on cars will after all effect motorists despite Gordon's denial in the past

The Telegaph says that

More than 9 million motorists face road tax increases of up to £245 under the Government's "green" car tax plans, the Treasury has admitted.
Nearly half of all drivers will be hit with significant rises in Vehicle Excise Duty (VED), while fewer than one in five will see any benefit from the reforms, according to official data.

However will this become a none issue? Turn to the pages of the Guardian which reports

Plans for national road pricing should be abandoned, because higher fuel prices are already forcing drivers to cut congestion and emissions, according to the head of the AA, Britain's biggest motoring group.
Figures published yesterday showed that pollution from new cars is dropping faster than at any time in the last decade, as motorists swap even family cars for smaller models.

A case of supply and demand? Fuel prices will in effect control emissions

How the oil price is hitting South East Asia

It is not just in the Western World that the price of oil is causing problems.

Nguon Serath, Iris Cecilia Gonzales, and Sengthong Phavasath look at the situation in Cambodia,Laos and the Philipines

Sophat Nearyroth, a Cambodian mother, used to take her daughter out to go around or have dinner but now she has to cut down on her travel and daily expenses to cope with the oil crisis and rising inflation, which Cambodia and the rest of the Southeast Asian region is experiencing. The problem has led to protests on the streets in some countries including Cambodia and the Philippines.
Nearyroth is among 500 million people in the region experiencing the problems caused by the oil crisis and high inflation. In Laos, Cambodia and in the Philippines, people talk of pain and hardship, caused by skyrocketing oil prices and soaring inflation

The price of a litre of fuel in Cambodia has reached $1.40 and as in the UK,this has fed thru to inflation in other commodities.A kilo of pork has more than doubled in price and in Laos inflation is currently running at 10% compared to 65 last year.

Another U turn on the way?

Are we heading for another U turn by the government.

Inteviewed in the London Standard,the Chancellor tells us

I think the bigger question for motorists, frankly, is the fuel duty,That's something you pay every week, not once a year, and that is something that we in government are very focused upon."

Hints? Well possible but it begs the question what is going to replace it.Perhaps the additional monies from oil revenues which hits another high this morning.

According to the paper

Mr Darling's words will be seen as a clear sign he will help motorists and hauliers paying sky-high prices at the pumps. But - despite reports of a reprieve today - he seems determined to face down rebel Labour MPs demanding a U-turn on the plans to clobber gas-guzzling cars with annual vehicle excise duty of up to £455.

Don't panic

Don't panic....Don't panic is the message for the government as the four day strike by Shell Tanker Drivers gets underway.
Although what ever you do,don't pick up a copy of the Express this morning as it regails us with what might happen here with photos of empty supermarket shelves on the continent.

The strike commenced at 6.00 am this morning and although contigency plans are in place,the Company beleives that up to 1000 of its stations will run dry.

The dispute has by all accounts been going on for six months when the union acting for the drivers UNITE claimed that their wages had not altered since 1992 despite working longer hours.The Company claims that is not the case and that wages were at £36,000 a year compared to £32,000 in 1992 and that the offer would increase this to £39,000.

Unite's web site put out the following press release.

Unite assistant general secretary Len McCluskey said today (Thursday) that talks have broken down between the union and the employers, Hoyer and Suckling: "We are extremely disappointed that talks with Shell's contractors Hoyer and Suckling have broken down this evening.
"Shell's failure to intervene in this dispute means that Shell's drivers have no alternative other than to go ahead with strike action, beginning on Friday June 13th, 2008.
"This dispute could have been resolved if Shell had advanced a fraction of the billions of pounds in profit they make every month.
"One of the world's richest companies is prepared to play Pontius Pilate and see the British public inconvenienced rather than settle this dispute for a sum smaller than the chairman's pay increase last year.

The balancing effect

When Phil Wollass,Labour's envirnomental spokesman appeared on Newsnight following the fuel protests he was quite adamant that the Treasury was losing out as the price of fuel increased.

Over at Ft.com blogs they are not so sure.

They quote Maurice Fitzpatrick of Grant Thorton who says

Tax revenues from North Sea oil would jump from an estimated £10bn - struck when oil was only $84 a barrel - to £16bn at the current price of about $128 a barrel.
Since the Budget in March, the Treasury has already taken an estimated £820m more than its forecasts in North Sea oil tax.
The £6bn of surplus revenue would easily cover the cost of U-turns on both fuel duty and vehicle excise duty, where ministers are introducing new bands which could cost an extra £200 for drivers of inefficient cars.
Deferring the 2p increase in fuel duty by six months would cost £550m. Scrapping the revamped vehicle excise duty altogether would mean the loss of an estimated £465m next year and £735m next year - although ministers may only remove the retrospective element of this tax.

The tresury begs to differ

* an increase in pump prices leads to an increase in inflation. This knocks through to the inflation-linked payments that the government has to make, including benefits, pensions, tax allowances, and government bonds.

