Rule By Failed Rock Star

Al finally makes it into the Merseybeats

BOM's old friend Rockin' Al Johnson has finally made the big-time. He's got his own rock show on the BBC. Even better, you're paying for it.

OK, it's called Alan Johnson: Failed Rock Star, but at least he's up there in the limelight, grooving alongside such all-time greats as the Merseybeats (pic). And as he cheerfully admits, if only he'd made it first time around back in the swingin' 60s, he need never have settled for politics to get the attention he craves.

And he's not the only one - from Bliar down, stacks of NuLab's ministers went into politics only after they'd bombed as rock gods. Even now, given half a chance to join the Merseybeats, most would drop their current has-been minister jobs like a shot.

Tyler was reminded of this on Wednesday afternoon strolling along a sunlit side-street in Westminster. Coming the other way were the Blues Brothers - stylish sunglasses, linen suits, hand clappin, foot stompin, funky-butt ... podgy. Obviously they were jive talkin', but as they passed, Tyler managed to catch a word. It began with eff and ended in ucking. At which point Tyler recognised disgraced Brown spinner Charles Whelan and disgraced Brown enforcer Nick Brown, making their way back from some lunchtime gig in a karaoke bar.

The thing is, rule by failed rock star turned out to be a great gig for those doing the ruling, but not quite so great for rest of us. If only Al had made it in the 60s, he need never have ended up floundering around as Home Secretary, or "at the helm" of the NHS or our social security system.

The man now at the helm of our nightmarish £200bn pa social security system is most assuredly not the rock star type. The one time he tried his hand in showbiz, his performance was devastatingly mocked by one critic as "the Walmington-on-Sea amateur dramatic society does Henry V". There's no way he'll ever be invited to join the Merseys.

Yet, as we saw once again yesterday, this self-styled Quiet Man of British politics is actually the one who looks like finally gripping the crippling inconsistencies and contradictions at the heart of our welfare system.

The most difficult question there, of course, is the one we blogged several times last week (eg here and here), and the one we investigated for the TPA's new paper Welfare reform in tough fiscal times. How do we make sure work pays for the near 6m working-age poor who currently depend entirely on welfare? And even more difficult, how do we do it now that the failed rock stars have blown all the bread?

As IDS spelled out once again in yesterday's consulation paper, after 60 years of our gargantuan welfare state, Britain's workless poor face a welfare trap of life-mangling proportions.

The paper contains the following chart, showing how the trap works for a couple with a single earner on the Minimum Wage, and two children. The family can certainly increase its net income (vertical axis) as the earner works more hours (horizontal axis), but only by a horribly small amount (ignore all the various bands in the chart - they simply show how the various benefits taper away as the family's own earnings increase: focus on the top line which shows how net income increases as hours of work increase):

This means "that someone at the National Minimum Wage would be less than £7 per week better off if they worked [up to]16 extra hours and earned an extra £92 (an effective wage rate of 44p per hour)". It also means that he faces "a Marginal Deduction Rate of 95.5 per cent on earnings between £126 and £218".

As the report puts it, "a system that produces this result cannot be right".

So what's to be done? The report offers three possible approaches:

1. A Universal Credit - all existing benefits abolished and combined into one simple to understand and administer universal benefit.
2. A Single Unified Taper - retains the existing range of individual benefits but "withdrawal would be through a taper that would be applied to their overall benefit eligibility, rather than the individual benefits as is currently the case".
3. Single benefit/negative income tax model - as recommended by the TPA (marking the very first time ever a TPA policy proposal has been explicitly picked up in an official government publication - hurrah!)

We can only welcome IDS's boldness and give him every support.

True, his paper does not mention the other key aspect of the TPA proposal - ie the need to fund these reforms by lowering the poverty line - but we can work on that.

The main thing is that after all the opportunities wasted by those wannabe rock stars, we finally have a government that has the guts not only to think the unthinkable, but also to do it.

We hope.

PS So who is ultimately responsible for the fact that we ended up being ruled by fourth rate rock stars? Fundamentally you've got to blame these guys:



Their intoxicating combination of teen beat and cocking a snook at authority changed the world for people like Rockin' Al. As he says "everything changed and changed forever at the dawn of civilisation - the arrival of The Beatles... I used to try to model myself on Paul McCartney." No wonder he ended up in Bliar's government.

