Saturday, September 29, 2007

Wake Week



As we finish packing the last few bits of thermal underwear, I've been refreshing my memory on how Blackpool looked last time we were there, just two short years ago.

Ah, the optimism...

Ah, the Newsnight stitch-up...

Ah, the Old Chums Connection...

Where are they now? Where are all those fair weather media chums? Dave's given them everything they demanded- ecowibble, hugga hoodie, taxnspend... and yet here they are revelling in his destruction.

Truly, truly, I say unto you, he who is guided by the politics of image shall be likened unto a foolish man, which built his house upon the sand: And the rain descended, and the floods came, and the winds blew, and beat upon that house; and it fell: and great was the fall of it.

Hey ho.

Now, where are my galoshes?

PS We conference going ordinary party members have no idea what line the leadership is going to take next week, other than what we read in the press and on Conservative Home. One view seems to be that Cameron is going to take yet another swipe at us "traditionalists" for queering his pitch, and at the same time to further underline his own centrist credentials. Let's hope not. Those of us who don't get invites to those private reassurance dinners are still waiting to hear a clear and firm statement of the "politics of and". And he's going to need us out on the streets of those Lib Dem marginals in a couple of weeks time.

Friday, September 28, 2007

Dum-Di-Dum-Di-Dum-Dumb


More Balls on exams this week. He wants to set up an independent exam regulator in order to "put an end to the old and stale debate about exam standards". How refreshing.

So does he accept that exam standards have slumped, with A Levels now two whole grades easier than two decades ago (see this blog for the facts)?

Er... not exactly. He's more interested in snowing us punters into believing his version of events. He wants to "end young people being told that the GCSE or A-level grades they are proud of aren't worth what they used to be. I want parents, universities, employers and young people themselves to be confident that exam standards are being maintained."

Even though they're not (see here for the Economist's take).

So we're to have an "independent" regulator, independent in the sense that it will report to Parliament rather than the government. The same Parliament that is... er... three-line whipped by the patronage dispensing government (see here for an overview of the similarly "independent" National Audit Office).

As luck would have it, Tyler's Dad was recently sorting through some old papers (still trying to find the long-lost Tyler family fortune) when he came across Tyler's GCE O Level Maths paper from 1965. The front page is shown above.

So, pencils sharpened... Question 1.

Given that (x2 - 4) and (x3 + 3x2 + 3x + 2) have a common factor, factorise each expression into two factors.

Piece of cake.

Hmm... there used to be that formula with the square root sign. Didn't there? No, I'm sure there did.

Ummm...

Gah... didn't I used to be good at this?... no, really... boasting aside, I got a Grade 1... Grade 1... hmmmmm... the Major's Albanian claret has clearly washed away even more billions of brain cells than I feared...

OK, let's come back to Question 1.

Question 2... mmm..... yes... trigonometry. That's it- Sin, Cos, Tan... or... wait... maybe they're varieties of Taste the Difference lettuce...

What were those formulae?

Mmmmm...

Maybe we'll come back to that one too.

Now contrast that with today's Maths GCSE exam. Tyler would have no problem doing that- even at the higher tier (ie the harder paper for candidates predicted an A orB grade)- because they give you the formulae to refer to in the exam. Factorising quadratic equations? Easy. All those trig formulae? No problem.

I know what you're thinking- that doesn't prove dumbing down because surely exams should be about more than memorising formulae. And you do have a point, even if I think memorising key formulae should be part of the course.

But just take a gander at some recent GCSE Higher Tier Maths questions (eg see here):
  1. Change the decimal 0.45 to a fraction in its lowest terms

  2. Express 72 and 96 as products of their prime factors

  3. Use your answer to 2 to work out the highest common factor of 72 and 96

Those three questions together are worth 5%. Sure, you probably need to have done the course, but I'm sorry, no way is such hand-holding bite-sized arithmetic equivalent to the paper from 1965. IIRC it's closer to the 11+.

Wonder how you get a job on the Balls Commission.

Thursday, September 27, 2007

Dr Battey's Accounts Book


Dr Battey had to account direct to his customers

In the continued absence of the inestimable but knackered Doc Crippen, we've once again been delving into the cost of our GP services.

The bald facts are these (NB: because of the glacial speed at which NHS stats are collected and collated, most of the figures are a couple of years out of date):
  • Numbers- in 2005 there were 32,738 NHS GPs in England, up from 27,465 ten years earlier; however, over those ten years the proportion of part-timers doubled, to about 27%; that largely reflects the rapid growth of female GPs, half of whom are now part-timers (see the Doc for his robust views on that); on a full-time equivalent (FTE) basis, the number of GPs has only increased from 26,114 to 29,248, a rise of 12%.

  • GPs per head- with a rising population, the number of GPs (FTE) per 100,000 head of population only increased from 54 to 58, an uplift of 7%; put another way, the number of patients per fte GP has decreased from 1852 to 1725.

  • Practice staff- on a FTE basis, other practice staff increased from 59,255 to 72,990; 73% of them are admin and clerical

  • Cost- in 2005-06, the NHS spent £7.7bn on GPs services in England, excluding prescribing costs of a further £7.8bn

So do we get value?

The first point is that the cost of these services has rocketed. And rocketed far more than even the Wanless-pumped government had planned. As blogged many times, the new GPs contract was a financial disaster for taxpayers: the official post-mortem, just published, not only shows spending on GPs services rose by one-third in the two years to 2005-06, but also that it turned out a cumulative £1.7bn over budget (see also this Times article).

Are we getting a commensurately better service?

Highly unlikely when we've lost our traditional out of hours service. But health minister Ben Bradshaw reckons things have improved, and since the NHS has never developed a coherent way of measuring overall output, we can't be absolutely sure he's lying (see recent Wanless update).

Still, we can certainly probe those costs a little more.

With a population of 50.4m (England 2005), the £7.7bn pa cost of GPs works out at £154 each, say £160 at 2007 prices. So for a family of four, that's £640 pa, or £12 per week.

Is that good value against the alternatives?

No, not the alternative of another KFC family meal every week, but the alternative of a private GP. For example, CityDoc offers a twenty minute private GP consultation for £65, or £85 for "more than 30 minutes". When did you last have more than 30 mins with your NHS GP? They just don't have time for that kind of carry on.

So, a family of four could have ten 20 minute visits to City Doc for the annual cost of their NHS GP service. Or maybe eight normal visits, an emergency contraception visit (£40 including medication), and jabs for tetanus, diphtheria, polio, typhoid (see here for full price list). What's more, they still open on Saturdays- 11am to 4pm.

