Monday, July 31, 2006

Britain's Simple Shopper

Are you sure this is normal industry practice?

As we've blogged before, the government is Britain's biggest customer. Every year it spends about £170bn of our money among its chosen commercial suppliers: that's about £7,000 for every household, which to put it in perspective, is five times more than Britain's biggest retailer Tesco spends among its suppliers.

The government buys everything from drugs and arms, to computer systems and management consultancy. And all the evidence is that it's an innocent at large, routinely paying through the nose for goods that are not what we need.

Two more examples have hit the news recently. First, the appointment of a commercial buyer for £4bn pa of NHS supplies: Texas-based Novation will reportedly take over the purchasing and distribution of everything from bandages to hip replacements.

Novation is a GPO (a group purchasing organisation), that have plied their trade among US healthcare providers for many years. They bulk up orders, negotiate hard with end-suppliers, and get low prices for clients. At least that's the theory, and just like PFI, in theory they could offer a good deal for taxpayers. But as always, that Detail Devil means there's a big gap between theory and practice. It only works if the government is capable of negotiating a watertight contract and then managing its implementation.

In the US, where everyone's got actual experience of these contracts, Novation and other GPOs are in big trouble:

"The US Justice Department launched an investigation into the company and other GPOs over claims that they had overcharged federal healthcare programmes for goods.

GPOs are controversial because of legislation that allows them to accept “kickbacks” from suppliers. The size of these payments depends on the size of the contract, which means, critics say, that GPOs inflate costs to increase their fees. So complex are the relationships between suppliers, GPOs and hospitals in the US that understanding who profits most is difficult."

Which is clearly a major problem. How would you ever know you'd got a good deal? The NHS reponse is said to be a contract that emphasises price. But sadly life isn't that simple:

"In one recent case a contract for surgical gloves was awarded by the NHS to a low-cost provider. The NHS boasted that the reduction in cost meant a saving of several hundred thousands of pounds. But to get the same protection from tearing or perforation, health workers had to wear two pairs of the gloves, negating the savings."

So do we think the Department of Health will be able to manage a big American GPO that's hungry for international revenue to offset pressure in its litigious domestic market?

More likely, it will follow established practice, highlighted in our second recent case: the decision by HM Customs and Revenue to pay bidding suppliers for its new £3bn IT system (ASPIRE) just for putting in a bid. In the words of the National Audit Office:

"It is not usual practice for the purchaser to create the competition by contributing to firms’ costs of bidding, paying the winner’s costs in taking over from the existing supplier, discounting the transition costs for the purposes of comparing bids and paying the incumbent supplier to effect the transfer."

It certainly isn't "usual practice"- in fact I can't think of a single case of such payments in the commercial sector. The normal rule is very clear. If you want to pitch for new business, you pick up the tab. But:

"In the case of ASPIRE the premium paid by the Department to secure a competition was £8.6 million in contributions to bidding costs, and £43.3 million in paying for contractors’ transition costs."

IE over £50m of our money just to get the suppliers out of bed.

As we've said before, Big Government is a hopeless and naive shopper, routinely wasting squillions and coming home with stuff that doesn't work properly. We'd all be much better off if we did our own shopping directly.

PS This latest HMRC snafu happened on the watch of Sir David Varney, who'd sometimes been thought to be one of the few "good guys". See this Observer piece on how that fits with his move to HMT.

PPS That eye-popping pic is the front cover of the NAO's ASPIRE report. Who says accountants don't have a sense of humour?

Sunday, July 30, 2006

Recent Bonfires- 25

Yorkshire police wasted £1m on unwanted merger plan- "A YORKSHIRE chief constable claims the Government's aborted attempts to create a White Rose regional super force...cost to all four forces in excess of £1m... the region's police chiefs were planning to form a powerful conglomerate to bill Home Secretary John Reid for wasted police time." (Yorkshire Post 25.7.06)

Welsh police wasted £1m on unwanted merger plan- "Ian Roberts, chair of the north Wales authority, which opposed the merger, said ministers would be billed for costs such as staff and legal advice. "This exercise in futility has cost £375,000 in north Wales alone and across Wales as a whole the bill is likely to be in excess of £1m. It is not right that the council taxpayers of north Wales should be expected to pick up the financial pieces of the merger mayhem that was imposed on our force and the police authority." (BBC Wales 21.7.06)

Kent police wasted £243,445 on unwanted merger plan- "Kent Police said it has written to John Reid setting out why it should be reimbursed £243,445 it spent on the scheme... "in view of the fact that we did not have a choice as to whether to compile the business cases we are obliged to recover the substantial costs incurred"... the "incredibly short timescales" in which the force had to respond affected day-to-day policing... staff had "no opportunity to plan effectively and mitigate the impact on the organisation and key individuals... senior police officers and staff diverted from policing Kent and Medway to attend Home Office and regional meetings." (Yorkshire Post 29.7.06)

Sussex police wasted £1m on unwanted merger plan- "The ditched plans to merge Sussex and Surrey have cost the Sussex force £1 million. Sussex MP Nick Herbert...said: "It was a serious mistake to embark on forced mergers which were expensive and would have reduced local accountability." (This is Hertfordshire 19.07.06)

Unwanted police merger total for week- £3,243,445 (and counting)

US Tax-Cutting Lessons


Good blog at The Business on what we should be learning from US tax-cutting experience. A few snippets:
  • Since the Bush tax cuts in June 2003, America has increased the size of its entire economy by 20% – or $2.2 trillion, roughly the same size as the total Chinese economy
  • The UK Chartered Institute of Taxation has 13,000 members now, some 4,000 more than a decade ago
  • Tolley’s Yellow Tax Handbook now has a colossal 9,050 pages, twice as thick as when Brown took office

Makes you think...or at least, it should do.

Saturday, July 29, 2006

On Penny Lane The Council Starts Another Money Fire

Thank God the money ran out first

Setting aside the slave trade, Liverpool's biggest ever contribution to world culture was of course the Fab Four. IIRC they were not subsidised by taxpayers.

It's a different story today, with the City's taxpayers routinely shelling out a million quid to subsidise "Summer Pops" concerts.

But much worse is to come, in the form of the moneypit bequeathed by ex-Council Chief Exec Sir David Henshaw of CSA (qv here): the European Capital of Culture 2008.

As you might expect, projected costs are vague and open-ended. In May 2003 the Council priced its "core cultural" projects at a scary £1bn. But as the Times reminds us today, large chunks of that "plan" have already been abandoned- in particular, "Will Alsop’s Cloud building, also known as the Fourth Grace, which helped to win the Capital of Culture bid, was abandoned after its price tag of £324 million scared off the public funders."

Tensions are rising among the organisers. The artistic director has abruptly resigned amid complaints that she “was booking acts that had little resonance to Liverpool, and her programme offered no popular culture, just highbrow acts such as aboriginal nose-flute players”. The final straw was when she blew £250,000 on some wacky event that only attracted 600 people, and them mainly on free tickets.

So just like the Dome, with only eighteen months to go, the whole thing is rudderless. Blood Brothers scouser Willy Russell says “I have no sense of Capital of Culture being under any effective control.”

And unlike the Dome- almost certainly completed with last minute assistance from 5,000 illegal Albanian labourers- Liverpool will have to work within diktats laid down by its famous brothers. The T&G is already saying "We call on Liverpool City Council to become actively involved in making sure that health and safety is the priority on all the building projects in the city. We want a city of culture, not a city of carnage." Which sounds horribly horribly expensive.

It's another case of costs are going through the roof, while content is pared back to the bone. If you're a Liverpudlian Council Tax payer, the best advice is to move.