* reduced demand for fuel from filling stations, which reduces revenue from fuel duties - as this is fixed at 50.35p per litre if people buy less fuel, revenue from this falls

So who is right or are they both right and does this simply fall into the so called balancing effect?

Signs that oil supply may increase

I take back what I said,perhaps Gordon Brown has an influnence on the oil producers.

Sky news reports that

The world's leading oil producers have said it is too expensive - and they plan to increase supplies to help ease the global fuel crisis.A source at Opec said its 13 members were uncomfortable with the current price of crude, which last week hit a record $135 a barrel.
Based on present supply and demand, he said it should be fetching $60-$70 a barrel

and Timesonline reports

Plans for increased North Sea oil production were outlined by the Government today as ministers gave the green light for two new field development.
Business Secretary John Hutton also announced changes to the system for licensing oil fields in the North Sea and said there had been a record amount of interest in the latest licensing rounds.

Stand Firm Gordon and make the difficult decision.

So Gordon Brown is to meet the oil chiefs or at least the British ones.

I am struggling to understand the purpose however of this meeting.The only solution to the price of oil is either an increase in supply or a drop in demand.Neither of which the UK oil industry can really affect.

After all as the Prime Minister recognises,this is a global problem.Writing in this morning's Guardian he says

The cause of rising prices is clear: growing demand and too little supply to meet it both now and - perhaps of even greater significance - in the future. Higher demand is one of the major results of the scope, speed and scale of globalisation as Asian economies, as well as Opec countries themselves, demand more oil.

I worry when I here that a government U turn over fuel duty may be on the cards.Firtsly from pure fiscal issues,where is the money going to come from other than another increase in borrowing.Secondly again this is simply pandering to the wishes of backbenchers and sectors of the population.The car tax issue as with the 10p tax rate is proving to be another error that can be traced back over 12 months.

Fuel duty is not and we need to use the rise in oil prices to force the agenda of looking at alternatives both of fuel itself and lifestyle.

This morning's Independent outlines the longer term issues on its front page

Gordon Brown has been urged to stand firm against calls to abandon green tax rises on fuel as environmentalists warned that scrapping the proposals would risk undermining Britain's drive towards a low carbon future and send the wrong message about the Government's commitment to tackling greenhouse gas emissions

So Gordon and Alistair.Stand firm and as you say make the difficult and unpopular decisions that have a long term benefit

Newsnight to run the green debate

I don't suppose for one moment they did look at my blog ,but tonight's Newsnight agenda looks remarkably similar to my post earlier this morning.Surely a coincidence?

Are green taxes dead?
Are green taxes a luxury we can no longer afford? In the face of an
economic downturn, should society be ditching the green agenda or
sticking with it?
Lines of lorries are clogging the country's main arteries today in
protest over the rising cost of fuel, their drivers demanding the
government scrap the planned 2p rise in fuel tax.
At the same time the Chancellor Alistair Darling is facing the fury of
Labour MPs over his plans to increase road taxes on older, more
polluting vehicles. He'll be addressing their concerns in a meeting next
week.
With the cost of fuel, travel and food rising - and house prices falling
- people are feeling a big squeeze. So, should the government ease the
pain in the short-term by scrapping the green agenda, or is it more
important to protect the planet for our grandchildren?

The tipping point for Green policy as fuel prices rocket

The papers have turned on the government over the price of motoring this morning.

The main gripe with the government is that the tax changes to older cars mean that according to the Telegraph

the changes to the Vehicle Excise Duty (VED) will affect nearly seven in 10 of the country's 26 million drivers.
Many of those who will be most heavily penalised by the rises are people on low incomes, who could have to pay up to an extra £245 a year to tax the family car.

This is really the first test of the conflict between the green argument and the economic realities for the public.

There has been much talk about how the political parties will be forced to drop green policies when voters realise that it is going to cost them more money.

Of course the real issue behind this increase in motoring costs is the rising price of oil,something that government's can do little about.

This in itself may force the public to cut back on carbon use but in reality,any cutbacks in the West will be balanced by increased use in the developing economies of India and China.

It is demand from these areas that is pushing petrol prices up.

This morning the business secretary John Hutton will make a speech in which he will argue that high oil prices must translate into action on investment on new energy sources whilst calling for action from oil producing countries to increase production and drive down prices.

The Independent adds he will say

"In the long term the only effective way to insulate ourselves and other oil consuming countries from future oil price spikes is energy efficiency and substitution.
"In the early 1970s the world faced comparable price volatility. Some economies had the vision to diversify and innovate. California blazed a trail, invested heavily in exploiting its natural resources, and is today a world leader in renew ables like solar and wind power. This should be the inspiration for responsible economies today."

As for today's fuel protests,well yes the government could take action over duty especially over commercial hauliers to protect UK firms.However there is little room for manoeuvre over domestic duty.