22 March 2022. Economics | Heat
Poverty is invisible in Britain’s economic policy.
Welcome to Just Two Things, which I try to publish daily, five days a week. Some links may also appear on my blog from time to time. Links to the main articles are in cross-heads as well as the story. Recent editions are archived and searchable on Wordpress.
1: The invisibility of poverty in British economcs
The fragility of the British economy can be captured in a number of ways. One is the proportion of children who grow up in poverty: 23%, before housing costs are deducted, 31% after housing costs, according to a recent note from those dangerous radicals at the House of Commons Library. Poverty here is defined as having an income 60% below the median household income.
Another way is to look at the map of the ten most deprived areas in Northern Europe.
Yes, in case you thought it was some kind of misprint: nine of them were in the UK. This map comes from a piece by Tim Watkins at his Consciousness of Sheep blog, in which he discusses the prospects for Britain breaking up. Some of these are the result of the rapid de-industrialisation of swathes of the north of England under Thatcher; some (such as Cornwall) go back far further.
The whole of Northern Ireland is here, as well as West Wales. To my slight surprise, nowhere in Scotland makes the list.
Tim Watkins, who writes the Consciousness of Sheep blog, takes this into a bigger question, about whether Britain can survive as a political entity, and takes a long historical view as well, going back to the industrial revolution.
I thought I knew my industrial revolution history quite well, but I didn’t know this:
The geography of the industrial revolution in Britain was shaped in part by the corrupt, rentier economy of London in the eighteenth century. The various by-laws, regulations and tax regimes in and around London largely precluded the establishment of new industrial processes. This drove industrial investment to the midlands, and especially to the steep and narrow valleys of Yorkshire, Lancashire and South Wales, where there was abundant water-power to drive the new industrial machinery.
This same map reconstructs itself in the Brexit vote in 2016 (Watkins has a map of this), and to some extent in the 2019 general election. The current opportunistic British government rhetoric about ‘levelling up’ is also a version of this map, or would be if it was actually an economic strategy.
Because the striking thing about this map is how much of an outlier Britain is, compared to the rest of northern Europe. To have such a concentration of deprivation in the UK suggests that it isn’t just an accident of history, but a product of policy, or policy failure.
So the second striking feature of this map—and the child poverty figures—is how invisible they are in economic policy discussions. There are some obvious reasons for this.
One is that dealing with regional disadvantage is hard, and takes a long time, so there’s no easy political credit to be gained. (The assessment of the Regional Development Agencies, set up by New Labour and scrapped, inevitably, by George Osborne, was that broadly they had prevented things from getting worse.)
Another is that the growth in child poverty is a product both of the economic policies of the 1980s (having been historically low in the ‘60s and ‘70s) and then came down a bit under New Labour, before increasing in the aftermath of the financial crisis, and then increasing again as a result of austerity. (That was George Osborne again: he may have been the worst British Chancellor of the Exchequer/Finance Minister in my lifetime). But all this means that talking about child poverty is a party political conversation, rather than a moral conversation about the conditions in which a rich country expects its children to grow up.
There’s a third thing here as well. Watkins’ remark about the ‘rentier economy’ of London plays out here again, at least according to the analysis in Nick Shaxson’s book The Finance Curse. I don’t have time to go into the detail here now (I’ll come back to it), but the overview is that the way in which the City of London interacts with the rest of the UK in our current over-financialised economy effectively extracts money from the regions and channels it both to richer people in the UK (who are more likely to live in the south) and, indeed, offshore. This isn’t the usual story that the City tells about its economic relationship with the other parts of Britain.
But dealing with this doesn’t just require different policies. It takes a whole re-framing of how we understand how the British economy currently works—and of how it ought to work.
2: Making the market in heat pumps work
There’s an article in Wired advocating the importance of heat pumps in helping to deal with the climate emergency. Of course this is right: burning stuff to heat yourself up is just so last century:
Unlike a boiler or furnace, which burn fossil fuels to produce heat, this device transfers heat through an outdoor unit into the indoor space. (It looks a bit like a traditional air conditioner.) In the winter, a heat pump extracts heat from outdoor air, but it can be reversed in the summer to pump heat out, providing cooling. Exchanging heat in this way is much more efficient than generating it.
—
(Image (and a useful article) from Explain That Stuff)
The heat pump market is growing globally, and quite quickly, albeit from a low base. Since the production of domestic heat (and in the US, also air conditioning) is a significant source of emissions, the impact of scaling this up could be significant:
“Heat pumps are a few years behind electric vehicles but really deserve similar attention and could deliver very sizable reductions in emissions if we deployed them much more rapidly,” says Jan Rosenow, director of European programs at the Regulatory Assistance Project, an NGO dedicated to the transition to clean energy.
The technology is sometimes described as being a bit like a domestic fridge:
A heat pump works on the same principle as a refrigerator, which keeps your food cold not by pumping cool air in, but by pumping warm air out. The heat you feel on the outside of the machine is actually being transferred away. Similarly, a heat pump can cool a building by moving hot air out. Or, in the winter, a heat pump can warm a building by operating as a sort of “reverse refrigerator,” extracting heat from even cold outdoor air and bringing it inside.
This is the ‘heat pumps for dummies’ version—the actual engineering is a lot more complicated.
Of course, the issue is the business model. A heat pump is a fair bit more expensive than a gas boiler, even though it then brings down bills quickly. Higher capital cost, lower running costs—and huge climate gains.
In other words, it’s exactly the sort of market that needs a bit of help to get going, both because increasing scale brings down prices, and because of the policy gains. But there are also potential skills shortages—which might be addressed by retraining gas installers.
But governments need to take the issues of market-making more seriously. I looked at heat pumps when our last gas boiler reached the end of its life last year. I could just about have afforded the extra upfront costs. All the same, the market is crying out for a model—like the mobile phone market—where some of the capital costs of the device are spread over a period of time, say two or three years, effectively paid for by the cheaper energy costs. This is not a complicated business model. (The Wired article also talks about ‘heat as a service’ business models, although these require suppluers with deeper pockets.)
But the deal breaker for me was that I couldn’t find a provider who was big enough to provide a warranty I could trust. I didn’t want to have an expensive piece of equipment in my house that went wrong and was difficult to get repaired.
In other words, all the risks are being dumped on the individual consumer, despite the clear public good benefits of the product. This is exactly where governments can perform a market-making service.
——————————-
Ukraine notes:
Point magazine organised a survey of Russian artists which asked these three questions:
1. Is it appropriate (and personally necessary, for you) for cultural projects (readings, concerts, exhibitions) to function in Moscow, Petersburg, Riazan, etc.—during “military operations” and military censorship? Should they be canceled, should they continue, should their format be changed?
2. If they are antiwar, does this change anything?
3. What is an antiwar cultural event? Something that provides a real benefit? In what way?
There’s a range of answers, of course. I’m sharing one here, from the writer and artist Julia Kissina:
We need every kind and in every format. It holds us together, gives us strength, definition and support. In the concentration camps there were concerts and people organized improvised hair salons. In prison people performed plays. In burning houses people made love.
j2t#284
If you are enjoying Just Two Things, please do send it on to a friend or colleague.