Yes, yes, I know. What if you have something really wrong with you? £640 pa might not cover it. And indeed, it might not. But by the same token, what if you're really well? What if you never need the GP from one year to the next? You'd be quids in.

Clearly, in the real world, you'd buy insurance- an extended version of the private health insurance you can already buy for hospital treatment. We don't really know what that might cost, because the market hasn't yet developed. But judging from the price of private GP consultations, it needn't be prohibitive for most people, at least those of working age.

So relative to their private counterparts, it's not at all obvious that the cost of NHS GPs is a good deal.

History offers another fix on cost and value. Over at The Huntsman (2 September), the H Man himself has been digging into his family history. His father was a fenland GP who started with the NHS in 1955, but, frustrated by all the bureaucracy (even then!), left to go private a decade or so later.

HM has discovered that back in the sixties there were four local GPs serving a population of about 10,000- about 2,500 patients each.

Since then, the population has grown by around 50%. So how many local GPs do you reckon there are today? Six? That would seem about right, but maybe we should allow a couple more to account for the greater complexity of modern medicine and all that screening work. Call it 8 or 9.

The actual answer is a staggering 16. Four times the number of GPs* for only 50% more patients!

According to this, when the NHS was launched in 1948, it had around 18,000 GPs in England and Wales, and they were serving a population of 41.5m. The average GP was therefore covering 2,461 patients, about the same as those fenland GPs in the sixties.

Compare that to the average 1,725 patient list now (see above). Not such an extreme change as in the fens, but still 42% more GPs per patient.

Does anyone think we're getting 42% more service? 42% more than when that nice Dr Finlay used to come out all hours of the day and night?

Hmm. I need another paracetomol.

Or maybe I should phone NHS Redirect.

*Footnote- the Huntsman doesn't mention the fact that one of the current GPs in his father's old area is one Professor David Haslam PRCGP, the President of the Royal College of General Practitioners. What an extraordinary coincidence... although I suppose if the PRCGP can't cut himself a little slack then what hope is there for the others?

Footnote 2- HTP HJ for highlighting post mortem results

Quad Race


Over a sumptuous bucket of spicey wings at Chicken Cottage, the Major's fiendishly brainy friend Herr Doctor Professor Franz Kuntz explained our real problem. It turns out we're simply in the wrong quadrant.

Carefully avoiding the smears of Lemon Chilli Sauce, he helpfully drew the diagram on his napkin (above).

According to Kuntz, the Major and I (Us) are on the North West Frontier- we want small government but tough laws against criminals. Traditionally, people like us would have voted Tory because that's where the Tories were.

Trouble is, the Tories under Dave have zipped down to the South East- Butskellite Big Government coupled with Huga Hoodie. True, they haven't quite caught up with the Lib Dems, but that's only because under Ming the LDs have moved even further South East (they're now down on the coast just outside Dover, with Calais the next stop).

Meanwhile Brown has moved much further North, with popular talk of crack downs on gun-toting foreigners and giving us some variant of the Tony Martin law. QED. The Major and I might not like Big Government, but logically we should vote for Brown because at least he's in our half of the diagram on crime.

The Major got quite agitated and managed to slop banana shake over the front of his cavalry twills. "Now look here, Kuntz. The man's a blackguard! He never delivers what he promises. It's all very well for you, sitting out there at the University of Waikiki Beach fanned by dusky maidens and dreaming up all these diagrams, but we have to live with his lies and all-round incompetence!"

"My dear Major, there's no point in getting emotional. Do you really think any of them will keep their promises? Do you imagine for one moment that any of them could deliver the managerialist wonderland on which Big Government depends for success?" Kuntz's thick maggoty fingers scooped up another wodge of cajun wedges. "Besides, they're not dusky." He smiled obscenely, a dribble of ketchuped saliva running down his chin.

It was all very unsettling, I can tell you. Brand decontamination has got a lot to answer for.

Wednesday, September 26, 2007

State Art


A modern Tintoretto

What cost taxpayers £50m to build, a further £3m pa to subsidise, and promotes child porn?

Yes that's right- the BALTIC Centre for Contemporary Art, Gateshead. Well, OK, they apparently never actually promoted that particular bit of porn- gallery officials themselves called the police after realising they were about to display a photographic "image, which featured two young girls one of whom was sitting down with her legs wide apart".

But frankly, as a use of public funds, the rest of the exhibition doesn't sound a whole lot better, promising punters as it does:

"This exhibition contains material of a sensitive nature. It may include explicit language, nudity, sexual imagery or violence."

Great. Where's my flasher mac?

Now, Tyler has nothing against pix of "a man holding his penis", or indeed any such "art" stuff. But WTF should he be forced to pay for it? Why should it be rammed down taxpayers' throats?

We've blogged the outrage that is arts subsidy many times (eg see here). It costs us about £0.6bn pa directly from central government, and another goodness knows how much more indirectly via regional development quangos and local authorities.

From Bayreuth to Gateshead, state subsidised art is taxing the poor to serve the prejudices and leisure pursuits of the ruling elite. And we're still far from convinced state subsidy has ever produced any truly great art (we don't count old-time personal patrons who happened to be autocratic rulers, like the Hapsburgs).

PS As bragged here, Tyler has Art A Level - grade A - and from the days when it involved drawing real things, and painting, and that. Admittedly he only got his high grade by aping classmate Steve Bell, the highly gifted artist who has since forged a brilliant career in the entirely commercial and competitive world of political cartooning. Still, it means Tyler is fully qualified to opine on matters artistic. So listen up and I'll tell you how to bluff your way in art.

According to Tyler and Bell's old art master, you too can produce a Newsnight Review style critique of any artistic image, by following the four headings rule- subject matter, composition, use of colour, and technical execution. Try it out on the art work posted above:
  • Subject matter- Brown is the true heir to Thatcher: we Tories can trust him a damned sight more than we can trust ecowibblyhugahoodiemaggiedenier Dave

  • Composition- classic arrangement of figures archly referencing Tintoretto's Adoration of the Magi: yet the artist has subtly placed the figure of Brown in the dominant, on tiptoes, and still to the left of Thatch

  • Use of colour- brilliant scarlet and black, the dazzling projection of supreme power since the Middle Ages, echoing the classic portrait of Cardinal Wolsey in his pomp

  • Technical execution- a work of undoubted genius, every element minutely arranged and observed, yet still subservient to the work's timeless themes- continuity, security, and smashing the Tories to dust

Tuesday, September 25, 2007

Nobbling The National Audit Office



For those who didn't see Peter Oborne's documentary for C4 Dispatches last night - Nice work if you can get it - I've ripped the bit showing how the National Audit Office gets nobbled by government.

