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Comment by Maakuth | Hacker News Reader

> I'm surprised by how short termed is the strategy to actually keep up with 'market' prices.

It's supply and demand in action. Each oil company has limited capacity of production and not much flexibility to increase it in short term. As part of the supply is no longer available, there is less oil available in the market. The market mechanism drives the price up to a level where supply and demand are in balance. So the migration of oil consumers to alternatives is exactly what's supposed to happen in this case.

Moreover, a single company does not have a real choice to sell for cheap. First everyone would choose this vendor for their oil needs. But as their stock and production is limited, they would soon run out of oil to sell. Even a cartel or government decision to lower the price does not cut it, because it kills the demand side incentive to find alternatives. Then you'd be in a situation where oil is cheap, but not available.

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Yeah, it's just that people are unlikely to realise this because the British press has spent the last year or so lying about this for both partisan reasons (most of them hate the party currently in power) and environmentalist ones (there's been a huge campaign to block new fossil fuel production in order to fight global warming which relies on convincing people that the only reason governments haven't done so is because it'd hurt fossil fuel company profits - admitting that it'd actually increase their profits and make ordinary people worse off would get in the way of that).

That's curious as most of the British press fawn over the Tories and come up with excuses for their various failures. Even just recently, the Telegraph published Liz Truss' explanation of why her ideas weren't the problem with her failed premiership - she blames the left-wing economic establishment.

Also, it doesn't explain why the plan to help with elevated fuel prices involved borrowing money to pay the companies rather than trying to windfall tax them so that their profits aren't so excessive.

Actually, in a way it does. The idea that the reason the government's plan required borrowing so much money was because they'd refused to impose a proper windfall tax was a lie by the opposition Labour party (that was repeated unchallenged by most of the media, including the BBC): https://www.channel4.com/news/factcheck/factcheck-labour-kee... There's just not enough money there.

The actual reason that Labour's plan could be mostly funded from windfall taxes was much more cynical: it ended in April back when energy prices were expected to be even higher then, whilst the government plan extended for two years and cost substantially more as a result. It couldn't just be extended for longer either because a huge chunk of the money came from backdating windfall taxes as far as possible. This worked for Labour because the media was willing to ignore what this would actually mean for consumers - something they didn't do when the Government inevitably caved and did the same thing themselves. Of course, now that April is coming Rachel Reeves and other Labour politicians are claiming that the reason energy prices are going up is because the Tories refused to impose proper windfall taxes and of course Labour would keep the cap past then, and the BBC and others are repeating that claim unchallenged too.

The issue is more likely to do with the investment "loophole"

> Companies can reduce their payments if they invest capital in new production in the North Sea – covering everything from hiring vessels and rigs to engineering contracts.

https://www.theguardian.com/business/2023/feb/02/why-is-shel...

I don't know why you're going on about Labour - how are they relevant?

The whole idea that this could all have been funded from a windfall tax pretty much came from Labour, which is how they're relevant. Also, the fact check I linked to specifically addressed the "investment loophole" - closing it's not even close to enough money. The claim that the price cap could be funded from windfall taxes really, heavily relied on Labour playing sneaky tricks with ending their proposed price cap in April and the media not calling them out on it (along with other dodgy accounting tricks, and more recently them pointing to Shell's global profits as proof the existing windfall tax isn't aggressive enough even though they only proposed to tax UK profits).

This is nothing to do with Labour; they haven't been in government for well over a decade.

The first UK windfall tax targeted on oil companies was in 1983 under Thatcher / Lord Lawson; so the party that recommends it depends more on what oil prices are doing rather than whether there is a left or right government in power.

Whether it will or won't cover all the costs doesn't really matter either, because everyone knows what the quality of economic forecasts are variable at best; you can't control an economy (no matter how much some Communist governments tried), but you can influence it with taxes / subsidies. What matters is the benefits and costs.

The main issue is that the UK economy is suffering under supply side inflation, and the usual tricks don't really work too well. The BoE have to be careful as during stagflation rate changes have larger than normal impacts; far more of a tightrope that usual. The UK has several supply side issues beyond other countries; no natural gas reserves (they were sold by the Tories / Osborne), and Brexit. And so the UK is in a tighter strait jacket; and the current results / forecasts for the GDP reflect that.

The UK business as a whole doesn't invest enough in capital goods (capital investment); compare UK's 18% of GDP to Germany 23%, France & Ireland 24%, even America with it's investment downturn in 2021 of 21%. And it's little wonder that the UK's productivity per capita is down.

This drop in investment leads to a drop in output which leads to a drop in tax revenue which leads to a drop in the currency (external/forex, internal/inflation). Brexit certainly hasn't helped at all on the investment front (either internal or FDI); plenty of UK businesses are investing in a presence in the EU so they can keep selling to EU customers (which leads to EU employment and EU taxes).

But cuts in services for the working class leads to a less productive working class (on top of the productivity hit from reduced capital investment), and real terms wage cuts leads to a real terms tax revenue cut as well (ceteris paribus; which it rarely is, the Tories want to tax the rich less which makes even less sense, the beatings will continue until morale improves!).

Stagflation is hard enough to navigate through without wearing ideological blinkers.

>a single company does not have a real choice to sell for cheap. First everyone would choose this vendor for their oil needs. But as their stock and production is limited, they would soon run out of oil to sell.

that's exactly a publicity stunt that made Total, in France, for a few weeks after their huge profits hit the news. It turned out to be beneficial for them :

It improved their image among citizens. And they avoided that tax on extra profits, that BP will have to pay in the UK. They even had news credit for this. After that stunt, they could go to the media and show everything they were 'doing' for industries, consumers, and investments against climate change.

Now the gas is back to expensive levels. But voters got gradually used to it, demand didn't break, and Total still dodged the tax and escaped more regulation.

BP used high oil prices to do stock buyback, Total used it to build their image as a 'socially responsible' and stable company.

(Btw, the shortage of fuel happened during strikes and other defiance on the government. So Total got away with being dry some of the time. The government somehow ended up being blamed for that.)

Now choose where you want to invest. It's fully up to your strategy.

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