Helm Talks - energy climate infrastructure & more3 Jul 2023

Beggars can't be choosers

“Unlocking” and “unleashing” funds is not as straightforward as UK politicians would have us believe. The simple fact is that there are few UK savings to invest. Households don’t save very much; the corporate sector does not retain earnings; and the government borrows increasingly greater sums. As a result, we are relying on money from investors abroad to invest. Worse, foreigners lend us the money to consume beyond our means as imports exceed exports by a wide margin. As beggars, we can’t be choosy about who lends to us and on what terms. Investment is a voluntary activity. We can continue to beg the foreigners or turn ourselves into savers. We’ve witnessed the result of financial engineering by, and poor regulation of, a major utility company, with investors being asked to stump up at least £1 billion to salvage Thames Water. These same investors have lots of potential opportunities to invest elsewhere. The obvious solution, while hugely unpalatable, is for the UK to stop being beggars: to live within our external balance of payments means, to save for retirement and almost all of our investment needs, to retain earnings, and to change the tax incentives on companies. The government would need to change its behaviour too, running surpluses not deficits. This is unpalatable because it will mean lowering the standard of living in the UK and paying higher taxes. We can be choosers only if we choose to save and live within our means.

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