After a week on the road, we are back in London.
As the war in Ukraine goes on, we'll be asking,
what will the economic cost to us all be?
Energy prices are soaring and supply chains disrupted
as sanctions go to work.
While top economists and business people ponder whether the globalised
Has the invasion of Ukraine pushed globalisation over a cliff edge? If
so, what does that mean for global Britain and our prosperity?
While top economists and business people ponder whether the globalised
economy can survive, the Energy Minister Greg Hands tells
us what it might mean for us.
Also tonight...
How can the Government help you?
We look ahead to the Chancellor's Spring Statement next week.
Good evening from our fifth capital in five days.
The message from the battlefields as the third week of the Ukrainian
war comes to an end is one of stalemate.
Russian advances have been limited for days.
But, in markets and world wideeconomies,
But, in markets and worldwide economies,
there are all kinds of movements.
Energy prices have soared, the Kremlin's sources
of finance has been squeezed, and steps begun to prevent certain
western technologies from being used in Russian products begun.
Nobody knows quite how far this will go, from looking
for alternative sources of energy,
to excluding Russia from certain markets and goods.
Our economics editor Ben Chu asks whether this
is the end of globalisation?
Globalisation, an idea that took off.
The idea that we, the world, would inexorably grow more
economically interconnected.
That no nation was an island.
Is that idea now going over the edge of a cliff?
Ever since the 2008 financial crisis,
globalisation has been ailing.
Donald Trump's trade wars were a hammer blow.
Then we got the pandemic, another vicious sideswipe
to integration as countries closed their doors.
And, now, is Vladimir Putin's invasion of Ukraine going
to prove the coup de gras?
I think globalisation's already in reverse and I would anticipate
this trend to continue, because it's clear that the war
in Ukraine is only part of a broader geopolitical crisis
that the United States and its allies currently face.
And this shouldn't surprise us, because from the historian's vantage
point, globalisation is something that ebbs and flows.
There have been previous peaks of globalisation.
For example, in the early 1900s and, of course, it was a war,
the one that broke out in 1914, that brought that age
of globalisation to an abrupt end.
At the height of the Cold War in 1981, Germany built gas pipelines
to the Soviet Union.
The hope was Wandel durch Handel - "change through trade" -
to help build mutual understanding, peace with the Soviet Union,
through greater economic links.
Economic interdependence was seen as valuable.
No longer.
The European reliance on Russian oil and gas has turned out to be
a European security disaster.
The push now is for energy independence.
As for energy, so for agriculture.
Ukraine and Russia are the source of almost a third of
the world's wheat exports.
Disruption to those wheat exports - and also of corn oil,
Disruption to those wheat exports - and also of corn, oil seeds
and fertiliser - due to the war is threatening
a humanitarian disaster in parts of the Middle East and Africa
and another severe inflationary shock for the wider world.
Here, we're talking about really basic commodities, which are then
used further and further in other industries, as well as for very
essential consumer items.
And that's really what makes this particularly problematic.
I think, for most economies, a contraction of the world economy
and a contraction of world trade is probably going to show up
in higher consumer prices.
It's going to show up in much more sort of weaker growth.
And therefore it's going to sort of start to impact all of us.
Today, whether it's food, metals, vaccines or semiconductors,
the thoughts of leaders in both liberal and authoritarian nations
are turning away from the efficiency gains of buying for the cheapest
price on global markets and towards the perceived security
gains of self-reliance.
Global Britain.
That's been the slogan.
An outward-facing, free-trading island nation taking full advantage
of economic globalisation, through trade and investment.
But, if globalisation is dead, where does that leave Britain
and where does it leave our future prosperity -
not only here but across the world?
Where the problem's going to arise is with the big trade partners,
because the world economy is really polarised into different types
of spheres based on which big trade partner you're aligned with.
And that's the problem that we're going to continue to have to tackle
because we're a small, open economy and this really matters
as to whether we're able to get better deals with our big trade
partners or not.