Regular readers will know all about the NAO, and how its head Sir J Bourne is now (imho) fatally compromised by his travel arrangements (eg see here). They will also know how the NAO was spectacularly nobbled by the Department of Health over its report on the NHS Supercomputer fiasco (eg see here). The charge is that they're far too cozy with government.

Oborne did a reasonable job on this and other egregious abuses by Britain's "political class" (unreceipted personal expenses, huge mortgage subsidies, feather bedded pensions etc etc). But we do wish Dispatches would stop its gimmicky production style (see clip). Why not report it straight? We can take it.

PS For those in the mood for a little more commentary on the antics of the ruling class, may we recommend (WARNING: EXTREME PARENTAL DISCRETION ADVISED) The Guy From Boston . For starters, try 535 Employees. (HTP David Blackie).

Head Banging Reality



Patient pathway protocol in action

Who's crackers? Him or us? Listening to Brown yesterday, I scoffed, shouted, and nearly swerved off the road, as per. Surely he can't really think we disenchanted Tory voters will fall for the flag, a bit of crime posturing, and vague talk of patient choice. Can he?

Ten years of control freakery and huge splurges of our cash have left our public services entangled in a dense bureaucratic mangrove swamp. Police who can't police, schools that can't teach, and health services that we can't access.

Yet all he could offer yesterday was more of the same: on his direct orders hospital wards are to be steam-cleaned, police hit squads are to target problem areas he has selected, teachers are to teach one-to-one as he's decided, ten new "eco-towns" will go up where he wants, twenty fresh divisions are to be sent to the Eastern front, etc, etc.

Where does the real world come in?

As Gordo spoke, we were once again en route to visit my 92 year old father-in-law, who is currently in a big NHS hospital. There, not only does the left hand not know what the right hand is doing, the right hand doesn't even know what the right hand is doing.

Without going into the grim details, Mrs T's Dad is now going to need continuing 24/7 nursing care. But as far as the Big Hospital is concerned, he's become a bed blocker: they've done what they can medically (which does not, btw, run to helping him eat and drink- hence a repeated need to put him on a drip), and now they want him out. Since we all agree that home nursing is no longer a runner, we've entered the scary realm of residential care.

But as luck would have it, there's a superb new care home very close to where he lives. It was built and is run by a charitable trust, the local authority block books a large number of the places, and two of them are currently vacant. My father-in-law is very keen to get one- it gets excellent local reviews- and we are very keen to arrange it.

Which is why we are currently attempting to hack our way through a monstrous tangled knot of bureaucratic non-joined-up "protocols". They are Big Government's alternative to having some actual person in charge.

First there's the Doctor. Does he agree the patient needs continuing residential care? We don't really know because despite visiting at all hours of the day, the Big Doctor somehow always manages to come round when we're not there. So we're thrown back on a revolving cast of junior doctors, who are quite happy to talk about the medical side, but not the more difficult subject of after-care.

The revolving cast of nurses are quite happy to show us the ring-bound patient file - and dispense many useful things like sticky bar-code labels to identify his false teeth - but they need to get the Big Doctor to sign off the blue docket. Which somehow never gets done.

"Can I just take it to The Doctor now? He must be around the hospital somewhere." No, there's no protocol permitting that. Anyway, hints the nurse, being too pushy might derail the whole process. Strong suspicion that the nurses are too timid to ask the Big Doctor, probably not helped by the fact that English is rarely their first language.

Then there's the social outplacement department. I don't think that's their actual name, but their job is to get bed blockers off the premises and onto someone else's hands. Like maybe this care home.

When you eventually track them down to their windowless offices, hidden deep in the bowels, you meet a succession of overweight ladies with clipboards. They are highly empathetic, but sadly, virtually useless. Their key role is almost certainly to persuade you that home nursing is an option after all.

But it isn't. We must fight on.

Well, you say, what about simply paying for a place? Yes, that's certainly a possibility, and it's doubtless what the system would like. But apart from the eye-watering £25-40 grand pa cost (after a lifetime of paying his taxes and fighting for his country, he himself has few funds), there are no "self-fund" vacancies at this home. The market supply has been curtailed by the LA's block booking, and the only vacancies are LA funded (albeit with some sliding scale contribution from the resident).

So we're stuck in the mangrove swamp, desperately hacking away.

At some stage Gordo will doubtless issue another order of the day to guarantee our right to something that sounds like it might be what we need.

But we all know the reality. When the order finally makes its way down to the wards and care homes, it will simply be another variety of mangrove complete with its own impenetrable offshoots of protocols and blue dockets.

PS That old Monty Python sketch is right on the money in terms of protocol driven healthcare. Except of course, these days doctors' white coats have been made illegal by the commissars, and you'll never see a nurse looking like a nurse any more- your modern nurse dresses in Kwik Fit mechanics overalls.

Monday, September 24, 2007

Wet Monday


Autumn. The rain is lashing down, mornings are getting darker, and we're facing an endless future of Gordo. Here is the news:

Crime- Annie Williams was battered and left unconscious by a burglar who broke into her house in Fforestfach, Swansea, in the early hours of Saturday. The 75-year-old was found by a neighbour and taken to the city's Morriston Hospital, where she has been treated for bruising and multiple facial fractures.

Plague- After its initial escape from the government's own lab, foot and mouth is spreading fast. Now we've got Blue Tongue, and the locusts are on their way.

Welfare fraud- A gang of African asylum seekers pocketed £400,000 in a benefits scam - then used the cash to start building a hotel back home. The four Angolans stole giro cheques and laundered them through fake bank accounts.

Danger hospitals- Details of dozens of NHS blunders have been disclosed- a baby needing to be sedated was given 10 times the correct dose of morphine... a child had the wrong teeth extracted... a patient had a hole drilled on the wrong side of his head after a mix up over left and right in the hospital records for the craniotomy...

Numties- A police force has banned hundreds of its officers from riding bicycles for safety reasons... Police chiefs say they fear the officers do not have enough training to handle road conditions across Greater Manchester.

Troughs- Ed Balls and Yvette Cooper, the husband-and-wife team in Gordon Brown's Cabinet, have been accused of "breaking the spirit" of Commons rules by using MPs' allowances to help pay for a £655,000 home in north London.

Stalinism- Despite Gordo talking the smart talk of "personalised care", there is now to be a further list of centrally dictated NHS targets: all cervical screening test results to be issued within 14 days; the age range of women eligible for breast cancer screening, and for men and women for bowel cancer, to be extended; specialist appointments to be guaranteed within two weeks of referral for all suspected breast cancer patients. There is apparently even to be a promise that all hospitals will be compulsorily "deep cleaned" – scrubbed with disinfectant and steam-cleaned – every 18 months. (Presumably there will be Whitehall officials donning the rubber gloves and descending on hospital wards to inspect the cleaning arrangements?)All of these things – desirable as they would be in themselves – are yet more central government diktats which intrude into the detail of hospital practice and healthcare clinical administration. (Tyler was going to blog this today, but there's nothing to add to Janet Daley's excellent column).