And while we're on the subject, Mrs T has been scouring the darkest recesses of the Tyler attic (filthy dirty, covered in cobwebs... but she's good with the kids). As we've certainly mentioned before, at about the time J Lennon was asking the Queen Mum to rattle her jewelry on live TV, Mrs T was bunking off school to visit the Fab Four in their Surrey mansions. In those days, it was nothing for 13 year old convent girls of a certain disposition to bunk off, hitch a ride, and knock on George Harrison's front door. And Mrs T has the snaps to prove it. Well, that is, she has the snaps somewhere. But unlike the granny who's flogging hers next week, Mrs T hasn't found a single one. Bah!

The Natives Are Not Revolting

Tax is still the key to localism

Tyler recently attended another Westminster seminar on localism. You know, that's everyone's great idea for extracting more value from public services by running them locally rather than from Whitehall.

Like most such seminars, it was attended by a mix of civil servants, quangocrats, local government people, think tankers, private contractors, consultants, and various hangers-on like Tyler. In other words, it overwhelmingly comprised people who in one way or another are paid from the public purse (not, it should be stressed, Tyler).

All - well, pretty well all - were agreed that we must have more localism. After all, we currently have the most centralised system of government in any of the major developed economies, and that can't be right (see many previous posts eg here). Localism rocks.

But alas, the attendees could see problems. Very serious problems.

First, there's the issue of the locals themselves. I mean, have you ever actually met the locals? My dear! How can you possibly have localism when the locals are a bunch of fascists and/or idiots? How can they be trusted to do The Right Thing - ie the thing the people around the seminar table want done? There will clearly need be national guidelines and service standards, and locals certainly couldn't be trusted with say, setting their own welfare standards. Why, they might not take proper account of the European Decency Threshold. They might even revert to workhouses!

Second, there's the issue of capacity. Even if they were given more power over things like welfare, local councils just don't have the capacity to take on the job. Frankly, sweeping the streets and emptying the bins already stretches their meagre abilities to breaking point, and we need hardly dwell on the Baby P area.

Third, there's the closely related issue of infantalisation. Local councils themselves are fully aware of their own lack of capacity, and frankly they like it that way. They simply don't have the confidence and maturity to take on more challenging tasks. Mummy's apron strings offer a far safer and easier life.

Fourth, we could end up with a postcode lottery. A postcode lottery! Some councils might decide to provide different services to others, and then where would we be? Although it must be said that argument did take a bit of a hit when one speaker pointed out we already have a postcode lottery in much service provision - one often caused by administrative accident rather than deliberate policy.

Fifth, it would be expensive. No economies of scale, you see. All those little councils running their own separate little services, rather than relying on the super-efficient national services we currently enjoy. Er, yes... that argument also took a bit of a hit in subsequent discussion.

Sixth, few people out there among the locals actually seems to want it. The natives are not revolting. They are not manning the barricades demanding to be free. And stuffing localism down the unwilling throats of the apathetic locals sounds like a surefire recipe for disaster.

And you know, we've got some sympathy with many of those points - especially the last one.

We have long been strongly in favour of more localism, but it must be admitted that most people round our way don't actually want the council to have more power. True, the rubbish collection seems to work tolerably well, but that's long since been contracted out. Beyond that, people generally have very little confidence in the ability and judgement of the local council. There is no clamour whatsoever to give it more power, and precious little interest in who gets elected as councillors.

And Tyler himself has a pretty hypocritical attitude on this. He may be a big supporter of localism, but when he's actually been approached to stand for the council (there's a local recruitment drive going on right now), he's declined. He believes it would be a pretty thankless task, with no end of brickbats but precious little actual power. Responsibility without power - the classic meat in the sandwich between Whitehall and the angry citizens.

You see, at root, what we have here are our old friends Mr Chicken and Mr Egg.

Councils have lost confidence and capacity because over the last half century they've been gradually stripped of their traditional power and responsibility. They've come to rely on Whitehall for the vast bulk of their cash, and they therefore have to take instructions direct from Whitehall, rather than deciding things for themselves. Is it any wonder it's difficult to persuade people to stand for the council?

So now we face the prospect of localising control into the hands of our weak councils - quite a scary prospect. Yet if we don't do that, we will never start to rebuild all those capacities we've lost. We won't get the chicken unless we take a chance on the egg.

And what is the key step we need to take? As regular readers will know, we have long argued for fiscal decentralisation. Indeed we've even written research notes on the subject (eg see here).

