Brighton (doesn't) Rock

Lessons in economics from the English seaside

Brighton is just over an hour from London, a seaside town where the land and sea almost apologetically meet at a pile of stones the locals refer to as a“beach”. In the 1960s the “culture war” between Mods and Rockers played out in the narrow streets and the beach front.

Bucolic Brighton

No longer Mods and Rockers, but Brighton has its new culture wars; specfically “the war on cars”.

The Laffer Curve comes to Brighton

When tax rates are zero, a taxing authority will receive no revenue. Equally, if tax rates are set at 100%, there is no incentive to work or run a business so tax receipts will tend to zero. Thus, there is some curve that has tax receipts increasing with low levels of taxation and declining at higher rates as the tax becomes a disincentive. This is the theoretical Laffer Curve.

The local council led by the Green Party pushed the cost of town parking up to such levels that usage dropped, leading to a shortfall in projected revenue. Surprise!

The local authority said use of council-owned car parks has steadily decreased since 2021 and that average hourly fees were higher than in most other cities.

It comes after a review found that the East Sussex city faces a predicted shortfall of £1.16m in parking revenue by April 2025. (BBC)

The lack of understanding of this relatively simple principle is perhaps not surprising for a region that also has the UK’s only Green Party MP. However, as we might expect, economic theory was not the driving force behind the parking charges (you see what I did there?)

It was the stated aim of some Green councillors in 2020 that the city could be ‘car-free’ within three years. (source)

High costs is part of a familiar pattern: de-synching traffic lights, leaving potholes and construction projects (all to make driving unpleasant), more and more cycle lanes (including in the case of Brighton, tearing down a Victorian era “green wall” to make room), pollution fees and prohibitive parking charges. Discourage the drivers. Sure. But did you consider the consequences?

“Extortionate parking fees, dirty streets, huge business rates and it’s hard to get into town for visitors. It’s cheaper to open in London and stay open than here." (source)

Oh, and to add to the familiarity…

The leader of the city’s Green council had to apologise for a ‘major failure of judgement’ after being caught flying to a COP conference in Glasgow on the same day he criticised the government for a ‘lack of action’ over climate change. (idem)

The Paradox of Thrift

The ambition behind the parking fees could be paraphrased as “Just Stop Driving” and, as noted above, failed to understand the importance of revenues to the same local council¹. Sadly, a second relatively simple concept of Keynesian Economics was also (seemingly) not considered: the Paradox of Thrift (or my version of it).

This is the idea that when faced with economic choices an individual will make rational decisions. These individual-centric choices can have unintended knock-on effects for the wider economy. Imagine a town where a major employer closes. The individuals who no longer have income will start to limit discretionary spending: delay the next haircut, no more expensive lattes, stop eating out, shop at the discount supermarket not the organic deli… when enough people do this, the hairdressers, baristas, deli and restaurant owners all feel the pinch. Revenues go down, so they cut back on staff, who in-turn tighten the belt. Or worse, they go out of business and there is a loss of employment as well as loss of the business rates and taxes, and the cycle spins down.

Make parking too expensive and people shun the city center… businesses suffer, businesses close,people lose jobs and the council has even less revenues, way beyond the direct shortfall in parking fees (empty shops and restaurants don’t pay taxes….). Luckily for Brighton, the council is only a minority Green and there has been a revolt over the paking fees. Hopefully not too late.

Councillor Trevor Muten, cabinet member for transport, parking and the public realm, said the changes would make parking "simpler and fairer for everyone".

He said that high prices were "deterring" people from coming to the city and that lowering them would make it cheaper for those wanting to shop, eat and drink.

"It’s vital we do whatever we can to increase footfall and support... local businesses to thrive," he added.

To wit: “No Shit, Sherlock!” was overheard in the crowd.

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The UK’s Dance Macabre

Brighton is just one town, albeit a very nice one. But the lessons of the Laffer Curve, of “unitended consequences” and of The Paradox of Thrift can be applied at a national level.

