Russian Roulette... With Your Money

Feel lucky?

According to one major international investor, putting money into the UK government bond market (gilts) these days is "like playing Russian Roulette".

And why's that?

Because the Bank of England's £150bn Quantitative Easing (QE) programme has generated some massive distortions in the gilt market, distortions that everyone agrees are wholly unsustainable in the long-term. The problem is that, as long as QE continues, the distortions could get worse. And because nobody can tell when it will go bang, unless you enjoy roulette, you'd best steer clear altogether.

Which goes some way to explaining why the big international funds have been switching bigtime from gilts to overseas government bonds, especially traditional safe haven German bonds (bunds). In the first two months of QE they withdrew about £12bn (April and May), a stark and worrying contrast to the £65bn they'd purchased over the previous 12 months.

As you will know, QE involves the Bank pumping massive amounts of cash into our financial system, supposedly in order to ward off deflation. It does so principally by buying up vast quantities of outstanding gilts. And that has had the effect of driving up their price way beyond what would be justified by underlying "fundamentals".

So the big international investors have taken fright. In the measured words of Andrew Balls, a managing director at Pimco, the world's biggest bond fund manager:

"Buying securities of nations involved in quantitative easing “adds another layer of complexity” to investment decisions that are already difficult given the competing forces of an unfavorable economic outlook and increased debt supply. “We prefer German bunds over gilts and Treasuries.”

We have always been concerned about QE. It is effectively running the printing press, which always always ends in an inflationary blow-out. And despite all that scare talk about deflation, here in weak sterling Britain, it still hasn't actually materialised (and see Liam Halligan here).

In fact, when you dig out the figures, it turns out we currently have the highest inflation in the G7 - even above Italy.

The following chart (drawn using HM Treasury's own data) shows that, while consumer prices are now falling slightly year-on-year across the G7 economies as a whole, our inflation remains firmly in positive territory:

If we focus on the actual gap between us and the G7 average, the picture is even starker:

And that is alarming. Because as we are all too aware, Britain has a long and painful history with inflation. For decades our inflation ran higher than our competitors, eroding our competitiveness, undermining sterling, and perpetuating a highly corrosive wage-price spiral. It took years of hairshirt restraint to rid ourselves of it.

The very last thing we should be doing now is cranking up the printing presses. And it's little wonder international investors are voting with their funds.

And there's another important point to note.

Despite the vast purchases of gilts by the Bank of England, gilt yields (roughly, the interest rate on gilts) have not fallen significantly. In fact they are now more or less where they were before QE began. Which tells us that, what with the debt mountain, the inflation, and the general policy hiatus, investors are seriously worried about just where Britain is heading .

And just remember this - on £1 trillion of government debt (which we will soon have even on the government's optimistic figures), every one percentage point on gilt yields eventually means an extra £10bn pa on debt interest costs. Which is an extra £400 pa tax for every single household.

So if gilt yields rose from their current level of around 4% to around say 7% pa - which would be a fairly modest rise - every household would have to find an extra grand a year just to pay the government's debt interest bill.

You know, the more I think about it, I'm not sure this is Russian Roulette at all.

True, we've got the pistol pressed to our temple. But in this version, every single chamber seems to be loaded.

Update: Yesterday's decision by the Bank of England to suspend the QE programme - at least for the time being - brought an immediate gilt market sell-off. Yields jumped by getting on for one-quarter percent, and are now one-half percent above German government yields. We should expect much greater increases when the Bank tries to reverse the £125bn QE it has already done.

Giving Privatisation A Bad Name

Don't judge privatisation by the results of PFI

We've blogged the disaster of PFI many times. In principle, it sounds like a great way for taxpayers to get better value for money, but in practice, it's been an horrific saga of overpaying, perverse incentives, and downright failure.

An interesting paper by Ted Bromund of the US Heritage Foundation takes a close look at how it's been used by the Ministry of Defence. And as you'd expect with that particular money-pit, it's not a very pretty picture.

