Oil barrels. Photo: Miguel Gutierrez/AFP/Getty Images
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Your petrol bill may fall, but is cheap oil all good news?

The falling oil price may sound like a positive thing, but it follows a series of worrying events in global economics.

he past few months have brought a spree of frightening developments in the global economy. There’s been the slow crash of the Chinese property market, the eurozone’s slide into deflation and the relentless strengthening of the US dollar, to start us off. But there is no doubt what the biggest and most baffling development of all has been: the collapse in the price of oil, from more than $100 per barrel as recently as last September to less than $50 per barrel today.

Oil, it goes without saying, is the single most important commodity there is. Quite literally, it greases the wheels of the global economy. It is a commodity that is unequally distributed: a few countries have a lot of it – the Saudi Arabias, Russias and Venezuelas of the world – while most countries have none. Some have about enough for their needs (notably, these days, the US) but most have to import almost everything. It’s no surprise that the price of oil is one of the critical drivers of both the rate of global growth and the way it is shared between nations.

So, why has the oil price collapsed and what does it mean for the world economy? The answer to the first question is easy: nobody really knows. Since the 2008 financial crisis, people have become used to the idea that economists are useless at predictions. The number of analysts who warned that the growth of credit in the mid-2000s was not sustainable can be counted on two hands. The number that got the timing right can be counted on one. But the number of analysts who predicted the collapse in oil is even smaller. As far as I can tell, it was approximately zero.

Of course, after the event, all kinds of plausible explanations have been on offer. The simplest is that this kind of price action is typical of any commodity investment cycle. The capital equipment required to extract oil on a large scale is vast and costly and it takes years to install. When prices are high, as they were until recently, governments and companies compete to plough billions of dollars into rigs and pipes. The result is a glut of investment, followed by a glut of supply when the new kit comes on stream. And so the price collapses, leading to frantic cost-cutting and a dearth of new investment – sowing the seeds for the supply shortage that will kick-start the next cycle.

It’s a neat enough theory in general, and yet its very neatness raises the question of why no one saw the latest price crash coming. Few of the relevant investment plans were secret, after all, and there is a huge and profitable industry devoted to speculation on the price of oil – with every incentive to find them out.

Naturally, there are other explanations: conspiracy theories about the Saudis and Americans conniving to hurt the Russians, or the Saudis going rogue in order to hurt the Iranians – but the speed of the collapse suggests it may have as much to do with a sudden drop in demand as a sudden glut of supply.

What will the collapsed price mean for the global economy? For many, the answer is that oil producers will suffer nasty recessions – but their suffering will be far outweighed by the boost to growth in oil-consuming countries. If, however, the collapsing price reflects weak demand from the eurozone, China and the rest of the emerging markets, the result may not be so palatable.

Certain market prices have an uncanny knack for foretelling economic weakness in the short term. For instance, is it a coincidence that the price of industrial metals such as copper – “Dr Copper”, as it is known on the financial markets, for its supposedly prodigious analytical powers – is also on the slide? Even more ominous is that the oil price drop has been accompanied by a steep decline in the interest rates that the world’s investors demand in order to lend to governments. When the UK government can borrow for five years at 1 per cent and Germany at less than zero (you read that right: investors are currently paying the German government for the privilege of lending to it), it does not suggest great confidence in the future of the economy.

At a conference a few years ago, someone in the audience asked me what would happen when the Bank of England eventually put interest rates up again. Like any economist, I gave a long, rambling and non-committal answer. When I had finished, the excellent compère turned to the crowd and said: “Let me put that a bit more simply: it means your mortgage will get more expensive.”

I know how he would summarise the effect of the current collapse: “It means your petrol bill is going to get cheaper.” Unfortunately, it may mean a lot more than that.

Macroeconomist, bond trader and author of Money

This article first appeared in the 23 January 2015 issue of the New Statesman, Christianity in the Middle East

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Workers' rights after Brexit? It's radio silence from the Tories

Theresa May promised to protect workers after leaving the EU. 

