Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 40 - 51)



  Q40  John Thurso: It is more likely to be an earthquake than an apocalypse.

  Ms Rosewell: It is doubled; but we seem to have managed to survive that.

  Mr King: We are okay at the moment, absolutely. I am thinking that in 20 or 30 years' time China, at its current growth rate, presumably there is a danger in extrapolating it, will be consuming, in 20 or 30 years' time, the equivalent of all of today's current global oil production, if it catches up in the way that it has done so far. That can only mean that you are going to end up with much, much higher energy prices, other things being equal, over this next 20 or 30-year period. We think of $70 a barrel being rather high, but whether we should instead be thinking about 100 or 150, 200, 250, as possible numbers I have got no idea, but certainly those kinds of number are possible in a world where China and India continue to grow at these extraordinary rates that we have seen recently.

  Q41  John Thurso: I think, if we were to get back to the energy price of the early seventies, in real terms, it would be $200 a barrel, or about that, roughly speaking?

  Mr King: There are different calculations, but somewhere there. They mention 100 to 200.

  Ms Rosewell: There was a significant interruption in the UK's growth, as a result of that event, but it was only an interruption. I have still got my ration-book somewhere, which they issued, if you remember that. I found it the other day.

  Q42  John Thurso: I think I have got mine.

  Ms Rosewell: We survived; but, nonetheless, the `business as usual' actually survived that event.

  Q43  John Thurso: How robust are the commodity markets both internationally and particularly with regard to energy in China and India? Obviously, for globalisation to work smoothly, for all these different influences to be taken account of, for prices to adjust in a smooth way which allows for that, it needs a robust market. Are those markets robust?

  Mr King: No. For China, the hit really is felt by the refiners and wholesalers, because the prices are happening in the world market and not being reflected fully in the prices that the average consumer, or truck-driver, or whatever, is paying for their fuel. Therefore, there is not a robust market. I think it is fair to say though that 20 or 30 years ago you could say arguably there were not robust markets in the industrialised world. We have moved to what is very much a price-determined system. China is still a long way behind that. What that really means in China is that, rather than having the constraint coming through on price you have the constraint coming through on quantity; in other words, you have queuing systems developing. Effectively, you end up with a rationing system, which is the kind of thing you end up with if you have not got non-market clearance, so you have huge, four- or five-mile-long queues to get to the petrol station to fill up, because that is the only way in which you are going get any petrol at all.

  Q44  John Thurso: That takes me neatly on to asking a little bit more about the environment. I think there is a fairly clear consensus that global warming is either one, if not the biggest threat we face, therefore there is a fairly clear consensus that bringing down carbon emissions is an important policy objective, yet you have just described the lack of market mechanisms in China and other countries. Have we got, between the drive for growth in those developing economies and our desire to see a clean planet, two irreconcilable forces?

  Ms Rosewell: I think it is impossible to tell whether they are irreconcilable. I also think that although there is certainly a consensus that there is not just global warming but it is unprecedented global warming, and that it is to do entirely with human activity, such a consensus exists but could still be wrong. There are still arguments about how unusual the period is and, indeed, how far it is only the result of human activity. However, I agree that there is such a consensus and that means that there is a strong policy impetus to do something about it. I think, however, until that underlying tension is resolved in the US there is very little chance of it being resolved anywhere else.

  Mr King: If I could add some numbers to this, according to the data I have, the US accounts for roughly 26% of global oil consumption and 24% of natural gas consumption. China accounts for 8% of global oil consumption and 1.4% of natural gas consumption. The UK accounts for 2.1% of oil consumption, so with a population of 60 million we are about a third, or so, or a quarter, of China, with 1.2 billion people, and our natural gas consumption is 3.7% of the world total, compared with China at 1.4%. The point I would make is that we should not lose sight of the fact that we, in the rich, industrialised West, are the major consumers of energy, and even if China grows quickly it is still going to be quite a long way behind the US for a number of years. Certainly, from the point of view of consumption per head, it will still be way behind when it comes to 2030 or 2040, by which time maybe its total consumption will equal that of the US.

  Q45  John Thurso: That begs the question, here we are, we have surfed the last wave of industrialisation and globalisation very successfully; oops, we have now discovered that what we are doing is not terribly good for the environment. Now the other economies are starting to surge forward and we are saying, "No, you can't do that." What can we do to ensure that they can enjoy the growth they have got every right to, in a functioning, global economy, but, at the same time, we can help them to do it in a way that is as environmentally-friendly as possible?

  Ms Rosewell: I do not think we have a chance of doing that unless we get our own house in order first. I do not think we can preach to third countries unless we are prepared to act ourselves. That is why I say that, until this tension is resolved in the US, in particular, I do not see how you can preach to China or India.

  Q46  John Thurso: I cannot remember which of you, I am sorry, but one of you started your summation by saying that globalisation is driven as much by technology?

