I read various bizarre articles defending the Bank of England’s independence against an imaginary threat from Liz Truss. I only know what she has said in public, where she issued no threat to Bank independence. She said she favoured a review of the Bank’s mandate to see if it met best standards in the world of independent Central Banks, and to find out what can be learned from the Bank’s failure to forecast or prevent the high inflation we now suffer. The inference was she wanted a tougher Bank,  not a Bank that printed more money and artificially depressed interest rates to suit the government.

The articles are bizarre because they always ignore the radical change to Bank policy launched by Mr Brown and Mr Darling and continued by all subsequent PMs and Chancellors. They agreed with the Bank a policy of creating more money and buying up state debt to keep rates down. Right from their start of this policy it has been a dual control policy, with the Bank needing the consent of the Chancellor and requiring a full Treasury guarantee or underwriting of the transactions. As this policy has dominated money policy between 2008 and 2021 we cannot say the Bank was then genuinely independent. It does have and did have throughout the sole power to fix the official interest rate. No-one in this debate is recommending taking that power away.

Going forward I would like to see the Bank introduce quantity of money and circulation of money as important information to monitor and take into account when settling interest rates. It has proved difficult to control inflation whilst allowing a large increase in the money supply triggered by substantial Quantitative easing. The Bank may not want to go back to strict money targets that were used in the early 1980s to end the last big inflation, but monitoring money and showing an awareness of its importance might  help them  make better calls. The current money figures show they have  now reined things in considerably. They do not need to overdo the tightening from here to make the opposite error to being too loose as they were in the previous two years. The IMF does usually call for monetary discipline when it puts in a recovery programme for a state that needs financial help.

When Rishi Sunak announced a £400 payment to every electricity  bill payer I was concerned about that way of offering some relief. I would have preferred tax cuts on energy which would directly cut the CPI/RPI measurements of inflation. The government thought these cash payments might qualify as reductions in energy bills and help the CPI figure. Instead after considerable delay the ONS has decided to call them “current transfers” to households that do not cut the price of power.

They rightly go on to remind us they have the legal power to make a judgement about such matters, They say “Decisions on whether to include rebates, subsidies and discounts in our consumer prices inflation statistics are taken on a  case by case basis”. As these £400 payments cannot be withdrawn and spent on anything else but take the form of a cut in the electricity bills that need to be paid there is a perfectly good case to say this is a cut in the price of electricity for all users.

All this matters. Allowing the full bill cost to boost the CPI without allowing for the discount that is available means we face higher inflation with all the knock on effects. This decision will increase public spending and the deficit given the way some spending items are directly linked to the inflation index. It raises the repayment amount for indexed debt.  The Treasury should have asked the electricity companies to put it on bills as a discount to the price of power, which is what it is. A sum equivalent is  payable by the Treasury to the companies as a subsidy. This is another missed opportunity.

Many people argue that instead of producing more of our own gas to cover some of the energy shortfall we need to press boldly on with more windfarms. They argue that now wind energy is cheaper than current gas prices, so it makes economic sense as well as environmental.

If only it were that simple. Many have pointed out that the problem with wind energy is it stops when the wind does not blow. It does not matter how many windfarms with how much rated capacity you install if the wind does not blow. Wind turbines also cannot function in very high winds. But there is an obvious more practical problem for those who say  the answer lies in a blowing wind. Most UK households this winter will heat their rooms and water using gas. Renewable electricity would be no use to them. Most industrial processes use gas rather than electricity. Most commercial premises are fuelled by gas.

Until most households, most factories and  most offices  have been through their own electric revolution we will need  more gas as electricity cannot power it. The issue is do we produce the gas ourselves, with greater reliability and tax revenues flowing to the UK state, or do we import it with tax revenues and jobs flowing to the overseas provider? Is there going to be a hydrogen revolution, where it becomes commercial to use windpower to create large quantities of hydrogen which can be used to fire our boilers? If so that does not solve the problem for the next few years whilst this is planned and installed.