Pic: The abandoned Fourth Grace as it would have wrecked Liverpool's Pierhead, from Save Our Skyline

Friday, July 28, 2006

Great Ape Film Initiative


Laugh? I nearly died

There were you thinking that the Department for Environment Food and Rural Affairs was all about supporting Britain's farmers and keeping our land green and pleasant. How wrong can you be?

It turns out one of Defra's more bizarre and least measurable objectives is "to significantly reduce the rate of loss of biodiversity by 2010 globally."

And today, while swinging through Kuching, Malaysia, Defra's Biodiversity Minister- one Barry Gardiner- "pledged over £100,000 in UK support for projects to protect great apes". This includes £20,000 for the Great Ape Film Initiative, whose "unique approach" doesn't even make films per se, but "negotiates for major broadcasters to screen great ape films around the world."

Why on earth does Defra think this is an appropriate use of British taxpayers' money? Quite apart from the fact that we are forever being fleeced to sub our underperforming film industry, what have great apes got to do with our food or countryside? How many other obscure biodiversity projects are these clowns blowing our cash on around the world?

Little wonder Defra is such a strong contender for Britain's Very Worst Government Department (see this blog).

Cruisin With The Highways Agency


What?

"The Agency has no grip on the costs of its major road projects; is managing a property portfolio it should not possess from expensive offices it should not be using; has only a limited idea what some of its staff are actually doing; and has failed to build a constructive dialogue with local communities over road planning."

That's the damning verdict from the HoC Transport Committee on the Highways Agency. (You may feel such a verdict could apply to virtually any organ of government; Ms Dunwoody couldn't possibly comment).

We've blogged the hopeless £2bn pa HA before (here), and it's attracted a regular stream of rock-bottom report cards over the years (eg last year's NAO report). In terms of the story so far, you will recall when Prezza was put "in charge" of transport in 1997, he ludicrously promised to cut traffic congestion without the need to build more roads (see previous blog). After that particular wishful thought collapsed, his successor executed a panicky U-turn into a new £7bn road programme, never a recipe for good value.

This latest report gives us an update on the programme's shocking lack of cost control. For projects which entered the HA's "Targeted Programme of Improvements" before 2003, construction cost overruns are likely to push up final costs by 50% , and the portents for later projects are not good. The Committee estimates a combined overrun of maybe £2bn, and starkly concludes the Highways Agency "has lost budgetary control".

Well, that's just brilliant.

Other snippets of incompetence: HA has only "a rough idea" how many administrators it employs, or how much time its staff spend on administration; HA doesn't know whether its experiment with 1,000 deskilled "Traffic Officers" patrolling motorways instead of police has been a success; "the HA has 29 full time staff managing property contracts. This is 29 too many. The Committee has not seen any justification however why the Highways Agency, which is in the roads business, should have a property portfolio at all."

Guh.

PS I've been trying the Opposites Test on "Targeted Programme of Improvements". Is there an untargeted programme? Is there a programme of worsening? I think we should be told.

Thursday, July 27, 2006

Value For Money Porridge

Cultural porridge fusion

Hard on the heels of Riveria Ray's call-a-cab jailbreak, news of another felon who's absconded by simply walking out of an open jail.

And just like VAT-fraudster Riviera, Farah Damji is another fantastickal pantomime baddie who has no idea how to distinguish right from wrong:

"Convicted of fraudulently spending nearly £50,000 on luxury goods, using credit cards stolen from her nanny and a former employee at Another Generation, an Asian lifestyle magazine. She also impersonated David Blunkett's secretary, and two members of the Crown Prosecution Service, in a failed attempt to have the charges against her dropped....She had served a six-month jail sentence at New York's Rikers Island jail in 1995 for grand larceny and forgery."

To add a bit more zing, this mother of two even had well-publicised affairs with William Dalrymple and "a prominent executive at the Guardian". Unsurprisingly, her trial judge described her as "a thoroughly dishonest and manipulative woman".

So naturally they sent her to an open prison, Downview, where she could go on taking the piss. And guess what: she's now left.

Ah, you say, but at least open prisons are cheap. With cheap porridge, you've got to expect a few lumps.

But but but...Downview isn't cheap. In 2004-05 it cost £32,029 per place, which compares appallingly with £24,809 at the Scrubs, and is only a bit lower than no-shit Styal.

The Major points out that book-ahead Supersaver rooms at Travelodge cost as little as fifteen quid a night, equals £5,475 pa. Add in a fiver a day for food, call it £7,500 pa. Plus he reckons Mr Gomulka would cut us a very reasonable deal on an Albanian armed response unit, who would certainly give Riviera and Farah pause.

PS Indophile Dalrymple hilariously explained his thoughts on cross-cultural screwing to the Sunday Tribune: "ST: Are you, through the main theme of love affairs between British officers and native Indian girls, suggesting the feasibility of cross-cultural exchange and intermingling of eastern and western civilisations? WD: Yes...The White Mughals were not perfect. But these guys were attempting to build bridges. At a time when it is being said civilisations can fuse, it is important to show that they can." At least he's not just talk.

Wednesday, July 26, 2006

£215m For Chaotic Pyramid

Why? Why exactly should taxpayers be forced to pay £215m for the Tate's 230 ft high "chaotic-looking glass structure featuring huge blocks protruding from a pyramidal form"?

Tate Director Sir Nicholas Serota explains:

"It would be opened in time for the Olympics in 2012, when “the eyes of the world are on London”. He spoke of a new museum for the 21st century, a landmark building that would form one of the most exciting new cultural quarters in Europe — “a symbol of creative Britain”.

“Tate needs to improve facilities so that visitors have enough space to enjoy and appreciate exhibitions and displays. Many of the comments made by visitors each month refer to the congestion within the building.”

Nick, mate, none of that explains why I should shell out £215m. First, we're already crushed by the ballooning costs of the Olympics (see many previous posts)- the last thing we need is to add on yet more. Second, isn't the existing Tate Modern enough of a "creative symbol"? After all, you keep boasting how it's the most visited gallery in Europe.

And third, that overcrowding could be sorted quite easily. Just charge an entry fee.

I don't want to pay any more taxes for your art galleries. OK?

PS Don't take this too personally. Mrs T already supports you through her Tate membership, and we regularly buy your overpriced exhibition catalogues. And we regularly visit you to spend money. But we're choosing to do all that, and don't want to be subsidised by the taxpayers of Scunthorpe.

Tuesday, July 25, 2006

CSA: Babies And Bathwater

We've blogged the disastrous Child Support Agency many times (eg here and here). So obviously we're glad to see the back of it. Aren't we?

Hmm. The problem is the Henshaw Report doesn't tell us what's going to replace it. It recommends setting up a smaller leaner meaner fitter blah blah agency, but it really gives us no idea what it would look like. It just calls for more reports.

And for taxpayers, there's one big issue that's missed completely. What would Henshaw's policy reforms actually cost us? Having now read his 79 page report, I can find no mention of cost.

Let's recap the basics. The CSA was originally devised as a way of forcing errant dads to pay for their kids, rather than the state picking up the tab- a problem as old as welfare. But despite vast spending on people and rubbish IT systems, it's never delivered the goods, and now has a backlog of more than £3bn in unpaid maintenance. As the report says: "Cost-efficiency for the taxpayer has consistently been poor. In 2004/05, the CSA recovered £120 million in Income Support expenditure against costs of £425 million".

Yep. A major problem. And as a taxpayer you have to say, £120m is pathetic against the £11bn pa the state spends on single parent benefits. We never had the sex, so why should we pay for the kids? Better get the Major's debt recovery friend Mr Gomulka on the case soonest.

But you can dream on- Henshaw's recommendation is that we should just pay up and forget about trying to recoup any of it. "Relieving child poverty" is now to be the overwhelming prority, and in future, CSA Mk2 will hand over all the money it collects from the deadbeats to their "families". So for them any maintenance payments will be on top of state benefits.

