Markets cannot solve this. When supply collapses, markets ration by income and those with money survive; those without do not. That is not a policy choice. That is a failure of government. The energy crisis and emerging food shortages demand an active UK state response.
Drawing on Lord Keynes's approach at the start of World War II, and John Kenneth Galbraith's wartime work in the United States, this video argues that the only credible response to this supply chain crisis is a combination of government-led rationing and a serious redesign of the tax system.
That means rationing oil, aviation fuel, heating oil, and food.
It means equalising capital gains and income tax rates, extending national insurance to investment incomes, and adding VAT to financial services.
It means government intervention in the economy at a scale not seen since the 1940s.
The alternative is leaving resource allocation to the market, which will transfer wealth upward, destroy social cohesion, and risk public unrest. That is not how to manage a war economy. That is a policy choice to let the poor bear the cost of a crisis they did not create.
This is the audio version:
This is the transcript:
We are living in a war economy. That's not a future possibility. It is our present existence.
The Middle East conflict is already creating supply disruptions in the UK.
We're seeing oil prices rise.
We are seeing the price of jet fuel rise, and therefore of flights rise.
We are seeing shortages now becoming visible across multiple sectors of the economy, and that systemic risk is going to increase.
The government cannot leave the management of this problem to markets. That's the point of this video.
We know this is true. Lord Keynes, the greatest economist of the 20th century, pointed this out at the beginning of World War II. Writing in the UK and suggesting how we might manage the victory over Germany, and the economic resources required to achieve that goal, his core point was that consumption must therefore be deliberately limited; otherwise, markets allocate resources by price and income, and the result is injustice, instability, and political risk.
His answer was rationing plus taxation changes to control demand, and my suggestion now is that we need to be thinking in exactly the same way. He was right. We don't need to rewrite the lesson. We need to simply learn from it and implement the necessary changes.
War does sometimes divert resources into military priorities. That could be the consequence of this war in due course because our governments may decide to divert resources into new defence spending. But the current shock is not because of that. Our current shock is because of physical collapse in supply chains resulting from the war that is being conducted by the USA and Israel against Iran.
We know that oil supplies are going to be down around 20% as a result, and gas supplies worldwide are going to be down around 30%. Those two facts in themselves will create constraints on productive capacity, but that is not the whole story.
Fertiliser shortages are going to hit agricultural output right across the world. This is going to have an impact within the UK economy, and outside it, and both matter because roughly half of all the UK's food supply is imported. We will be seeing shortages from the UK's fields. We will be seeing shortages and price increases on the goods that we import. The fact is that this does create a real risk of food shortages, and potentially famine in some parts of the world, and in the UK, most certainly of significant price increases when it comes to food.
There are other areas where there are problems as well. There are helium shortages as a result of the shortage of liquid natural gas, which is being produced in the Gulf. Because of that, the NHS is not going to get the supplies it needs to operate MRI machines, and that helium is also used in the production of chips for use in technology and AI, and all of those areas are going to suffer constraints. And given that chips are now in almost every consumer product we buy, the knock-on effect of this is going to be enormous.
There will be fewer goods and services available for sale overall as a result. But, and this is the key point, demand will not automatically fall as a consequence. There will be a gap that opens between supply and demand, and that gap must be managed somehow. The issue is how we allocate resources when this mismatch exists, and the secondary issue is that the government cannot deny that this problem is going to arise.
Prices will rise when supply is constrained. This is a matter of fact. Let's not bother to argue about it. We can see this happening with regard to petrol and diesel prices already. We can see it with regard to energy prices elsewhere. We can see it with regard to home heating oil. The fact is, prices are going up, and access is going to those who can pay at present because the government is not taking any steps to reallocate supply to those who have real need.
The consequence is that those without sufficient income are going to be excluded from markets over a wide range of goods and services fairly shortly, and firms are going to exploit scarcity to increase their profits. This is rationing by income and not by need. It is what markets create, but it's a poor outcome for society itself.
And at the same time, we have a problem with regard to wealth. The wealthy will be able to maintain their access to scarce goods, whilst low-income households will lose out on essentials first. Inflation is going to destroy savings, whatever savings low-income households have, and borrowing costs are going to rise just to survive as a result.
The consequence is obvious. Wealth transfers are going to increase during this crisis, and so too is inequality, which is going to become much more visible as a result. That is going to create an obvious consequence. Public anger is going to intensify rapidly, and social cohesion is going to weaken as a consequence, with the risk of unrest rising.
Governments might lose legitimacy in this situation. They have to act, and the answer is rationing. Rationing is required. We need to be planning it now. We need to allocate resources on the basis of need and not of income. This is what happened in World War II. It is how society remained cohesive in the face of a common enemy. It ensured minimum access for everyone, and it prevented extreme inequality in consumption. It maintained social stability, but it required planning before the crisis deepened.
