Captive Market

James Meek

There are many reasons why China’s involvement in building nuclear power stations in Britain is wrong, yet those who oppose it, or question it, have struggled to articulate their unease without sounding racist, paranoid or Little-English, or getting bogged down in arcane financial minutiae.

One obstacle to exposing the British government’s error is language. In the case of China and the nukes, politicians, journalists and finance professionals are complicit in misleading usage of the words investment and tax. George Osborne, a master of such lexical abuse, maintains that Britain needs Chinese investment, and that the planned Chinese-French reactors won’t cost the British taxpayer a penny. Both propositions are false.

Investment is a greedy word, swallowing many different meanings. It can mean ‘buying a thing in the hope it’ll be worth more money when you sell it later’. It can mean ‘buying a thing in the hope it’ll generate a steady income’. Or it can mean ‘spending money to make a new, improved thing, in the hope people will feel the benefit, and pay enough to use it to recoup the money spent'. Sometimes it can mean all three. Take the example of a house in London. A wealthy person buys it, hoping to sell it later for a profit. She ‘buys it as an investment’. While she owns it, she lets it out. She is ‘investing in the rental market'. She builds a second house in the back garden: she is ‘investing in the demand for housing.’

In the British government’s presentation, construction of the Chinese-French reactors correspond to the third category – a new, improved thing. Just as Britain needs more houses, and should be grateful for those who build them, Britain needs the security of the low-carbon electricity supply that nuclear power offers, and China will provide it. Thank you, Beijing – Chinese investment!

But what if the hope that people use and pay for your new thing isn’t a hope? What if it’s a certainty, guaranteed by the government? And what if it isn't so much a new thing you build – like our imaginary housing investor’s second house – but simply a replacement of an existing, non-optional thing? Then it becomes a different kind of investment. In terms of the housing comparison, it’s like a house with a tenant who has no choice but to live there for ever, and is compelled to pay the rent the government sets on the owner’s behalf. Then the main investment isn’t in the house; it’s in the tenant. The government isn't encouraging Chinese investment in Britain’s electricity industry so much as selling China and France a captive market of British electricity users.

If investment is semantically bloated, tax is semantically starved. In Britain it has acquired the narrow meaning of ‘that percentage of a person or firm’s income compulsorily levied to finance public spending'. Income tax, in other words, or corporation tax. But there are other compulsory levies. The electricity bill is one of them. Electricity is a universal network: everyone must always have it, and everyone must pay.

British electricity customers can shop around for who supplies their electricity, but they will have no choice about whether they subsidise, through their bills, the new nuclear stations, which wouldn’t be built in pure market conditions. The provision of electricity is public spending, even if it is carried out by private companies, or, in the case of the Chinese-French reactors, foreign state companies. The electricity bill is, accordingly, a tax – a privatised tax.

The British taxpayer will pay to subsidise the new nuclear power stations. Whether that money goes through the Inland Revenue and the Treasury, or through private electricity companies, it is still a tax.

Britain does not, in reality, need Chinese investment in nuclear power stations. It needs safe, cheap, reliable, efficient electricity – and if the best way to generate it happens to be Chinese-built, French-designed nuclear reactors, great. It needs money to pay for them – and if a government-backed bond, issued by a non-profit trust set up to commission low-carbon power sources, were to be bought by China’s sovereign wealth fund, great again. Instead of which, citizens are bundled up, the rights to tax them sold to unelected foreign governments, and the domestic government is reduced to the role of steward, minding the master’s estate.


  • 22 October 2015 at 7:38am
    cufflink says:
    What is said is well said but the economic orientation is suspect. The thrust of the blog is 'outside' of the financial global activity in terms of international investments. China has significant amounts of surplus capital and finds now that even that active economy cannot sustain within its own boundaries secure continuing growth. We as a key player in international monetary financial placement can and do offer a rational and legal based well ordered facility for international investment either passing through or settled. China must shore up its reserves in this market with diversification. The Power Station (and that is all it is) is an allround opportunity to further each participant's providential access to new productivity in an environment of high scientific competence but short on aggregate finance. George Osborn is to be congratulated in identifying with British financial expertise and positioning this facility.

    • 22 October 2015 at 12:51pm
      Alan Benfield says: @ cufflink
      You seem to have missed the point entirely, which is this: if the government had wanted to, it could quite easily raised the investment required at extremely low rates by issuing bonds in the financial markets. If the Chinese state had cared to buy such bonds, they would own the bonds and receive any return due to them accordingly. What it has actually done is handed the project to a consortium of state-run enterprises and guaranteed them an exorbitantly high rate of return on the supposed investment which will ultimately be paid by any and every user of the electricity system in increased bills.