What it means is that we need to go much further than simply have Whitehall hand over an even bigger pot of cash to our councils. What it means more than anything is making councils responsible for raising a much larger slice of their own cash for themselves from local taxpayers. We need to reverse the pattern of finance at least back to what it was before the terrible Wislon started the destruction of our local authorities in the 60s:

If once again, local councils were responsible for raising half their funding direct from local taxpayers, that would concentrate local minds wonderfully. Suddenly it would matter a whole lot who was running the town hall. People like Tyler would have a real incentive to get involved, and what's more, election to the council would never be a shoo-in.

If we are genuinely serious about localism, step one is the decentralise the tax system. Taxes always have been and always will be the key to local engagement.

When Can We Stop Digging?

We are leading the world

As you will know, the man now in charge of Britain's energy supplies is one of our most notorious eco-hippies. But since we can't improve on Christopher Booker's brilliant Huhne demolition we needn't go on about that.

What we'd really like to know is when can we stop digging the huge black eco hole our grandstanding politicos have dumped us into?

We all surely understand the score by now. Our political class have presented us with a cataclysmic energy gap in the shape of closing coal-fired power stations with no practical replacement available. Common sense says we'd better delay the closures as long as technically possible, crack on with the new nukes for the long-term, and build a few Chinese style coal-fired stations for the short-term. Either that, or watch the few remaining bits of British industry leave for places that can still supply power... like China.

Some of us had somehow hoped that the new government would return us to sanity, despite Cam's personal wind turbine. But no such luck. Huhne is quite happy to continue digging just where the last lot left off, boasting yesterday:

"Britain is the first country in the world to set legally binding ‘carbon budgets’, aiming to cut UK emissions by 34% by 2020 and at least 80% by 2050 through investment in energy efficiency and clean energy technologies such as renewables, nuclear and carbon capture and storage."

Look, out here, we don't want to be the first (ie the only) country in the world to dig our own economic grave, thank you very much.

But at least the costs of this madness are now becoming apparent to everyone. Even Huhne's department admits that everyone's domestic fuel bills are set to rack up substantially. Over the next decade, they expect

"The impact of climate change and energy policies on energy prices [will be to increase them by] 18% and 33% on gas and electricity prices respectively for domestic consumers and 24% and 43% respectively, for medium-sized nondomestic consumers."

Which for an average UK household translates into an annual increase of around £300. And for a typical small manufacturing firm will likely be the straw that breaks them.

According to the department of course, it won't be like that. That's because we'll all cut our energy consumption to offset the increase in prices. So we'll all be just as well off, but the planet will be that much greener (reality check - a 25% cut in our total energy consumption would reduce global greenhouse gas emissions by at the very most 0.5%... and that's assuming we don't simply export our remaining CO2 generating industries to China, which is what actually happens in the real world).

So the question is when will our anger at rising energy prices mount sufficiently to force a halt to the digging?

Step one is to make sure everyone understands just what it's costing us all. Step two will doubtless take care of itself when the lights start going out later this decade.

PS Hilarious contrast between the BBC/C4 coverage of the current US defence leak and the Climategate leak. Whereas the leaker/hacker responsible for the Climategate leak was branded a sneaky criminal - or possibly Russian black ops - the leakers of the defence material have been presented as courageous heroes. Yesterday's Newsnight featured Kirstie positively drooling over the Wikileaks man, even asking if he was Jason Bourne.

How We All Ended Up On Welfare

Something must be done, and it was... the trouble is it's since been overdone

Once upon a time, long long ago, welfare was paid to the poor. And only to the poor.

But these days, welfare is paid to pretty well everybody. Even Jonathan Ross and those plutocrats on the Wharf get welfare. It doesn't matter how rich you are, there'll usually be some way of getting your snout into the welfare trough. From Child Benefit, to free bus passes, to the winter fuel allowance, the opportunities are there. If you want some, you can get some.

We've been reminded of this by reaction to last week's TPA report on welfare reform (see below). It's been pointed out that the TPA's proposal to redefine the poverty line - lowering it from 60% of median income to 50% - would remove welfare support from families who, while not poor, would lose a substantial chunk of their current welfare income.

Now as it happens, the Office for National Statistics has recently published its latest annual report on the effect of taxes and benefits on household incomes. It covers 2008-09 and it shows us just how much welfare is received by households at different income levels.