Apart from the cost, there's a Big Big Problem with that, well summarised by the redoubtable Frank Field:

"The message would be clear. If families can draw income support, and keep the maintenance payments, the incentive would be on all too many families to claim that they had been deserted but to carry on living together and claim benefit.

Of course there would be those who claim that such a concern is massively over-emphasised. They will be the same voices that countered those of us who were concerned about the ease at which it was possible, fraudulently, to claim tax credits. It would be lovely if we were back in the Garden of Eden where all of us were running around without an untoward thought in our heads. But we aren't."

Needless to say, Henshaw simply assumes the problem away. He asserts "research shows little evidence of this", but doesn't elaborate- for obvious reasons.

In reality, Henshaw's plan fixes nothing. By throwing in the towel, it further incentivises separation and fraud, and will cost taxpayers a fortune.

We're back to a very familiar issue. None of us wants to see children dying in gutters, and most of us are prepared to pay some tax to prevent that. But we escaped that kind of poverty half a century ago. Our present welfare system is too generous and breeds dependency. Reducing still further the financial responsibilities of parenthood ain't going to help.

PS We've blogged Sir David Henshaw's dubious credentials for this remunerative job before. The Report not only records how much he got paid (£65 grand plus £10 grand expenses), but also rather pathetically spins his CV, claiming "a degree at Sheffield in Public Administration", implying the Uni rather than the Poly he actually attended. It also unaccountably fails to mention that the Audit Commission put his Liverpool Council in the bottom 2% of all councils for value for money.

PPS One of Henshaw's wackier suggestions is to somehow force single mums to record the name of the father on the birth certificate, presumably as a condition of state support. This has been tried before: iirc, under the Poor Laws, single mothers could only get help from the Parish if they named the father, who could then be made to pay. The trouble was, they often paid some unemployed cripple to claim paternity so the real father got off, and the parish had to pay anyway. 150 years ago, my Great Great Grandmother was born illegitimate in a small Wiltshire village. Her birth certificate records no father, so presumably my ggg Grandmother got no parish help. The Census records her living at home with the babe and her family, and I would guess her father- my gggg grandfather- the local blacksmith, would not have been wholly amused. Which must have been fun.

Note For The Record: Special Advisors


"THE wages of spin have risen to £5.9 million for 84 special advisers, the highest annual figures recorded since Tony Blair came to power in 1997.

Downing Street employs 25 of the publicly paid political appointments, outnumbering members of the Cabinet by two. Opposition parties yesterday renewed their calls for limits on the numbers and influence of special ministerial advisers through a Civil Service Act.

Three of Mr Blair’s advisers are on the top salary level of £100,900 to £136,500. They are believed to include Jonathan Powell, the Chief of Staff, and David Bennett, head of the Policy Directorate and a former executive with McKinsey."
(Times 25.7.06)

Monday, July 24, 2006

State Holidays Commissariat


£8m luxury

Mrs T and I have long been satisfied customers of Helpful Holidays of Chagford, Devon. They manage some of the best Westcountry holiday rentals going, and are always...well, exceptionally helpful.

Incredibly, the state has now decided to use £8m of our money to put them and similar operators out of business. DCMS quango Visit Britain has set up something called EnglandNet, described as a "one stop 'Virtual High Street' for English Tourism". This will substantially undercut private management companies in what they charge rental owners, and so undermine their businesses.

Unsurprisingly, Helpful has joined with other operators to oppose this outrage: they have taken the case to the European competition authorities.

Quite what Visit Britain thinks it's playing at is unclear. It seems to be one of those mad "we can sweep away all this untidiness and re-order the World" type things so beloved of Big Government. That's cost us eight mill.

Luckily for Helpful, since neither Mrs T nor I want a fortnight at the Heroes of the Revolution Regeneration Camp on the Black Sea, we'll be sticking with the Heroes of Chagford.

Sunday, July 23, 2006

Feeding The Olympics Monster

With just two years to go, the People's Republic is paying a bloody price for finishing everything in time for the 2008 Olympics:

"If dangerous working conditions and some of the lowest wages in the world were not enough to contend with, the legions of migrant labourers are now being asked to sacrifice their lives. Among the many slogans hung around the huge Olympic Village to spur on the 2,000-plus workforce is a banner proclaiming: "The quality of work is more important than life".

And workforce deaths have reportedly been spiralling to match the Orwellian slogan.

Of course, it won't be like that in London. Thankfully, our migrant construction workers will not be required to pay in blood.

But the pressure will be just the same. And all we'll have to cope will be taxpayers' money.

Lots of it.

Civil Service Corruption


Outside Lunar House, Croydon

British Civil Servants used to be world famous for their incorruptibility. They took pride in it. A John Poulson might corrupt a Home Secretary or those low-grade local government officials up North, but Her Majesty's Civil Service was pretty well immune.

No longer. Today we hear that the sex for visas scandal in the Immigation and Nationality Directorate is not just "isolated incidents of unprofessional behaviour", as we were assured in May, but a full-scale breakdown in the basic integrity of the operation.

It turns out that in 2004-05 alone there were 703 cases of alleged corruption, among just 15,000 employees. As usual these days, the numbers are confused, but we do know that "31 employees have been referred for prosecution and 79 for disciplinary action. Hundreds of cases are still under investigation."

Note this is not a problem of under-resourcing, or poor operational management. This is a problem of British Civil Servants who think it's perfectly OK to demand sex and cash in return for granting applications. Something that might always have been expected at a Nigerian roadblock, but not until recently in Croydon.

It is an outrageous situation, confirming our worst fears about the deterioration in Civil Service standards.

How on earth has it happened? How has our once incorruptible Civil Service come to this?

Could it perhaps have something to do with the watering down of entry standards to meet Labour's ethnicity and gender mix targets?

Pick up any departmental report and you will see how important these targets have been since Labour came to power. In fact, the number of pages devoted to explaining how the department has been getting on with them can easily exceed the coverage given to the department's actual real functions.

And on the Home Office specifically, David Green of Civitas says:

"In 1999 the Home Office was set a target to ensure that 25 per cent of its work force in London was from ethnic minorities by 2009. It exceeded the target by the halfway stage in 2004 and ethnic minorities now make up more than 38 per cent of head office. However, the Home Office "milestone report" also drew attention to an unwelcome side-effect.

Members of ethnic minorities have not performed as well as white staff in Civil Service examinations. Civil servants who hope for promotion attend "assessment centres", where they take written tests, carry out exercises and are interviewed. The pass rate for minority ethnic staff was "lower than for white staff".

The poor results were despite the efforts of "the Network" - the Home Office network for minority ethnic staff - which arranged additional training. It was taken for granted that the "disappointing" pass rate was the result of "adverse impact" and consultants were brought in to recommend how to reduce it. Measures included "reducing the number of skills to be assessed" and "allowing candidates more time for the exercises". In other words, the pass rate was to be increased by making the exam easier, even though extra tuition was already being given."

Many officials, police officers and others have watched in stunned disbelief while recruitment on merit has been discarded to meet ethnic targets. They quickly learnt that it was best to keep quiet, and staff who spoke up in favour of fair procedures found themselves in hot water for "inappropriate behaviour".

Yeah. Sounds about right. In chasing after yet another half-baked "equality target", they've screwed the Civil Service.

And now we're paying the price.

