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Who doesn’t want to save the planet?
We imagine that most of our readers would rather that London remains above water during their lifetimes, and the lifetimes of their grandchildren. We also doubt that the prospect of global famine is something anyone would ever vote for.
The various political parties all realise this. That’s why they’re all desperately jumping on the green bandwagon. And economist Nick Stern has just given them the golden ticket with his report on why we need to do something right now about global warming.
Going green is a politician’s dream. They can talk sternly (no pun intended) about our ‘moral obligation’ to do something. And as usual, when politicians decide that ‘something must be done’, that something tends to be expensive.
So who’s going to pay for it all? Take a wild guess…
We’re not scientists at MoneyWeek, so we’re not going to delve deep into the mechanics of global warming here. There seems to be a consensus that global warming is actually happening – though there are still some sceptics. As to whether or not it’s caused by mankind, the consensus is a little less clear.
But that’s the thing about science – there will never be a universal consensus. You can still find the occasional person who believes that smoking doesn’t cause cancer and has the statistics to prove it. We’re not saying that will be the case with global warming, but there does come a point where we should be considering what the consequences could be if we really are slowly baking the planet – and that’s essentially what Nick Stern has done.
His report wasn’t about debating global warming either. His starting point was to accept that it’s happening, accept it’s man-made, and then work out how much it would cost us to sort it out. Unsurprisingly, he concluded that it would be a lot cheaper in the long run to do something about it now, rather than later, once we’re all taking submarines rather than tube trains to work.
In essence, he reckons that by investing 1% of global GDP we can keep emissions stable over the next 20 years, and then see them start to come down after that. If we don’t, and the temperature of the world keeps rising, then we’ll see global GDP cut by a lot more.
You can see the potential physical impact of any rise in temperature on the cover of all the newspapers. The headlines, from broadsheet to tabloid, talk about mass drought, ice-sheets collapsing, the seas boiling, etc. etc., while on the inside, their commentators write prissy little columns about how all the other newspapers are over-sensationalising the report.
But apart from detailing the impending apocalypse, the other point the newspapers are all picking up on is that going green means raising taxes. Given that the voters of the UK seem to have been brainwashed into accepting the utterly doltish idea that ‘all tax is good’, politicians are now falling over themselves to work out just how far they can go.
Read between the lines and you can practically hear their scheming little minds at work: “Will consumers accept higher petrol costs, even if the oil price is falling?” they wonder. “Can we get away with making air travel accessible only to the rich, and those who need to fly on official business, like politicians?”
As Libby Purves points out in The Times, replying to a typically unquestioning New Labour love-in from fellow columnist David Aaronovitch: “For a chancellor, green taxes are dream taxes”.
It’s like tax on cigarettes – you can raise it as much as you like, and no one complains – well, no one except the smokers, and they’ll buy them anyway because they’re addicted. It’s the perfect tax combination of moral high ground on the one hand, and consumer necessity on the other.
And this is where green taxes, unfortunately for the Treasury, are different from smoking taxes. The whole point of a green tax is to discourage a certain type of behaviour. So if the tax works, the revenue raised goes down.
Some commentators argue that this isn’t a problem. The idea isn’t to raise more tax – it’s to raise it in a way that makes society more green. So what we don’t pay on income tax, we pay on motoring taxes, for example.
But this is really very optimistic – naïve, in fact. Look at what happened with London’s congestion charge. The charge was so successful at cutting the number of cars travelling in central London, that it failed to raise the revenue that Mayor Ken Livingstone had earmarked for spending on public transport.
Of course, rather than accepting that the charge had done its job and taking the hit to his budget, Ken just hiked the congestion charge further. And this is the point, we suspect, at which the whole concept of ‘green taxation’ will fall down.
Green taxes essentially offer a good excuse for the Government to introduce consumption taxes on a scale that would once have been thought inconceivable. And if you start to believe for a minute that it means that your other taxes will be cut, remember the history of taxation.
Every major tax that we pay today was originally introduced as a temporary fund-raising measure – usually for the purpose of starting a war. Income tax in the UK was introduced in 1799 to pay for war against Napoleon, for example, and our taxes have been paying for wars ever since, with the latest being the War on Terror.
Now it looks as if we’ve got a batch of new taxes coming for the War on Climate Change. Will they be rescinded once (if) the war is won?
Well, we’re still paying income tax. What do you think?
Turning to the stock markets…
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The FTSE 100 fell back, shedding 34 points to end the day at 6,126. Shire Pharmaceuticals was the main faller, down 3% to 940p as it was hit by worries about competition and product delays. Oil heavyweights suffered too as the price of oil slid sharply. For a full market report, see: London market close
Elsewhere in Europe, the Paris CAC-40 closed 33 points lower, at 5,362, and the Frankfurt DAX-30 was down 4 points at 6,258.
Across the Atlantic, stocks were mixed as disappointing sales forecasts from Wal-Mart saw the Dow Jones fall 3 points to 12,086. The Nasdaq was 13 points higher, at 2,363, while the S&P 500 was 1 point higher, at 1,377.
In Asia, the Nikkei 225 rose 47 points to 16,399, rallying from yesterday’s fall.
Oil was a little lower in New York, with a barrel of crude trading at around $58.25, while Brent spot was flat, at around $56.40.
Spot gold was broadly flat, trading at around the $600-an-ounce mark.
And in the UK this morning, the Nationwide Building Society reports that house prices rose by 0.7% this month, but the annual rate of increase slipped to 8%.
And our two recommended articles for today…
Where are interest rates heading next?
– Falling energy prices are confusing the inflation picture, says Jeremy Batstone of Charles Stanley. So how are central bankers in the US and UK likely to vote in coming months when they make their decisions on interest rates? To find out what he thinks, click here: Where are interest rates heading next?
How to invest in the giants of tomorrow
– Imagine if you could have bought into Microsoft or McDonald’s when they were still small businesses. The good news is that the opportunity to do just that exists in emerging markets. In this MoneyWeek cover story, just available to non-subscribers, Cris Sholto Heaton runs through the emerging market dynamos that could be the multinationals of tomorrow – to find out more, click here: The rise of the new multinationals