Let's leave pensioner households out of it (as we did in the TPA report), and focus on non-retired households. The ONS figures show that households on around median incomes (gross incomes of £32-35k pa) on average get well over £3,000 pa in cash benefits. A 10% top-up to their own not insubstantial incomes from welfare benefits, including Child Benefit and Brown's various tax credits.

And here's how it looks across the entire income distribution (non-retired households only - excluding pensioner households):

So as we can see, under our current welfare system, even the richest 10% of households, with average gross incomes in excess of £100 grand pa, still get welfare - in their case averaging £1300 pa.

On what possible basis can that make sense?

The alarming and unpalatable truth is that after 60 years of the welfare state, pretty well all of us have ended up on welfare.

It's no way to run a 21st century economy, already burdened with a massive fiscal crisis, and facing a competitive onslaught from the East.

In the famous words of our most famous playboy prince during a previous economic crisis, something must be done.

*****

Much reaction to last week's post on redefining the poverty line. Mainly supportive.

Picking up from the TPA report on welfare reform, we argued that the official definition of the poverty line should be cut from 60% of median income to 50%. We calculate that would save £20-30bn pa in welfare costs currently spent on the able-bodied working age poor, money that could be better spent making work pay (ie reducing the scandalously high effective marginal tax rates faced by the working poor). As far as we can see, that is the only realistic and affordable option for reforming the current iniquitous system that traps so many millions on welfare.

Of course, the left will never buy it, and Labour blogger Hopi Sen spells out why:

"If you’re the Taxpayers’ Alliance, the way to cut the gordian knot of Welfare reform without spending any money seems to be to redfine poverty to a much lower level, reduce support for those a little above that level, and abandon pretty much all support for those on medium-low incomes.

In other words, if you’re near the current definition of poverty, struggling to get by, and find tax credits and child benefit and income support useful- Watch out. They’re coming to get you."

We've posted a full response to Sen on the TPA site, including the fact that he and the left offer no affordable alternative for reforming our current shambolic and dysfunctional system. But there's one point that it's worth amplifying here.

As things stand, the official poverty line is benchmarked off a median income figure that includes existing welfare benefits. And Sen reckons it ought to stay that way.

We reckon that's wrong. The reason is that it's a circular calculation. It means that both median income and the poverty line are artificially inflated by the welfare system itself. The system ends up chasing its own tail towards ever higher costs and an ever worse welfare trap.

This highlights a key difference between us and the left on welfare. Whereas the left see welfare as a tool for compressing income relativities throughout the income range, we believe that for able-bodied adults of working age, welfare payments should, in principle, be confined to a safety net, designed to relieve absolute poverty among those towards the bottom.

Paying income support to those who are at or around median incomes means paying them with one hand and taxing it back with the other. Which is not only administratively expensive and wasteful (we have previously estimated the cost of this so-called fiscal churn at at £5-6bn pa), but it is also certain to distort the way people choose to work, and to spend their own earnings.

The dispute over the definition of poverty goes back half a century. That's when the left dreamed up their definition of poverty as a relative concept. They have since argued that welfare should focus on relative income distribution, and they have prevailed, which is how we ended up with the current official definition of the poverty line at 60% of median income.

But that's not what most of us actually think of as poverty, which tends to focus on not having enough food, or a roof over your head, etc. That is the traditional definition of poverty, known as absolute poverty, and in principle, it is the approach we favour. Which is why in Appendix C of our paper we recommend that the Department for Work and Pensions conduct some proper analysis in this area and publish a measure of absolute poverty, comparable to the one produced by the US Census Bureau.

Meanwhile, Labour have left us with a gigantic unaffordable mess, in which welfare is paid not just to the genuinely poor, but also middle income earners, and in some cases all the way up the income distribution - as noted above.

*****

What exactly is a negative income tax?

As you will recall, the TPA welfare reform calls for the scrapping of a slew of existing benefits and their replacement with a single negative income tax (NIT). But no less a person than the Devil himself has since asked us to explain exactly what the devil a NIT actually is. So here goes.

The NIT is an idea atrributed by many to the late great Milt. It's easiest to think of it as a particular kind of means tested welfare benefit. All households are guaranteed a certain minimum income paid to them by the government, whether or not they have any income of their own. But instead of being paid through a separate benefits agency, this one is paid by the tax authority. So it ought to be a lot cheaper to administer. And it ought to make it easy for poor households to increase their own earnings without constantly worrying about how that might impact their benefit entitlements and their net incomes.