Our problem is, we may not get that planning. That's what worries me.
My answer is that oil must now be rationed across all sectors of the economy. Aviation fuel must be used sparingly because we know it is going to be in immensely short supply. Holidays are going to be lost as a result, and we'll have to live with that and the anger it gives rise to. Whilst road fuel use must be controlled and prioritised, social trips are going to be the lowest priority, as a matter of fact. Getting to work, getting to school, getting to hospital appointments, all those things will matter. A basic allocation of fuel for these purposes will be essential. At the same time, heating oil must be managed to protect households, and industry must be allocated the supplies it needs by priority to ensure that the economy continues to function and people remain in work.
At the same time, food rationing plans are now essential. These might be radical. There might be a restriction, for example, on the amount of takeaway food that is sold. Why? Because it often involves a high degree of waste. Supermarkets will also be instructed to cut down the amount of waste that they have, and to reconsider issues like shelf lives to ensure that food which is still safe to eat is actually put into the supply chain. 30% of all food in the UK is at present wasted.
We must also look heavily at why we are so import dependent with regard to food and the exposure that this creates, and plan for a future where we should be better able to manage food for ourselves. This requires a rethink of how we use land in the UK in a very different way. Golf courses might be at risk; they should be fields, for example. Those fertiliser shortages that we are going to face are going to reduce domestic output, and we need to change our priorities as a result.
Whilst helium must be prioritised for NHS and other key uses within the economy to make sure that medical services continue in a way that does not threaten life.
We do therefore need strategic allocation of resources right across the economy.
Why does this matter? It matters because we need to keep our economy working, and without planning, that's not possible.
Again, this is a lesson from World War II. In the UK, the person who taught the lesson was Lord Keynes. In the USA, it was John Kenneth Galbraith, the second most important economist of the 20th century, in my opinion. He was put in charge of all production inside the US economy by the wartime administration in the USA. What did he do? He ensured that production was planned to meet need.
As a consequence, short-time working could be avoided now to the greatest degree possible, and the risk of firms collapsing could also be avoided if they are provided with support when supply chains make it hard for them to survive otherwise. This is something that we must do. We did it in the UK during COVID. We must do it now when we face a bigger crisis, because that is what I think we are about to have.
The government has the job of stabilising employment in the UK. Its fundamental role is to protect people from harm, and for most people, the risk of losing their job is the biggest harm that they can face. So the government must preserve the capacity of the UK economy. They must do so for the present and for the sake of the recovery to come.
In that case, another risk must be avoided. Rationing cannot by itself solve inequality. Scarcity will increase the rate of return to wealth during the course of the crisis to come. Asset holders will benefit from rising prices. Income inequality will feed into consumption inequality, and financial stress will be concentrated on the poorest. Redistribution must, therefore, accompany rationing. It's not enough to ration goods. We must, at the same time, be looking at a serious redesign of our tax system. This was, again, part of what Lord Keynes talked about with regard to the management of the wartime economy during the 1940s.
What he said was that taxation was needed to suppress excess consumption and who had the most excess consumption? Those who had most to spend, of course; they were the wealthy. So, tax must target those with the capacity to spend most of all.
We need, at this moment, to increase the tax on income and gains from wealth; there is no way of avoiding that outcome. I discussed this in the Tax and Wealth Report. There will be a link to it down below.
We should be equalising capital gains and income tax rates.
We should be adding VAT on financial services,.
And we should be charging the equivalent of national insurance on investment incomes henceforth.
The reason why is that major point: we must target the capacity of those with excess income to spend more because, unless we do, the capacity to reallocate resources to those in need will not be available. Tax is being used here as an instrument to create justice.
The crisis we are facing is already unfolding. The Keynesian tools I've described remain directly relevant to its management.
The government must now lead allocation decisions. It's showing no sign of willingness to do so, but unless it does, delay will guarantee inequality and instability within the UK economy. Immediate, decisive intervention is now required.
That's my opinion. What's yours? Please look at the poll below. Please leave your comments; we do look at them. Please like this video, please share it, and please talk about the issues that I'm talking about here because they are vital to our survival during the crisis we are now facing and don't doubt it, we are facing a crisis.
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It’s going to take a wise controller of delphic proportions to ration heating oil, jet fuel, petrol, diesel, gas and fertiliser. You’d need a system which could determine how much you could get and at what price and how many people need it, and of them how many people really need it. Only a sage could pull it off without adverse consequences compared to targeted welfare increases for the bottom 10% say.
In previous periods of rationing people who could go without or cut back would sell their ration on to those who were willing to pay more. It was called a black market and it wasn’t taxed.
It might work but previous experiences suggest not. In World War I there was no rationing until three years in, so it can be done. After World War II we ended up with a much lower trust society. Imv of course.
I disagree
The alternative is rationing by price
Is that what you want?