Recent Bonfires- 24

In the news this week:

£21m (plus) on unnecessary NHS ops- "Patients are being forced to undergo painful, unnecessary and ineffective treatments in the NHS that are wasting billions of pounds a year, according to the Government’s chief medical officer. His report identified... if tonsillectomies were administered to the entire country at the same rate as they are given to well-off children, around 8,000 fewer operations would be performed every year and £6 million saved...also..."If the average rate of hysterectomy in England could be reduced to that achieved in the 20 per cent of the country with the lowest current rates, then 5,900 operations, costing £15 million could be avoided per annum." ( Times 21.7.06)

Tardy Met runs up £44,040 hotel bill- "The Forest Gate Two and their family have been living in a four-star hotel for more than seven weeks - at a cost to the taxpayer of up to £30,000 a month. The Metropolitan Police is picking up the bill because the raid in which the family's home was torn apart in the hunt for a chemical bomb resulted in false arrests. A police spokesman explained that the force was obliged to foot the bill for accommodation until it had engaged and paid for builders to restore the property. However, neighbours said that they had seen no activity or building work at the terrace house since the forensic teams left the scene on June 10." (Sunday Telegraph 23.7.06)

£10,000 for Buddhist maze meditation-"The Department for Environment, Food and Rural Affairs spent more than £10,000 sending top staff to meditate about world peace in a Buddhist maze and watch actors show them how to stop bickering and concentrate on work." (Mail 13.7.06)

£594,370 bill for stolen satellite phones- "Taxpayers were left to pick up a telephone bill of nearly £600,000 when three of the Foreign Office's satellite phones were stolen in Iraq. An astonishing catalogue of errors meant that the thieves were able to carry on using the phones for up to a year before officials discovered what had happened. The telephones were sent to Iraq in September 2003...but diplomats were not told they were coming, there were no records on whom the phones were issued to and there was nowhere to store them securely. In a further lapse, the phones were activated in Britain before they were sent, which meant that anyone could use them. A junior official had "raised concerns about the high cost and usage of satellite phones in Iraq" but senior officials failed to take any action." (Telegraph 21.7.06)

Total for week- £21,648,410 (plus)

Saturday, July 22, 2006

Cost Effective Justice- 3 Strikes


This interesting chart was published by the Home Office last year. It shows the two-year reoffending rates of convicted criminals plotted against the number of times they have gone to court or received a caution. As you can see, once they've had three such "sentencing occasions" the risk of reoffending goes over 50%.

The Major and I reckon it underlines the need for our own 3 strikes policy.

Come on Reid - scrap the Probation service (£1bn pa) and get started on those prison places you keep wittering about.

Benefit Fraud International

Since well before the Poor Law, fraud has been a major problem with all benefit systems. State handouts are a honeypot not just for those undeserving poor, but increasingly, for organised criminal gangs.

Here in the UK, we spend around £150 bn pa on "Social Protection", and according to the National Audit Office, 2.3% of that is lost to fraud and error. But the average includes state pensions, where fraud is low because it's difficult to lie about your age. Within the more discretionary benefits, fraud is much higher: 5% or more for Housing Benefit, Income Support, and Pension Credits, for example.

A new report from the NAO looks at the prevalence of benefit fraud around the world. Among the countries examined, Ireland tops the chart, with 7% of all benefits lost. But even in hard-hearted America, fraud in income support programmes is put at 5%.

More surprising is that some of the really big spending governments do not monitor fraud at all, France and Sweden being prime examples. How long before their taxpayers wake up?

Friday, July 21, 2006

Whaam!


The public finance figures for April-June blow a pretty big hole in Gordo's Budget projections. With June's borrowing figures the highest on record, the first quarter of the 2006-07 financial year was a disaster:

  • Borrowing was up by £3.4bn compared to 2005-06- whereas the full year projections call for a £2bn fall
  • Receipts were up, but only by 5.1% compared to a forecast of 6.2%
  • Public spending is soaring - up by 8.4% compared to a forecast of 5.2%

Clearly it's spending doing the damage, so what's going on? The Treasury says it's simply a matter of timing- health and education spending is taking place a bit earlier this year, and it will all get clawed back later on.

Hmm.

What we really need to know is why should the timing change? Could it by any chance reflect desperate efforts at the end of the last financial year to keep spending down so as to prevent ballooning NHS deficits causing too many red faces among the Commissars? Spending that has been shunted into this financial year.

Because if that's the case, it means a big BIG problem for early 2007. And if you're planning to get sick you might want to do so well before then.

This is no way to run a modern art collection.

Picture: Whaam! by Roy Lichtenstein at Tate Modern

Gershon Meets The Secret Squirrels

We've blogged the surreal Gershon "efficiency" programme so often everyone's getting bored. But yesterday's damning PAC Report is a reminder 0f just how crass the whole thing is (see here for our blog on the PAC meeting concerned):

  • "The great majority of projects carry a high or medium risk of reported gains not representing real efficiencies....reported efficiency gains should continue to be considered as provisional and subject to further verification
  • At the start around 180 of the 300 major projects lacked baselines...now reduced to just over 100.
  • Claimed efficiencies do not take into account the costs incurred in achieving them... Most of the efficiency projects require up-front investment in order to achieve the benefits in the longer term and many will entail on-going running costs
  • Most of the projects already existed before the Programme was launched
  • Greater assurance is needed that the quality of public services is not being adversely affected
  • Less than half of reported efficiencies will release cash
  • The Programme has received two red Gateway Reviews and remains at high risk"

On the last point, the PAC points out that 80% of the £21.5bn supposed savings are projected to come from less than 20% of the projects. So the whole programme is highly exposed to those particular projects failing.

At the same time, we know that none of the programmes is rated (by the Office for Government Commerce) as having a "good" chance of success, whereas the proportion rated as "highly problematic" (ie forget it) is creeping up:


This is an important issue, and as Britain's principal public watchdog on the use of taxpayers' funds, PAC asked which departments have been rated as "problematic". But the government refused point blank to tell them. The Secret Squirrels defence was wheeled out, on the argument that OGC's ratings are confidential "policy advice" rather than "facts".

Facts? Facts? Que?

We think the Squirrels are confusing themselves now. As far as we're aware, there are no actual facts involved in any aspect of Gershon. We thought everybody agreed on that.

So if they're going to use that defence, perhaps Gordo would do us all a big favour and shut up about the whole wretched thing.

Thursday, July 20, 2006

MPs Snuffle Expenses Trough

Our MPs have really surpassed themselves at the trough this time. They've spent so much that the National Audit Office has actually been forced to qualify their accounts:

"In 2005-06, the House of Commons Members Estimate expended more resources than Parliament had authorised. By so doing, the Estimate breached Parliament’s control of expenditure and incurred what are termed “excesses” for which further parliamentary authority is required. I have qualified my opinion on the House of Commons Members 2005-06 Resource Accounts."

Part of the overspend was caused by the ballooning cost of their gilt-edged pension scheme (see here). But more astonishingly, the rest came from the speed at which some MPs got their snouts stuck into a brand new expenses trough, thoughtfully wheeled into the sty just last year:

"With effect from 1 April 2005, Members were allowed to transfer up to 10% of their annual Staffing Allowance to their Incidental Expenses Provision allowance... The Department did not anticipate that the increased flexibility between allowances would lead to significantly higher overall expenditure..."

The Department clearly doesn't understand MPs very well. Spending on "incidental expenses" is obviously far more attractive than spending on staff, and 228 MPs immediately got stuck in. Another £8,400 pa comes in pretty handy if you've already maxxed your stingy £20 grand IEP allowance. And it's not as if taxpayers will really notice: the whole lot only comes to mere £156,598,000.

Snuffle.

Postcards From A Parallel Universe

The Cabinet Office has just published the first of its departmental "Capability Reviews". According to the Beloved Leader they "mark a watershed in the history of British public administration". Yeah. Right.

The one that's received all the publicity is that for the Home Office. And no wonder: here's the scorecard:

That sludgy yellow colour means 'useless'. Red means positively dangerous. So unless you can somehow convince yourself Reid's musical chairs is going to fix things, our advice remains the same: get tooled up asap.

So what about the other departmental Reviews?