Ted gives a good account of the dismal story for his US audience, who apparently still harbour some delusion that Labour's use of PFI was for genuine efficiency reasons. But he also draws out some broader conclusions that are well worth summarising:

• Risks cannot be wholly transferred to the private sector - that's because in some areas - certainly defence, but also key infrastructure - outright failure is not an option for government.
• Contracting out should promote efficiency and improved quality, not hide spending - Labour's Enron approach to PFI has been costly and inefficient, and PFI contracts have also been used to meet top-down targets for "staff cuts".
• Contracts with the private sector require effective government contractors - as we've seen over and over again, the public sector simply does not have the staff to negotiate and manage cost effective contracts.

But the Big Point we should take from Ted's paper is this:

"Contracting out [such as PFI] is not privatization because it does not reduce the government’s responsibilities: it increases them.

The government must decide what it wants to buy, negotiate the contract, and then—like any other buyer—ensure that the other party fulfills its side of the bargain."

So let's just take that in.

When government enters into a PFI deal, it is not offloading its reponsibilities. Instead, it's delegating some operational authority, while retaining the overall responsibility for delivery to the final customers (ie us taxpayers). It is also adding a new responsibility to manage the PFI contractor. It has not privatised anything, any more than a company does when it hires contract cleaners.

Compare that to real privatisation. With real privatisation, the government takes itself out of the loop altogether.

For example, let's say Gove really does take us down the school voucher route. He dishes out the vouchers, and then he sits back. The privatised schools are now responsible directly to parents for providing good education, not the government. It's just like... well, it's just like the existing private school system.

That is completely different to a local council entering into a contract for a new PFI school. With real privatisation, the Simple Shopper is no longer intermediating his hopeless bungling presence between the customer and the supplier.

Unfortunately, the manifest failure of PFI under Labour has got real privatisation a bad name. It has allowed the left to claim that the fault lies with greedy private sector providers - the very same people who would run privatised schools 'n' hospitals.

Ted's risk transfer point is also a crucial one. There is absolutely no point in taxpayers paying a private sector provider to assume risks it is not capable of assuming. As we saw with the Metronet disaster (eg see this blog), thinly capitalised PFI contractors can prove to be very expensive if they collapse.

And even where a private sector counterparty does have deeper pockets, they are useless if the terms of the contract allow it to walk away when the going gets rough (as National Express has just done with the East Coast rail franchise).

Whether for PFI or private rail franchises, the Simple Shopper's inability to manage contracts has done serious damage to the cause of privatisation.

Somehow we've got to find a way of explaining that such bungles are nothing to do with real privatisation.

PS Talking of risk transfer, today's waffly proposals on bank regulation leave me feeling distinctly queazy. What the banking crisis has put up in lights is that we taxpayers are currently guaranteeing the banks without limit. And like St Vince says, we're taking these risks of catastrophic failure even though it's the bankers who take the upside. So just why aren't we separating the high street banks from the casinos, Glass-Steagall style? Yeah, sure, if we had superb regulators and superhuman bank boards we wouldn't need to. But we don't. And we do.

More On Public Sector Pay

Public sector ahead for two decades

In the comments on yesterday's post DM Andy accused Tyler of cherry-picking his evidence on public sector pay, by only showing the last decade:

"That's a rather cherry picked graph there Tyler. The ONS data goes back to 1990 and shows the private sector started off lagging behind the public sector during the early 90s recession, the private sector moving into the lead in the boom years and now the public sector catching up again in another recession."

Now, Tyler can stand many things, but being accused of picking cherries is not one of them. So the above chart puts things right by showing the entire data period right back to 1990.

However, although the ONS average earnings indices show relative movement over time, they give no indication of relative earnings levels between the two sectors. So we've translated everything into cash terms (ie average full-time weekly earnings including bonuses) on the basis of the average earnings in April 2008 as recorded in the ONS's Annual Survey of Hours and Earnings (ASHE).

