• Political backtracking is not at all unusual
  • The prime minister has done much as of late
  • Net zero and energy policies are in flux all over Europe

It is not at all unusual for a politician to backtrack on promises previously made. Indeed, those who are cynical might argue that backtracking is an essential political art.

After all, politicians are elected on promises. They might or might not be re-elected on results. Did they deliver? If not, are they to blame or are others?

Delays and cost overruns are particularly common. In such cases, politicians frequently go on the offensive, blaming external forces while asking for even more taxpayer money, either upfront or through increased borrowing.

This was the case with the HS2 rail project for many years. However, as the project becomes ever more expensive, the prime minister is now considering only completing the London-Birmingham leg, a major backtrack if it occurs.

In some cases, past promises made are eventually seen to be so wildly unrealistic that it becomes impossible to maintain credibility without moving over to the defensive. Backtracking becomes a matter of survival.

Then there are the unintended consequences. Supposedly well-intentioned policies might produce rather unpleasant results.

Take the recent imposition of rent controls in Scotland. Ignoring the well-documented, disastrous history of rent controls elsewhere in Europe, the Scottish government nevertheless thought this was a good idea, or at least a short-term vote winner.

However, things are already not exactly working out as planned. As the Guardian reports:

In an effort to tackle the housing crisis, the Scottish government this spring introduced a temporary rent cap limiting annual rises to 3% in most cases. But it allowed landlords to go higher if they were drawing up a new tenancy agreement.

Rental figures from Zoopla, the property website, suggest that Scotland’s landlords have used the clause to maximise the rent for new tenancies, which rose 12.7% in the year to July, faster than the next hottest markets of London and the north-west of England…

[T]here have also been reports of landlords telling tenants they will either sell the property or move into it themselves if a rent increase is not agreed to, in effect forcing occupiers to accept a rent rise above 3%.

“For those who have had to end a joint tenancy due to a flatmate moving out or for those who have needed to relocate, it’s been the wild west of open market rent,” said Aditi Jehangir, the secretary of Living Rent.

The rent-control loophole at the centre of the policy controversy is being blamed by some for soaring rents for new tenants. However, getting rid of the loophole and not allowing rents to rise even for new tenants would almost certainly produce results similar to those elsewhere in Europe. According to the Daily Express, Matthew Lesh, Director of Public Policy at the Institute of Economic Affairs, said:

Rent control has been proven an abject failure every time in every place it has been tried. Scotland is no exception.

It’s unsurprising that landlords are continuing to put up rents between tenancies, and in fact it is likely that landlords are kicking out tenants to do so.

If Scotland goes further with rent controls by applying it to new tenants, the result will be a worsening of Scotland’s rental crisis, as properties are pulled off the market and fewer are built in future.

Less homebuilding is precisely the opposite of what Britain needs to prevent property values and rents from becoming even more unaffordable, but that’s what rent controls would do. It would also result in the widespread dilapidation of the existing housing stock in areas where renting is relatively more common, such as in cities and towns.

It is unclear whether the Scottish government will close the loophole and go all-in on rent controls, or whether it will backtrack and admit the policy just doesn’t work. Watch this space…

Full astern!

Meanwhile, the government in Westminster is going full backtracking astern. Shortly after assuming office, Prime Minister Rishi Sunak announced the re-opening of the North Sea to new oil and gas field development, reversing a long-imposed ban.

More recently, he has begun to backtrack on various net-zero policy proposals. As the BBC reports:

Prime Minister Rishi Sunak has pushed back the ban on the sale of new petrol and diesel cars in the UK from 2030 to 2035

Sunak says he still expects that by 2030 “the vast majority” of cars will be electric, because of improving technology

He also says there will be “far more time” to transition from gas boilers to heat pumps

A boiler upgrade scheme, which gives people cash grants, will be increased by 50% to £7,500

And there is a new exemption for people in the poorest households, “so they never have to switch at all”

He says he remains committed to net zero by 2050 but wants to “bring people with us”

Following the announcement, the prime minister came under immediate criticism from many quarters, including, of course, the environmental organisations that have been pushing the net zero agenda on which their very existence depends.

Cynics may argue that Sunak’s North Sea and net zero backtracking are just shameless attempts to shore up the Conservatives’ waning public support. This might well be the case.

The public has become increasingly sceptical of certain aspects of the net zero policy set and outright frightened at some of the possible consequences for their future lifestyles. As the BBC also reports:

Downing Street sources say some of the measures ruled out by Rishi Sunak were being seriously urged on the government by the Climate Change Committee (set up in 2008 to report to Parliament on the progress made in reducing greenhouse gas emissions).

These included higher taxes on flying, car sharing, and changing diets by eating less meat.

Last time I checked, Britons rather enjoyed their holidays abroad and were also quite keen on their cars. As for “changing diets”, such fads come and go with some regularity, but if anything, paleo-style eating has been gaining ground in the race versus veganism as of late.

Whether or not Sunak is just electioneering or is genuinely backtracking from wholly unrealistic net zero commitments, I have no idea. His government is hardly the only one to be rethinking such policies.

All across Europe, governments are reassessing their own net zero initiatives, including, most importantly, energy policies. As the war in Ukraine drags on into another winter, Europe’s energy challenges become particularly acute. Europe’s gas is well-stocked for now, but a cold snap could change that in a hurry, and there is only limited capacity to import liquefied natural gas from abroad.

Indeed, the energy markets are generally in flux. Oil prices have recently risen back to nearly $100/bbl. Uranium prices have been rising too.

For investors, energy might well be the sector offering the most opportunities at present. If you’d like to learn more about how to play it, I recommend checking out the work of my colleague, James Allen. You can do so here. Just be warned, this offer is coming off the table midnight tomorrow.

Until next time,

John Butler
Investment Director, Fortune & Freedom