Neil Collins’ Notebook – This green fantasy will bankrupt us

It’s 2050. You wake in your cosy, insulated house, turn on the windfarm-powered lights, cook up a breakfast coffee on the hydrogen stove before jumping into your electric car. You whizz silently along roads with air as fresh as a mountain stream past happy e-bikers and carbon-neutral schools to your heat-pump powered office.

So, viewed from Britain in 2020, can you spot the odd one out? Here’s a clue: the e-bikers get no subsidy. Everything else on this list loses money, and needs state support on a massive scale to get even halfway to the nirvana glimpsed by the prime minister this week. Today’s subsidy, of course, is tomorrow’s tax rise.

Home insulation? £2bn is barely enough to get some sort of programme started. The disruption from insulating your home will be enough to discourage us from taking up this offer, almost regardless of the accompanying bribe. As we saw with double glazing and solar panels, the cowboy installers and fraudsters will be the main beneficiaries.

WIndfarms? The easier sites are already filled up, driving development further offshore to have any chance of quadrupling today’s contribution. The bulk of new contracts are going to overseas manufacturers, while evidence of catastrophic damage to seabirds is growing, and nobody knows the long-term cost of maintaining this hi-tech engineering in a hostile environment.

Hydrogen home cooking? Hydrogen is much harder to handle than natural gas, and a compulsory conversion programme – the only practical way to exploit the existing pipework – would meet stiff resistance. Besides, like electricity, hydrogen is not a fuel but an energy transmission mechanism. Making it from actual fuel is like trying to pull yourself up by your own bootstraps.

Heat pumps? The capital cost typically runs into tens of thousands of pounds per dwelling, even where your garden is big enough to take one. They are also likely to be rather more expensive to maintain than your ‘fridge.

As for the electric car, despite subsidies of thousands of pounds per vehicle, with promises to spend billions more on sockets to charge them, motorists remain suspicious. After all, it is only a few short years since we were being urged to buy a diesel car, to make each barrel of oil go further. Now diesel is officially an evil producer of particulates that kill children.

Reconfiguring the electricity grid for electric vehicles will cost much more than the £2.5bn allocated in the government’s plan. Then there is the £28bn a year raised from fuel duties which will disappear if electricity takes over. It is almost a rounding error in the context of the hundreds of billions which the UK is going to waste with this week’s fashionable projects. They may indeed create thousands of jobs, but then so would digging large holes and filling them in again. Jobs that destroy wealth rather than creating it make us all poorer.

The government’s cheerleaders may argue that no price is too high to pay for “saving the planet”, but this week’s programme, if it is really implemented, will be ruinously expensive. After a year when the UK economy has shrunk by a tenth, we cannot afford more government repression, even cloaked in greenery. A smaller economy makes paying for the NHS, for example, much harder. Worse still, Britain’s self-harm makes almost no difference to global CO2 emissions, when China makes meaningless pledges of good behaviour while building two coal-fired power stations a week. How they must be laughing at us.

This is what a bear market looks like

The chart from commercial estate agents CBRE looks reassuring. Its Property Values Index has recovered splendidly from the depths of March and is almost unchanged on the year. Industrials have forged ahead, and even retail is only marginally down.

Does anyone seriously believe this can be right? The idea that a bog-standard office block is worth 99 per cent of what it was in January is laughable. City centres are struggling, shops everywhere are closing, and the upwards-only rent review is being destroyed under the hammer-blows of the Creditors Voluntary Arrangement. Nobody seriously expects that work and spending patterns in 2022 will look anything like those in 2019.

The pandemic has exposed the cosy relationship between property businesses and those paid to value the assets. It has been most acute in the £12bn of open-ended property funds, most of which were forced to close in March to prevent a rush of investors to the exit. The standard excuse was the difficulty of valuing things during the first Covid wave, although the real reason was that the prices offered would be just too horrible to contemplate.

Most funds have now re-opened, although the values often seem to owe more to estate agents’ relentless optimism than to real life. Units in Legal & General UK Property, one of the biggest, are only 3.2 per cent cheaper today than on 18 March, when the doors were closed.

Last week Land Securities, the UK’s biggest listed property company, reported a 9.5 per cent fall in net asset value, to £10.79 a share. The shares stand at a 35 per cent discount to that new valuation. There are significant differences between a fund and a share, but the most important is that share prices look forward, while fund prices look back.

Land’s shares started falling in mid-February, when Covid seemed like someone else’s problem far, far away. In today’s changed world, the share prices of commercial property companies are signalling the start of a long and disruptive bear market for offices, shopping malls and non-food shops, as rents fall and yields rise. Those with capital in property funds should take note.

The popularity of these funds is an enduring mystery, probably owing more to the commissions they generate for intermediaries than to any fondness for office blocks. For supposedly liquid investments, property funds could hardly be less well suited. If you really want to double down on property after buying your house, buy the shares, not the funds.