Only Labour could pull the plug on EVs

In today’s issue:

• Labour has now backed away from ambitious EV targets
• What other “green” policy reversal might come next?
• There is a huge opportunity just waiting to be seized

“Only Nixon could go to China” is one of my favourite political aphorisms. It explains how a leader viewed as having a particularly strong position on an issue can get away with acting tactically and expediently against that issue as long as he or she is careful to explain their reasons and not lose the public trust.

In Nixon’s case, he was seen as a staunch anti-Communist who would stand up to both the USSR and China. But when the US became bogged down in the Vietnam War and Nixon was looking for a way to de-escalate and perhaps negotiate an end to that conflict, he “went to China”.

The tactical goals here were twofold: 1) to drive a wedge in the relationship between the USSR and China; and 2) to gain negotiating leverage over North Vietnam. The first met with more success than the second.

Today, I’m going to introduce another version of this: “Only Labour could pull the plug on EVs.”

We learned a couple of weeks ago that Labour are tactically backing away from their previous commitment to end the sale of petrol-powered, non-commercial vehicles by 2030. They continue to say they are committed to reaching that goal at some point but, under pressure from automakers threatening to cut UK jobs, they are now in tactical retreat.

As Business Minister Jonathan Reynolds explains:

I don’t believe policies that we inherited are working. I will be candid, I am profoundly concerned by what’s happening at the moment. We get its seriousness and urgency.

We are absolutely committed to 2030. But at the same time I have decided to consult on the changes… so you can make your decisions in January.

The problem has arisen in large part due to consumers shifting their preferences away from EVs, resulting in fewer sales than expected. Why that is occurring is open to discussion but presumably some combination of cost and performance factors play a role.

Hence EV inventories have been piling up, costing manufacturers money. In some cases EVs are now selling at steep discounts at which it is difficult, if not impossible, for some manufacturers to operate at a profit, hence the growing threat of job cuts and factory closures. Vauxhall has already announced the closure of its Luton facility, with some 1,000 jobs slated to go.

With public support already waning following a brief, post-election honeymoon period, the government has blinked. Labour have pulled the plug on EVs.

While that might be an exaggeration, consider: is public take-up of EVs going to recover anytime soon? Is performance going to improve substantially? Will costs some down much more, such that EVs can compete in price terms against traditional petrol vehicles?

Even if so, amidst a flagging economy, is it wise for Labour to implement policies that undermine business investment and threaten jobs? Of course not. And to do so specifically by restricting consumer choice is probably not going to make them popular with the electorate.

What is bad for business and bad for consumers might, in the minds of some, be good for the environment. But this is becoming an increasingly difficult argument to make.

The UK accounts for only 4% of global CO2 emissions. That’s partly the result of emissions having been cut in half in recent decades. But it’s also due to economic growth elsewhere, including the big global exporters China and India as well as other developing markets.

If the UK continues along and slashes emissions in half again, then that 4% drops to 2%. But by doing nothing, given all the emissions growth elsewhere, that 4% share is going to keep right on declining anyway.

When one looks at these sorts of numbers rationally it is hard not to reach the conclusion that Labour has been supporting supposedly “green” policies such as EV adoption because they perceive it as politically popular, rather than truly necessary to “save the planet”.

But what if that set of green policies is becoming unpopular? What then? Well, we’ve had a glimpse of that this past week, which begs the question as to whether Labour’s volte-face on EVs may be only the beginning.

The government is already deeply unpopular. They’ve raised taxes on just about everyone. They’ve cut winter fuel allowance. They’ve changed the rules on pensions and extended inheritance tax to include family farms. (At least they’ve acted to make assisted dying easier, for those who have already had enough…)

The government was clearly desperate to do something that might, just might, make them more popular with voters. What if, just what if, the public reaction to backing away from EVs is positive? Imagine that, due to this decision, Labour’s public approval rating actually rises?

Could it be that the EV backtrack is only the first in a series? What might be next? The big, controversial proposed Norfolk solar farm? (Norfolk is known for sun, right?) How about the huge offshore wind farm planned for the Dogger Bank, way out in the North Sea? (And with way out maintenance costs too.)

Imagine the economy remains weak. Inflation rises again due in part to the big pay rises handed out to public sector workers at the last budget. Trump introduces tariffs on the UK and other countries. A global trade war breaks out.

All of the above are possible, likely even, next year. None of them are going to make the government any more popular. Nor are they going to contribute to raising government revenue. Borrowing, already rising faster than forecast, will just keep on doing so.

The government is going to become increasingly desperate to implement policies that not only appeal to the public but that might even support growth, bring down inflation and increase government revenue.

Now, what might those be? If you’ve read the September issue of The Fleet Street Letter you already know of one: drill baby drill! But not necessarily in the North Sea…

We learned just this past week that the Sea Lion oil field under development in the Falkland Islands might be twice as large as previously thought. And that field lies to the north of the islands. Geological surveys show that there are even larger fields to the south, perhaps larger than those of the Persian Gulf.

Might Labour “go to China” and not only tactically retreat from a handful of green policies but go so far as to outright embrace fossil fuel development to fill their emptying coffers with royalties?

That low-hanging fossil fruit might be tempting indeed. The Falklands might be far away, but they remain a Crown Protectorate of the United Kingdom, the country that went to war to defend them in 1982, costing many lives.

Just one phone call from 10 Downing Street to Government House, Port Stanley, could put something spectacular in motion. Something that would even impress former Prime Minister Margaret Thatcher.

Coming from a Labour government, that would be quite a feat. But then Labour performed a huge policy volte-face in the 1970s too, one that helped to bring Thatcher to power.

I think it’s certainly possible. Perhaps Labour will not only go to China, but even go native and learn the language. After all, the only thing stranger than fiction, is history.

And history can teach us a great deal. Remember two years ago, when the then Conservative government tried to fiddle with the books, pushing the markets into freefall and pensions on the edge of bankruptcy?

Well I believe another surprise borrowing announcement from Labour could soon crash our financial system. Which is why I want share with you what I believe is coming and how you can protect yourself, your family and the savings from the fallout. Find out more here.

Until next time,

John Butler
Investment Director, Fortune & Freedom

PS Don’t forget to join us for our Southbank Gold Summit, kicking off on Monday 9 December. You don’t want to miss it! Get your free pass here.