The only real question is which bit of Australia would be best? One of Tyler's relatives runs a massive cattle ranch somewhere in the middle, but Tyler has always fancied an ocean view.

Sunday, September 23, 2007

Recent Bonfires- 79


In the news this week:

£500,000 on luxury police cars- "The police force that last week claimed it did not have enough cash to fight migrant crime has spent more than £500,000 on new Volvo cars for top officers to use when on and off duty. Cambridgeshire allows the officers to use the cars for holidays, shopping trips and other “social and domestic pleasure” purposes as well as when they are on duty. It has bought 21 Volvo XC70 estates for all its superintendents and chief superintendents, partly as a perk to attract new recruits. They cost at least £33,000 each and, in the words of Volvo’s marketing literature, they “aim to spoil”. (Sunday Times 23.9.07)

New £4bn pa department useless- "Jack Straw's failing Ministry of Justice looks likely to be split in two — only four months after it was created. Critics accused the Government of creating a department with a budget of £4 billion without knowing what it was for. One insider said: "The MoJ was rushed through to provide Blair with a legacy. As a consequence, its record over the past few months has been appalling." Overflowing jails have forced thousands of offenders to be released early, record court delays have led to hundreds of compensation claims, and senior judges have launched an unprecedented onslaught against the Government, accusing it of curbing their independence. (Sunday Telegraph 23.9.07)

Another stupid prosecution costs us £1,000- "Prosecutors were accused of wasting taxpayers cash yesterday after charging a boy with criminal damage worth 1p. The Crown Prosecution Service charged the 15-year-old after he admitted ripping the handles off a plastic bag, worth 1p, belonging to a girl of 13. The girl's parents called police who passed a file to the CPS. The case is believed to have cost £1,000." (Mirror 18.9.07)

£1m per month to support foreign kids abroad- "14,000 families living abroad collect our child benefit because of astonishing EU rules. Ministers last week admitted that, scandalously, more than £1million a month is handed to the families of youngsters who live in former Communist countries. Mirek Kryszczak told The People: "As soon as I arrived in Britain three months ago I heard about it. I was told all I had to do was fill in a form to get almost £80 a month. At first I thought it was a joke but it is not." Back home in Poland's northern region of Warminsko-Mazurskie, Aneta is just as bemused. "When I first heard it was possible for my husband to claim these benefits I was amazed," she said. "It's still difficult for me to believe - but I am not complaining." (People 23.9.07)

Extra £1,565 for health and safety fence- "THE cost of installing fencing at Victoria Park, Malvern Link, has increased by £1,565 from its original estimate of £2,500, councillors will be told next week. The overspend is because the height of the fencing had to be altered to conform with health and safety." (Malvern Gazette 19.9.07)

Total for week- £4,001,502,565

Saturday, September 22, 2007

The Economics Of Numties In Yellow Jackets


Spot the difference

The appalling case of the two Police Community Support Officers (PCSOs) who apparently stood by while a boy drowned, once again raises the question of what these Numties in Yellow Jackets are actually for?

The official account varies, depending on who's talking. Right now it seems to be that they "deal with minor nuisance crimes and free up regular police officers to concentrate on more serious crimes". When the abysmal Blunkett dreamed up the idea in 2002, PCSOs were supposedly to act as the street level eyes and ears of the proper police, who, as we now understand, are largely confined to the nick filling in forms.

But either way, their powers are heavily circumscribed. Indeed, when Tyler was subjected to the first of his many Stop and Searches (see here), he was subsequently berated by his ex-Sweeney brother-in-law for not realising you can just tell them to eff off- they have no power to detain you.

Circumscribed powers. Circumscribed training (evidently excludes life-saving). And circumscribed quality.

We never asked for them, and although Home Office opinion polls supposedly say we think their presence on the streets is "reassuring", that's almost certainly because they're dressed up to look like policemen and we're only now discovering just how useless they actually are.

So why have we really got them?

Yes, that's right- they're much cheaper than real police officers.

The average pay of a police officer up to the rank of sergeant is now around £40,000 pa (eg see here). But to that you have to add other employment costs, especially their extraordinarily generous pension arrangements, where the employer's contribution is currently running at an eye watering 24.5% pa (see here- remembering that the average employer's contribution in the private sector is now only about 6%). Add in another 9% for employer's National Insurance contributions (contracted out), and you get to a total pay cost close to £55,000 pa. On top of which you've got other costs, like proper training.

Contrast that with a PCSO. Their pay scale starts at £16,000, and they do not get a final salary pension. According to police estimates, their average all-in cost is just £28,000 pa- only about half the cost of a real police officer. Plus of course, they don't get flash cars to drive around in, and their training comprises little more than how to put on a yellow jacket.

So how much is being saved? There are currently 13,000 PCSOs, and at an average annual saving of around £27,000 each, that gives a total saving of £350m pa. Quite handy when you're as strapped as the Home Office now is.

But is it a good idea?

The case for the prosecution comprises not just this terrible drowning, but also a growing feeling that PCSOs are simply not up to the job. You never could trust a Special like an old time Copper, and these characters aren't even Specials.

For the defence, we have "mixed economy" policing. Yes that's right, mixed economy as in Butskellitte economics, except this one refers to police forces employing fewer actual police officers, and instead substituting more civilian staff. And it turns out our local force has been following the new approach for a while (see here). It goes like this:

"It has long been recognised that a major part of a police officer’s time is taken up with paperwork and other administration tasks which to some extent undermine their role and responsibilities and affect their operational capacity. In order to address these issues a project team was set in place to review the current working practices in crime investigation of police officers in Surrey, and develop a solution towards professionalising the police officers’ roles to be more aligned to their skills and warranted powers.

A consultant ‘expert’ in business and process analysis was commissioned to design a framework which could be used to ‘proof the concept’ of a ‘mixed economy’ approach to policing."

Translation: police officers are bloody expensive; unfortunately, as well as being submerged in all that paperwork vomited down on us by Whitehall, they've also managed to develop a huge raft of Spanish practices that we top managers just can't break; as a second best, we're going to employ a whole load of extra support staff to do the stuff we'd actually like the officers to do.