What do we conclude?

First, as Andy says, the public sector did pretty well in the early 90s recession. But then as the Major/Clarke golden decade got going, the private sector caught up, so that by the turn of the Millenium, it was roughly level pegging. Since then, the public sector has more than kept pace, latterly pulling strongly ahead again - just like in the last recession.

Second, for virtually the entire period, average full-time earnings in the public sector have been ahead of the private. The gap was highest in the early nineties, peaking at over 10% in 1992-93. Today, it is once again increasing (and on the median measure of pay it is even higher - at over 13%).

But what does this actually mean?

Well, that's when we get into all those apples and pears issues. For example, public sector unions (and Pol) argue that average public sector earnings have been artificially inflated by the privatisation of low-paid jobs such as cleaning. Others (such as HJ) point out that average public sector earnings are artifically deflated by excluding some high income groups like GPs, who are counted as being in the private sector even though the vast bulk of their pay comes from the NHS.

So these long-term trends do need to be treated with caution.

Nevertheless, the data certainly do not tell us the public sector has fallen behind in some way. If anything, they suggest the opposite.

Of course, we might be able to get a clearer fix by looking at the public/private comparison in more detail, for example by specific occupational group.

We don't have time to dig out all that data at present, but just as a taster, here's a chart on state teachers' pay relative to "other professional occupations" as recorded in ASHE. It's taken from the most recent report of the School Teachers’ Review Body:

As we can see, teachers pay is shy of the overall average for "professional occupations" (which you could easily argue is down to their holidays and final salary pensions). But over the last ten years, the percentage gap has been closing.

And the teachers illustrate something else we've blogged many times - the inefficency and unfairness of national pay scales. Whereas in London and the South East teachers might well argue they are underpaid, elsewhere - relative to local pay rates - they do very well:

So if you want to teach, go North or West. On no account choose London.

(Yet another reason for breaking up our huge national public service monoliths).

Insulating The Lazy Scapegoat With Rubbish

Swivel eyes not required to see this one

Unlike Tyler, Steve Bundred is no swivel-eyed small government zealot. He is a senior public servant, the head of the government's Audit Commission.

Yet on Sunday he told us:

"At a time when inflation is likely to be between 2% and 3%, a pain-free way of cutting public spending would be to freeze public sector pay, or at least impose severe pay restraint. This is especially true if real wages in the private sector are still falling.

Health and education will not be immune, partly for reasons of fairness to others, partly because the NHS is the world's third largest employer, and also because ministers will correctly assume that as public sector workers have done well over the past decade, they will tolerate some modest real reduction in earnings.

So whichever party wins the next election, we can expect a reduction of £5bn or more in real terms from public sector pay."

All eminently reasonable.

But needless to say, he has run into heavy flak from the promoters of Big Government. Pol says public sector workers should not be made a "lazy scapegoat":

"... just hold on to the basic fact that it is rare to find people who are not paid less by the state than in the commercial world. So when the cry goes up for all these feather-bedded public workers to "share the pain", will there be some idea that they should share in the good years too?

... If there must be spending cuts, don't let public sector pay be a lazy scapegoat for the nation's increasingly distorted pay structures."

According to Pol - and we've covered her arguments before - public sector workers are poorly rewarded relative to the private sector, so should not be penalised simply because we need to make savings and private sector pay is falling. In fact she reckons the entire argument is based on "rubbish statistics" cooked up by... well, waddyaknow - the TaxPayers' Alliance. She says:

"A rumbling campaign to squeeze the gold-plated, feather-bedded public workforce has been led until now by the TaxPayers' Alliance, using conveniently deceptive figures.

The TaxPayers' Alliance came up with the rubbish statistic that "state workers now earn an average of £62 a week more than their private sector counterparts," adding in the comment: "We cannot pay these enormous bills for people who are not creating wealth."

Conveniently deceptive? Rubbish statistics?