The Department for Education and Skills- those guys who've dumbed down our schools and who run our useless £9bn pa "skills" industry- were so pleased with their grades that they've been crowing about them all day. But it was hardly A*, and might not even have scraped a pass in the old O levels. And the Department for Constitutional Affairs- despite having Lord Crony at the controls- supposedly did even better.

But for real fantasy stuff you need to check out the Department for Work and Pensions scorecard:
Difficult to square this with the disaster that is DWP. My eye was caught particularly by the assertion that they're "well placed" to "ignite passion, pace and drive". Is this the same DWP where a staff member wrote of their last "staff feedback" survey:

"...confidence in Senior Managers has plummetted from 18% to just 10%. Taking into account the reduced response rate, less than 6% of staff have confidence in Senior Managers. If you work in a team of 17 people just one person from that group will have confidence in Senior Managers."

The same DWP that's had its accounts qualified for each of the last fifteen years, and of which the National Audit Office says it "still has a long way to go...the Department is still not performing to the standards that might reasonably be expected" (see this blog, among others).

We all enjoy a laugh, but we're actually having to pay for this rubbish.

Wednesday, July 19, 2006

And Then There Were None


Where's the emergency exit?

A couple of months ago I was discussing the quality of senior civil servants with someone who comes across a lot of them. We both agreed the quality has definitely gone down since the days of Sir Humphrey and the famous Rolls Royce Mind. For some reason today's bright young grads want to become lawyers, investment bankers, and consultants, rather than signing up for a lifetime toadying to the likes of Blunkett and Prezza.

But then my companion said 'ah well, there's always David Varney of course- he seems good.'

Sir David is certainly different to most civil servants, having worked most of his career in the commercial world. And he's certainly given the impression of getting on top of the rambling new HM Revenue and Customs conglomerate. Despite those vast losses to fraud and evasion (blogged here).

But now he's gone. After just two years, and all of a sudden, he's gone.

Well OK, he's actually moving to some non-executive Treasury advisory role on "transformational government". But that's clearly just a smokescreen.

More likely, he got fed up trying to explain why he couldn't deliver Gordo's fantastical anti-avoidance revenue gains while simultaneously cutting staff numbers to meet Gershon targets.

Hips Fiasco


Spiking Prezza

The U-turn on Home Information Packs is a classic of the genre.

This was half-baked scheme to solve a "problem" that few complained about, and driven by a senior politician (well... Prezza) whose knowledge of the practical issues was virtually non-existent. The grand a throw costs would have further exacerbated what already promises to be a sticky time in housing once the downturn finally arrives.

Thankfully, the formidable headlining stilettoed Kirstie came to the rescue. So all we need now is to find out what the whole nonsense cost.

The main losers have been those who wanted to work in the new Hips industry. Six to seven thousand inspectors have required training, costing each of them up to £8,000. And 45 specialist companies have reportedly set up, with estimates of their combined losses ranging from £100m to £250m.

And then there are the costs inside government. Unfortunately, we don't know what they are. But you'd have to guess a good number of noughts.

Tuesday, July 18, 2006

Super Athletes


Britain's New Sporting Heroes

Back in February we blogged SS-Totenkopf Standarte “UKSport”s meisterplan to breed an elite cadre of Olympic superathletes with which to conquer the world in 2012. The promise was to deliver fourth place in the medals table for the trifling sum of £773,199,000, and they were able to be that precise because they had developed "a sophisticated investment model to determine the level of additional funding required...it is logical, measurable, and scalable."

It's fair to say we weren't impressed.

Subsequently, we watched in grim fascination as the Public Accounts Committee gave the heads of UK Sport and the DCMS six of the best for telling porkies about whether the plan existed or not.

And today the PAC has issued its report on the whole sorry mess:
  • UKS spent £68m of our money supporting athletes for Athens, promising 39 medals: they actually achieved just 28, including zero in gymnastics (target 3), and zero in Taekwondo- of all things- (target 2)
  • The record in the Winter Olympics is even worse
  • UKS routinely tells porkies: included in its published results prior to Athens were "83 medals won in events not taken into account in setting the target. The effect was to turn underperformance into apparent success".

Even Lord Seb of Coe is beginning to panic:

"The last few years has been a steady downward trend. I don't think anyone can argue with that...there are some issues we need to tackle. We are not getting enough men into finals. We've got to compete more consistently as a team. We've got to produce quality athletes. We can't have an Olympic Games without a shop window that is worthy of the name. We don't have any alternative but to find quality competitors."

Well, quite, my Lord, but surely it's a bit late to reintroduce competitive sport into state schools.

PS Shortly after her public thrashing at the PAC, poor Dame Sue Street decided to chuck in the towel as Perm Sec at DCMS. You can't blame her, especially having to deal with the dismally incompetent Tess all day long.

Thrown To The Lions


Just what kind of brute is John Reid? Obviously it was never going to be a fair fight, but putting up Joan Ryan to defend ID cards against D "DD" Davis was surely a crime against humanity.

As we know, the £19bn ID cards disaster has been abandoned. The officials concerned are on the record rubbishing it, and contract tendering has been postponed indefinitely. But because Blair's face must be saved, the Home Office has to pretend otherwise.

So they've given responsibility to this Joan Ryan character, who dutifully presented herself in the HOC blood-pit for a DD mauling:

"In justifying ID cards, the government claimed that identity fraud cost the clearing banks in the UK Payments Association £504.8m. The banks themselves say it is less than £37m. Who is right?

The Home Office has been accused of exaggerating what an ID card would save by the banks, by the insurance companies, even by Customs and Excise in their own government. At best it will save little and will cost a fortune.

ID cards are likely to make the problem of identity theft worse, not better. Microsoft's national technology office says that ID cards could trigger massive identity fraud.

One of the FBI's leading identity fraud consultants said the ID card could be replicated by criminals perfectly in six months. In order for the House to be absolutely sure, can the minister guarantee that the ID card will be 100 per cent secure against fraud? Yes or No?"

Gah. Enough.

You really couldn't watch.

Thank God such a lightweight isn't in the government.

Oh...she's in charge of nationality and immigration you say.

OH. MY. GOD.

Whole Lotta Tax Fraud

Here too

With the alarming increase in VAT fraud, it's time to think about our total losses to fraud and evasion.

HM Revenue and Customs don't publish any estimate of the total loss. They claim that's because it involves the Black Economy and they don't know what they don't know etc. More likely they figure if we found out its true extent we might get the idea that paying taxes is a mug's game.

Still, under pressure from the National Audit office, they have started to publish estimates of some losses:

  • VAT- they reckon their overall loss is running at 13.5% of the theoretical liability, which on current projections implies about £12bn this financial year
  • Tobacco duty- annual loss recently put at £2.9bn from commercial smuggling and "personal" imports
  • Other duties - 4% estimated loss on oil duty, equals £800m, plus 7% estimated loss on spirits, equals £200m, say £1bn pa overall
  • Tax credits- technically "tax expenditure" rather than tax per se, but administered by HMRC and reckoned to be losing up to 10.6% to fraud, equals £1.3bn

That lot alone totals £17.2bn pa. And it takes no account of the recent ballooning in missing trader VAT fraud- add another £3-8bn, equals £20-25bn pa.

But of course those losses cover just a handful of the hundreds of different taxes collected by HMRC: in terms of revenue, we've covered taxes raising just £120bn of the total £424bn they expect to collect this year, less than 30%.

Income Tax, Corporation Tax, National Insurance, CGT, Landfill Tax...you name it, it's been hit by fraudsters and large scale evasion.

It's clearly difficult to get a handle on this, but we know the Black Economy is big and getting bigger. Changes in our economic structure- such the increasing importance of contracting rather than big company employment, illegal immigration, and the growth of ebay etc- are making it much harder for the tax authorities to keep up.