Each household is assessed for eligibility on its gross income, much as current income taxes are assessed. Households with no other income get paid the maximum possible amount for their type and size of household (eg more children generally means more cash). And that is paid by the tax authority as a negative income tax - ie instead of money being deducted from their pay packet, a payment is made directly to the family.

Households with some income of their own get scaled back from the maximum, according to an agreed and explicit "taper rate". And depending on the taper rate, at some level of own income, households lose all entitlement to a negative income tax payment.

Now, Milt's original proposal envisaged that the taper rate would be the same as the standard rate of income tax. So as a household's own income increased, their negative income tax receipt would run smoothly into an income tax payment - they'd hardly notice the join, and the whole scheme would be very cheap to administer. In fact, in its simplest form, the NIT idea has often been combined with a flat tax - ie a single rate of income tax no matter how high your income. As in this neat chart:

Unfortunately, given the existing level of welfare benefits a NIT will have to replace, such simplicity is not currently an affordable option. Which is why the TPA proposal envisages a taper rate for the NIT at 55%, rather than the 31% standard rate of income tax plus National Insurance.

OK, is that any clearer? If not, there's more here.

Heroes Of BOM

A hero in action

Tyler has been contacted by the late lamented and much missed Dr Crippen, who draws attention to this story:

"A director of the Yorkshire Ambulance Service has been disciplined after making a withering attack on 'lazy' NHS staff through Facebook.

In an online discussion, David Forster said the NHS employed 'too many who are lazy, unproductive, obstinate, militant, aggressive at every turn and who couldn't secure a job anywhere outside the bloated public sector where mediocrity is too often shielded by weak and unprincipled HR policies'.

The kindly old Doc is concerned. He wonders what "disciplined" actually means - what Stalinist horrors poor Mr Foster has been subjected to for speaking the truth. Foster has not been available for comment, so he may have already been despatched to the secret NHS re-education gulag on that disused WW2 aerodrome outside Withernsea.

Public servants who blow the whistle have long risked horrific treatment at the hands of the NKVD. And the Doc - now in hiding in his distant rural bolt-hole - suggests that BOM should establish a role of honour for those who stand up for taxpayers whatever the cost.

So we will. The Heroes of BOM. And David Foster is the very first name on the list. Let us hope he doesn't allow himself to be silenced.

Immediately joining him is Stuart Davidson, better known as PC Copperfield. As Copperfield, policeman Davidson wrote a widely read blog, Wasting Police Time, that gave us the facts on what really goes on in Britain's police force. It was later published by the excellent Monday Books.

In his time as a blogger, Davidson blew the whistle on some major crimes - all of them perpetrated by the police against taxpayers. He gave us chapter and verse on the way bureaucracy and a mountain of box-ticking paperwork have utterly destroyed police efficiency.

Needless the say, the NKVD mounted a huge man-hunt to track him down. But he was too clever for them, and before the final stake-out, he upped sticks and left for Canada (exactly as recommended on BOM). He's now a police officer in Edmonton, the capital of oil-rich Alberta from where he sent his article in today's S Telegraph.

He tells us Canadian police are miles more efficient than ours, mainly because they are trusted to do the job. And to illustrate his argument he compares Edmonton's police with Greater Manchester's:

"So how do both forces stack up? Well, there are 10 violent crimes per 1,000 people in Edmonton; in Greater Manchester, Home Office statistics show 16 offences of violence per 1,000 people (in Manchester itself, the figure is nearly 24/1,000, and in Britain as a whole, 15/1,000).

Perhaps unsurprisingly, our 2009 Citizen Survey shows that 89 per cent of residents "have a lot of confidence in the Edmonton Police Service", with 66 per cent saying they feel safe walking alone in their neighbourhood after dark. In the GMP area, only 50 per cent of people think the police are doing an "excellent or good" job, which leaves an awful lot of unhappy taxpayers.

But do we spend more money? No. The EPS budget for 2010 is £150 million – or £150 for every citizen. The GMP budget is £690 million – or £276 for every citizen. They could lose 40 per cent of their budget and still have more cash per capita than we do.

Of course, how you spend money is important. GMP employs 8,232 police officers in a total staff of 13,082, or one person for every 181 members of the public. My force employs about 1,400 officers and 500 civilians – one person for every 526 members of the public.

So with less money and far fewer cops, we do a better job."