My grandparents were in their 30s during WWI. His trade was making earthenware drainage pipes, so was in a protected occupation, but not very well paid. I gather they were seriously short of food until rationing came in. My mother, born in 1911, was in robust health during her life. My uncle, born 1917, was always delicate and needed medical care throughout his (shorter) life. This is just an anecdote, but it is relevant to the question of food rationing.
‘Totally agree with this. To say that Labour has been caught flat-footed does not come close to describing the mess they are in because they have been so lame already. The biggest tale-tale sign is the obvious reluctance to say exactly what they will do – they look like people caught on the hop searching for the spare change in the their pockets to pay for something.
This to me is an obvious sign that they are going to rob Peter to pay Paul – that they are still seeming to limit their options to a make believe static stash of cash for the public whereas the CBRA has billions of pounds of state cash in it to bail out the private banking system (plus interest). This situation to me is simply unforgiveable and is NOT democracy in action at all. Well, it’s democracy ONLY if you are rich of course.
Pathetic.
Ageed
Regrettably Rachel has already stated that she is going to wait until the autumn before she does anything. The typical UK government response, “kick the can down the road”.
The crisis is hitting the production of generic drugs in India, which is a major world supplier.
The neoliberal model of export the jobs to lower cost production areas has failed.
Perhaps this crisis may, despite the extreme economic pain that will caused, eradicate neoliberalism?
We can live in hope
Once food can’t get to our supermarkets and essential workers can’t get to or do their job, she will have to act. And it looks like that could be within weeks, not months. Sadly we will have another rerun of the incompetence of government we saw under Boris Johnson, with very reactive, not thought through actions which won’t be fair and will miss chunks of people out. I’m in rural Devon where many are off the gas grid and public transport is limited. I don’t expect Rachel to understand or consider how things will be outside the M25.
I agree entirely with everything you say here, but unfortunately we have Starmer in government and he won’t implement any of these policies.
I do fear that today’s Westminster political establishment are in complete denial for a variety of reasons including incompetence, ideology (particularly those with wretched degrees in PPE) and personal ambition. The public will soon see that they are not up to the task but I wonder whether they will fall again for the tub thumping of the Clacton snake oil salesman and his “party”? We need serious politicians and they seem to be in even more short supply than aviation fuel. We must demand more from the politicians who have drifted into this mess – after all, they sought office and put themselves up for election irrespective of any awareness of the limits to their own abilities.
I can’t see anything ‘wrong’ with ‘pensioners’ paying national insurance, Richard. Many older folk I deal with have far too much in the way of financial resource, much of which isn’t directly exposed to stock and bond markets, and they just sit on it. A friend is a BBC health correspondent and he is always saying that, for the majority of the population, fully four-fifths of an individuals cost to the NHS is in the last 2-3 years of their life. So, extending NI to ‘seniors’ could be based on the fallacious belief that it ‘pays for the NHS’.
Additional tax, of even modest individual cost (a 1%-2% ‘surcharge’), on pensions and savings & investment income can be easily collected via PAYE.
NS&I should be ramped up too – “War Bonds”, etc. Cheap borrowing for HMG.
I always put in the exception to appease political interests that deem extension of tax pensioners to be impossible. Perhaps I should stop doing so.
When you deal with ‘pensioners’ with large DC pension pots, like I do, we can see one area that requires immediate reform in my opinion (and I do say this to these fortunate individuals). If you have, say a £1,000,000 DC pot (more people than you might think do), up to 25% of that, so £250,000, is available as a tax-free lump sum. That does not have to be taken ‘up-front’, as long as you have the right product provider that can allow full flexibility under the rules (not many do), whereby just enough of the total pot is “switched on” (crystallised) to provide enough tax-free cash to provide the ‘income’ required. Let’s say you need £2,500 per month. £250,000/£2,500 = 100 months (over 8 years) of tax free income can be had in this simple example (I’m ignoring technical subtleties & nuances here for the sake of clarity). Sure, you might pay a bit of tax elsewhere, but…
So, how is it fair, if you are in this advantageous situation, that you can pay no tax on this income source, at all, for many years, and still benefit from, for example, NHS care for free?
It is not fair
It is totally reasonable for pensioners to pay more…. but we do need to respect that it is not so easy to alter your financial position when you are old. The obvious answer is to phase it it over several years. Personally, I would phase out (employees) NI by 1% per annum and raise income tax rates by 1% a year over 8 years. Newer pensioners can make arrangements to deal with this, older ones will be dead before it fully bites.
Agreed with all you say. We also need to ‘ration speed’. Drop the national speed limit to 50mph and the 30 limit to 20. Reducing fuel consumption can only help, costs nothing and causes very little inconvenience, while also reducing RTAs.
