Power Up: The framework for a new era of UK energy distribution

The UK's energy market is unfit for the modern age, a new report from the Adam Smith Institute argues. The report, Power Up: The framework for a new era of UK energy distribution, argues that new technologies such as smart grids and distributed energy production can revolutionise old models of energy distribution and pricing, in the same way that apps like Uber are disrupting traditional models of transport.

In a world of expensive of energy prices, the report suggests regulators should encourage experimentation with new technologies, rather than cutting them off at inception. Regulating the market too heavily - often justified by claims that consumers are being 'ripped off' or overwhelmed by the number of tariffs available - closes down consumer experimentation and prevents technological and economic progress, which keeps energy prices high.

The paper envisions a world of choices in the energy market; where smart meters that relay real-time price changes to encourage better energy use are just the beginning. The author, Dr Lynne Kiesling, imagines consumers being able to see where their energy is coming from, and to choose what kind of green-grey energy mix they want.

Most important, Dr Kiesling argues, is for OFGEM to adopt a structure of 'permissionless innovation' - which allows companies to experiment freely without being granted permission from regulators. In the early days of the internet, no-one envisioned a world of Amazon, iPhones and Uber; but these inventions were able to thrive, as there were not limited by regulatory barriers. OFGEM, Kiesling argues, needs to adopt a more relaxed regulatory structure that dismantles the barriers that have been created.

Read the full press release here.

For further comments or to arrange an interview, contact Head of Communications Kate Andrews: kate@old.adamsmith.org | 07476 915072

To introduce you to an extended whingefest


We wish that this was satire, or perhaps even the ravings of some poor deluded soul well outside the mainstream. Unfortunately it is neither: this whinge that Bill Gates really shouldn't be spending his own money how he wishes is meant to be a serious contribution to the debate:

Is the most effective philanthropist a dead one? It’s a morbid question, but also a pertinent one. Are large philanthropic organisations such as the Ford, Rockefeller or Gates Foundation able to achieve the most good with a living benefactor who is in the picture on a regular basis, providing expertise and political leverage? Or are they better off once a benefactor is long gone, permitting staff to operate free of the constraints of donors who, however well intentioned, may hinder effective decision-making?

To recast that question, which is the better organisational style? One of the most intelligent men of our generation (yes, Gates is, fearsomely intelligent) directing an organisation attempting to do good or the usual bureaucrats that fill up any organisation after a generation or two having meetings about whether there's sufficient diversity in the snacks offered at meetings to discuss which snacks should be served at meetings?

To pose the question that way is to answer it of course:

We need to challenge this silence. We need loudly to ask an uncomfortable question: do foundations narrow wealth inequalities or simply preserve them? Are foundations at their most radical when they exist to serve a benefactor’s hopes and whims – or when they’re emancipated from such an obligation?

After their founders had died, the “big three” foundations in the US – Ford, Rockefeller and Carnegie – started to sympathise with labour and civil rights movements. Detractors frequently criticised them for being too anti-capitalist; Ford’s grandson Henry resigned from the foundation in protest in 1977, stating in a revealing letter that “a system that makes the foundation possible very probably is worth preserving”. At least Henry Ford had the honesty to state which side he was on. We should challenge his modern successors to be as upfront.

The answer being that such organisations should serve the interests of the bureaucrats that run them not the wishes of the founder. The argument against Gates is that he doesn't allow that long march through the institutions its head, he insists that the organisation do what it was set up to do: alleviate disease and poverty in the most effective manner possible. That this doesn't suit the bureaucrats is why they hate him and it.

Just to illustrate how far the decline reaches the thoroughly sensible, originally, Joseph Rowntree bequests now fund Richard Murphy to think big thoughts in his shed.

It is for this reason that Warren Buffett has insisted that his, very generous, donations to the Gates Foundation must be spent immediately, before such institutional degradation into a home for the socially just happens. And why the Gates Foundation itself talks about specific tasks now that it wishes to achieve, rather than gabfests that will produce a "legacy". That is, let's get rid of all the money before the funds become "emancipated from such an obligation" to actually achieve anything, or even any oversight. As with the Oxford Committee for Famine Relief campaigning in the UK, where there is no famine, Barnardo's, a system of childrens' homes campaigning in a country without such private childrens' homes, Stonewall campaigning for equal rights long after equal rights have actually happened.