Ferry workers down in Dover, under the White Cliffs,
are protesting after P&O, which is owned by DP World,
a multinational port company based in Dubai,
summarily sacked 800 of them yesterday.
DP World is planning to hire cheaper overseas agency workers
to take their place.
Will there be less of this kind of thing in a globalising world?
Will there be less of this kind of thing in a de-globalising world?
Will ordinary workers be better off?
Most experts doubt that less global trade and investment will deliver
this, but they do have a caveat about globalisation's uneven impact.
The benefits of globalisation in the West disproportionately went
to the top 1%, the owners of capital, of corporations
and financial assets.
And that, of course, is one reason why there was a backlash
against globalisation, because globalisation is not just
killed by geopolitics, globalisation has been eroded
by politics, too, by a populist backlash against what came
to be called globalism.
That's a term of abuse.
Familiarity sometimes breeds contempt, of course,
but most experts do expect most of us will experience
the ebbing of this great tide of globalisation in the form
of weaker living standards.
Maybe we'll miss it more than many of us currently realise.
Economically, we've looked outward for so long.
A turning inward, a focus on national borders is possible.
Perhaps it's now inevitable.
But it will come at a price.
To discuss that now, we're joined by the Energy Minister, Greg Hands.
Welcome to Newsnight, thank you for joining us. Look at, governments
like to appear in control, have ideas in these situations, but the
price of gas or oil on international markets is something you have no
control over. Well, that's broadly correct. It's a global price, it is
a global commodity. Unfortunately, we import very little gas from
Russia, last year less than 4%, but the bigger price spike that we've
seen in the UK is down to really two things. One is, whilst the more
rapid recovery of the global economy from Covid, and secondly was the
Russian invasion and the build-up to it. But gas prices are, today, about
four or five times of the 25 year historical average, although they
are only about a third of the hive, which gives you an idea of the
volatility but you are right, we are not insulated from these global
price changes. Fortunately, the UK does have a relatively good
securities compared to our European market of eight interventions you in
February, with the support on gas bills. -- there are interventions
you can make. I'm wondering about fuel, is this time to cut fuel duty?
We have frozen fuel do to the last 12 years, that actually given a real
real terms benefit to drivers... But could you cut it further? Well, the
Treasury keeps all taxes under review on permanent basis. We have
provided that huge amount of support to drivers for the last 12 years by
freezing it but we do keep all taxes under constant review. But your
colleagues are now coalescing on this issue, aren't they? 50 of them
have signed a letter asking for deeper cuts in fuel duties, do they
have a hope of succeeding with that? The Chancellor has his Spring
Statement next week, but I would stress the work that we have already
done to keep the fuel load. We have also taken significant efforts to
protect consumers from rising gas prices, obviously the price cap,
with the support through council tax, through people's bills
themselves from October, so the Government has made a number of
interventions to try and keep these cost of living increases under
control. Now, what about food? Because this could be the next
thing, couldn't it? When one looks at weed, people are also talking
about fertiliser, both key commodities in feeding people
critically coming out of Russia and Ukraine -- one looks at wheat.
Prices surging even higher in the coming months. Is there something
you can do to help people with that? Going into the crisis, we had
actually remarkably little trade with Russia, so I'm not expecting
there to be big disruption to UK food or other supply chains. But it
will be prices again, sorry to jump in but it will be world market
prices for wheat. Yes, but there are other sources for wheat all around
the world and that's been the case for more than 100 years. United
States, Canada, obviously we produced domestically a good volume
of wheat, there are European neighbours, there are other good
sources but you are right that the global prices have risen, but that
should not necessarily lead to a shortage of supply or any shortages
issues in this country. But it is, if you like, another price pressure.
