October 25, 2010
Astute observers of the press (for a very broad definition of ‘astute’ that includes anyone who reads the Sunday papers) will have noticed that the Royal Family is line for a very literal windfall from the enormous expansion of offshore wind that’s planned for the next couple of decades.
The Crown Estate, the nice chaps who administer the land owned by the Sovereign, own all of the seabed up to 12 nautical miles off the UK’s coast. This has never really been an issue in the past, as the only really economically relevant use of the seabed has been oil pipes and Telecom cables. They have mineral rights, but not hydrocarbon rights.
However, if you want to put anything on the seabed, you have to pay the Crown Estate for a licence to be able to do so – the same sort of rent a landowner receives for having a pylon on their property. Since all the cables bringing in that juicy offshore wind electricity are going to go across the Crown Estate’s section of the seabed, they’ll have to pay for it.
One of the classic Liberal campaigning issues has always been land reform, because of the rent-seeking activity of the people who owned the land. Indeed, the Georgist song referenced in the title of this blog post refers to it; land value taxes having been something we’ve been pushing for over a century. Labour are very recent converts by comparison. The argument is, broadly, that no-one should be able to profit without actually doing work – in other words, if you’re just extracting rent without doing anything useful with the land itself, you should pay for it.
The Crown Estate’s licensing arrangement is classic rent-seeking; they’re charging for access to property they’re not using themselves. This land is going to become increasingly valuable over the coming years, as more and more uses for our maritime holdings become apparent. This affords us an opportunity to institute a bold experiment in land reform and LVT: I propose we sell off our nautical estate and institute a Seabed Value Tax.
The idea is to make some initial capital to help pay off our debt, while ensuring a constant revenue stream to help reduce the deficit. This will initially be low – most likely significantly lower than the current licensing costs of the Crown Estate – to encourage investment in maritime infrastructure. However, as these new industries expand over time, a SVT will help ensure that owners of undersea property will seek to make best use of it.
One objection that could be raised is that the seabed is a more crowded place than you would think – oil pipes here and there, international transmissions cables for communications and electricity, anchorage sites, shipping lanes, marine conservation zones – in fact, almost every type of infrastructure you would find on land has some sort of marine counterpart. The Crown Estate facilitates discussions between those with different interests with respect to the seabed, ensuring that – for example – no-one tries to lay cables across pipes. Selling off all its nautical estate would make it more difficult to co-ordinate these activities. However, similar issues on land are handled by legislation and agreements between parties, rather than a central body. There is no reason to think that something similar would not work underwater.
If this proposal is taken up, I suggest that the page of the Liberator song book that contains the words for the ‘The Land’, which is sung so gustily at Conference’s Glee Club, is replaced with the words to ‘Under the Sea‘…
October 20, 2010
Speaking as a professional greenie, the anguish from my fellow greenies over the undercapitalisation of the Green Investment Bank is puzzling. The argument appears to be that the enormous amounts of capital required to build our new low-carbon infrastructure cannot be sourced from traditional sources of investment – the figures given by Ernst and Young indicate a £450bn requirement with only £80bn of funding available from utility companies, project finance and infrastructure funds.
A Green Investment Bank would be able to create financial products for particular areas of infrastructure development; for example, you could buy an ‘Offshore Wind Bond’ and receive a rate of return depending on the success of offshore wind development projects. These would be funded by capital from the GIB. This would make it relatively easier for these products to access capital, making the financing of these projects much quicker and cheaper. Ordinary people would be able to do things like invest in Green ISAs, knowing that their money would be used for projects that would help us move towards a low-carbon economy.
Sounds like a good idea, doesn’t it? There’s a bit of a problem, and it’s because you’re creating what will be in essence a State-backed bank that will be issuing bonds with what will be in all likelihood a rate of interest exceeding that of gilts, £370bn of them, to be precise. Interest rates on gilts have been relatively low because there’s been significant demand from institutional investors for safe state-backed finance products. Add £370bn into the market and all of a sudden interest rates on gilts will go up as demand drops as a consequence of the increased supply of Government-backed debt. This is, you know, the very thing the cuts are intended to stop.
That’s not even looking at the fact that infrastructure projects have a relatively long lead-time, meaning that unless the bank is severely restricted in the bonds it is able to issue in the short term, it’ll suddenly acquire massive amounts of liabilities that it will have to service at cost higher than that of gilts. These costs will be passed onto project developers, raising their cost of capital. Indeed, the only people likely to make money out of this idea would be – yes – the bankers, and people providing financial advice, like, say, Ernst & Young.
The way to secure investment in infrastructure projects is to provide grants for nascent technologies and long-term revenue support for technologies on the cusp of commercial profitability – and to provide a stable policy environment with respect to their development. With this in mind, the fact that the RO system remains untouched following the Spending Review and that £200 million of new grants for manufacturing infrastructure and technology demonstrations has been announced, it would seem the sector is in a pretty good place. Institutional investors want to make money, and they will invest more in project finance if there’s a clear rate of return. Breaking them out of the habit up relying on Government-backed debt to do this is not helped by a GIB.