In The Long Term, Scotland Consumers Will Be Unaffected By The Global Credit Crunch

Introduction

Many individual argue that fluctuations in prices of commodities may be a short term reaction to the goings on in the global arena. However, others argue that these effects may be so large that they may cause long term repercussions. There is a need to look at both sides of the argument in order to come up with a critical conclusion on the matter.

Effect of the global credit crunch on the Scotland consumer and an examination of whether it will be long term or short term

Many Scottish consumers began depicting worrying signs after the United Kingdom's six energy suppliers opted to heighten the prices of their products even through double digits. The Scottish Southern Energy Company which is one of these major suppliers opted to raise the cost of electricity by approximately twenty percent. Additionally, the latter company also chose to raise gas prices by as much as twenty nine percent of its original prices. Besides this, another Scottish energy supplier; e.On opted to increase its gas prices by twenty six percent and its electricity prices by sixteen percent. (The Scotland Herald, 2008)

All the latter figures have caused a lot of concerns about the fate of the consumer. This is because energy companies seem, to be transferring everything down to them. While these concerns are very valid in the present, it is likely that in the future, the consumer will be protected. This is because Scotland operates under the fair competition law. This means that when energy suppliers or other suppliers for that matter are overstepping their boundaries, then the government must come in to protect the consumer. This means that energy suppliers need to share the effect of the global credit crunch with the end user and not simply pass it down to them without necessarily looking for ways of including themselves in the equation. Given the fair competition law, then these price hikes may not continue for too long. (Smith, 2008)

Another issue that could possibly cushion the Scottish consumer against plummeting prices in the long term is the aspect of wholesale markets. Intermediaries have a large role to play in Scotland's economy. Most of their roles are linked to obvious depictions yet minimal attention is given to some of the long term repercussions. Wholesalers for many commodities can limit the overall impact of the credit crunch on the final consumer because they provide an avenue for distributing these high costs. It is a known fact that whenever prices are concentrated on a certain category of people, then they are the ones who are likely to bear the brunt of those increases the most. However, when these prices are shared by a larger number of people, then it is likely that the burden will be dramatically reduced.

Energy prices i.e. gas and electricity are some of the most sensitive commodities in the Scottish economy (or any other world economy). If the prices of these commodities go up, then prices of all other commodities are likely to be affected by them. In Scotland, a number of citizens are covered by certain consumer friendly tariffs. For instance, a large number of consumers have taken up fixed tariff schemes for their electricity payments. On the other hand, others have opted to use different products that protect them against price fluctuations. Consequently, such mechanisms will protect consumers from the crunch. (Cusick, 2008)

However, some sceptics have claimed that the UK lacks energy storage supplies thus making them particularly vulnerable to price hikes in the long term. Additionally, Scotland could afford to keep the prices of its commodities very low in the past owing to the fact that there were greater sources of supply from other parts of the world but this is no longer possible today.

The credit crunch had started in the United States and then slowly spread throughout the world. It should be noted that the world was watching the US and took down notes about what to do in order to avoid such an economic meltdown. Scotland was no exception. Many economists, analysts and financial consultants within the country noted the mistakes made in the US. Because of this vast amount of knowledge in Scotland concerning the risk involved in the money market, it is likely that investors will be operating in a much more cautious manner. The lessons learnt in the US have been taught to people in Scotland and it is likely that people will be very watchful about their trading activities. This spirit of cautiousness on the part of the investor will prevent further spending thus causing greater economic strength. In the end, prices of consumer products will be kept under check thus protecting the latter party. (Salmon, 2008)

Many experts have asserted that whenever people are aware of the major causes of their problems, then it is likely that the problem will not last for too long. The Scottish people are aware of what the real demon is in the global credit crunch and they are likely to stay away from it. In this case, the global credit crunch was caused by excessive borrowing with little concern over the credibility of the borrowers. But this trend is unlikely to be carried forward in Scotland because people have learnt.

Conclusion

Scotland will not be affected by the global credit crunch because they have learnt from other country's mistakes, because the country has good consumer protection laws and also because there are many alternative schemes for energy consumers designed to protect them against price fluctuations. This steadiness in energy prices is likely to trickle down to the rest of the economy.

Reference

The Scotland Herald (2008): Energy bill hikes affecting Scottish consumers; 25th September

Salmon, F. (2008): Coping with the credit crunch; Sunday Herald, 2nd November 2008

Cusick, J. (2008): Capitalism is not working; the Sunday Herald, 3rd August

Smith, K. (2008): The energy Crunch, retrieved from http://news.sky.com/ accessed on 3rd November 2008