C. Northcote Parkinson really did have a point, the prime purpose of any bureaucracy is to make sure that the bureaucracy itself survives. All else is subservient to that. At which point we might suggest Worstall's Corollary to the Peter Principle: all useful philanthropic work is done before the socially just or the bureaucrats take over the charity.

Break the monopoly on liquor in Virginia

Our Deputy Director, Sam Bowman, is currently out in Virginia taking part in the Atlas Network's Think Tanks MBA, where he has started campaigning for the state of Virginia to release their monopoly hold on the sale of liquor. Watch the video below to find out more.  

The campaign tweets from @PrivatiseVABC and can also be contacted through their website here.

Shocker as Guardian letter writer doesn't quite get it


We find this extract of a letter to The Guardian as being a very fun example of people not quite getting it:

The decision to remove availability of tax reliefs for community energy projects (Government to cut tax relief for community green energy schemes, theguardian.com, 28 October), coming at the same time as it is clearing the way (contrary to pre-election pledges) for privately owned, profit-driven fracking businesses to operate wherever they choose, makes explicit the governent’s preference to allow private equity, venture capital and hedge funds to profit rather than allow individuals and families to invest in their own communities.

The not quite getting it bit is of course that those community energy projects were driven by exactly the same profit calculations as those for profit fracking companies are using. After all, all a company is is a group of people banding together to achieve a task: just as a community project is a group of people banding together to achieve a task.

Well, at least we assume that the community projects were motivated by that same calculus: we don't think the British people are stupid enough to do things which don't make them better off.

And the fact that tax reliefs are considered important shows that money is indeed considered to be important. If people were doing these community projects purely for the love of Gaia, with no regard to gelt and pilf, then they would not be concerned about the tax position, would they?

Further, the removal of those special tax reliefs leaves such community projects free to compete with profit driven groups upon entirely equal terms. And, if as could be possible, people are more motivated by stupidity Gaia than by profit, then they'll even have an advantage in the financing of their fracking rigs.

And we are really sorry to have to point this out but creating a level playing field does not prevent anyone from joining in the game.

This sounds terribly logical which is why people are complaining


We have the delightful arrival of a government plan that is actually sensible. That being, of course, why it's unlikely to get through and also why there is much a'wailin' an' a'cryin' about it all. For to some people government isn't there to do sensible things it's there only to protect their own interests. The sensible thing is that places which have planning permission will be regarded as having planning permission. Which, given that the point and purpose of having a system of planning permissions is to indicate where people have permission to do the planned thing sounds very reasonable indeed to us:

Tens of thousands of new homes in greenfield areas in England will be given automatic planning permission amid fears that communities will have inappropriate developments forced on them. Ministers have quietly given developers the right to be granted "planning in principle" in areas that are earmarked for new housing schemes.

So there we have it, that is the change being mooted. That places where it has already been decided that houses should be built should be regarded as places where houses can be built. There are, of course, those a'wailin' an' a'whinin':

Rural campaigners said the new powers will restrict the rights of council planning officers to ensure that the design, density, size and location of homes is in keeping with local areas. Shaun Spiers, chief executive of the Campaign to protect Rural England, said: "“The country needs more house building, but the way to achieve this is through well-planned developments that win public consent. Imposing development without local democratic oversight is a recipe for discord.

No Mr. Spiers, it is precisely you and your ilk that this change is meant to defeat. We do not need that sort of detailed planning: just as we do not need Whitehall deciding how many tonnes of steel are made, of what type, and by whom. Nor wheat grown, shoe styles determined nor how people coif their hair, all things which various governments at various times have tried to dictate.