In the US, the Black Economy is estimated to comprise around a tenth of the total, and in our EU partners known as the PIGS (work it out) it's thought to be around a quarter. Here in the UK, a recent estimate published in the Economic Journal put it at 10.6% of GDP, reckoning that among the self-employed:

  • Households whose heads are in blue-collar occupations on average report only 46% of their income
  • Households whose heads are in white-collar occupations on average report only 61% of their income

Which is a pretty stark commentary on our attitude to taxation.

So if 10.6% of the UK economy is underground, we might crudely say 10.6% of taxes are missing: about £50bn pa. Which is one sighting shot.

But there's also the whole business of offshore evasion: we already referred to estimates from Tax Research UK, which suggest the UK might be losing £5-10bn from offshore evasion just by private individuals, let alone companies. So we probably need to increase our £50bn estimate.

An alternative approach is to scale up the estimated losses on VAT etc we do know about. That suggests a total of £65-85bn pa, 5-7% of GDP.

Sounds too high? Well, it's broadly in line with US estimates, which suggest losses of $600bn on a GDP of about £12 trn, 5% of GDP.

So albeit with a broad brush, our guess is that Britain's losses to tax fraud and evasion are currently running in the range £60-80bn pa.

For that kind of money we could abolish Stamp Duty, CGT, and IHT outright, and still have enough left over to cut the standard rate of income tax to 8p.

PS For the avoidance of doubt, of course we want people to pay less tax. But for honest/dumb schmuck citizens like me and Major Frobisher, if there's one thing worse than paying tax, it's finding out that others are breaking the rules and getting away scot free. Having watched that Panorama programme featuring VAT fraudster Riviera Ray, the Major's already talking about visiting B&Q for some more lengths of rope.

Saturday, July 15, 2006

A Voice From The Other Side

BOM team taking criticism

Here on BOM we hold these truths to be self evident:

  • that high taxation stifles enterprise, discourages effort, and depresses long-term economic growth
  • that all governments waste money, and Big Government wastes most of all
  • that most public services could be improved if government just cleared off
  • that we would be better off if government concentrated more on the stuff we actually need it for, like national defence and border control

Which is why we want to see smaller government, lower taxes, Reform's choice and competition in public services, and Direct Democracy's fiscal decentralisation and locally elected law officials. It all seems so... well, self-evident, it's kinda surprising not everyone agrees with us.

Even more surprising now that we're accumulating the hard evidence to support the truths. Along with the Taxpayers' Alliance's Bumper Book, this blog concentrates on government waste, the extent of which is eye-watering. Others- including the OECD- have been analysing and calibrating that tax/growth relationship.

Still, despite the truths and the burgeoning evidence, some objections we can understand, even if we disagree. Sacrificing economic growth in order to achieve a more equal distribution of income is at least arguable. Even we Small Government types mostly accept the need for some redistribution in order to provide a safety net. And as Walter so nearly put it, "say what you like about the tenets of Marxism, at least it's an ethos".

But other objections are on much shakier ground. Take the one raised by ethical accountant Richard Murphy on his Tax Research UK blog. Richard lays into the Taxpayers' Alliance proposal for HM Treasury to set up a Dynamic Analysis Division (as you may recall, that's intended to ensure that HMT takes proper account of the effects of taxation on longterm growth). Then in a rather tetchy response ("don’t abuse the evidence...please debate - but can you get your facts right first?") to a very polite comment I posted, he says:

"The OECD data does not prove that tax cuts are linked to growth. Statistically it says this case is not proven. It does not say tax increases increase growth, I agree - but not the reverse. So that’s one of your arguments down."

Ha!

Compare and contrast with what the OECD themselves conclude from their painstaking statistical work:

"Taxes...seem to affect growth both directly and indirectly through investment. An increase of about one percentage point in the tax pressure... could be associated with a direct reduction of about 0.3 per cent in output per capita. If the investment effect is taken into account, the overall reduction would be about 0.6-0.7 per cent." (The Sources of Economic Growth in OECD Countries, Section 2.3)

Sure, stats are tricky beasts, and Richard (BA Economics and Accountancy, Southampton) could be right, and all those Profs and PhDs at the OECD could be wrong. Sure, that could happen.

Hmm.

I think we'll stick with the Profs.

PS It's a shame Richard is a tad tetchy, because actually he has some interesting stuff on his blog. There's some great material on offshore tax avoidance- in fact it was through Googling "cost of tax avoidance" that I stumbled across him. For example, he estimates total offshore tax avoidance by private punters alone at $255bn pa worldwide. Assuming Britain's losses in line with GDP, that suggests it's costing us honest British taxpayers £5-10bn pa. To add to all our other losses from tax fraud etc. Makes you think.

Friday, July 14, 2006

New TV Crime Show


Forget small-time Tony Soprano: it's time to meet our own "Riviera" Ray Wooley:

"Justin Rowlatt meets 'Riviera' Ray Woolley who escaped from an open prison after booking himself a taxi when he was told to pay back nearly £10 million to the government. Woolley, who had worked as a pipe welder near Stoke-on-Trent, was convicted of £38 million of VAT fraud."

10.15pm on Sunday.

PS Obviously it's good that Panorama is covering the VAT fraud scandal: the more people that know about it, the better. But do they have to turn everything into a cheap thriller? And will they be asking the right questions about Brown's failure to grip this?

Gershon Delusion Update- 2

Latest Gershon staff cuts

As regular waste watchers will know, Gordo's Gershon efficiency programme is a particularly bad joke (for background see previous posts here, here, here, here and here). To all intents and purposes most of the savings do not exist, and those that do are being achieved only at the cost of worse services- including ballooning tax and benefit fraud.

But Gordo persists in his belief, and he's just given us his latest scorecard. Since his last update in the Budget, he reckons the "savings" have leaped from £6.4bn pa to £9.8bn pa, an extraordinary claim for just three months. And stung by widespread criticism- including from the National Audit Office- of the lack of detail in previous reports, he's treated us to six whole pages of "stuff".

The trouble is, his "stuff" doesn't really support his claims. Most of the examples he gives are mere shrapnel in terms of size (eg online booking of driving tests, reckoned to save £1.4m pa). And most of the bigger examples actually compound savings over many years (eg £1bn supposedly saved on a the new contract for Merlin military helicopters is spread over 25 years).

It's all pretty desperate, and even he's forced to admit the figures are "currently being subject to verification and validation". You bet.

As for his staff cuts, the table above claims net cuts are now 36,280, up from 33,237 quoted in Budget, so supposedly more than half way to his 70,000 target by 2007-08. But as we've noted before, these figures have not been fully audited by the NAO, and we know for example that DWP temps are not included. So...

Anyway, with tax and benefit fraud now spinning out of control, even G must be wondering about the wisdom of slashing staff at DWP and HMRC. If things are this bad with just the 22,000 combined cuts so far, what are they going to be like if he presses on with his target cut of 43,500 by 2007-08? Let alone his planned further cuts of 5% pa for ever thereafter. Tax revenue could take a serious whack.

Gershon delusion was funny when it started. We all fell about.

But the joke's wearing just the teensiest bit thin.

A Good Day To Bury The Marx Brothers


Treasury Questions

Under cover of the Middle East crisis and Lord Levy's arrest, Gordo Marx used the end of yesterday's Treasury Questions to serve up another dollop of his trademark surrealism: a 71 page plot outline for his forthcoming laughathon Comprehensive Spending Review 2- The Joke's On You.