In all the grand green plans gas is down there as a transition fuel. In all the plans there is an acknowledgement that the world as whole will be using more oil and gas at the end of this decade than it did at the beginning. It will be more reliable, collect more tax revenue generate more jobs and vent less CO2 if we use our own rather than rely on imports.

The UK government has recently published a consultation document on possible reform of the management and regulation of the UK electricity industry.

The UK fell under the EU system of control and regulation, which was progressively tightened and embodied in the 71 page 2019 Regulation. This Regulation wished to achieve two main aims, the integration of a Europe wide system of power provision and rapid progress to decarbonise the electricity used.  The two aims were self reinforcing. The Regulation warned that as more power came from  interruptible renewable sources there would be more need for interconnectors to allow the import and export of power across national boundaries to compensate for shortfalls in supply. The UK duly obliged even though we were in the process of exiting the EU, continuing its drive to rely more on interconnectors to the continent and very willing to add large extra volumes of wind energy to the system.

In line with other European countries the UK had developed twin market interventions to bring about the net zero progress. More low carbon power was attracted by offering long term contracts at guaranteed prices. In the early days of renewable power and for nuclear these were at premium prices to the then market wholesale price. The investors putting in the new capacity agreed to pay back any money earned over the contract price were energy prices to rocket, whilst requiring a subsidy all the time the contract prices remained above the wholesale price.  The grid operator also had to hold capacity auctions, offering money to owners of stand by plants that would work in periods of low wind or little solar to keep their capacity ready to run. As they hoped these plants were not going to run that often they needed to offer sufficient money to make it worthwhile maintaining , staffing and fuelling the plants ready to run. Gas plants ended up running a lot to keep the system going with more than half our electricity coming from gas on a typical light wind day.

The consultation document does not give a clear steer of what would be a better system to guarantee security of supply whilst also providing plenty of competitive pressure to keep prices under control. The original regulatory system set up by the UK in the 1980s before the EU took over was a simple one of generators bidding into the system their price offers. The grid  manager always took the next cheapest offer when having to scale up the output, and dropped off the dearest when cutting supply. The system was sufficiently attractive for there to be spare capacity so we never ran out of power even on cold dark windless busy day. Most of the power came from coal and gas, with a useful contribution from nuclear.

The immediate issues are the way some providers of renewable power can receive the elevated gas based price despite having much lower costs, and the lack of margin in our capacity for when the wind does not blow and the sun does not shine. The UK has also to prepare for a reduction in output from nuclear this decade, which is planned to see the closure of all but one of the existing nuclear stations. What are your thoughts on the changes we need?

The Liz Truss team have said they want to ease the energy squeeze. They like the ideas of lower taxes and the removal of needless or excessively costly regulation. Energy would be a good place to start.

Let us consider first of all the £16bn or more cost of fitting a smart meter in every home for electricity. Indeed total roll out may well cost more, given the reluctance of almost half the population to have one and the troubles with how the early ones worked. The idea is to charge the mounting costs to all bill payers.

Whilst electricity is this dear why not pause the programme? By all means fit one where the householder is keen and applies willingly for one, but save all the promotional money and conversion costs where people need to be talked into it.

Then there are the green levies. It is a good idea to cease charging these direct to bill payers for a bit. More importantly going forward the grid controllers should only sign contracts for renewables that can deliver affordable energy without subsidy. This should be easy at current gas prices.

Large scale energy  intensive industry has to buy carbon permits over an initial and reducing free  allowance. Designed to cut fossil fuel use by industry, it can end up closing plants in the U.K. only to import more from abroad. The imports will often generate more CO2 than relying on domestic production given transport costs and more reliance on coal in China and Germany. So why not suspend this scheme whilst  U.K. energy prices remain so elevated? How many high energy using businesses will we lose if we carry on with dear gas and carbon penalties?

Ofgem has left us short of generating capacity and too dependent on imports. It seems the Regulator has been reluctant to see security of supply as a crucial prime requirement. There had been competition between the  retail energy suppliers, but competition between different ways of generating power has been regulated heavily around carbon dioxide issues rather than relying on  cost and price unsubsidised to be  the  main determinant.

