August 2022 – eco gloom mounts

I am writing this post after ‘the UK changed’ when Queen Elizabeth II (RIP) died. It describes the month of August, which now feels odd to be writing about, so I will keep it very brief.

August is in increasingly holiday month in the UK. French style. Getting work done is difficult, some restaurants close, my hairdresser shuts, and so on.

I didn’t travel abroad at all this summer. And I can’t say I really miss it. I think having the Coastal Folly to explore and Heathrow hassle back in the headlines, not to mention eye watering air fares, seems to have destroyed my travel ‘libido’.

I can’t remember a better month to be ‘stuck’ in the UK though. The UK moved into drought conditions, but the temperatures were lovely. London was markedly hotter than the coast – London was too hot to really enjoy, but the Coastal Folly saw 23-27C for two or three weeks on the trot. Lovely.

Perfect holiday conditions, in England of all places

Energy worries climaxed in the UK at the end of August, when OFGEM announced the Q4 price cap – which is about 80% higher than the already-high prices. Almost immediately it was clear the government would need to do something about this, but at the end of August we awaited confirmation that Truss was to be the new PM and in the meantime the government sat on its hands.

Meanwhile, elsewhere, markets ended the month down a bit – particularly bonds. FTSE wasn’t too badly off, with energy/mining companies helping to prop it up.

Market movements in August 2022
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Eye-watering energy costs

The UK in the energy vanguard

Here in the UK, many have taken pride in our enlightened energy policies.

We led the world, under Mrs Thatcher in the 1980s, with privatising state utilities – so our gas, electricity, telecoms etc are all in the hands of private companies. Guarding against the natural tendency to monopolies in such sectors are our industry-specific regulators OFCOM and OFGEM.

More recently (though following an initial lead from Mrs Thatcher), we have been one of the leaders in moving to renewable, ‘green’ energy. In 2019 renewable sources exceeded fossil fuel sources for the first time. Not long ago our media was proudly boasting how we had managed to power the country for two months without using any coal.

UK Energy consumption by source, 1965-2020

Not for us the Japanese/German greenery-gone-amok policies of turning off nuclear power mid life. Not for us the hypocritical and myopic German policies of reliance on brown coal and Russian monopoly gas. And not for us using fracking to unleash new reserves under our precious, fragile, green and pleasant land; we’d rather let the Americans do this in their flyover states and then pay them, now a net energy exporter themselves, a premium to liquify it and send it over to us. Who wouldn’t?

And to top it all, the UK has been one of the fastest markets to adopt Electric Vehicles (EVs), hastened by a variety of subsidies and tax incentives. EVs pay lower car taxes, lower congestion taxes, lower parking fees, and could be purchased with the help of several thousand pounds of subsidy. Over half of new car enquiries are for EVs, and over 20% of new registrations are for pure or hybrid EVs.

Being in the vanguard in 2019

The results of these enlightened energy strategies have seen our CO2 emissions fall faster than most OECD countries. We were paying, until recently, only a modest premium for our greenification. Consumers have had a choice of over 70 companies, and many hundreds of tariffs – allowing such innovations as Electric Vehicle-specific tariffs, empty-property-specific tariffs and tariffs accumulating loyalty points. And our privatised, competitive model has been ‘improved’ with a Labour Tory retail price cap, restraining operators from milking the can’t-be-bothered-to-shop-around segment.

The chart below shows what this felt like chez FirevLondon back in 2019. Those halcyon days when I worked away from home five days each week, drove a petrol car, and lived in one house – admittedly my Dream Home. The Dream Home consumed around 46k kWh of energy each year – admittedly far more than an average (smaller) UK household – yet cost me less than £250pcm of energy. My car usage was far less than an average household, so the fuel for that cost me only around £1k per year – ensuring I could drive a large-engined funmobile ‘cheaply’ (25p/mile doesn’t add up to much if you don’t drive many miles!). My total fuel costs amounted to less than £4k per year. Of that, the taxman received around £840 p.a. of tax and fuel duties – chiefly from my petrol car. Energy is taxed at a reduced rate of Value Added Tax (VAT) of 5%, compared to 20% for normal expenditure.

Energy costs p.a. in 2019

How times change

Now, unfortunately, in 2022 it turns out that the world looks completely different.

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July 2022 – a red hot month

July has been travel month. Not for me, in fact. But London has been full of visitors – and Mrs FvL and I have been inundated. So much so, that it has been handy to have the Coastal Folly for overspill. But London has a lot to offer and it has been fun doing some touristy stuff.

Summer in London

Visitors in mid July saw the hottest temperatures ever recorded in the UK. London saw 40C for its first time. I confess I was down at the Coastal Folly at the hottest point, where sea breezes kept temperatures to a lovely 30C. So I missed the bring-your-cat-to-the-office mayhem going on up in town.

London weather, mid July 2022

(UPDATED: it was hot in Downing Street too, with Johnson finally resigning early in July. That is too well covered for me to add any value here)

The markets had positive momentum throughout July. VWRL, Vanguard’s world equity ETF, was up throughout the month and ended up 6.2%. Bonds took a bit longer to rise but from mid month they too rose significantly. With the 25% leverage I’m targeting, my markets rose on average just over 6% – the fifth best result in at least 7 years.

Market movements in July 2022
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