So, Mixed Economy Policing. MEP. More civvies. More PCSOs.
A good idea?
Actually, Tyler hasn't a clue, because he knows nothing of organising police work. But he has a horrible feeling that those driving MEP through don't have much more of a clue.
In the private sector, we can depend on the old trial and error learning process, with a wide range of different providers trying out a wide range of different approaches (or "business models" as Northern Rock would put it), until someone hits the right lucky combination.
But in the public sector, it's always one-size-fits-all. A short trial somewhere like our manor, and then full steam ahead nationally. Police forces throughout Britain are being driven into substituting PCSO's for real policemen not just by Home Office exhortation, but also specific grant funding.
At the risk of stating yet more of the bleedin' obvious, the only way of finding out what really works is to encourage diversity and experimentation.
Elected sheriffs and local fiscal control, yes. Top down masterplans and more tragic drownings, no.
PS As we blogged here, between 1996-97 and 2006-07, police funding increased by 40% in real terms. Which means in today's money the police have something like an extra £7bn pa to spend (about £300 per household). But the number of police officers has only increased by 11%. The rest has gone on "mixed economy" policing and... er... well, goodness knows what it's gone on.
PPS The Sunday Times has a useful article on this here. It highlights the role of Britain's bonkers Health and Safety regime in obliging police, and indeed fire services, to instruct their officers not to do anything dangerous. The Health and Safety Exceutive even brought that court case against the Met for failing to instruct its officers not to venture onto high roofs. And when individual officers decide to ignore the rules and do the right thing, they can find themselves in hot water- "in March a 42-year-old firefighter, Tam Brown, saved a woman in the River Tay. He was later informed he could face disciplinary action".

Friday, September 21, 2007

Great Detective Fiction


Home Office detection hat
"Great Scott, Holmes!"

Watson rocked back as if he'd just been struck by a Deputy Prime Minister.

Holmes didn't respond, intent as he was on gobbling Mrs Hudson's outstandingly plumptious chipolatas.

Watson rocked back again. "I said Great Scott, Holmes!"

The Great Detective finished his breakfast, pursed his mysteriously pale lips, and delicately swabbed them with a lavender mouchoir. "I did hear you the first time, Watson. What is it now?"

Watson slid a thin document across the table. "Take a look at this."

Holmes glanced down at the offering and sniffed. "At a rough estimation, I should say this has been produced for a lady. A lady who currently finds herself in a situation of some delicacy, and for whom danger lurks round every corner! I also deduce it has been produced by individuals of foreign extraction, quite possibly residing in London illegally, and almost certainly sporting red beards of a most singular cut!"

Watson stared at him open mouthed. "What are you going on about Holmes? You haven't been putting absinthe on your Coco Pops again, have you?" He grabbed the document back and waved it excitedly. "Look! These are the latest crime detection stats from the Home Office. And according to them, that fool Inspector Lestrade has somehow discovered how to detect criminals! Detection rates up another 2% last year. Don't you see? We'll soon be out of a job!"

Holmes smiled dismissively. "I am perfectly well aware of the Home Office statistics, Watson. I merely point out that the current Home Secretary, a certain Ms Smith, has been pitched into a post about which she knows absolutely nothing, and which requires extremely delicate obfuscatory skills she may well lack." He paused to insert the Royal Navy Shag more firmly into his calabash. "Moreover, I should have thought that anyone taking a post where the three immediately preceding office holders all disappeared in the night amid a cacophony of barking, should consider themselves in the gravest danger."

Watson gasped. "And the illegal foreigners?"

"Come, come Watson. Even you must recall the case of the illegal immigrants employed at the Home Office. There must be thousands of them in there by now."

"But Holmes, foreigners or not, these stats show that the overall police detection rate has increased significantly. Admittedly, it was still only 26% in 2006-07, but that's up from under 20% just three years ago. I tell you, we're toast."

Holmes struck a match across the patch of rough skin on Watson's forehead. "Really, my good Doctor, please try to stay in period." The flame played across the bowl of his Lignum aquila calabash and he drew heavily.

"Now listen, Watson. For one thing, a 26% detection rate is still pisspoor- remember, my own rate is 100%, and I don't have 141,000 police officers to help.

And then those stats are not quite what they're cracked up to be. Most of the so-called 'detection' is not detection at all. It's certainly not detection like I do it, or Poirot does it, or Morse, or Miss Marple, or any of us real detectives. No, the way the police crack cases is by getting the victims to do it.

Take shoplifting: 294,304 offences reported, 182,893 detected, a detection rate of 62%. Not bad. Until you realise that the vast majority of those detections are done by private security staff working for the victim shops themselves. All the police do is come along and take the credit. Plus of course, most shoplifting never gets reported to the police in the first place because it's a waste of everyone's time- it's much more likely to get reported if the criminal has already been apprehended, thus further biasing the apparent detection rate.

Or take violence against the person. For much of that crime recorded by the police, the victim actually knows the identity of the assailant. All the police have to do is ask the victim- there's certainly no sleuthing involved. So a detection rate of 46%- while above the average- is still very poor.

It's when you look at the many crimes where the victim does not know the identity of the criminal that you see how poor the police are at real detection: robbery- 18%; burglary- 14%; theft from a vehicle- 9%. And as for theft of a bicycle, with a 5% detection rate, you might as well not bother reporting it at all.

Apart from which, the Home Office has such arcane and constantly shifting crime counting rules, and such peculiar definitions of what qualifies as a detected crime, that even detective genii such as myself can't be arsed to fathom out their claims.
Quite frankly, my dear Watson, this report is a work of pure fiction."

Holmes closed his eyes, a seraphic smile playing across his lips.

Watson shifted uncomfortably. "Well... yes, yes... I knew that. Of course. I'm not a fool." He pensively rubbed his scorched forehead. "Do you think Ms Smith's red beard is natural?"

Amateur Delivers Northern Wreck


The Labour dominated Treasury Select Committee had a simple job yesterday- to stick responsibility for the Northern Rock debacle on Mervyn King, the Governor of the Bank of England. Darling and Brown clearly wanted that, and so too did the City banks, who have been running a well orchestrated campaign against the man who refused to bail them out over the summer.

But the Committee wasn't up to the job. With one or two notable exceptions, it's full of grandstanders whose repertoire extends no further than taking free hits at City fat cats (eg the resident evil that is private equity- see this blog). Faced with the top notch Mr King, they were hopeless. He totally outclassed them.

Of course, given the whole Northern Rock debacle, that hasn't stopped King being given some pretty mixed reviews, but Tyler thought he was excellent. Key points:

Systemic failure- as we blogged here, Brown's decision to split responsibility for bank stability has been a disaster. Although King valiantly declined to blame the new system, it was perfectly obvious that the split between the FSA (responsible for supervising individual banks) and the Bank (responsible for overall stability) allowed NR to fall down the crack in between.