Officer Davidson couldn't be clearer. We desperately need him, and those like him, back here. Which is why - despite the fact that he deserted us - we're making him number 2 on BOM's list of heroes.

Number 3 joins our list for a slightly different reason:

"Mark Wheeldon (pic above) was fed up of living on benefits and concocted a plan to get him noticed on the job market. He decided to stand on one of the busiest roundabouts in Stoke-on-Trent, Staffs, and advertise himself to passing motorists during the morning rush hour...

Mark had failed to find work after spending the past two years caring for a former partner who suffers from rheumatoid arthritis...

...he was flabbergasted when, after nearly three hours spent standing in a torrential downpour, timber factory director Vince Champion came to his rescue. He spotted Mark on his way to work and returned to collect him, giving him an an interview straight away and offering him the job just 20 minutes later."

We have often blogged the merits of getting on your bike, and although it would seem no actual bike was involved here, we doff our cap to Mark. Not put off by the fact that he lives in industrial wasteland Stoke, with the highest unemployment in the West Midlands, and let down by the official jobs agencies, he gripped the problem directly for himself. Brilliant.

And we're tempted to add Mark's new employer to our list too. It is a new and rapidly growing company called the The Smart Timber Frame Company. Under founder Colin Oakley (splendidly appropriate name) it has developed an innovative and award-winning system of constructing timber frame houses. And from a standing start, in less than 3 years it has expanded to provide 300 desperately needed jobs in Stoke. Stoke FFS - the place the Luftwaffe never bombed because it looked like they'd already done so, and whose bungling benighted council has been a constant target for BOM (eg see this blog).

So why aren't we adding Colin? Only because we suspect he's depended on public funding to get his company going. And while that doesn't make him any less of an entrepreneurial champion, it does mean he can't be on BOM's value-for-taxpayers heroes list.

Life, Death, And Virtual Councils

How may I help?

Well, for a start, you can stop wasting my friggin' money

I expect you saw the story of the bonkers council that spent £36 grand of real life taxpayers' money on contructing a fantasy life town hall in the internet game Second Life (pic above).

"The cost has been revealed following a Freedom of Information request, including £3,250 for initial workshops and almost £17,000 to an IT company to develop the 'island'.

The council also handed over almost £10,000 to the company for rental and management of the project, £6,000 for a virtual museum and £400 for a statue."

What an outrage. A classic example of a council wasting our hard-earned cash on half-baked rubbish that nobody asked for and nobody ever used (they refuse to divulge how many people used "the facility"). Who do they think they are?

But what really caught Tyler's eye about this story was the name of the council responsible - Tameside Council in Greater Manchester. Because once in another lifetime, Tyler had regular dealings with the officers and councillors at Tameside Council. They were clients of his.

More than that, for reasons we needn't go into, the corporate relationship ended on an extraordinarily sour note. Tyler can still vividly recall being publicly flogged by the Big-I-Am council leader in front of a packed meeting of councillors, officers, and third parties. How Tyler was a disgrace and ought to be ashamed of himself. And later being told by that same leader that he never ever wanted to see Tyler in Tameside again. Literally run out of town.
 
Well, that's showbiz, and it doesn't help to dwell on such things. So Tyler got on with his life.
 
But now, years later, this little story has brought it all back. And this time, the boot would seem to be on the other foot. How delicious. Time for a bit of Googling.
 
For those who don't know, Tameside is a classic Northern council - a rock-solid Labour fiefdom. No fewer than 46 of its 55 councillors are Labour, and it has been Labour controlled ever since it was established in 1974. It is good old North Korean style one-party rule.
 
In fact, Tameside turns out to be even closer to North Korea than that. Because not only has it been ruled for ever by one party, its leader has been the same individual for 30 years. Yes, that very same individual who publicly flogged Tyler all those years ago. He went on to became the longest serving council leader in the entire country - not quite as long as Kim Il-sung, but getting there.
 
Of course, just like in North Korea, there has been some dissent among the populace. In fact, there now seem to be several Tameside blogs dedicated to the antics of the leader and his colleagues. Tameside Mafia is one, which among other things has kept a close eye on the number of chauffeur-driven Jags provided for him. Another blog, Tameside Eye (sadly open to invited readers only) posted the leader's very own Downfall vid. Yes, there has been dissent, and it seems to have grown.

So what's this leader's name?

Well, actually we're not going to name him. You'll have to Google it yourself.

