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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June 2022 – drawdown breach!

June was gloomy.

Not in London, which is lively, crowded even – and a delight to see. Pavements are busy, restaurants are proving tricky to get bookings in, the river is heaving. I even managed to get to ‘the beach’:

Sand, tides, sunshine – locally in London

I managed to spend a bit of time down around the Coastal Folly too. I’m still finding my rhythm having two homes but so far it is going pretty well. A London kitchen project is running late / badly which gives us plenty of excuses to be down by the coast.

Sandbanks, tides, sunshine – down by the coast

The UK saw a week disrupted by rail strikes but with Working From Home now an option and so many cycle/etc options it didn’t feel too disruptive for me. It was interesting though how positively the union leader Mick Lynch came across in the media and I think if we do find ourselves in a year of employee-driven strikes he will deserve the credit/blame for it. The RMT appears to be asking for about 9% pay increases for train workers. Drivers are coming up next, apparently, along with GPs (asking for 30%!). We are rapidly getting away from ‘inflation is just spiking up temporarily’ to ‘well, if they’re getting it, then I want it’ and that could take years – and a much more competent government – to shake out.

And it is this inflation gloom which is suddenly pervasive. Not just in the UK, though the UK does appear to be taking a particular bruising. Markets got hammered in June and, lest anybody forgets, they hadn’t had a good run of things earlier in the year either.

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Buying a 2nd home for nothing

A Coastal Folly

One thing has, after all, led to another. Against many years of better judgement, Mrs FvL and I have taken the plunge and bought a second home on the UK’s south coast. Our Coastal Folly.

This blog post tells the story of how I’ve paid for the Coastal Folly. I’ve surprised even myself with how it’s happened.

The Coastal Folly is expensive. Well over £2m of property. It is not a little 2 bed cottage 20 minutes drive from the sea. It is a premium piece of real estate, with uninterruptible sea views.

As a second home, it attracts additional stamp duty (the property transaction tax payable in cash to the government at completion) – for this value of property my stamp duty is well over 10%. A lot of people I know froth at the mouth at this level of stamp duty. Not me. My portfolio has benefited from low investment taxes. And most of what I spend my money on incurs 20% VAT. So having to shell out 12-13% purchase tax on a discretionary purchase, using money that has been taxed at 0% or 20%, doesn’t feel unreasonable at all to me.

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