So let's talk about how the country gets through the next weeks and
months on the energy point. The International Energy Agency is
saying turn the thermostat down, drive less and yet the UK Government
doesn't want to do that, why is that? Well, the UK Government is
providing support for consumers. We are not a nanny state, we are not
trying to dictate oh people, and I think the British people can make
their own decisions in terms of how they manage the amount of heat and
power that they use. We have made home significantly more efficient
over the last ten years with assistance from the Government, but
we are not in the market of telling people how to conduct their lives
and most people will behave rationally and see that prices have
risen and will therefore keep an eye on making sure that at the amount of
fuel and energy they use is within proportion, but we have provided
support for consumers. I know you don't want to be a nanny state, as
you put it, but, surely, at this particular juncture, a campaign to
use less energy would be helpful, wouldn't it, simply in terms of
trying to cope with these rising prices? Well, look, I think people
are able to use their own judgment and people are actually pretty
well-informed about the price of energy, because they can see it
their standing orders. In all of the reference points about the price
cap. I think the better thing for us to concentrate on, to be frank, is
on moving to more renewable sources of energy, making sure that we are
less susceptible to high prices, imported hydrocarbons, oil and gas,
that is the more important thing for the Government to concentrate on,
bringing in new nuclear power, making sure we get more low carbon
sources of energy, that is the more important thing. Those are very
long-term steps, though. We hopped on for one more and I have to ask
you this about Jacob Rees Mogg describing the whole partygate of
about like as disproportionate fluff that doesn't matter now in the
context of what is going on overseas. Do you agree? I think we
have seen, in the last three weeks, something happen. I'm 56 years old
and I don't think I've seen something like this in my lifetime,
the magnitude of it, something that is really straight out of the first
half of the 20th century, not the 21st century. One country brutally
invading another with the full force of military power, strikes on
civilians, this is something which is unprecedented, really, I think in
my lifetime to this kind of degree. It is something like straight out of
the first half of the 20th century, like I say, so it is the magnitude
of what is going on I think Jacob was drawing attention to. Thank you
very much for joining us.
So we've discussed the big picture - global change on energy
and supply chains, but what about the household effect?
In this country, the Government announced a £9 billion
package last month to help with rising utility bills.
But energy costs have spiked sharply since then,
which could send inflation over 8%, eroding our wages further.
And tax increases will kick in from April too.
Next week the chancellor, Rishi Sunak, is due to make a Spring
Statement.
Should he give more help to those in need,
or stick to current plans?
Our political editor Nick Watt reports now
on the Chancellor's dilemma.
An unprecedented peacetime jolt to the economy.
And, now, another seismic shock which will prompt even
higher energy prices, raising the prospect
of a return to the 1970s.
That means endemic inflation, global recession and uncertainty
for people about making ends meet.
An unsettling backdrop for Rishi Sunak, who faces pressure
in next week's Spring Statement to ease the burden on households
already braced for a £13 billion rise in National Insurance
contributions next month, to fund the Covid NHS backlog,
and a rise energy price cap to just under £2000.
Many Tory MPs are calling for a cut in fuel duty to help
with the cost of living.
Rishi Sunak's instinct has been to avoid major giveaways next week.
They have to be paid for, is his mantra, which has led him
to raise taxes over two years on a similar scale to Gordon Brown
during an entire decade.
But, today, hints of possible movement.
Now, I can't solve every problem, no Government can solve every
problem and particularly when you're grappling with global
inflationary forces, you know, they are somewhat out of my control,
but, as you saw a month or so ago, when we announced a very significant
intervention to help people meet some of the additional costs
of energy bills, you know, where we can make a difference,
of course I can, you know, I'm always going to do that.
One of the Chancellor's political allies hopes he will make a move.
Well, I don't think there are any easy choices
for the Chancellor and, in many respects,
this Spring Statement is about damage limitation.
We can see from past performance, however, that he rises to these
occasions and he really tries to come up with creative,
imaginative ways to protect particularly the poorest
and most vulnerable households.
Another option, which would have broader reach, would be to tackle
the cost of fuel at the pumps and that would be not just to freeze
but actually to cut the rate of tax on petrol and diesel,
and that's what I'm going to expect next week from him.
This could be a repeat performance of the 1970s,
when we had that massive...