We ourselves favour no planning system at all, the complete abolition of the Town and Country Planning At 1948 and successors. But if that's not going to happen then we're quite happy with the idea that the level of the current system where the NIMBYs and the BANANAs stick their oar in be abolished. We're perhaps BANAs, build anything near anyone, but in the absence of that we're quite happy with the idea that if a piece of land has permission to build upon it then the general assumption is that permission has been granted to build upon that piece of land.

Please Sir, can we be oppressed some more?


An interesting little example of what happens when you grant privilege to certain groups within a society. And this is to use privilege properly, as Sir Pterry told us it was to be used, meaning a private system of law, one that only applies to that specific group. For when some or other group does gain such privilege then people will clamour to be part of that group that enjoys said privilege:

In the reverse of the usual desire for upward mobility in life, young people from a populous Indian caste long regarded as prosperous and privileged have been staging violent protests as they clamour for a downgrade to “backward” status. The agitation by the Patels has so shaken the government in Gujarat – the home that they share with Narendra Modi, the prime minister - that the authorities been rounding up key organisers.

So why would an entire (or at least, enough of that caste to produce a crowd of 300,000 people) wish to do that?

At stake in the unconventional class struggle is access to millions of government jobs and free college places allocated to lower castes under the “reservation system” of affirmative action to counter ingrained discrimination. Up to 50 per cent of such positions are ring-fenced for Dalits (previously known as the “untouchables”), tribal peoples and social groupings designated together as “other backward classes” (OBCs), whose ranks include Mr Modi, a tea-seller’s son.

Perhaps best not to create those privileges in the first place, eh?

But of course we do not do that, all are equal in the British system. Except we can't help wondering about those stories of well to do, upper middle class even, children who are taken out of grammar and private schools to do their A levels at Tech and Further Education Colleges. Because, so the story goes, university admission systems think that those who have gone to such educational establishments are underprivileged and thus should be judged more kindly upon their A level grades.

People really will manipulate any such system of privilege. So, perhaps best not to have private systems of law for certain groups then, eh?

Aye, well, there's the rub, isn't it?


An interesting point made in a letter to The Observer:

At the risk of prompting incredulity and ire in equal measure in these days of a “low welfare, low tax, high wage” economy, I, for one, would not be opposed to higher taxation if I were able to feel that the revenues thereby accumulated would result in improved public services and in the amelioration of the increasing inequality that blights our society.

We would all be willing to pay more if what we received were better matched to our desires, if what we received increased our utility more than the cost to us in cash. However, the problem is that government has already exceeded its ability to work this magic for us.

There are undoubtedly things that both must be done and which only government can do. Thus the herding of us into the taxation net to pay for the national defense (of whatever size that may be, however organised), a criminal justice system (of whatever size and however organised) and so on through that list of things that must and can only be done by government is fair enough. We are, after all, around here minarchists, not anarcho-capitalists.

However, when marginal tax revenue is earmarked to pay for train sets to the Midlands, train sets that don't even pass their own cost benefit analysis, or barrages in that gaping chasm between Wales and England (although that is to be paid for by gouging us through our energy bills, not our tax ones), or an expansion of that outdoor relief for the dimmer scions of the upper middle classes that is Official Development Aid, it's not entirely obvious that, at this stage, more government is in fact worth the extra money we must pay for it.

The question then becomes, well, how can we increase our utility by deploying our cash, our accumulated effort, in a better manner? And the answer is that if government cannot manage it, as it cannot at this size, then we should be shifting more of our spending to market based methods, not filtering it through the preferences of the political class.

For example, if someone, like our letter writer, feels that inequality is too high and that he should be paying something to reduce it then the answer is in his own hands. Take some of the money he has and give it to a poor person. Inequality is thus reduced without the politicians splurging the cash on train sets, recreations of Offa's Dyke or gap years for Johannes and Jocasta.

The answer is thus in our own hands, not that of the tax system. For we cannot in fact, given who ends up in politics and deciding how that extra tax revenue is spent, make sure that more tax is indeed spent on what we desire it to be spent upon. Thus don't give them the money, deploy it instead as you would wish.