      This is not a return on a legitimate investment: it is a rent.

    • 22 October 2015 at 1:55pm
      streetsj says: @ Alan Benfield
      Can you point me to where I can find what the guaranteed exorbitantly high return is?

    • 22 October 2015 at 2:15pm
      Alan Benfield says: @ streetsj
      Try here (Guardian, today):

      "Homeowners and businesses will need to pay £92.50 per MW hour for Hinkley electricity over 35 years, compared with a current wholesale price of £40."

    • 23 October 2015 at 7:27am
      streetsj says: @ Alan Benfield
      Which tells us nothing about what the return will be.

      Whether it's a good deal for UK consumers or not will depend on what happens to competing fuel costs over the next 35 years.

      What it will do is reduce our dependency on gas and oil imports.

    • 23 October 2015 at 10:15am
      Alan Benfield says: @ streetsj
      Well, try doing the maths: EDF put in £12 billion and China £6 billion, borrowing at present ultra-low rates in the market.

      On completion, even if the plant is only generating at an average of 50% of its 3.2 GW capacity, it will be generating about 140 million MWh a year at £92,50 a pop, leading to income of £13 billion per annum, for 35 years, adjusted for inflation.

      Sounds good to me.

    • 23 October 2015 at 10:28am
      Alan Benfield says: @ Alan Benfield
      This, of course, does not take into account debt service and running costs, but, according to Peter Atherton, an analyst for investment bank Jefferies:

      "Hinkley will be producing annual pre-tax profits for Edf and CGN of £2bn, rising to £5bn by the end of the 35-year contract."

      And the consortium will also own the plant. It will be interesting to see what the contracts say about decommissioning: if history tells us anything, it is that nuclear decommissioning tends to end up in the taxpayer's lap.

    • 23 October 2015 at 7:18pm
      streetsj says: @ Alan Benfield
      One major question here is this: having never actually delivered an EPR anywhere yet, and with those under construction subject to long delays, can EDF do it at Hinkley?

  • 22 October 2015 at 12:02pm
    stockwelljonny says:
    Very well put (though after this elucidation I am now more depressed than I was previously!)

  • 22 October 2015 at 1:58pm
    streetsj says:
    I don't accept that your electricity bill is a tax. On your argument food and clothing would also be a tax.

    • 22 October 2015 at 2:28pm
      Alan Benfield says: @ streetsj
      Your remark assumes that there is competition in a real market: here that is not the case. Unless there exists a supplier who does not take supplies from Hinkley Point C (and how would that work, exactly?), all suppliers will be forced to pay the guaranteed rate, which will invariably put up the aggregate general rate at which electricity is supplied i.e. the consumer has no choice but to pay the rate because he cannot go anywhere else (except perhaps to buy some solar panels).

      In this sense it becomes a tax (or, from the point of the provider, a rent, as I put it above. In a sense, all utilities are in the nature of a tax, in that they are regarded as essential (unless you consider that we should all return to nature) which is why the provision of such (water, electricity, gas, sewage disposal) are best left in the hands of a state monopoly, as privatisation has since shown: the consumer has never really benefited from it.

    • 5 November 2015 at 12:36pm
      John Cowan says: @ Alan Benfield
      That's not everywhere and always the case. The oldest electricity-delivery infrastructure in the world is Con Edison in NYC, where I live. It may clank and creak in some respects, but it has pretty much kept the lights on (and the gas and steam flowing) since 1889 while being highly profitable to its stockholders. It is not obvious to me that if the City or the State of New York were to nationalize (if that's the word) rather than merely regulating Con Ed, that it would do any better at delivering the juice, or charge us any less for it. East of us, the grid has changed hands from private LILCO to public LIPA to private PSEG without (I am told) any noticeable improvements.

      Now only about half the bill I pay, groaning but accepting it (at least the benefits are tangible and obvious, not the case for most of my other payments in the nature of economic rents) is for delivery; the rest is for supply. There are over 100 companies that are eager to get paid to supply me, doing their very best to obtain the lowest-cost energy for me. (Some companies have other metrics: some provide only "100% green" energy, mostly hydro; others acts as insurers against price fluctuations.) I confess to not believing that any of these hustlers, or ESCOs, can do significantly better in the long term than any other, so I remain content with the default supplier assigned to me by New York State.

      Of course, the situation of consumers on a fairly isolated island is going to be inherently different and less flexible than people well-connected to a continent-spanning series of grids. (Hey, that's why we like islands, they're quirky.) New York City is somewhere in between. By law, it must be possible to supply 80% of the peak power demand of NYC (just over 10,000 megawatts) by generating facilities in the city itself. Of course that's not the cheapest strategy, and a lot of those facilities are shut down much of the time, but we could survive even in a "Fog On Channel, Europe Completely Cut Off" situation.