Why? Because by an amazing and sad coincidence, at the very moment Tyler - after all these years - decided to get reacquainted down there in the second life cyberspace town hall, it turns out that in real life, the leader has just died. His funeral was yesterday.

Tyler isn't normally one for spooky coincidences. But this, this is spooky. And frankly, rather a shock. After all, despite the flogging, he was a fellow flesh and blood, all too mortal man, earning a crust, and doing what he believed was his duty to his community. Besides, whatever may have happened in the past, it isn't right to bad mouth someone who's barely cold in his grave. We're not going there.

Instead, let's focus on Tameside Council itself. Whatever people like Tyler may say, we're not North Korea. People can vote for their councillors. So how can it be that one party can stay in power like that for ever? Especially when it's quite clear that a lot of the locals have serious misgivings.

Well, part of it has to be that old tribal thing. Most people in places like Tameside just don't vote Tory. End of. Lib Dems? Talk sense will you?

But there's something else going on. The reality is that in real life as well as cyberspace, our councils have become virtual. They are little more than figments of our imagination.

As we've blogged since the start, councils today are essentially an arm of central government. They may still have town halls, and it may say "Council" on the big brass plate, but in truth they have to do not what their local electors want, but what their paymasters in Whitehall tell them to. It's a simple case of follow the money.

In Tameside's case, its gross expenditure this year is budgeted at just under £600m. But less than £100m of that will come from local Council Tax payers. The rest will largely come from Whitehall, in one way or another.

Which means two things. First, the local electors don't get terribly excited about their local elections - they understand that the council is not where the real power lies. And second, the council itself is mainly in the game of ticking Whitehall's boxes.

And fair play to Tameside - they've done a fabulous job on the ticking. The Audit Commission is incredibly pleased, rating them a 4 star council - the very best - which is "improving well", and delivering top notch value for money.

So while you, me, and everyone else out here in the real world thinks spending £36 grand on a virtual town hall is a crap waste of our cash (and in a similar vein, check out their TV station - Tameside TV), in the virtual world of fantasy councils, Tameside is doing a cracking job.

Of course, going forward, it will get a tad more difficult. Gone is the largesse of Labour, spraying Southern tax revenue all over its Northern fiefdoms like Tameside (an estimated £1.2bn was spent there in 2008-09). Instead, they'll face George's squeeze, alongside a Tory determination to rebalance such grossly unfair spending regional spending biases.

But this whole saga underlines once again that we really do need real fiscal decentralisation. Councils should have to raise most of their own cash from their own local taxpayers. Councillors who think it's OK to spend taxpayers' money on computer games should be forced to explain and justify themselves to their own local electors, not some cosseted quangocrat sitting miles away.

In the real world, you can bet nobody outside the Democratic People's Republic of Korea would stay in power for 30 years.

PS Was everyone Tyler encountered at Tameside Council a dope? By no means. In fact, there were some very good quality people there. But most seemed understandably scared of upsetting the leader, and all were locked into a local government system that is fundamentally dysfunctional.

Time To Lower The Poverty Line

The one-minute summary

[Another long one I'm afraid]

We've blogged the welfare trap many times - the scandalous situation where millions of the workless poor find themselves with virtually no financial incentive to get off welfare and into work, trapped in a life of "indolence and vice" (as a previous generation of reformers so graphically put it)

Yes, we can blame the moral depravity of the welfare recipients themselves, but if you were facing an effective marginal tax rate approaching 100%, would you drag yourself out of bed at 6.30 on a cold wet morning to catch the number 27? Honestly?

The fundamental reason we're in this mess is the structure of the welfare system itself. And that is what we have to attack.

The problem essentially arises from the fact that most welfare benefits are means-tested. So the more cash you earn for yourself, the less you get in welfare. As your own earned income increases, your benefits are withdrawn, and that combined with the fact that you also have to pay tax and National Insurance, leaves you facing those monstrous effective marginal tax rates - much higher than those faced by the highest wedged denizens of the Wharf.

And overlaid on that, there's another problem - complexity. Whereas the Wharf banker faces a fairly straighforward tax schedule - ie he knows what is going to be taken from every extra pound he earns - the welfare recipient faces an extraodinarily complex and opaque system of rules and regulations governing what he will lose in benefits if he earns more. The system has grown up piecemeal over decades and there are now over 50 different benefits, all with different rules and withdrawal rates, and a total of 8,690 pages of guidance for DWP benefits alone. Even the officials can't always fathom it, let alone the recipients. Fraud and error costs us £4.5bn pa.