EU regulation (again!)- the EU's Market Abuses Directive, introduced in 2005, prevented the Bank from adopting its traditional and preferred technique for bailing out banks in temporary difficulties- covert lending that would not frighten the horses (aka retail depositors). Worryingly, the Bank didn't seem to have discovered this until last Thursday at the height of the crisis.

Deposit guarantees- King strongly backs improved deposit guarantees, including arrangements for rapid payouts in the event of a bank failure (the US FDIC pays out in 24 hours- see this blog).

Taxpayers- it was heartening to hear King affirm his concern for taxpayers. Several times he said he does not have the authority to risk taxpayers' money. Let's hope his successors always remember that.

But if King emerged credit enhanced, his Deputy Governor in charge of financial stability came out with an unambiguous junk rating.

Sir John Gieve will be familiar to regular BOM readers. Until end-2005 he was Permanent Secretary at the Home Office, where he presided over a huge catalogue of blunders and disasters. In particular, from his lofty position on the bridge, he never seemed to have a clue what was happening down in the engine room. Foreign prisoners went missing, files got lost, money went walkabout- he was always totally oblivious (see many previous blogs, eg here and here).

Eventually, even the mandarins decided he had to go. So they moved him out of the Home Office and put him somewhere they reckoned he could do no harm- the Bank in charge of financial stability. How hard could it be?

Yesterday we learned his amateur bungling has continued- despite being the Bank's representative on the FSA board, he totally failed to enquire into the nitty gritty of what they were doing about Northern Rock, he failed to even read the worrying trading statement issued by NR in July, and he went on a fortnight's holiday during the height of the crisis.

The Committee Chairman accused Gieve of being "asleep in the back shop while there was a mugging out front", adding "frankly, I do not think you are doing your job."

Which is shocking. But even more shocking is that, despite that lamentable record at the Home Office, and despite public calls for him to be removed from his Bank job more than a year ago (see this blog), this "seriously tainted public official" was left in post.

Result? The cult of the amateur has delivered yet another train wreck. And we taxpayers will foot the bill.

PS How big is the NR bill going to be? We don't yet know. But despite constant assurances that the the operation has value and that a commerical buyer will soon be found, nobody has so far bitten. Lloyds, HBOS, Santandar, ING... all have looked, but so far politely declined. Analysts at Citibank now say it may only be worth £25m, compared to the £5bn it was supposedly worth earlier this year. At that rate of collapse, it's only a matter of days before it's worth zilch. As we've said before, with the housing market teetering, and mortgage rates heading up, a maxxed out geared up mortgage book is the very last thing you want to be holding. The trouble is, we are.

PPS A few days ago we suggested putting your life savings into NR- now fully backed by HMG. But as a commenter noted, the guarantee supposedly only applied to existing NR deposits, not new ones. The good news for rate tarts is that's now been extended: "A statement from the Treasury said guarantee arrangements for existing deposits in Northern Rock would cover all accounts existing at midnight on Wednesday and reopened accounts. The "clarification" that new savers would not be covered except on their first £2,000 and 90% of the next £33,000 sent investors scurrying to the screens to sell banks and Northern Rock in particular." So if like Tyler, you used to have NR deposits- and most rate tarts have- you can now pile back in, fully covered by HMG. Hurrah! At 6.31% instant access, you can now offset some of the losses you'll be making as a taxpayer.
PPPS Excellent article on the same thing by Jeff Randall here.

Thursday, September 20, 2007

Costs Of Immigration


A lesson from history

The Chief Constable of Cambridgeshire is not the only one worried about the costs of immigration. Arguing that they are arriving with "different standards" from the native population, she says:

"When they arrive they think they can do the same thing as in the country they have come from. There were a lot of people who... because they used to carry knives for protection, think they can carry knives here... they don't necessarily come to commit crime but they need to be told what you can and can't do...

We recently had a murder and it was a Lithuanian on Lithuanian and it could easily have happened in Lithuania.


But it didn't, it happened in Wisbech, so one of my staff spent a lot of time in Lithuania trying to get underneath what was actually happening with the crime, which brings costs that you wouldn't have had before, which means something else has to give."

Cambridgeshire has a particularly acute problem, with 83,000 East Europeans arriving since 2004. But they are by no means alone- last year we blogged similar problems in Slough.

To some extent, the problem reflects familiar and serious shortcomings in Britain's highly centralised system of local government and police finance (eg see this blog). Nobody should be surprised that's failed in the face of a net influx of 2m+ since Labour threw open the doors.

But there's no escaping the main issue, which is that immigration is not the unmitigated benefit the government so long pretended it was. Who can forget the abysmal David Bonkitt telling us there was "no obvious limit" to immigration, and that without it "growth would stall, economic flexibility and productivity would reduce"?

As we blogged here, the truth is that while immigration does seem to have boosted aggregate growth, it's done virtually nothing for per capita incomes. Higher growth is offset by having more mouths to feed. Net net it's a wash- or even a small loss.

For example, the mainstream and highly respected National Institute for Economic and Social Research found that migrants arriving between 1998 and 2005 raised GDP by 3.1%, a huge amount. But that needs to be set against the huge numbers arriving, which totalled 2.249m (net). Since that was an addition of 3.8% to the population, the net impact on GDP per head was negative.

What's more, the costs and benefits are very unevenly spread. Among the biggest losers are the poor and unskilled among the existing UK population. Which is not only unfair, but also extremely dangerous.

Especially since the People's Left steadfastly denies it. Brendan Barber, General Secretary of the TUC, yesterday was still arguing for keeping the doors open, and recently said:

"There is very little evidence that migrant workers have kept wages down... the answer is to ensure good wages and a fair deal for migrant workers, not put up the barriers."

An extraorinary statement that flies in the face of supply and demand, and ignores the fact that many of his own members must be the biggest losers. As left leaning Cambridge Professor Bob Rowthorn puts it:

"It is bizarre that the Labour Party, which still continues to insist that it is the party of the poor and vulnerable, should endorse a policy the purpose of which is the creation of what Marx called "a reserve army of labour": a pool of workers whose presence ensures that rates of pay for cleaners and ancillary staff in the NHS can be kept as low as possible."

If I was poor and vulnerable in Cambridgeshire (as another of my Victorian ancestors once was), I'd be extremely angry. I'd feel neglected by mainstream politicians, whether in Westminster or Congress House. I'd be looking for alternatives.

If you want to really frighten yourself, just take a look at the happy snaps of all those normal looking Germans on their day out.

Wednesday, September 19, 2007

Not Me Guv Government


He's to blame

Do you remember "joined-up government"?

No, don't scream. Labour's slogan said that government under the hopelessboomandbust Tories operated in silos- they would join it up again to servethemanynotthefew.