Pol may not have grasped this, but the TPA numbers are actually the official figures for median pay in the private and public sectors taken directly from the ONS's most recent Annual Survey of Hours and Earnings (ASHE), the definitive source of earnings data across the economy. And they show median pay of £523pw in the public sector, compared to £461pw in the private - so the typical public sector worker was £62pw, or 13%, ahead.

And remember that figure relates to April 2008. Since then, public sector earnings have increased by 3.6%, against only 3.1% in the private sector (see here). So the public sector has pulled further ahead.

And this is no short-term effect - here's the longer term perspective:

So public sector pay has more than kept pace under Labour.

Ah, says Pol, even if that's true, on a like-for-like basis, public employees are still underpaid relative to the private sector, because on average they are more professional. Whereas the private sector mainly employs the flotsam and jetsam of society, no fewer than a quarter of public sector employees are "professionals".

Now as we all understand, it's a mug's game trying to work out precise job comparibilities between the public and the private sectors - the patterns of business and employment are so different. But just so we know, here are the facts as the ONS records them:

So as we can see, the public sector does indeed employ more "professionals" than the private sector - in 2006 it was 22.5% vs 10.3%.

But at the same time, it employs far fewer "managers and senior officials", and virtually no "skilled trades" (aka highly paid professional plumbers).

Meanwhile at the bottom end of the scale, there is virtually no difference in public and private sector employment of "elementary occupations" (ie Pol's cleaners).

Or to put it another way, Pol's argument is conveniently deceptive. Not for the first time, she has been highly economical avec l'actualité.

So just to recap:

• Public sector pay is currently running at about £160bn pa
• Present plans are factoring in 2-3% pa pay increases
• Implementing a freeze would save us £4-5bn pa - cumulative

Now all we need is the will to face down the strikes...

Dave Needs A Bigger Axe

Still not big enough Dave

I'm sure Dave means well. And I've been assured by people who know far better that me, that once in power, he's really going to go for it.

But try as I might, I remain unconvinced by too many of his big set-piece pronouncements on fiscal policy. Too often, there's a gap between his high level rhetoric on downsizing government, and the delivery of clear bankable pledges.

I've just read his much trailed speech on quangos, and I had expected some serious axe-work. But what I actually found was just another round of deckchair rearrangement.

He starts well enough (and see this useful Times graphic summarising the costs of 33 large quangos):

"Official figures show that last year, the quangos we know about accounted for over £34 billion of public spending, and received a twelve percent increase in funding. To put that increase in perspective, our armed forces - fighting an ever-ferocious and resourceful enemy in Afghanistan - got a three percent increase."

Yes, shocking. And as the TaxPayers' Alliance has pointed out, once you take account of the vast and shadowy array of near-quangos, the real cost of these unelected unaccountable bodies is even higher. Dave goes on:

"Estimates suggest that when you take into account all official and unofficial unelected organisations in our country, the true cost could be more than £64 billion a year. That's more than half the NHS budget and nearly ten times the international development budget.

The truth is we'll never get control of public spending unless we get control of quangos. Their casual attitude to public money is reflected in quango pay. Last year, sixty eight quango heads paid themselves more than the Prime Minister."

Spot on, bro. But what are you going to do about it? Will you actually deliver that Bonfire of The Quangos promised by one G Brown back in the nineties?

Not quite:

"It would be far too simplistic for me to stand here and announce some kind of 'Bonfire of the Quangos.' People have heard that kind of talk many times before, and seen little to show for it. Instead, we need a more sophisticated approach.

Yes we need to reduce the number, size, scope and influence of quangos. But we also need to recognise that there are circumstances where functions of the state do need to be carried out independently of elected politicians."

"Sophisticated"... hmmm. That's a word that always makes me nervous.

And "circumstances"... like, what kind of "circumstances" exactly?

