Cameron Loses His Mind: Hands Over UK Electricity Production to the French and Chinese

Much has been made of the United Kingdom not having the electricity supply capacity to meet demand within the next year or so. You can read more here. A lack of energy security is serious enough in itself but to hand over control to the French and Chinese is madness.

EDF, the French energy giant, has agreed to build a nuclear power station in Somerset, a county in the south of England. Massive investment from the Chinese has been sought and secured in a deal that will see the first nuclear power station built in the UK in a generation.

Brits woke up this morning to news that their electricity bills will at least double within 10 years as the agreement has fixed a price per unit generated at double what it is now. This is the minimum price the citizens of the UK will pay for their energy. Over runs and extra costs could see them paying far more than that.

Couple this with the UK government encouraging a massive amount of Chinese money to enter the country and you have to ask if they have found a new friend with which to enjoy a ‘special relationship’.

Last week the government announced that Chinese banks would see the rules eased in order to allow them to set up in London. George Osborne said last week that getting Chinese investment will be important “for generations of Britons to come”. (source)

Robert Peston, Business editor for the BBC, had this to say:

The chancellor has today announced an agreement with China’s vice-premier, Ma Kai, to help fulfil his aim of making the City the main offshore centre for Chinese financial business.

Under an £8bn pilot scheme, London-based investors will be able to apply for a licence to use the Chinese currency, the RMB, to invest directly in Chinese shares and bonds, rather than having to direct their investments via Hong Kong.

This should reduce the costs of investing in China via London – although the sums involved in this initial pilot are small.

George Osborne has also brokered talks between Chinese banks and the UK banks regulator, the Prudential Regulation Authority, to allow them to establish branches for wholesale activities in London.

This would allow China’s huge banks to conduct business in London with companies and financial institutions, but not retail customers.

It will be fascinating to see how fast the UK regulator negotiates the award of these branch licences, and what conditions it attaches to them.

There is a lively debate among regulators about whether it is healthy or dangerous for the City to be thronged with branches of huge international banks, as opposed to subsidiaries of international banks.

Where a bank has a subsidiary in London, it is subject to much tighter regulation by the PRA than a branch would be.

But in the event that a foreign bank runs into financial difficulties, the cost of rescuing a subsidiary would fall on British taxpayers and the UK deposit protection scheme, whereas the cost of rescuing a branch would fall on the taxpayers of the bank’s country of origin.

With the United Kingdoms ‘big six’ energy companies announcing their yearly price rises, which are averaging 10% each on domestic electricity and gas, hard pressed Brits are unlikely to be impressed by today’s news.

China is emerging as one of the worlds biggest economies and it seems that Britain is determined to get it’s hands on as much Chinese money as it can. What the implications are, if any, for the dollar has at this point not been mentioned. When a major financial center starts relaxing rules for emerging economies rather than encouraging western markets there could well be some blips appearing on the financial radar screens in wall street.