A Whitehall watcher believes the Chancellor has some grounds
for a limited offering.
The key thing for him is if he can take temporary actions,
then I think he can move, I think the expectation
will be that he moves.
He made his reputation with that phrase, we all remember it
from the early phase of the pandemic, "Whatever it
takes," and I think Rishi Sunak, looking to his own political future,
we want to be showing that he's equal to the task now.
But what we've seen, and we saw this in his reaction
to the energy price rise, his first package on that,
is that he doesn't anything that prejudices the public finances
in the longer run.
A troubled vista for a Chancellor buffeted by crisis after crisis.
And history repeating itself as careful plans are disrupted
once again by events way beyond his control.
To discuss the economic fallout of war, we're joined in the studio
by Stephanie Flanders, head of Bloomberg Economics
and formerly of the BBC.
From Boston, Esther Duflo,
a professor at MIT and Nobel Prize winning economist.
And John Caudwell, businessman and founder of Phones4U.
Welcome to all of you. Stephanie, let's talk about next week and the
Chancellor. Does he have latitude realistically or does everyone have
to accept a crunch on living standards? It depends if he's
looking in the back mirror or looking ahead and I suspect he will
mainly be looking ahead. The numbers for the year that's just about to
finish are actually slightly better than he thought when he had his
budget last year. Revenues have come in higher, things like Corporation
Tax and income tax coming in higher and spending being reasonably
well-behaved. That's before the big hit of energy price rises and the
peak of inflation that we are seeing. Looking to next year, growth
is slower than expected, inflation is going to be higher and there will
be pros and cons. It doesn't give him a huge amount of money to play
with. He said a lot about wanting to shrink the size of the state after
the extraordinary spending during the pandemic. At the Treasury they
are talking down the possibility of any major move to help households.
When we were in Berlin on Wednesday, some people were saying this is the
end of the German economic model, cheap energy, exporting a lot of
manufactured goods to Russia, China and other countries. Is it right, do
you think? Is it the end for many advanced Western countries of them
model? No, it's not the end. It's quite difficult to know the extent
of the cost but even for Germany the economists will calculate the cost
to GDP in a pessimistic scenario, taking into account everything we
know, calculate the cost between 1-3% of GDP, which is a real cost.
Even if it's 3% it's less than the cost of Covid and that wasn't the
end of the German economic model. What happens is that if we entirely
shutdown trade with Russia, it all depends, the impact depends on the
size of the Russian trade. For the UK, it isn't that much, as was
emphasised on your show. It also depends on whether there are sources
to substitute away from the Russian imports. The big problem for
Germany, the only big problem and it is a big one, is gas because they
rely a lot on Russian gas and substituting it is going to be
complicated in the short-term. But not impossible. It's not a matter of
changing the model. At the end of the day it's a matter of money and a
matter of supporting the households. Right. At some level, whatever it
takes, the phrase we use during Covid, could be used now to say
look, whatever it takes, households will be supported through the
crisis. We will get out of it and managed. This is like Angela Merkel.
John, let's look at the corporate level as well. You've got a big
company like Apple saying right, we won't sell our product in Russia any
more. Is that a long-term move on their part or is it more of a
short-term thing to deal with public revulsion at what's happened in
Ukraine? Can they effectively give up big parts of their market like
that? I think that depends on the outcome of the war. If Putin is
dethroned and the Kremlin cronies go, and we get some degree of proper
democracy there, Apple will be back like a shot. That's providing that
the state haven't claimed their business as they are suggesting.
It's very worrying times for some of the big incorporates, in terms of
their operations in Russia but it's absolutely right and proper that
they should shut them down temporarily to support the Ukraine
people. Stephanie, John makes a good point about what happens with the
war and with Vladimir Putin one can see things changing if he departed
the scene. But assuming he stays there and these sanctions remain in
place, about technology transfer, that kind of thing, do we see the
un-meshing of supply chains? One reason why it's been relatively
easier for the West to put these sanctions on is that with Putin pass
economic model, he hadn't been majorly contributing to the global
economy. So in that sense, we've been focused on commodity exports
but that's the main thing that Russia has contributed. I think more
broadly, thinking about the impact on the world, if Russia becomes more
like, I don't know what the model would be... Not quite North Korea,
but certainly an economy that's much less connected, there are still
questions raised by the crisis and what's happened over the last few
years about the model of globalisation is, as was suggested.