  • 23 October 2015 at 7:45am
    cufflink says:
    Alan Benfield's pecuniary follow up is pertinent to a marketing operation of an established technologically efficient supply of energy, but if as a Country we are to pursue a Green Economy with a secure supply of energy over and against the parlous oil market's insecure variations then a start on Hinkley Point is imperative. A Bond issue will not meet the case especially as our Nuclear supply expertise is now impotent. China is buying into our economy to further its own interests but that is not a cause for worry it is one for calculation. The Bond market through London is secure because our currency is relatively stable. But it is also true that the supply of oil for the foreseeable future is likely to be cheaper because of the needful interests of the belligerents, who are in disarray, but must purchase armaments whether the theatre is in the Middle-East or North Africa. Therefore a Bond issue for Hinkley Point and other like projects following on would not get City take-up at a going rate. The low Bond rate in London for Prime Investment is down to our position in that market; that though we are in high international indebtedness we can call a lower rate of repayment by virtue of our International Banking involvement in raking in others repayments. What we pass through one door comes in at another.
    George Osborne is on a roll and if we can secure Chinese involvement in the refurbishment and retooling of Manchester it will be beneficial to our economy overall.
    When the war dust has settled oil prices will go up for cartels will re-appear.

    • 23 October 2015 at 10:40am
      Alan Benfield says: @ cufflink
      Cufflink clearly does not understand the bond markets: government bonds are blue-chip, i.e. no risk, and are always taken up for this very reason. There is absolutely no reason why the government would be forced to give a premium rate to sell its bonds. This has always been the argument against PFI and PPP arrangements: the government can always borrow more cheaply than any private borrower because its debt is absolutely secure. The reason why governments choose not to do so is purely political: to artificially keep government debt off the public accounts by effectively borrowing through a third party.

      It may well be the case that our ability to design and build nuclear reactors has withered away, but that is another question. One major question here is this: having never actually delivered an EPR anywhere yet, and with those under construction subject to long delays, can EDF do it at Hinkley?

  • 24 October 2015 at 10:56am
    cufflink says:
    I do not disagree with what Alan Benfield says re the Bond Market, but it is a text book answer. The Chinese would not look at such a Bond because their focus on investment has to be more hands on productive with if possible a revenue flow which was of course intimated by James Meek. I also agree that PPI etc has been inappropriate for many of our infrastructure projects but this is largely because the tap of follow through financial support from government was either turned off or buried in a generalised money allotment to the holding entities.
    It is advantageous to our economy if the Chinese are actively involved, for they bring with them a determination to do the job at the price; in this case a demonstration too of their ability to go on to other projects - each one to be agreed under separate contract.
    This process is not new, the Americans between the wars and the Japanese thereafter were instumental in this way relative to our manufacturing industry. One cannot blame the Chinese for keeping out of the Bond Market for the designation 'Blue Chip' can and does get eroded over time for each issue is subject to inflationary pressures if returned to the market. It is no longer the case that Pension Funds can look to these for long term security; yes they are necessary to balance the portfolio as against risk but even now it is a desiccated fall back and last resort. The Chinese of course would support a new Conservative British arrangement with the EU, especially in a resistance to the Social Chapter.
    I am of the Left and would like to see different arrangements for the raising of Capital and in the light
    of George Osborne's pledge for a living wage feel that this is his Achilles Heel. For a majority vote to elect a next Parliament will make this a prime issue. The battle will be fought extra-parliamentarily and will give scope to the Social Media to move the forces of fairer distribution forward.
    At least the Chinese are not Hedge Funds and Take-Over merchants closing down on our limited successful brands. We have to square up to the fact that we can no longer play a global hand in a manufacturing environment.
    There is naturally the larger problem that if the Chinese stake gets too high (and already is in business property) then issues of strategic importance are raised. The apportion of three part participation in the Hinkley Point deal is appropriate.