Dave cites three:

• TECHNICAL CIRCUMSTANCES - "when a precise technical operation needs to be performed to fulfil a ministerial mandate. In these circumstances the public needs to know that people with the right training, professional knowledge and specialist skills are carrying out the work".
• IMPARTIALITY CIRCUMSTANCES - "where it may be right to delegate power to an independent body when there is a need for politically impartial decisions to be made about the distribution of taxpayers' money. In areas like the arts and science, the public expects funding on merit, not favouritism."
• TRANSPARENCY CIRCUMSTANCES - "where there is likely to be a need for independent action is when facts need to be transparently determined." EG the independent Office for National Statistics.

Now, the transparency circumstances we agree with - we definitely need independent scorekeepers for things like the economy and the fiscal outlook. So a big tick on that.

But as for his other two circumstances, we don't buy them at all.

On the technical circumstances, of course government needs to employ technical experts - everyone agrees with that. But why should they be employed in an unaccountable quango rather than directly?

Dave cites the Bank of England as being an example of an expert body doing a fine job managing our interest rates because they are arms length. Except that it now turns out they didn't do such a fine job after all - they permitted the growth of a credit bubble to end all credit bubbles, and we are all now paying the price. Sure, you can argue about why they failed - like maybe they had the wrong mandate - but it's not really the strongest endorsement of rule by independent expert.

And on the impartiality circumstances, all we can say is WTF?

Why should taxpayers be happy with a bunch of "experts" dishing out their hard-earned cash to the Royal Opera House, just because these experts happen to enjoy opera? Or doling out grants to all kinds of dubious social research projects in our universities? Or indeed, deciding which particular drugs we are to be given on the NHS, and which we are to be denied?

Surely everybody understands that all of these judgements are ultimately subjective, so why should we be happy being dictated to be unelected "experts"? After all, the only sliver of control we've got over the entire bloated edifice is our ability to turn the rascals out. And with unelected experts we can't even do that.

No. To have any hope of gripping the waste and profligacy in quangoland, Dave needs to forget all about sophistication. He needs A Great Big Axe.

An Axe that says all quangos are hereby abolished, and their functions either abandoned or subsumed back into their sponsoring departments. Their budget allocations go back into the departmental spending pot, and are subject to the departmental spending cut.

The only exceptions will be the following:

1. Office for National Statistics - reporting to Parliament not Whitehall
2. Office of the Budget - ditto
3. National Audit Office - ditto

Yes. OK, there may be one or two others as well (see here for a good summary by Andrew Haldenby, the Director of Reform, and this by Ed West).

But going forward, the default position is no quangos.

No spending without representation.

UPDATE (7-7) - Last night's Newsnight covered Dave's speech, drawing extensively on input from the TPA. Not only did they quote the TPA's figures for spending on quangos, but they also had the TPA's Susie Squire in their report package, and the TPA's Mark Wallace in the studio discussion. Both managed to make the key point - Dave's on the right track, but still has to be tougher. And there was more - the TPA's Matt Sinclair trying to persuade Newsnight's Dragon's Den style politics panel to abolish the Regional Development Agencies. Sadly, he failed. But then, given that the 4 person panel includes an ex-quangocrat, an ex-Labour minister, and an ex-Labour policy advisor, that's not terribly surprising. Anyway, to have Newsnight drawing so heavily on TPA input really does show how far the wheel has turned... all the more reason for Dave to be bolder.

Doomsday Dossier Nightmare Scenario

There are nightmare scenarios, and then there are Nightmare Scenarios

According to the Sunday Times:

"Secret “doomsday” plans for 20% cuts in public spending are being prepared by senior civil servants, who fear politicians are failing to confront the scale of the budget black hole.

Whitehall mandarins have begun creating detailed dossiers containing reductions in expenditure that are far deeper than the more modest savings being proposed by Labour and Conservative politicians.

Senior civil servants have let it be known that they are sceptical about the claims made by both main parties on public spending. Mandarins, fearing a prolonged recession and a collapse in tax revenue, have begun planning for more severe cuts of up to 20%.