In her speech on Tuesday, Theresa May repeated her promise to “ensure that workers’ rights are fully protected and maintained".  It left me somewhat confused.

Last Friday, my bill to protect workers’ rights after Brexit was due to be debated and voted on in the House of Commons. Instead I sat and watched several Tory MPs speak about radios for more than four hours.

The Prime Minister and her Brexit Secretary, David Davis, have both previously made a clear promise in their speeches at Conservative Party conference to maintain all existing workers’ rights after Britain has left the European Union. Mr Davis even accused those who warned that workers’ rights may be put at risk of “scaremongering". 

My Bill would simply put the Prime Minister’s promise into law. Despite this fact, Conservative MPs showed their true colours and blocked a vote on it through filibustering - speaking for so long that the time runs out.

This included the following vital pieces of information being shared:

David Nuttall is on his second digital radio, because the first one unfortunately broke; Rebecca Pow really likes elephant garlic (whatever that is); Jo Churchill keeps her radio on a high shelf in the kitchen; and Seema Kennedy likes radio so much, she didn’t even own a television for a long time. The bill they were debating wasn’t opposed by Labour, so they could have stopped and called a vote at any point.

This practice isn’t new, but I was genuinely surprised that the Conservatives decided to block this bill.

There is nothing in my bill which would prevent Britain from leaving the EU.  I’ve already said that when the vote to trigger Article 50 comes to Parliament, I will vote for it. There is also nothing in the bill which would soften Brexit by keeping us tied to the EU. While I would personally like to see rights in the workplace expanded and enhanced, I limited the bill to simply maintaining what is currently in place, in order to make it as agreeable as possible.

So how can Theresa May's words be reconciled with the actions of her backbenchers on Friday? Well, just like when Lionel Hutz explains to Marge in the Simpsons that "there's the truth, and the truth", there are varying degrees to which the government can "protect workers' rights".

Brexit poses three immediate risks:

First, if the government were to repeal the European Communities Act without replacing it, all rights introduced to the UK through that piece of legislation would fall away, including parental leave, the working time directive, and equal rights for part-time and agency workers. The government’s Great Repeal Bill will prevent this from happening, so in that sense they will be "protecting workers’ rights".

However, the House of Commons Library has said that the Great Repeal Bill will leave those rights in secondary legislation, rather than primary legislation. While Britain is a member of the EU, there is only ever scope to enhance and extend rights over and above what had been agreed at a European level. After Brexit, without the floor of minimum rights currently provided by the EU, any future government could easily chip away at these protections, without even the need for a vote in Parliament, through what’s called a "statutory instrument". It will leave workers’ rights hanging by a thread.

The final change that could occur after we have left the EU is European Court rulings no longer applying in this country. There are a huge number of rulings which have furthered rights and increased wages for British workers - from care workers who do sleep-in shifts being paid for the full shift, not just the hours they’re awake; to mobile workers being granted the right to be paid for their travel time. These rulings may no longer have legal basis in Britain after we’ve left. 

My bill would have protected rights against all three of these risks. The government have thus far only said how they will protect against the first.

We know that May opposed the introduction of many of these rights as a backbencher and shadow minister; and that several of her Cabinet ministers have spoken about their desire to reduce employment protections, one even calling for them to be halved last year. The government has even announced it is looking at removing the right to strike from transport workers, which would contradict their May’s promise to protect workers’ rights before we’ve even left the EU.

The reality is that the Conservatives have spent the last six years reducing people’s rights at work - from introducing employment tribunal fees which are a barrier to justice for many, to their attack on workers’ ability to organise in the Trade Union Act. A few lines in May’s speech doesn’t undo the scepticism working people have about the Tories' intentions in this area. Until she puts her money where her mouth is, nor should they. 

Melanie Onn is the Labour MP for Great Grimsby.