  Mr King: Yes, I said that.

  Ms Rosewell: Yes.

  Q47  John Thurso: You both said that; wonderful. Is that the answer, therefore, for us, what we can do is drive headlong into technologies that we can export to them that make it beneficial for them to be able to operate in a low fossil economy?

  Ms Rosewell: Certainly we can do that and we can also employ those technologies ourselves.

  Mr King: I think the starting-point is that we employ them ourselves, first of all, and then if we can export them all well and good, but we start at home, first of all, and not in China or India.

  Ms Rosewell: Although, I think some of the  technologies, particularly micro-generation technologies, will turn out to be very effective, particularly in these huge countries with a very dispersed population. The costs of investing in a grid, for example, and indeed it is quite interesting the technical issues about the maintenance of a grid, need not ever be made. You can actually have much lower-cost generation with the kinds of technologies which are becoming available now. My guess is, this is the route they will take anyway.

  Mr King: It is the equivalent of mobile `phone technology, which is much cheaper than having fixed-line technology, and that is what the developing world is going for.

  Q48  John Thurso: Mark Todd was talking about the movement of people, and you said that people have passports and travel. In America, I believe, still only 14 million people have passports, out of a population of whatever it is, but it is a couple of hundred-plus million. Is that one of the biggest threats we have, that America, which is the biggest polluter, the biggest consumer of energy, actually is the least travelled, and therefore the least aware of what is needed globally?

  Mr King: I think the US does not have the need to be as aware, if you like, of how dependent it is on the rest of the world as, for example, the UK does. One of the reasons for it is that the US is a huge internal market. When you compare the US with the UK, what probably you should be doing is comparing the US with the European Union as a whole, but recognising that the political institutions in the US are much, much stronger at the federal level than they are in Europe. The need to look elsewhere is not quite so great because of the size of the internal market within the US. It may actually reduce the degree of understanding the US has of its dependency on developments elsewhere in the world. Certainly, when it comes to the protectionist issues, it seems to me that one of the reasons why the US is thinking about that particular position is that it may recognise, and may believe, whether rightly or wrongly, that protectionism will actually hurt others more than it hurts the US and in a relative sense the US comes out of the story reasonably well.

  Q49  Chairman: Against a background of ageing populations in the West, obviously we are going to become more dependent on workers from India and China for sources of labour. How much of this will come from greater offshore outsourcing and how much will be from greater inward migration into the UK?

  Ms Rosewell: I think that will depend upon the pace of development in relative economies. In other words, if it becomes easier to earn good money in your home location then that is what you will do; if you see the opportunities there, you stay. Why become an economic migrant to somewhere halfway across the world if you can do well in your own country? Indeed, one of the things I think is becoming clear in India is that now increasing numbers are returning to India to invest and to start businesses, and so on.

  Mr King: The same is true of China as well.

  Ms Rosewell: The same is true of China. The easier it is to do well in your own country the less incentive there is to leave; that is one thing. The other thing is that I would challenge your preamble a little, because I think the real response to an ageing population is simply that the domestic population will have to work longer, not just that we will rely upon more imported labour.

  Q50  Chairman: It is not going to be easy to achieve?

  Ms Rosewell: It is not going to be easy to achieve, but it is necessary.

  Mr King: I must say, I think you will see at the margin some shift towards reliance on labour elsewhere in the world, as, effectively, as citizens, as  a  collective group, we have become less proportionately workers and more proportionately, I suppose, capitalists, for want of a better word.

  Ms Rosewell: Rentier.

  Mr King: Rentier, yes; so therefore we have to rely on the efforts of people elsewhere in the world, whether they come here or whether our capital goes there. That raises some issues, longer term, about protection of property rights, going back to your earlier issues about China, which is that when you invest elsewhere in the world are you absolutely sure that what you own you will continue to own.

  Q51  Chairman: I think you have already answered the next question I am going to put to you, particularly Stephen, but for the public record I think it is important to put it. Is the UK investing enough in China and India to benefit from the growing working age population in the future?

  Mr King: I do not know what `enough' is, actually. I do not know how to quantify that.

  Ms Rosewell: Could you invest more; almost certainly, yes. Is it sufficient, that it will enable us to capture a lot of the gains, I do not know the answer to that question, actually.

  Mr King: I think I would like to broaden it away from just China and India, because a lot of the capital flows are going to Central and Eastern Europe, parts of the Middle East perhaps, in the future, parts of Latin America. One thing to bear in mind here is that China is actually rather different from the majority of developing markets, in the sense that China has a population which is ageing as quickly as that of America, so really if you want to look for the really youthful populations elsewhere in the world you have to look to the Middle East, to India and Latin America.

  Chairman: Thank you very much for your presence this morning. It has been very helpful to us. We have a long way to go before we come to our conclusions, but you have already assisted us. Thank you very much.

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