Stripping away 70 pages of cross-cutting mumble strategic waffle, the best jokes are:
  • The money really has run out...no, really, ALL THAT MONEY HAS GONE. IT'S RUN OUT
  • In future, to fund the sharp-end, all admin budgets will be cut by 2.5% pa for ever: a fantastic plot device, because of course such "efficiency savings" only exist in Gordo's head anyway (see many previous posts on Gershon Delusion, starting here)
  • Four departments- Department for Work and Pensions, HM Revenue and Customs, HM Treasury, and the Cabinet Office- have been singled out to deliver expenditure cuts of 5% pa in real terms from 2008-09 onwards. As madcap plotlines go that's terrific- DWP and HMRC are already in meltdown, and are already losing billions to tax and benefit fraud (see many other posts, including this week's on VAT fraud) . Losses will escalate wildly as staffing levels fall
  • The Home Office budget will be frozen- that "not fit for purpose" guardian of public safety that is already incapable of keeping foreign murderers in clink or controlling our borders, will now need to cope with No 10's torrent of crazy new ID cards/police mergers/cashpoint fines/respect agenda/headline grabbers on a frozen budget. Hilarious
  • Public sector pay increases will be held to 2% pa, the Bank of England's inflation target. Clearly that implies a cut in real pay relative to the private sector which will go on getting 2-3% above inflation. So stand by for laughs a plenty as the public sector unions crank up for the Decade of Discontent
  • Since the family silver's already gone, they're now going to flog off the land- £30bn's worth: whole swathes of Surrey and Hampshire will lose those Army ranges and disappear under concrete. Watch out for more high jinks as "Mad" Major Frobisher and his band of vigilante nimbys strike back

Gordo's plot outline also gives us an insight into his current mental state vis a vis Gershon Delusion. The poor chap's obviously deteriorated further since the Budget, and you really shouldn't laugh, but I'm going to blog that separately.

Update: A couple of comments have suggested this post is confused- I claim to want small government but don't want cuts at HMT or land sales....so what do I want? Just to recap, what I want is government to get out of areas it doesn't need to be in and is pretty hopeless at. I'd like to see public services- including health and education- fundamentally reformed along the choice and competition lines set out by the excellent Reform; I'd like to see fiscal decentralisation, and locally elected law officers, along the lines set out by Direct Democracy. What concerns me about the Gershon cuts- to the extent that they're real- is that they're arbitrary, a cosmetic exercise that is getting out of hand, and for example, further undermining the ability of DWP and HMRC to prevent tax and benefit fraud. The knock-on costs are likely to far outweigh any supposed savings. (For a lengthier and altogether weightier critique of Brown's paper, see Reform)

Thursday, July 13, 2006

£0.8bn On Costalot Temporary Nurses


As we've blogged before, the public sector is by far Britain's biggest employer of temporary staff:

"Whereas government employs around 20% of Britain's workforce, according to the Office for Government Commerce, it accounts for 50% of the temporary labour market. The Gershon Review put the overall cost at £12bn pa."

The NAO has just updated us on the position in nursing, where the NHS has long been a major user of temps. In 2004-05, hospital trusts spent £0.8bn on them, about 10% of their total nursing paybill. Which means that, despite all the promises, there's been virtually no progress in reducing dependence.

It matters for two reasons. First, permanent staff are preferred by patients (aka customers) because they provide better care. Second, temps cost more: by using them, the NAO reckons the NHS is wasting £100m pa.

Why is the NHS- and indeed the public sector- so dependent on temps? In part it's the usual poor management story- inadequate planning and weak direction of staff. But more important is probably that national pay scales do not make adequate allowance for regional labour market variations. That's very evident in the NAO's chart showing the regional variation in spend on nurse temps.


London has by far the biggest problem, with nearly one-fifth of the nursing paybill going on temps, compared to just 4% in the North.

No FTSE100 company would even consider relying on temps like this. If they didn't up their pay rates and/or make better use of existing staff they'd pretty soon be heading for the exit. The fact that it's routine in our public services is yet another reason why top-down one-size-fits-all state provision will never ever deliver the standards and value we expect.

A Week In Big Government

Decisions, decisions

The wacky world of Big Government is constantly banging into the real world inhabited by the rest of us. Four good examples this week:

One: tax credits. The Gordian Knot continues to defeat all-comers. The National Audit Office reminds us it has qualified the HM Revenue & Customs accounts for the fourth year running because of its shambolic implementation. Last year- once again- HMRC overpaid nearly £2bn and simultaneously underpaid £0.6bn. Remember, this is not some tinpot Nu Labour quango; this is Her Majesty’s tax collector. Gladstone must be spinning. But then Gladstone never asked the tax authorities to confiscate anything like 40% of our incomes, still less to implement ludicrous dollops of wishful thinking like those tax credits.

Two: NHS “reforms”. The twin horrors of top-down targeting and payment by results have combined to drive many local health providers into deficit. The Audit Commission reckons this is down to "weak management" and has published a "name and shame" list of 25 providers. Yes, the management is undoubtedly struggling, but the real problem is a top-down system that delegates responsibility without power, and believes it can drive tractor production through ever more complex administered pricing systems ( see previous blogs)

Three: ID Cards. Blair may still claim the lunacy goes on, but everyone else has ditched it (see this excellent post at the Register). Tendering has been postponed indefinitely, as presaged in those leaked emails. Thank God we've escaped the main cost, but how much time has already been wasted at the dysfunctional Home Office?

Four: Police mergers. The police didn't want it and we didn't want it But the commissars did. Now Blair admits it's a non-runner. Fine...except for all the wasted time and money getting here. We know the Home Office spent another £1m on consultants, but that's just the tip of the iceberg. When they should have been out catching bad guys, 40 police chiefs and their staffs were working 24/7 to fend off this rubbish.

All in a week's work for our high-spending, low-achieving Big Government.

Wednesday, July 12, 2006

More On VAT Fraud

Round and round and round...


Late yesterday the National Audit Office published its report on HM Customs and Revenue's 2005-06 financial returns. There's a lot of interesting material that needs further study, but in the light of yesterday's blog on carousels, it's worth picking out a couple of the NAO' s charts.

The one above is a nice simple picture of the basic carousel fraud: their report shows more complex variants, and makes the point that the sophistication of these scams is increasing much faster than the tax authorities can react.

The following table sets out HMRC's estimates of losses: as we can see, despite all Gordo's promises, losses are again increasing.

This year it's even worse: although we won't get the official estimate until the Chancellor's Pre-Budget Report in December, we heard from the EU Tax Commissioner yesterday that the UK's losses are now running at a very scary £5bn pa.

The NAO also makes the point that some other European countries seem to have a better record- eg annual losses in the Netherlands are running at only £17m.

Nevertheless, this is a European problem. As mentioned yesterday, we've only got VAT at all because it's a condition of EU membership, and it's the EU that lays down the rules for its application. We're evidently to be given emergency powers to "reverse charge" (see yesterday's blog), but the chances of persuading our "partners" to adopt a more robust system are slim.

As per.

Update: Another fix on the extent of MTIC fraud is provided by the ONS monthly trade stats. The latest- also published yesterday- gives import and export figures including and excluding estimated MTIC trade. the trade is put at about £11bn, on both exports and imports, in 2005. But it seems to be getting much much bigger. This year the estimate for Q1 alone is £7bn, up from £1bn in Q1 2005. £7bn times 4 equals £28bn, which @ 17.5% implies a VAT loss of, yep, £5bn. But with the full import/export carousel, you need to double it, equals £10bn. No wonder we're getting emergency powers.

PS Ends and means, detection and punishment. The people who are running these scams are robbing us blind. They're also really really bad. Bright and calculating, they've not been driven to it by the need to steal a sheep to feed their starving children. They're doing it because they've identified a soft touch and are working to exploit it. But because they're so bright and ruthless, they're fiendishly difficult to track down. And if by some chance we do catch them in the brief periods they're not sitting on their yachts, the most they seem to get is five years nominal: divide by two, equals two and a half years at Ford Open Prison. If there was ever a case for really really harsh punishment, surely this is it.