  • 26 October 2015 at 12:23pm
    Alan Benfield says:
    Many thanks for referring to my remarks as 'a text book answer' - although I doubt you meant it in an approving way. I think, in fact, this characterisation is wrong: most mainstream textbooks will not recommend the simple idea of governments borrowing in the market, because the economists who write them are also in thrall to the idea of small government and direct government borrowing is anathema: hence PFI and PPP. Unfortunately, New Labour swallowed this idea wholesale, thus achieving the double distinction of having used the process to borrow expensively (mortgaging the future, which the Coalition and now the Tories continue to do) to build public infrastructure while then being (falsely) accused of causing the deficit by extravagant spending anyway (an accusation which they have singularly fail to rebut at any point, although the point has been made repeatedly by economists, notably Paul Krugman:

    "It has been astonishing, from a US perspective, to witness the limpness of Labour’s response to the austerity push. Britain’s opposition has been amazingly willing to accept claims that budget deficits are the biggest economic issue facing the nation, and has made hardly any effort to challenge the extremely dubious proposition that fiscal policy under Blair and Brown was deeply irresponsible – or even the nonsensical proposition that this supposed fiscal irresponsibility caused the crisis of 2008-2009." )

    But this is not really about PFI and PPP, deficits or austerity: it's about who owns Britain. James Meek has written a fine book on this subject, which you would do well to read:

    To get started, read John Grays's Guardian review:

    Or this from the FT:

    To take some other points:

    "The Chinese would not look at such a Bond because their focus on investment has to be more hands on productive with if possible a revenue flow which was of course intimated by James Meek." - Yes, but the hands-on is the scary part: what this will do is (if it is ever completed) put about 7% of generating capacity into the hands of two foreign governments, one of which is already notorious for dumping steel on the market and is clearly not a benign provider of money for investment. Is this a good thing? With a bond issue the ultimate owner is the state - ours, not theirs.

    "It is advantageous to our economy if the Chinese are actively involved, for they bring with them a determination to do the job at the price" - well at the price they are getting, they would be fools not to.

    "One cannot blame the Chinese for keeping out of the Bond Market for the designation ‘Blue Chip’ can and does get eroded over time for each issue is subject to inflationary pressures if returned to the market. It is no longer the case that Pension Funds can look to these for long term security; yes they are necessary to balance the portfolio as against risk but even now it is a desiccated fall back and last resort." - this is so wrong I don't know where to start; because of its position as probably the largest financial centre in the world, the UK has the advantage that, deficits notwithstanding, its government bonds are incredibly solid: the UK is not Greece or Portugal. The yields on UK government bonds do not yoyo up and down like those of weak Eurozone countries.

    "At least the Chinese are not Hedge Funds and Take-Over merchants closing down on our limited successful brands." - I think this called 'damning with faint praise" - "We have to square up to the fact that we can no longer play a global hand in a manufacturing environment. - I think that is called defeatism - and is a reason for more government intervention in infrastructure, not outside investment from the likes of China.

  • 27 October 2015 at 1:12am
    farthington says:
    Can EDF build EPRs?
    Check out the experience at Flamanville (unfortunately, there is probably an inadequate coverege in English).
    The answer is no.
    Can EDF deal effectively with waste and decommissiong?
    In both cases, the answer is no.
    A massive waste dump is being imposed undemocratically at Bure.
    As for decommissiong, a huge head in the sand.
    The most immediate problem child is Fessenheim, with endless deferral of the hard questions.
    France's nuclear power based electricity was once a source of great national pride.
    Its future represents a cost of unfathomable depth.
    Meek is too kind.
    This proposal is a disaster of the first order - madness.
    Here is a once proud empire reduced to colonial cringe.
    And where is the City of London, on which Britain's economic and industrial policy is fixated, in all this?
    Off gallivanting in the Channel and Virgin Islands.

    • 27 October 2015 at 7:58am
      Alan Benfield says: @ farthington
      Hear, hear!

  • 28 October 2015 at 9:50am
    cufflink says:
    The pedagogic tone of Alan Benfield's contributions does not help the situation along. It is not necessary to cite out of the way references that we should read in order to get a grip on issues. Of course we have to be fairly well read in matters of intellectual concerns to come onto an LRB blog. An occasional allusion to an erudite position is welcome but to be continually searching into your wallet for a dog-eared news clipping is a bit Henry Brooke. Many years ago I had a vehement discussion with a group of debonair French Students in St Malo concerning the disposal of their Country's radioactive waste, and in consequence of their replies took a pessimistic view of the future. I am not a proponent of putative Green nuclear solutions to scarce energy supply and agree it is at best a short term strategic necessity. Already there is a lobby growing to gild a return to carbon burning as the least worst option before the lights go out. If we are to leave the EU then the China station is maybe where we should change steam trains. I have read James Meek and admire his intellectual comprehensions, but I have never met him for I cannot afford the fee and train fare to attend an LRB evening (is there a bursary on offer?) I asume he has no halo?
    I now return to my dinosaur computer to sort out the AVG free download that is showing a persistent error notice. Shall I say 'goodbye' now?