You remember that?

The real world has turned out to be a tad more problematic.

For one thing, just bunging everything together under one roof doesn't automatically remove the silos. The dysfunctionalnotfitforpurpose Home Office was an excellent example of that, as was the multi-role internally conflicted DTI (eg see this blog). A giant wobbling blob is no substitute for realistically defined objectives, and an honest alignment of power with responsibility.

But worse than that, Labour in power has actually dismantled some of the joined-up structures that had previously operated quite successfully. New half-baked quangos have taken powers and reponsibilities out of government departments, often resulting in important bits dropping down the cracks in between. The result is Not Me Guv Government, a perennial issue in PAC investigations of public sector disasters (see many previous blogs- including this one on the shambles of NHS nursing staff).

And now we have a real humdinging classic- Gordo's 1997 decision to split responsibility for the financial stability of our banks between the Bank of England and the FSA.

Previously, the whole responsibility had been in the hands of the Bank. And overall they'd done a pretty good job- Britain hadn't seen a run on a High Street bank since 1425... well, OK, not since Victorian times.

But Gordo/Balls decided they knew better. For reasons that have never been entirely clear- and which were strongly opposed by the Bank in 1997- they hived off responsibility for regulating banks to the FSA. The problem was, the FSA was not given a cheque book to shore up wobbly banks if the need arose. The cheque book (aka emergency last resort lending) was left with the Bank.

Now, just a decade later, this new untried stucture has failed its first big test. We've had a bank run that has undermined confidence so much the taxpayer has been made to write a blank cheque guarantee. And goodness knows when and how we'll be able to retrieve it.

What happened was that when it came to the crunch, Gordo's tripartite "memorandum of understanding" between the Bank of England, the FSA, and the Treasury broke down.

According to the memorandum, in the event of a crisis:

"Each authority would:

assess the situation and co-ordinate their response within the framework agreed with the other authorities. The form of the response would depend on the nature of the event and would be determined at the time; and


where possible and desirable to facilitate a solution to a problem, and hence reduce risks to wider financial stability, encourage negotiations between third parties whose agreement might be beneficial for the reduction or resolution of the issue, in its area of responsibility." (para 16)

But what on earth was supposed to happen if the three authorities couldn't agree? This morning the FT reports:

"Recriminations... started in earnest... when it emerged that the Financial Services Authority had repeatedly urged the Bank of England to intervene in order to avert a crisis of confidence.

FSA officials and senior banking executives had in recent weeks pressed the Bank to widen the types of collateral it would accept when lending to financial institutions, people familiar with the matter said.

But the Bank refused, arguing that this would promote moral hazard by offering banks and their shareholders a bail-out without punishing them for taking excessive risks."

Pre-Brown and Balls, doubtless there would have been similar arguments around a table inside the Bank of England. But at the end of the day, everyone would have understood they were accountable to one boss- the Governor. And that boss would have been accountable not just for overall macro-financial stability, but also the micro business of staying on top of individual banks.

Instead of which, despite the fact that page one of Management for Dummies says you should only ever have one boss, Labour's tinkering reformers threw out the tried and tested, and set up a new untested structure designed for delay, indecision, and turf conflict.

Not Me Guv Government.

And just like with everything else, we taxpayers foot the bill.

PS- for more backgound on bank regulation and financial stability, see this paper by Prof Charles Goodhart.

So How Do We Get Rid Of Them?


Anyone got any ideas?

The people queuing outside Northern Rock were in absolutely no doubt- if a politician or commissar tells you anything, it's best to believe the opposite. From money, to public services, to law and order, to foreign policy, they're not just incompetent buffoons, they're also compulsive liars.

So how come we still tolerate them spending 43% of our income? How come we still let them run our public services? How come we give them free rein over virtually every aspect of our lives?

The answer of course, is that we can't stop them. The Westminster system gives us elected dictatorship, and our dysfunctional first past the post electoral arrangements ensure we face a tweedledee-tweedledum choice targeted solely on swinging 100 key marginals. Those of us who live elsewhere have no say whatsoever, and even those marginal voters only get to choose between alternative me-too platforms.

No wonder election turnout has slumped, with four out of every ten voters not bothering.

But what can we actually do about it?

Proportional representation to give outsiders a Westminster voice, fiscal decentralisation, more rules and less discretion... we can all think of possible improvements.

But turkeys don't vote for Xmas. How on earth would we ever get our "political class" to accept such changes? They're all very happy with the current deal, thank you very much.

Gah!

Can we really be that stuck?

Tuesday, September 18, 2007

Mattress Alternatives


You queued for ten hours yesterday, and now you have £20,000 stuffed under the mattress.

It turns out to be not very comfy. So where are you going to put it?

To help you decide, we've just trawled round the main instant access mattress alternatives:

Alternative 1- HMG

National Savings and Investments (NS&I), fully guaranteed by Her Majesty's Government, offers an instant access account paying 4.65%.

Alternative 2- Northern Rock

NR, fully guaranteed by Her Majesty's Government, offers an instant access account paying 6.31%.

Now, whoyagonnacall?


Terms and conditions: 1. Tyler Investments (hereinafter called Tyler Investments, or TI) is regulated by the FSA, so before opening an account you will be asked to provide fourteen forms of identification (even if you've banked with us for the last twenty years). 2. In accordance with accepted banking practice, TI may from time to time invest your deposits in impenetrable structured financial vehicles which may or may not have an underlying value. 3. The directors of TI may at their absolute discretion pay themselves large bonuses, which shall not be returned in the event of any temporary liquidity impairment of investors assets (technically classed as a "financial meltdown"). 4. All deposits are fully guaranteed by HMG. 5. Have a nice day.
Update- good article on NR this morning by Jeff Randall here.

Blank Cheque


So just what are we taxpayers on the hook for? What exactly has the government's panic bank deposit guarantee announcement exposed us to (see this blog)?

Having trawled through the papers and official websites this morning, it's entirely unclear what's actually been agreed. The official HM Treasury merely repeats Darling's TV announcement:

"Should it be necessary, we, with the Bank of England, would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability in the financial markets."

"Put in place arrangements". Like what? Will all deposits be covered? Retail and wholesale? What about say a roll-over facility - is that a new deposit? The reality is probably that they have no idea.

Also, which institutions are covered by the broader guarantee? We only found out about that after Darling had spoken, when Treasury officials briefed journalists that "the same guarantee would extend to any other bank in a situation similar to Northern Rock, which asked the Bank of England for help after experiencing cash flow problems following the worldwide squeeze on credit." Had Darling simply forgotten to mention that huge extension, or hadn't it occurred to them until they were later asked?