Tuesday, July 11, 2006

Riding Along On A Carousel

What goes around...

We've blogged before about the huge sums HM Revenue & Customs lose to fraud. One of the leakiest and most problematic areas is VAT.

VAT was invented by a Frenchman- wouldn't you know it- and imposed on Britain as a condition of joining the EU. Before that we had Purchase tax, which was a strightforward tax on the sale to the final consumer. On paper, VAT sounds very elegant: a sales tax ultimately paid by the consumer, but difficult to avoid because it is levied on all sales whether to consumers or businesses. Businesses just have to reclaim their own tax payments. Simple.

Er well...simple as long as nobody breaks the rules, that is. Unfortunately, from cash in the hand builders to international criminal gangs, more and more people are doing precisely that. In 2004-05, despite a much trumpeted compliance programme, the loss from fraud and errors was still put at £10bn, 13.5% of total VAT receipts.

The most spectacular and troublesome area is so-called Missing Trader (MTIC) and Carousel fraud.

These may sound quite complex and technical, but they're not. Missing trader fraud is where somebody imports stuff free of VAT, sells it in the UK with the VAT added, and then scarpers, pocketing the VAT. Usually the stuff comprises small high value items such as mobile phones or computer chips, and the buyers may be entirely legitimate firms who have absolutely no knowledge of the fraud.

Carousel fraud is a more sophisticated variant, where business A imports the phones VAT-free, sells them on with VAT added through a string of "buffers" to business B, who then exports them on to business C and reclaims the VAT from HMRC (exports being free of VAT). So HMRC have then lost out tweice. Business C might then export them back to business A, who then sells them to Business B, and so on.

Originally these frauds mainly involved intra-EU trade, driven by the fact that such trade is free of VAT. But now it involves trade with notorious scam zones such as Dubai and Russia. Indeed, so massive is this fraud it's skewing Britain's international trade figures, pushing up exports to Dubai by as much as £500m in one month alone: the Office for National Statistics is frantically trying to wrap its head round the problem.

Last year, HMRC claimed they were getting on top of things, with MTIC losses down to £1.12-1.9bn in 2004-05, and one or two high profile prosecutions. But today we learn that losses are back up to £5bn, and the EU is about to grant HMRC emergency powers to abandon all that charge and reclaim business on mobile phones and computer chips. In future, for those items they will levy all the tax just once at the point of final sale.

It used to be called Purchase Tax.

Monday, July 10, 2006

ID Reality Bites...Everyone Except Blair

Keep it real, yeah?


"Our estimate of the average annual operating costs of issuing passports and ID cards...is £584 million. Those costs will be met in the main by fees rather than by a call on public funds. I think the figure will end up being less than £584 million, although I think that is a firm and strong estimate." Home Secretary Charles Clarke, 13 February 2006.

"Just because ministers say do something does not mean we ignore reality - which is what seems to have happened on ID Cards until the Official Journal of the European Union [ie the published invitation for contractors to tender] was to be issued and then reality could not be ignored any longer. Doing this again is not a real option for the Home Office or the Identity and Passport Service so I really want to be sure that what IPS intends to do is based on the real world." David Foord, Director in charge of ID project at HM Treasury's Office for Government Commerce, 9 June 2006.

We've blogged the disastrous ID Cards project many times: while our fantasy government claims it would cost a "firm and strong" £584m, the real cost estimated by real experts at the LSE has been put in the range £10.6bn to £19.3bn. What's more, many senior IT professionals reckon it could well reduce our security (see here for BOM primer).

So confirmation- via leaked emails- that the whole thing is in disarray and may not happen at all is welcome. Especially to long-suffering taxpayers.

Except of course, that in time-honoured slimey slithery how-do-we-get-out-of-this-one fashion, our politicos are proposing burning another pile of our cash on some sawn-off face-saving ID cards lite "early variant" scheme. Specifically, the Beloved Leader- the driving force behind the original madness- is insisting on it.

Everybody concerned knows it's mad: laying into his Home Office oppo, Mr Foord lists no fewer than nine reasons why. And his Home Office punchbag readily admits the charge:

"In our defence... it was a Mr Blair who wanted the 'early variant' card. Not my idea..."

So now we know. In the days of Sir Humphrey doubtless the Civil Servants would have found some way of stopping it. No longer.

Can you just imagine what it's like as an official at today's "not fit for purpose" HO? According to ex-Second Perm Sec Martin Narey- now heading Barnardos- morale has collapsed, and unsuprisingly:

"Never a week goes by without them ringing me to ask how I got out. There’s going to be a haemorrhaging of talent.”

Big Government never worked with talented people at the controls. It sure ain't going to improve without them.

Sunday, July 09, 2006

Cost Effective Justice- 5

Go Figure: Homicides since 1945


The Sunday Telegraph reports that "homicides have soared by a quarter under Labour". Since 1997 they've averaged 737 pa, against 601 pa in the seven preceeding Tory years.

Hardly surprising you might think. But this isn't a party political matter: it's much more serious than that.

The fact is that Britain's homicide rate has been soaring ever since we abolished capital punishment forty years ago. In 1964 there were fewer than 300 homicides: last year there were 850. That's virtually a threefold increase, with an additional 550 people now being killed every single year.

We've blogged this before, arguing that it's we who've condemned those victims to death by abandoning the single most effective- and proportionate- deterrent at our disposal.

Of course I recognise there are moral arguments against restoration of the death penalty, eloquently put by the Doc among others. But the utilitarian's belief in its deterrent effect is now underpinned by increasingly solid evidence. Surely everybody knows that, don't they?

Well, actually, no. Try this letter, also in today's ST:

"I was saddened to read Elizabeth Hurley's ill-informed call for a referendum on capital punishment in Britain. If she thinks that the death penalty is a deterrent, she is wrong. Look at the USA."

The writer doesn't elaborate, but let's follow her advice and look at the USA.

Because in many ways, the US has provided a laboratory test of deterrence. Following the famous Supreme Court ruling thirty odd years ago, they suspended capital punishment for a period. But when the ruling was later reversed, most states and the Federal authorities reinstated it. So there is now a mass of before and after, with and without, statistical data to examine the relationship between the homicide rate and the penalty regime.

The following chart from the US Bureau of Criminal Justice shows the overall national picture:




And almost all the serious studies of the data say the same thing: capital punishment seems to have a very significant deterrent effect. According to a recent literature survey by the AEI-Brookings Joint Center for Regulatory Studies, the homicide rate increased in 90% of states following suspension, and decreased again in 67% of the states where it was reinstated. More detailed analyses at state level have concluded that on average each execution has resulted in between 5 and 18 fewer murders. For every life taken by the state, 5-18 other lives have been saved.

So when people point to the US as somehow showing that capital punishment doesn't deter, they are plain wrong. The facts are as clear as any statistics ever can be.

PS The AEI-Brookings paper is mainly concerned with the moral dimension of these findings. As they say: "This evidence greatly unsettles moral objections to the death penalty, because it suggests that a refusal to impose that penalty condemns numerous innocent people to death. Capital punishment thus presents a life-life tradeoff, and a serious commitment to the sanctity of human life may well compel, rather than forbid, that form of punishment. Moral objections to the death penalty frequently depend on a distinction between acts and omissions, but that distinction is misleading in this context, because government is a special kind of moral agent. The familiar problems with capital punishment – potential error, irreversibility, arbitrariness, and racial skew – do not argue in favor of abolition, because the world of homicide suffers from those same problems in even more acute form. The widespread failure to appreciate the life-life tradeoffs involved in capital punishment may depend on cognitive processes that fail to treat “statistical lives” with the seriousness that they deserve."

It's a version of Stalin's famous statement about one death being a tragedy, a million a statistic.