So what are the potential solutions?

Well, one is to scrap welfare for those of working age altogether. And Tyler has certainly met people who would do that. But old softie that he is, Tyler worries about children starving in gutters. Scrapping welfare is a non-starter.

A much more attractive solution is the Citizens Basic Income, which we have blogged several times. Under CBI, all adults get a standard handout from the state which is theirs to keep whether they work or not. It's a great idea, and would eliminate at a stroke all those crippling marginal tax rates - what you earn is on top of your CBI welfare benefit, not in place of it. The trouble is, in practice, it would simply be too expensive - try as we might, we've never been able to get the sums to add up (see this blog).

And right now, getting the sums to add up is vital. Like the man said, there's no money left. Any welfare reform that needs more money is out.

Which is why down at the TPA we've been crunching some numbers to see whether we could reform the system without spending any more (see full report here).

Fundamentally, what we need to do is reduce those high marginal tax rates facing the workless poor, and give them a real financial incentive to work. The trouble is that to do that we need to reduce the rate at which benefits are withdrawn as a family's own earned income increases. And that makes the system much more expensive.

The solution is one we've blogged many times - in order to fund a reduction in the withdrawal rate, we need cut the basic level of welfare provided. A cut which would in itself increase the incentive to work.

You see, as in so much else, there is an iron law trade-off here. Given a fixed pot of money, we either have to accept the current high rates of benefit withdrawal - with all their disincentive effects - or a lower level of basic welfare provision. We can't have both a high level of provision and low withdrawal rates.

What we've done is to model this trade-off, using official data on the circumstances and incomes of individual UK households.

We propose scrapping most of the existing welfare benefits for able-bodied working age people and replacing them with a single simple benefit - a negative income tax (NIT).

The maximum possible level of the NIT for an individual family would be set as a policy determined percentage of the median income across the country, much as the current official poverty line is already set. But whereas the current poverty line is set at 60% of the median, we've looked also at cheaper alternatives, setting it at 55% and 50% (which is where it was originally set decades ago).

Families with no other source of income would receive this maximum NIT (flexed according to family size). Families with some income of their own would receive lower amounts of NIT, with the amounts tapering away as income increases. This taper is the effective marginal tax rate faced by the family. Crucially, it is clear and open, fixed by policy rather than jumping around all over the place as under the current opaque and shambolic system. We have modelled tapers from 50% to 70% - all a vast improvement on the current 80-90% effective marginal tax rates faced by the poor.

So under our system, with a 50% poverty line, a workless two adult two child family would receive an NIT payment of just under £14000 pa (2008). If they then started earning for themselves they'd lose some of that, and the higher the selected taper rate, the more they'd lose. But the idea would be to keep the taper rate as low as we can afford to encourage work. With for example a taper rate of 55%, that same family earning £10000 pa (gross) would keep £4500, taking their overall income up to £18500 - much more than they'd retain under the current system.

So what would it cost, and what is the trade-off? The following table summarises the results for 2007-08 (click on image to enlarge):

Now in that same year of 2008-09, the current system of welfare for the able-bodied working age poor cost us £63.7bn (see paper for calcs). So that's the maximum amount we can spend.

Which means that 7 of our 12 modelled alternatives - ie all the nicest ones -  are simply unaffordable. We can put them from our minds.

It also means that the lowest possible taper rate we can afford with our current 60% poverty line is 70% - still way too high in terms of work incentive.

And that my friends is why it really is time to lower the poverty line. The current official target of 60% of median income is a major obstacle to improving work incentives for the workless poor. Reducing it to 50% would not only increase the incentive to work directly, it would also free up £20-£30bn pa to spend on allowing the poor to keep more of what they earn for themselves.

And to those who say that dropping the poverty line to 50% would give us children starving in gutters, we say rubbish. Incomes today are so high that even a poverty line at 40% of the median would hardly have people starving. For example, as we blogged here, families in the bottom quarter of today's income distribution are better off than families in the top quarter of the distribution 50 years ago - and they were living the life of Larry (whoever he was).

It's time to take some of those really tough decisions.

PS Yes, we would still rather define poverty in absolute terms rather than relative to median income, as the left prefer. But we are where we are, so let's take one step at a time. A step from 60% to 50% would take us a long way in the right direction (see Appendix C in the report for some more on this).