The dossiers will be handed to cabinet ministers the day after the next general election, whichever party wins."

Of course, the civil service always prepares secret plans for an incoming administration - Tyler himself was involved in just such an exercise at HMT ahead of the 1979 election. But usually the plans are based on each party's own announced policies and manifesto commitments.

In this case, the mandarins are having to work blind: Labour politicos ludicrously deny there's a need for any cuts, and the Tory leadership is still not facing up to anything like the full scale of the crisis (even the 10% cuts figure poor old Lansley blurted out is based on the official budget projections, which are far too optimistic - see previous blogs).

But 20% - that is a serious SERIOUS cut.

In cash terms, a 20% cut in 2010-11 would be £140bn, or around 10% of GDP. And even if it was phased in over say two or three years, it would still end up taking 10% out of our already weakened GDP.

And understand this - a 10% GDP whack is a huge amount. It's twice what we've lost so far in this slump.

Those green shoots that many commentators are currently bigging up would be exposed as the mirage they undoubtedly are. In reality, the only reason the economy is apparently levelling out now is that the government sector is taking the strain, both in terms of direct support and a much lower tax take. The mandarins know it is wholly unsustainable, and with 20% spending cuts, it goes into reverse quicker than a Gordo U-turn.

Ah, you say, that 20% figure will just be the mandarins' Worst Case Scenario. It will probably never happen.

Hmm.

The OECD reckons we'll be borrowing 14% of GDP next year, a banana republic style figure unprecedented in our peacetime history. International investors will demand it's addressed, and with tax revenues already out for the count, massive spending cuts are the only option available. And given the extent of that government borrowing (aka living beyond its means), a 20% cut is precisely the kind of magnitude required.

But there's worse.

As we all know by now, some elements of public spending cannot be cut.

Debt interest is one, and that is growing rapidly. Payments under PFI contracts is another.

Welfare payments - including unemployment benefits - could be cut, and almost certainly will be. But it will be very painful, and politicos will not relish being branded as Thatcherite grinders of poor faces.

Which means that the really savage cuts will be concentrated on our public services - the £400bn pa which comprises Departmental Expenditure Limits (DEL).

So let me see... a targeted £140bn cut from a spending base of £400bn... ahh... that's... er... well, bugger me! That's not a 20% cut... it's a 35% cut!

No wonder the mandarins are trying to bounce Darling into a public sector wage freeze (although possibly not for their good selves).

Triumphs Of The Commissariat

Where Commissars fear to tread

We really shouldn't keep knocking the Commissars. After all, they're only trying to give us A Better World. A world that is ordered, and fair, and peopled with... well, better people. It's entirely our fault that we keep letting them down.

Take schools. This morning we heard about another selfish parent attempting to circumvent the Gosplan allocation protocol for state school places. In this case, she used her mother's address in an attempt to get her son into a good school, and quite rightly, she was sent to a heavy labour gulag for intensive re-education prosecuted for fraud.

How many times must we be told? Everybody must know by now there are far too few good schools to go round, and it simply isn't acceptable for non-Commissariat parents to insist on priority for their own children.

Indeed, as Commissarette Fiona Miller told us this morning on the state broadcasting network, it's also unacceptable for petit-bourgeois elements to move house simply in order to get into the right school catchment area. She herself knows of a couple who moved in just down the road from the very dacha she shares with our ex-Information Commissar, specifically to gain access to the same excellent local school the young Miller-Campbells attend. Can you imagine such disgraceful behaviour!

And then there's the latest attempt by reactionary counter-revolutionaries to undermine the achivements of our glorious People's Health Service.

According to the so-called Commons Health Select Committee, one-in-ten NHS hospital patients is harmed as a result of the treatment received:

‘Tens of thousands of patients suffer unnecessary harm each year and there is a huge cost to the NHS in consequence... Government policy has too often given the impression that there are priorities, notably hitting targets, achieving financial balance and attaining Foundation Trust status, which are more important. This has undoubtedly, in a number of well-documented cases, been a contributory factor in making services unsafe.’