It's not just the Russian or German peace, it is what kind of
globalisation we are looking at. A series of steps, Covid, trade wars
and the West have slowly threatened? -- and the rest have slowly
threatened. For a few years you have relied on cheap labour, easy
transportation costs, not much fear that you are going to be involved in
disputes or have your money seized or we stop in a pandemic. Those have
been thrown into the air. Something Stephanie said about the relatively
small size of the Russian economy, presumably the China US relationship
remains the mainspring of the globalised economy. And the US and
Europe couldn't consider sanctions on this scale against China, or
could they, do you think, in an emergency in the future? I think
it's more of a geopolitical question than an economic question but I'd
find it very unlikely. Both on the China side and on the US side there
is so much benefit to integration that I would suspect that they would
find ground to continue to trade. One of the reasons why Putin was
willing to risk everything is that Russia isn't particularly integrated
into the world economy, as you mentioned, and therefore it is
costly to Russia but it isn't model threatening. It would be to China.
To the US it would be costly but they would be able to rewire, if it
had to cut with China. It would be a pretty remarkable thing to do but it
could conceivably be done. I just think it's very unlikely. During the
Covid crisis there were discussions that we'll go back to a much more
inward -looking model but in fact the moment it was possible, it
restarted. Can I ask about food security, the rising prices of
wheat? Parts of the world, away from Europe where perhaps people can
afford it. Do you have concerns that starvation maybe a serious risk as a
result of these food price rises? No, there is enough food to feed the
world and then some more. The reason why there are famines is never
because there isn't enough food globally. It's because the food that
exists is not distributed in the right way and that's almost always
due to local political upheaval. We saw the Arab Spring for example
blamed by many on a similar rise in wheat prices. That's correct but
that's not due to the fact that global conditions, the global supply
of wheat was low. Right, thank you. Thanks for making that clear. John,
we were talking before about Apple's attitude. I wonder what you feel is
the corporate responsibility now? You suggested it might be temporary
but do you think big corporations are ready to carry on for as long as
necessary, with changing their patterns of trade and in a sense
encouraging different patterns of consumption by their customers?
Obviously the Russian situation for those companies that are heavily in
Russia is painful, but it's only a relatively small part and can be
compensated four in the long-term. These companies are hugely
profitable and keep coming out with every negative products -- mica with
innovative products. I think the bigger issue really is the gas and
oil supply from Russia. This is why, for many years now, I've been
campaigning for renewable energy on a much greater scale than we have
seen and in fact introduced the pandemic recovery, recommending to
the government that we must set up an environmental setting, a tax-free
zone to encourage the best in the world on renewable energy and
environmentally friendly methodologies. This is now even more
crucial. Look at Germany now, with their dependence on Russian Oil and
Gas UK what a dreadful position to be in. Fortunately Britain is pretty
secure because we only have three or 4% dependency. I'm sorry, I have to
jump in. We're of time. -- we are out of time.
So let's take a look at some of the front pages.
Can we see them? They are being brought in. Let's see what we've
got. The Daily Telegraph, Biden warned China not to arm Putin in
Ukraine. That was the two hour phone call they had today. The FT, the
piano storm, a story making quite a lot of impact. Guardian's front
page, the threat of an unlimited fine as anger over piano grows.
That's all from us -- as anger over piano grows.
That's all from us tonight.
Faisal will be back in the chair on Monday.
You can revisit our specials from Warsaw, Helsinki,
Berlin and Washington on BBC iPlayer.
We finish this week of special Ukraine coverage with a reminder
of the conflict that still rages and the momentous events that have
continued to unfold.
Goodbye.