Wednesday, November 30, 2011

Chancellor fails to boost confidence

The UK chancellor of the exchequer George Osborne gave his autumn statement Tuesday and painted a bleak picture concerning the state of the British economy [BBC - Key points / Full statement PDF]. His address before parliament did little to boost confidence in the country where austerity measures are already biting hard and the slowdown of the economy is costing families an average of £920 more per year. Sir Mervyn King, the Governor of the Bank of England, has already warned that growth has been heavily affected by domestic problems as well as the European debt crisis. And with public strikes planned over the coming weeks it looks like a bleak winter of discontent ahead. 

Small businesses squeezed

One main focus is the small business which has been severely affected by the current economic crisis. While many small businesses and sole traders are trying to pay off their current debts, those that are seeking financial help are finding it increasingly difficult to obtain loans from banks. "They don't want to lend money to small businesses," one frustrated owner of a struggling manufacturer told Sky News.

More austerity measures

Chief Economist at Standard Chartered, Gerard Lyons speaking on Sky News said that unemployment, particularly amongst the youth, need to be tackled. But the problems being experienced by Britain weren't all of the government's making. "He didn't have much room for manoeuvre" after "inheriting the debt crisis" from the previous administration, Lyons said.

Opposition leader Ed Miliband, avoided the issue of his party being to blame for the current crisis, and called on the coalition government to cut VAT, boost employment and get borrowing down over the medium term. "His plan has failed," Miliband insisted.

Sky News correspondent Adam Bolton speculated that austerity measures were likely to last at least two years. On the BBC there were some slightly upbeat reports with some success stories in Merseyside. But here too, business owners were asking for credit easing and help with getting credit.

Helping small businesses

Amongst plans to help boost the UK economy the chancellor spoke of helping smaller businesses. In order to make Britain more competitive George Osborne also announced plans to build the country's infrastructure, rolling out schemes for new roads, bridges and broadband Internet connections.

He committed to the capping of public transport fares at 1% above RPI and limiting fuel duty to 3 pence. But he failed to bring relief for thousand of owners of vans, 4x4s and lorries who face being pushed off the road this coming January when London implements the next phase of the Low Emission Zone.

Thousands affected by LEZ

There is little more than a month left until new Low Emission Zone [LEZ] is introduced, and new research by the Society of Motor Manufacturers and Traders [SMMT] indicates that of the 3.57 million vans on UK roads at the end of 2010, some 31.1% were not eligible for London's new LEZ that comes into effect on 3 January 2012.

More surprising is the fact that London exceeded the national average with 37% of vans, almost 85,000, not meeting the emission standards.

Many of these vans belong to sole traders and small businesses who can ill afford to replace them, or even buy a diesel particulate filter which can cost in excess of £1,500, sometimes more than the value of the vehicle itself.

Advocates of the LEZ maintain that Londoners would see cleaner air and that those that upgrade to a new vehicle would see savings in fuel consumption. "It's not only emissions that improve when owners and operators upgrade, fuel efficiency also gets better, returning real-world benefits on top of the LEZ savings," Paul Everitt, SMMT Chief Executive, says [SMMT].

Economic cost

But a slight improvement in air quality will come at a cost to the economy as small business fold. In the current economic crisis many smaller businesses are already struggling. While some may already be facing difficulty paying off debts, the role out of the LEZ has thrown another financial burden to companies that are finding it difficult to obtain credit.

A struggling businesses will have great difficulty persuading banks to increase loans for a new vehicle, and sole traders may face even more problems in getting financial help.

Even taking the cheaper option of having a filter fitted will be costly. While the vehicle may pass a required emissions test, there is no guarantee. And a failure would be a death knell to those forking out for such modifications. Filters may make a vehicle compliant but it may also create further problems for vehicle owners.

Filter reduces efficiency

Diesel Particulate Filters [DPF] is an exhaust filter designed to reduce particle matter from the environment. The DPF is a system consisting of a filter and a complex monitoring and maintenance system, to keep the filter operating correctly. The filter itself is made of a special catalyst which, the exhaust from the engine is forced through, before leaving the tail pipe.

The filter collects the particle matter. As the matter accumulates exhaust pressure builds up behind the filter. The vehicle computer monitors the pressure, and when it determines the filter is clogged it injects raw diesel fuel into the exhaust system. Which ignites in the filter and re-gens or burns the particulate matter out. This re-gen cleaning cycle happens from every 160-500 km and lasts from 15-45 minutes. This re-gen cleaning cycle, only happens when vehicle is at speeds above 45 mph.

Using such a filter can reduce engine power because of the restriction in the exhaust caused by the filter. Furthermore in can reduce fuel economy, because of lower engine performance, and wasted fuel used in re-gen. Increased wear and tear can result, caused by soot backing up into the turbo and EGR [Exhaust Gas Recirculation] and diesel in the oil. During re-gen fuel is injected into the engine during the exhaust stroke and small amounts of this fuel leaks past the piston and into the engine oil, thus diluting the oil. This in turn reduces the oil's ability to lubricate the engine properly, causing extra wear and reducing engine life, though this might be prevented by replacing the oil after every 1600 km [StayMobile].

Carbon footprints

Aside the arguments concerning financial cost, the LEZ will do very little to improve the environment. The fitting of a filter which makes a vehicle less economical and reduces the life of the engine, is hardly an attractive offer, especially given the cost of having it fitted. And on the face of it, such a proposal is far from green.

There might be a small boost to manufacturers of filters, but the carbon footprint left behind by retro-fitted vehicles using more fuel is questionably higher than if they had not been adapted.

The carbon footprint of scrapping an otherwise perfectly good vehicle to be replaced by another new vehicle is also questionable.

London's air quality is exceedingly good, especially compared to other cities around the world. Even the LondonAir website which publishes hourly figures concerning air pollution in the capital, rarely measures above 'Low' levels of pollution. So for owners of small trucks and vans the new restrictions will seem all the more unfair.

In broad terms the chancellor's proposals at dealing with the economy weren't as bad as many had speculated. Although there is relief for some groups, the country is likely to feel significantly poorer in the coming months. But some individuals and companies will be harder hit than others. Of course it could be a lot worse with Mervyn King warning of a disaster should the Eurozone collapse. "What we have to do is to be ready and prepared with contingency plans and to make sure that as far as possible our banking system is as robust as possible to withstand whatever shocks that come from the Eurozone," King said Monday [Bloomberg]. Osborne, too warned of the shock to the economy if Europe failed [BBC]. European leaders Angela Merkel and Nicholas Sarkozy are resolved not to let that happen as they struggle to keep the member states together. But this week all eyes were on Britain.

tvnewswatch, London, UK

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