This is preposterous. Don't these idiots realise what a triumph the Commissariat targets have been? And when it comes to patient safety, you've only got to glance at the official chart to see how brilliantly things are going:

As everyone can surely see, in the last five years reported safety incidents at NHS hospitals have soared! It's a triumph of targeting, and a triumph of Commissariat planning.

Now why can't we all give credit where credit is due?

*****

So just how dangerous are our NHS hospitals?

As regular readers may recall, Tyler's Mum was a nurse in a pre-NHS flagship hospital (the Royal Devon and Exeter - now sadly down the NHS plughole). And as she always used to tell us, hospitals are dangerous places. The fact that people sometimes get harmed is not hugely surprising.

What we really need to know is whether things are getting worse or better - especially given all the cash government has been pumping into patient safety - and whether NHS hospitals are better or worse than industry norms?

And on those vital questions it seems we have absolutely no idea. As the Commons Health Committee says:

"55. The evidence... both in England and internationally, indicates that the extent of medical harm is substantial, even on a conservative estimate, and that much is avoidable. International studies suggest that about 10% of all patients who are admitted to hospital suffer some form of harm.

Judging how far patient safety policy has been successful requires more reliable data regarding how much harm is done to patients. Unfortunately, neither the NPSA nor the DH was able to provide us with that. Government estimates of avoidable harm and the attendant financial costs are extrapolations from old, very limited, data; and no attempt has been made to produce reliable up-to-date figures."

So there we have it. We are spending many tens - possibly hundreds - of millions on patient safety programmes and monitoring systems: the National Patient Safety Agency (NPSA) alone costs us £30m pa. Yet the reams of figures they produce are virtually useless.

It's yet another example of top-down tractor production management. Yes, there are always plenty of targets and numbers, but they are so distorted (in this case by self-reporting bias), they are meaningless and often downright counter-productive.

So how could we manage hospital safety?

Answer: copy the system we have with commercial airlines.

I know nothing about the technicalities of airline safety, or how it's delivered. But I do know that some airlines have been much safer than others. And those are the ones I fly with.

Once again, we need the good old market. Where the Commissars struggle, choice and competition would soon weed out any operators perceived to be dangerous. Yes, OK, we would also need some minimum safety regulation as well. But that could be achieved for far less cost than the massive and useless NHS "safety" bureaucracy we currently have in place.

Another one for George's List.

PS Tyler's flabbers were well and truly gasted by the tale of Tereza Tosbell (pic above):

"A patient was so disgusted at the "filthy" hospital ward she was being treated on that she forced herself out of bed and cleaned it while still attached to a drip. Tereza Tosbell, 48, who works as a cleaner, became angry as she watched hygiene staff at work and claims their brief visit left the room as dirty as they found it. So she tracked down cleaning materials and attacked the sink, radiator and curtain rail she said had not been wiped by the official cleaners in Colchester General Hospital. "It is shameful that the cleaners just wiped the basin with a paper towel and totally ignored the taps which are the most important part. The radiator was filthy, there were cobwebs on the curtain rail round my bed and you could write your name in the dust on the windowsill," said Miss Tosbell."

And what did Colchester General Hospital have to say for itself?

"We have had a number of unannounced hygiene and cleanliness inspections by the Healthcare Commission and all wards inspected have been found to have a good level of cleanliness and maintained in good general repair. In the annual health check ratings for 2007-2008 we scored maximum marks for safety and cleanliness."

Maximum marks huh? Do we believe the Commissariat tractor stats or the customer? Tricky.

OECD Verdict On Labour

The OECD has just published its latest Economic Survey of the United Kingdom. And it's a pretty damning verdict on 12 years of Labour government.