    • 29 October 2015 at 3:25pm
      Alan Benfield says: @ cufflink
      Once a schoolteacher, always a schoolteacher, I'm afraid, although I haven't stood at the chalk face for nearly 30 years. Mea maxima culpa...

      "An occasional allusion to an erudite position is welcome but to be continually searching into your wallet for a dog-eared news clipping is a bit Henry Brooke."

      Talking of erudite positions, which Henry Brooke, exactly? And what do you mean? And who is searching into his wallet for a dog-eared news clipping, me? I read all those articles recently (which is how I came back to them so quickly) and I would hardly call the Guardian and FT 'erudite' (I think, in any case, you mean 'obscure'). And no, James Meek is no secular saint, but he does do his homework... (neither have I met him, by the way).

      If you are using Windows, try dumping AVG for Microsoft Security Essentials: it's also free, works as well as anything else and doesn't get in the way as much as the third-party stuff often does.

      Just a thought.

      But we're getting a bit off-topic here, so maybe we should close this particular discussion.

    • 30 October 2015 at 10:17am
      Alan Benfield says: @ Alan Benfield
      Or maybe not

      (Guardian, yesterday)

    • 3 November 2015 at 8:38pm
      brianmcmahon says: @ Alan Benfield
      Do you two want to take this outside?

  • 3 November 2015 at 8:32pm
    abgood says:
    I always look forward to reading James Meek's articles and blog posts. He makes me think (a commendable innovation). In this post, I was reading along, taking it in, when I encountered the word "rents," and everything fell into place. Rents, as in "rentier," "rent-seeking," etc. This mini-epiphany then dissolved into a brief vision of George Osborne's face, and all was revealed. We ought not to be shocked by the sale of Britain's assets, strategic and otherwise, to foreign governments, corporations or entrepreneurs by the country's leadership. Osborne's entire concept of political economy is a rentier's. Far from feeling a surge of bile at the word, the chancellor would simply shrug. For him, the rent-seeking (and -selling) economy is the natural order of things. It's the rest of us who are the oddballs.

  • 4 November 2015 at 4:02am
    kiers says:
    It just amazes me. I thought the UK was FULLY on board with America's (as in all things) new trade regime, ie. the TPP and TTIP. These agreements DO NOT allow government procurement with other STATE OWNED (especially communist state owned) enterprises???? So what gives here?

  • 6 November 2015 at 1:25pm
    tprightsofman says:
    LRB readers like me who are puzzled by some of the the comments above, may appreciate a recent contribution to STOP HS2 by one of the many formidable opponents of HS2 :

    "An update of Chinese blogs during Xi Jinping's state Uk visit this week.

    But one quick point before I start: whilst Chinese state censors have successfully controlled all published media to only report the good-news party line, they have struggled to control blogs where, more often than not, the true stories routinely emerge, before the censors close them down.

    So, the summary (written in Chinese, and only discoverable using Chinese search engines) is this:

    Due to China suddenly having to dramatically downsize their overly optimistic high speed rail development programme, the Chinese government and suppliers are drowning under the weight of giant manufacturing facilities, rolling stock, trackside technology etc that will never be required in China. The government is heading for a turbulent time justifying their errors. Even the overhead and investment getting this far could finance a small country.

    The blogs are reporting that the leadership of China have now secretly acknowledged the financial reality of this chaos and is now focusing on other countries, such as Uk, that can be utilised for some of these high speed train excesses. Doing this makes an attempt to neutralise over production, and justifying manufacturing facilities. The Chinese will undercut Japanese and French high speed train suppliers.

    The blogs also report the Uk as "a fallen word leader" which is now standing in line with its begging bowl along side many developing countries - mainly in Africa. The Chinese are amused how the Uk has self-messed up to the point is now crawls to China for money. This week's display of royalty and politicians dressed in red has been laughed at in China.

    Cameron forever at Xi's side has been seen as a joke. The blogs say that Xi has played a masterful game of bluff by kidding Cameron et al of great long-term benevolent investment, whist the actual masterplan is to draw as much inflated interest from loans and taking control of as many essential utilities, real estate and manufacturing of domestic brands as soon as possible, thus sucking extraordinary sums of cash out of the Uk economy.

    Xi Jinping sees HS2 never making money (as wont high seed rail in China) but HS2 can be used to placate wrong decisions in China, whilst currying favour to gain access to other far more profitable UK investments.

    The blogs also report that the USA and particularly the European Union (as a body) are proving a hard nut to crack as they are individually and collectively suspicious of China (particularly the risks to state security) but the Uk, courtesy of mainly Cameron and Osborne, have been easier to kid as they preside over a fallen nation that now can do nothing but rely on Chinese cash. In short, Xi et al see the Uk as a push over."

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