Countries that bungle their energy policies can’t have nice things. Among the luxuries that eventually slip out of reach are abundance, good-paying jobs, and an effective military. That leaders in the West fail to understand this—even in the face of a steady parade of evidence that points plainly to the axiomatic nature of the statement—is one of the great mysteries of our time. (Doomberg: “Fall from Gruven”

The UK in September/October 2024:

• Shuts last coal-fired power station (Ratcliffe-on-Soar) = importing more electricity

• Shuts last blast-furnace steel-mill = importing steel, undermining economic and military security

• Shuts Grangemouth refinery = importing pertoleum products undermining economic and military security

• Ratchets up pressure on remaining oil and gas production = more oil and gas imports

  • All the above should be seen in the context of energy secuity as well as the Paradox of Thrift. All those well-paying jobs lost.

• Has highest industrial electricty prices in the world

• Has to raise taxes and cut many areas (including foreign aid)

• Breaks manifesto promise to not increase retail electricity prices

• Doubles down on the failing wind and solar strategy

Anyone else beginning to see a trend he? The nail in the coffin would be a Carbon Tax. Hopefully the UK will resist that particular form of suicide-by-virtue.

Energy as “the” Input to the Economy

A point I have made before, and one I will bang on about until it is manifest in the real world: when the energy input to your economy is expensive, the economy will suffer. The cause of high energy prices can be one or more of the following:

• global prices spike,

• you add layers of tax, or

• you choose to prioritize low-energy density sources

but the result is the same.

Whilst an energy-cost constrained economy is bad, it is only the first step. The far more dangerous subsequent step is that an economy constrained by high energy prices will spiral. Just as we saw with the Brighton parking charges, so high costs lead to reduced economic activity which leads to “belt tightening” and more widespread constraints on economic activity including: an inability to pay for basic services, reduced capacity to borrow and a weakening of the currency.

There are two solutions to this - a short-term fix is to borrow money and create “stimulus” - pushing the economy back into a “growth” mode. This can work - think of the FDR’s “New Deal” in the 1930s USA - where huge infrastructure projects were government funded in the wake of Great Depression - spurring growth and leaving a legacy of infrastructure that serves even today. An important caveat to this is that, much like an indebted household - if the borrowing is “excessive” so the credit rating can be a casualty of the well-intentioned borrowing. The UK had a taste of this with the Truss-Kwarteng mini-budget in mid 2022. The international money markets very clearly didn’t believe the “future growth” story and drove up the cost of borrowing for the UK and caused a consequent depreciation of the British Pound - which is catastrophic for any country that is a net importer of energy and goods.

One Way Street (FT)

The second solution is recognize the important role of (the cost of) energy as an input to the economy. Powerful economies can be built on manufacturing and trade, without sitting on huge energy resources (Germany, Japan, Korea) if they access to cheap energy. The UK lost its manufacturing core but had a “Golden Ticket” having been a net-exporter of oil and gas for several decades (1980s-2000). The development of the North Sea (along with other non-OPEC areas such as the USA Gulf of Mexico and Alaska) helped negate the oil-shock of the late 1970s - ushering in a period of ample supply, and hence low prices, as well as providing direct income to the UK Government from taxes and royalties.

In an almost Kafkaesque inversion of reality, the current government is convinced that the easy and facile statement of “Green, Clean and Cheap” is not just a word-salad but is the solution to the economic decline.

This won’t end well

How would a reverting to realistic energy policy be manifest? In an ideal world by a recognition that the UK’s stuttering economy can be kept on life-support for a while longer if the oil and gas of the North Sea (and the human capital therein) is valued and exploited for the greater good: just as Norway continues to do with alacrity.

Speaking at Hammerfest in Norway in April 2023 Norway’s Petroleum and Energy Minister Terje Aasland called on Norway’s oil and gas companies: to fulfil their “social responsibility” to ensure the energy security of the country and “leave no stone unturned” to boost gas production.

From Hub-and-Spoke to Hub-and-Broke

Sadly, I don’t hold out much hope for an outbreak of energy-realism in the UK. The North Sea is a complex system dependent on hub-based infrastructure. Too much economic pressure will cause key elements to be closed early. This will lead to a cascade of closures.

If/when this happens, one would only have to wait for the next global energy crisis which would lead energy-realism and a desperate scramble for domestic energy. The remaining oil and gas in the North Sea will have been condemned by the collapse of the infrastructure - so - as a sort-of prediction, the UK will look to its potential onshore gas resources (Bonjour Fracking) and to its historic coal mining potential.

Back to the Future as imagined by Grok.

1. The funding of local councils is an interesting subject in itself, because as the central government is running out of funding sources it is passing-the-buck to local councils who have limited revenue generating options… so a complex dynamic for sure.