Of course, it is possible that someone, somewhere, has some clever plan to being the spendthrifts to heel in which case answers on a postcard to one G. Osborne, 11, Downing Street please. It's just that no one ever has cooked up such a plan, not in all the recorded history we have available to us for study. Thus we reach that tentative conclusion that it's simply not possible, although we're willing to entertain potential solutions. Just as we are for those flying jet packs we were all promised. But we do fear that it's something, like the jet pack, beyond the laws of reasonable physics and human nature.

So, what's the difference between Modern Monetary Theory and tax and spend then?


Modern Monetary Theory is all the rage these days. Slightly unfortunately it's usually referred to as MMT which can and does also stand for Magic Money Tree. And that's what the proponents think they have found. This Peoples' Quantitative Easing that is talked about is only a variation of the basic idea. Which is, simply, government just prints all the money that it wants to spend and goes and spends it. Don't worry about taxation, that's not important. But, wait! say the monetarists. Won't this cause inflation? To which the answer is:

Kelton disagrees with Romer and Mankiw on economic theory. In fact, she disagrees with just about every economist Bush or Obama ever hired about economic theory. Kelton is among the most influential advocates of Modern Monetary Theory (MMT), a heterodox left-leaning movement within economics that rejects New Keynesianism and other mainstream macroeconomic theories.

MMT emphasizes the fact that countries that print their own money can never really “run out of money.” They can just print more. The reason we have taxes, then, is not to pay for stuff, but to keep people using the government’s preferred currency rather than, say, Bitcoin. In some rare cases, consumer demand gets too high, so sellers raise prices and inflation ensues. Then, you need to raise taxes to cool the economy down. But the theory holds that this eventuality is pretty rare. James Galbraith, another MMT-influenced economist, once told me that the last time it happened was in World War I. The main takeaway from this is that you really don’t need to balance the budget over any time horizon, and attempts to do so will hurt the economy.

So, in order to reduce the inflation brought about by government spending the newly printed money with gay abandon all you've got to do is raise taxes.

At which point it's very difficult to see what's so new about the idea really. We can raise government spending by raising the tax level without the magic money tree. And if we do use the magic money tree then we're going to have to raise taxes once the politicians apply MMT (of either kind) to their pet projects. So, what's the difference? An expansion of government spending is accompanied by an increase in the tax level.

So, what's new about this?

Presumably what's different is that it's a different argument to raise taxes and have more government spending. But perhaps a difference without much meaning and certainly one that we shouldn't be stupid enough to swallow.

Could the EHRC please stop lying about the gender pay gap? Please?


Yes, another report coming down the pike telling us all that women are so terribly hard done by in this grossly discriminatory and patriarchal society of ours. When the number used to prove this all to us is one that is known to be wrong, one that is in fact a statistical lie. From the EHRC's report today:

The decline in the average pay for men meant that the pay gap between men and women narrowed between 2008 and 2013, from 22.5% to 20%. While average pay for men dropped by roughly £1 per hour (to £12.91), women’s pay fell by 40 pence (to £10.33). The average hourly pay of women in Great Britain in 2013, therefore, remained significantly lower than that of men.

No, this is wrong. And what is more they've all been told that it's wrong, that they're not to use this number. That, in fact, when they are using this number they are, just around and about, lying. Because what they are doing there is comparing the average wages of all men and all women, all part timers and all full timers. And because part timers are paid less (for very good reason) and also 75% of part timers are women that is a horrendously misleading number to use. To the point that Sir Michael Scholar actually berated people for using it some years ago.

The Foreword to Shaping a Fairer Future includes a short discussion of the differences between the earnings of women compared with men. It notes that “women are still paid, on average, 22.6 per cent less per hour than men”. This measure is described in a footnote as the “overall median gender pay gap”. On 11 June I wrote to the Minister for Women and Equality, the Rt. Hon. Harriet Harman QC MP to express concern over the way in which the 22.6 per cent figure had been used in a Government Equalities Office Press Release. In the view of the Statistics Authority this particular estimate, when used on its own without qualification, risks giving a misleading quantification of the gender pay gap. The analysis underpinning this view has been published on the Authority website as a Monitoring and Assessment (M&A) note on the gender pay gap.1 The Foreword to Shaping a Fairer Future helpfully presents estimates for both an overall gender pay gap (22.6 per cent) and a full-time gender pay gap (12.8 per cent). This goes some way towards ensuring that readers understand the difference between these two estimates. However, it would have been clearer had these two estimates been presented alongside each other and accompanied by some explanation of the differences between the two measures. As it stands, the 22.6 per cent figure appears in the Foreword more as a headline estimate of the gender pay gap, while the 12.8 per cent estimate is presented in a different context, to show how the gap widened between 2007 and 2008.