Ofwat has left us short of water. Thev introduction of competition has been limited to supplying businesses and to the provision of service rather than to the costs of collecting and cleaning water. There is no great problem with moving to a competitive model. You would treat the pipe network as a common carrier with the company owners required to offer terms to other companies to use pipe capacity. The Regulator could adjudicate disputes.Oil and gas pipes are commonly shared under commercial contracts.

The railways can also benefit from competitive challenge. Were  the government to return the railways to the private sector by creating regional companies that owned and reunited track and trains there would need to be means to secure regular use of track for freight trains and long distance passenger services which cross company borders. The Hull train service was greatly improved by allowing a new challenger to provide better services.

Competition introduces more capital, service and productivity improvements and innovation. Monopoly stifles these things . Regulated monopolies leave us short of capacity.

Facing a winter of scarce energy the public sector could help us out by cutting its own substantial demands. This would save us money as taxpayers and leave more the available energy available for the homes that most need it and to keep business working without rationing.

Councils could review their street lighting and switch it off at times and in places where few people are out and about to need it.

All government offices could ensure through controls or caretakers that all electrical appliances are switched off early evening to avoid evening and night power waste.

Government officials could keep in touch with overseas governments more by on line meetings, to curb the number of jet flights needed.

Temperature and time controls on heating and cooling systems in buildings should be adjusted down where possible

More insulation should be included in public sector buildings.

Lights should be turned off when people leave offices for the evening.

All the time we need to import energy we are at the mercy of world prices for oil and of regional prices for gas and electricity. As we mainly import  from Europe we are pushed into high prices by the chronic shortfall of energy provision on the continent. That is why I have been urging more domestic supply and trying  to get us to pursue self sufficiency.

Policy has now changed to seek to produce more gas and oil at home, to keep open coal power stations pending new replacements, to revive nuclear and to examine commercial exploitation of technologies that would allow storage and time shifting of wind energy.

The solution to dear energy is to produce more cheaper energy. The immediate crisis prices come from a deliberate gas shortage in Europe caused by Putin’s economic warfare. The policy of encouraging electrification of transport and heating will require far more electrical generation than we currently manage, so we need to think through the pace of introduction. When assessing the true costs of different means of generating power we need to take into account costs of stand by and back up power.

The immediate need is a further package of measures to cut the cost of energy by reducing energy taxes, and to provide some offset to the loss of spending power from the increase in gas and electricity prices. It needs to ensure those on low incomes are looked after. What would you like to see in that announcement?

The massive Euro 5 trillion money printing and bond buying programme of the European Central Bank was undertaken in conjunction with the Central Banks of each member state. Most of the bonds bought were the debts of individual Euro member governments. 80% of the risk on those bonds rests with the individual member states Central Banks. They were required to buy up bonds issued by their own government and are liable for any losses on them. This is an added complication compared to the position in the US or UK where there is just one sovereign state and one Central Bank involved.

The Bundesbank has reminded us that a 1% rise in Euro area interest rates would lead to a loss of around Euro 48 billion on the Quantitative easing positions for the zone as a whole, with the bulk of that loss resting on the balance sheets of the individual member states Central banks. Each member state is responsible for ensuring the solvency and capital adequacy of its own system. The Euro area is  now designing a scheme that will allow it to continue to buy up the bonds of any country with weaker finances in order to prevent their interest rate for longer term loans getting too far out of line with the rest of the zone. There will be interest in whether the bonds bought and added under such a scheme will be at the risk of the member state concerned or whether the European Central Bank will take on the risk.

The Eurozone has particular problems with this for another reason as well. Only in the Eurozone did they take rates down so low that many of the better sovereign bonds were for quite a long time offering a negative interest return. This meant that they were particularly expensive even  by the standards of dear advanced country government bonds worldwide, putting them more at risk when rates have to go up.

The Italian general election seems likely to elect a centre right coalition. Whilst they remain committed to EU and Euro membership they may well prove more questioning and difficult in responding to some of these internal EU stresses.