Rationing by price DOES work…… but it is brutal. Most people would, I think, agree that some better way must be found to allocate scarce resources. The execution is difficult and the devil is in the detail…. but just because we can’t create a perfect system should not stop us from taking action where we can.
I suggest that, as a first step, gas and electricity bills are tackled as follows. Each user has a “ration” that is delivered at a pre-war price with any extra charged at a premium over and above the “market price”. At the moment energy providers are benefitting from unnecessary consumption with no incentive to curb it.
Determining what that “ration” might be is tricky but it could be some combination of number of people in the household, previous average consumption etc.. Now, that is not a (complete) solution….. but it is a start.
Much to agree with
Outside my office in Cheddar is the A371 road. The road is eerily quiet, like it was in lockdown. The local schools break up for Easter today, so it isn’t that – are we seeing the beginning of “self-rationing”?
Maybe
There have been empty diesel pumps in Cambridgeshire and there is plenty of evidence that people are buying to top up their tanks, frequently
It comes to something when this week benefits have risen £20 and MP salary by £3000, the inequality is staggering, many basic foods are now unpurchasable due to cost, now It’s like milk or cheese I pick cheese it’s more filling, I’m literally using WW2 rations amounts as a guide to get enough food. I think the gov could do a lot better reading old WW2 government pamflets they are full of ideas how to reduce reuse and recycle food, oils and reduce consumption. I don’t see any of that coming from this gov, and I don’t see them doing anything to help, think your right we used to have sence at the helm planning the war rationing and taxing – now we have nonsense (no sence also). Oh and no food either,
Thank you
Here’s a few ideas
Summer is coming which will mitigate some of the worst effects and I wont remake some points I have already made over the last week
1. Make fuel supplies available to certain business’s at a fixed cost in particular I suggest bus operators and farmers
2. A national register of heating oil users drawn up with the assistance of local authorities along with any issues about vulnerability noted so in the autumn we can make arrangements to ensure that they get at least some supplies at again perhaps a reduced cost
3. If we are going down the route of rationing we need a population register/ID card system. Given that we have a database maintained by the DWP with everyone who has a National Insurance Number on it – and these are now allocated just after birth AND that about 75% of the UK population has a passport it doesnt strike me as an impossible task and I cannot imagine that there are no contingency plans to do this.
4. Restrictions on the sale of ‘high energy’ consumer goods eg hot tubs, patio heaters, swimming pools, large cars etc
Typo- I meant £1m!
Just had an infrastructure job pulled that was due to start imminently. I expect more jobs to be cancelled. The effects of Trump’s war are well underway. And we still have the AI bubble collapse coming.
I agree with John Fairhall on this.
In my 30 years experience in health and safety and no matter how good the suggestions are prior, no meaningful changes ever happen until someone dies or is seriously injured for life… and it reaches national news.
Taken from “AI Overview” from the question “What was the catalyst for the French Revolution”,
“The primary catalyst for the French Revolution was a severe financial crisis, fueled by massive debt from supporting the American Revolution and costly wars.” ,”Widespread famine, extreme tax burdens on the common people and enlightenment ideals of equality triggered the uprising”
Candidly, much to agree with. Go well Richard.Do you consider Caroline Lucas as a friend?
Cringe city
There’s a potash mine being developed near where I live. They’ve being putting it into maintainance mode as there’s a global glut of potash, Canada is swimming in the stuff. If there is a real shortage of fertiliser our locals will be ramping up production. That’s the beauty and necessity of markets.
Farming seems to have been a strange business for many years in the UK (ignoring the recent change to capital gains taxes that you discussed on here) – subsidies, incentives not to grow things etc. Golf courses may be at risk, but farmers have been diversifying in the land they had for a long time, and supposedly lots of good quality farm land is now being covered in solar panels…
A proper reset of farming support and policy would be a good side effect of these circumstances I think.
I have to agree with much that is written here, but may I suggest that taxing the elderly should be considered from a different angle, and not just looking at capital sums available etc. I would like to consider first and foremost what we want to achieve for the elderly.
Many will have a reduced income compared with that which they received whilst working. They will likely live inn a house they’d had for years. A significant percentage will be on their own and even more of them will be physically unable to undertake all those tasks needed to maintain their property and all that just living requires. (Think about the single 80+ pensioner, unable to drive any longer, in declining health as just one example)
Society needs us all to keep our property in as good a condition as possible, and also our own bodies. OK there will be tax increases, that I accept. But no-one mentions the flip side – tax allowances.
Following the end of World War II, the UK tax system was complex, and there were many allowances to set against tax for money spent on specific tasks. Today I would suggest property maintenance expenses might encourage us all to spend to ensure our buildings don’t decay. Pensioners who can no longer keep their garden in order might get an allowance related to their provable real costs.
Just two examples, but we need to think about the state we’ll be in after it all ends, from which state we’ll be building a new society. (Space limits any more about how those still working may be encouraged).