It would be an easy mistake for a casual reader to conclude from the Foreword that if the overall gender pay gap stands at 22.6 per cent and the full-time gender pay gap stands at 12.8 per cent, then the part-time gender pay gap must be considerably greater than 22.6 per cent. Indeed, the Foreword appears to confirm just such a conclusion when it states that 'pay gaps are even greater for part-time workers (39.9 per cent)’. The casual reader would be surprised to learn then that median hourly earnings of women and of men (excluding overtime) are very close, with women’s median pay actually being slightly higher than men’s (by 3.4 per cent).

Sir Michael also wrote to Harriet Harperson on the same point:

I am writing to you about the Government Equalities Office (GEO) Press Release on the Equality Bill, issued on 27 April, which states that women are paid on average 23 per cent less per hour than men. GEO’s headline estimate of the difference between the earnings of women compared with men (generally referred to as the gender pay gap) is some 10 percentage points higher than the 12.8 per cent figure quoted by the Office for National Statistics (ONS). Yet both estimates are derived from the same source, the 2008 Annual Survey of Hours and Earnings (ASHE). Such a difference in headline estimates is likely to confuse the general public. The Statistics Authority is concerned that this may undermine public trust in official statistics.

So, EHRC, this is a horribly misleading manner of presenting the gender pay gap. You've been told, repeatedly, that it's a horribly misleading way to present it. And you've also been told not to do it. So, why are you lying to us all?

Yes, we will accept an apology, no, no need to ritually execute your report writers in Salisbury Square, just correct your reports and, as Mother always told us all to do, when found to be in error, say sorry and promise not to do it again.

A setback for surrogacy


It is the opinion of some that renting a womb from a poor, often illiterate woman in India, for rates cheaper than in the West, is ‘exploitation’. A few days ago, the Indian government moved to limit this supposedly objectionable practice by banning foreign couples from hiring surrogates there. However, the practice of paying a woman to be a surrogate mother is, in fact, the complete opposite of exploitation. The average wage rate for a woman living in rural India (where the vast majority of these surrogates are from) ranges from 85 to 150 rupees a day, depending on what type of work they do and what region they live in. That’s a range of 84p to £1.50 a day, or a maximum of around £550 a year, if they work a full 365 days.

Now compare that to the £5200 ($8000) the average surrogate receives for just 9 months, and you can immediately see the benefit. For a woman in rural India, the real travesty is the poor wage rates they currently receive for hours of backbreaking work on a farm, not the American and UK individuals willing to pay them ten times what they’d usually get a year.

The next reason this policy fails is because most of the market for surrogates in India is from foreign families - thousands are estimated to use the service a year. Getting rid of demand from abroad will not only reduce in the number of woman hired as surrogates, but also lower their average income, as supply will outweigh demand. This of course ignores the obvious emotional cost to thousands of foreign women, whom will be losing the opportunity to have their own child.

Compared to most developing countries, India has a fairly comprehensive health system, keeping risks to the surrogate’s health low. Many women hiring the surrogates also send out care packages and pay extra to ensure their surrogates are well taken care of in facilities or hotels for the duration of their pregnancy. Although it is true there need to be measures to safeguard the surrogates, simply cutting out a huge part of the market is not the solution. Surrogates frequently use the money they've earned as a springboard into further education or training, or to pay for their own children's school fees, improving their future prospects and alleviating the cycle of poverty- an opportunity the Indian government has just restricted.

Therefore, although well intended, it is clear to see how this policy will actually do more harm than good to those it is trying to protect.