To start with, the OECD reminds us exactly where Brown's, ahem, "economic miracle" came from - a huge government spending splurge, combined with easy credit.

On government spending, the following chart graphically illustrates how spending soared after Brown turned on the taps in 2000 (right hand panel). In the following 8 years, it rose by getting on for 10 percent of GDP, and that at a time when GDP itself was rising strongly:

So from being comfortably below the average of other G7 countries throughout the nineties, the UK's public spending burden overtook the average in 2005, and has not looked back.

And as the chart also shows (left hand panel), a large chunk of that extra spending was funded by increased borrowing. Again, Brown moved from borrowing roughly the same, or less, than other governments (as a percent of GDP), to borrowing more than the others - and that of course, is only the official debt, not including off-balance sheet Enron items.

Easy credit was not confined to the public sector. The OECD highlights the fact that the UK's private sector credit boom was allowed to become much more extreme than elsewhere, largely through our extraordinary house price/credit spiral:

"Although the credit cycle touched many assets and countries, the UK housing cycle was particularly intense: nominal house prices more than doubled in the ten years to their peak. The asset-price and credit boom was self-perpetuating for a time, as easy availability of credit stoked demand and raised asset prices, which in turn increased the value of collateral and engendered further borrowing. In the end, this proved unsustainable."

The following chart shows how our house prices spiralled way beyond even the excesses in the US, and have still not got back on track:

It's a right old Labour mess.

And where do we go now?

The OECD emphasises the vital importance of clear fiscal rules, setting out a clear path back to sanity. However, crucially, the new rules must deal with spending as well as borrowing, they must encompass Enron debt, and they must be honest about so-called fiscal drag:

"The original fiscal rules could be amended in a number of ways, rather than being reinstated. The reformulated rules should be forward looking, ensure medium-term spending discipline and account more explicitly for off balance sheet public liabilities. Finally, income tax thresholds and national insurance thresholds should be linked to wage, rather than price inflation so that fiscal drag is handled more transparently."

Spot on.

We have long called for such rules, and in current circs, they are more vital than ever.

We simply cannot leave things to unfettered political discretion. Not only would that consign us and our grandchildren to a life of low growth, high debt, and high taxes, but more immediately, it would expose us to a collapse of market confidence, even worse than we saw in the sixties and seventies (eg see this blog). And trust me - we really don't want to go there.

So let's have one more go.

George, if you're listening, please tell us you misspoke yourself in Birmingham last October (see this blog). Please tell us you do agree with the OECD, and that Britain does needs clear fiscal rules, including a spending rule. And please tell us what those rules are going to be.

Because I'll tell you this: if you don't set out a medium term fiscal strategy - backed up by clearly stated rules - you are going to have an even tougher time as Chancellor than everyone is now saying.

You are going to be making swingeing public spending cuts, but they will not be embedded in a bankable strategy, the kind of strategy the markets will demand. You are going to be facing down the howls of anguish all around you, without even getting the market credit you will need.

Indeed, the louder the howls, the more the markets will worry about a Heathite U-turn. You will stand in real danger of repeating the experience of the Wilson government - a whole series of hand-to-mouth emergency budgets, all of which cut spending (and raise taxes), but none of which get you on the front-foot with the markets.

Is that what you want?

Cos that's what you're going to get.

PS There are a number of other interesting charts in the OECD report. Here's an update of one we've posted before, which shows how - despite all the promises and all the plans and all the best intentions in the world - Britain is top of the OECD league in terms of social immobility. Specifically, the chart shows what's known as Intergenerational Earnings Elasticity - the extent to which your parents' income level determines your own - the higher the parameter, the higher is the persistence of earnings across generations and thus the lower is mobility:

So after 12 years of Labour's fairnessandoppportunityforallthemanynotthefew what are we to make of that? Speaking as someone who had the great good fortune to grow up on a council estate, and progress via state grammar school to Oxford University and a well rewarded career in the City, I have absolutely no idea. It's a complete mystery.