The message - strongly reinforced by the bumbling performance of the FSA's chief executive on this morning's Today programme - is that they are making this up as they go along. All they know is that they will do whatever it takes to stop the nightly TV reports of Weimar Republic style panic in the streets.

But it's our money they're chucking around. We need to know what it will cost, even if they're beyond caring.

Let's assume the guarantee will only apply to UK bank deposits held by UK private sector residents. At present, they amount to around £2 trillion. So straight off the bat, Darling has signed us up to guarantee £2 trillion of deposits. That's a big Big Liability- even bigger than the £1.7 trillion debt mountain this government has already built up (see this blog).

But of course, they might argue the actual cost is not this total potential liability, but the value of the free insurance cover they're handing out.

In the absence of detail it's rather difficult to tell what this amounts to, but one indication might be the US deposit insurance scheme, which is being widely trawled as the model for us.

That's operated by the Federal Deposit Insurance Corporation (FDIC), and guarantees most deposits up to $100,000 (£50,000), some up to $250,000. It's funded by insurance premia paid by the participating banks themselves.

Looking at the FDIC's latest report, we find that in 2006 it insured $4.1 trillion of deposits on a premium income of only $32m (a mere 0.0008% of deposits). Which sounds like a knock-down bargain- until you recognise the FDIC has been going since 1933 and has built up huge reserves over that time. They now stand at $50bn, still only 1.2% of deposits, but a pretty chunky war chest compared to the zero we have in the UK.

So what might that imply for us?

A straight read across from the US says taxpayers would need to put aside an immediate reserve of £25bn and an annual premium of £16m pa. Well, that's not too bad you think- why didn't we do it before?

But given all those panicking queues, and NR alone with twenty odd billion of retail deposits, that doesn't sound right, does it. Not nearly enough.

And of course, it isn't.

In reality, the FDIC's premium rates go up and down depending on recent loss experience. During the recent boom, losses have been minimal (zero actually). But back in the late eighties and early nineties recession, the losses racked up ($15bn in the worst year). The premia then went much higher. A read across from that experience suggests the implied premia costs here would currently be of the order of £4-5bn pa (equals 0.2%- 0.25% pa of £2trn).

Remember too that the FDIC guarantee is capped - Darling has given an open-ended guarantee no matter how big the individual deposit.

The bottom line is that we can't really tell how much of a blank cheque the government has written, because as per they haven't worked out what their "plan" actually entails in the real world. But as of now, he's increased public sector liabilities by around £2 trillion, and he's committed taxpayers to providing free insurance cover costing perhaps £5bn pa.

This morning's press says Bank Governor King will take the rap for this and will shortly be removed. But the real culprit has been keeping a very low profile in No 10. He's the one who split responsibility for managing bank stability between the Bank and the FSA, and he's the one who presided over Britain's debt explosion.

But we're the ones who will have to pay for it all.

Monday, September 17, 2007

Open Ended Taxpayer Bank Guarantee



Chancellor Darling has just announced that for the first time in British financial history the taxpayer is giving a 100% guarantee to depositors at a commercial bank. Having failed spectacularly to reassure Northern Rock depositors that he had things under control, he's hit the panic button.

We taxpayers stand to lose some serious money here. But despite that, the authorities have given hardly any information on what they've actually agreed to. As our friend Prof Buiter said this morning:

"We know that the chancellor authorised the Bank to support Northern Rock. But is the support uncapped and open-ended, as Northern Rock informs us? What is the premium? Exactly what collateral will be offered and how will it be priced? Taxpayers’ money is at risk. The chancellor should make public this information and if he does not, parliament should insist."
All good points, and what should bother us even more is what happens if this isn't simply a liquidity issue. What happens if NR's assets turn out to be what the trade describes as "impaired"- ie they're not actually worth what they claim to be worth? How much would we lose?

In an attempt to get some feel for this, I've taken a quick look at NR's balance sheet (see latest annual report here). I rather wish I hadn't.

As at end-2006, NR's assets were valued at £101.1bn, of which £87.3bn comprised loans to customers. The rest largely comprised so-called treasury assets, including its share of exposure to those notorious CDOs (see their emergency trading statement here).

In the event those assets are not worth what they claim, the first losers will be NR's equity investors. The balance sheet tells us that total equity amounts to £3.1bn, so that's our cushion: as long as NR's loans and other assets remain worth at least 97% of their end-2006 valuation, then the bank's creditors- now including us taxpayers- can all get repaid in full. Equity investors are wiped out, but taxpayers remain whole.

But in a world of rising interest rates and falling house prices, how lucky do we feel? A 3% safety margin isn't really very much at all.

Suppose instead those assets suffered an impairment of say 10%. What would happen then? Yup, you've got it- we taxpayers take a 7% loss. A 20% impairment means a 17% loss, etc etc.

Could be very expensive.

And does it end there?

Alliance and Leicester shares have been whacked today, because they are also heavily dependent on wholesale market funding. What if they get into the same difficulties? Will Darling use taxpayers' funds to guarantee their depositors as well?

And what about the other high street banks? These are uncertain and dangerous days- if another bank got into trouble, would Darling act in the same way? Put another way- could he refuse, having now given this unprecedented support to NR depositors?

On the 15th anniversary of Black Wednesday, having specatcularly failed to reassure depositors that things were under control, Darling has been panicked into writing the biggest blank cheque in the history of British banking.

And it's our money.

Blancmange Wobbling Our Way


As we've blogged many times, much of Britain's prosperity over the last decade has been built on a huge blancmange of debt.

Personal debt now stands at over £1.3 trillion (see here) - some £50 grand per household. Properly counted, public sector debt stands at around £1.7 trillion - another £70 grand per household (eg see this blog). So your typical taxpaying household now owes £120,000. That's a wince-making 4 times average household income.

Of course, there's nothing wrong with debt per se. Indeed, it's a key component of any successful capitalist economy. What's wrong is that much of this debt has been run up on some highly Micawberish assumptions about ability to repay.

Today, we're seeing that in the case of Northern Rock. Obviously we have the absolute assurance of everyone from Darling down that NR's problem is one of short term liquidity rather than solvency. But how do they know? NR has been a highly aggressive maxxed out mortgage lender (see this blog), and the housing market is currently teetering on the cliff edge: crikey, even bigtime punter Alan Greenspan is offloading his buy-to-lets in Scunthorpe Waterside.

And whatever Darling says about "stability" and how we're so much better placed than most other countries to "weather the storm", the fact is that the potential bad debt problem is much wider than NR. We all now know about Sivs and Spivs, but even safe-as-houses mortgage loans are a lot less safe on loan-to-value ratios of 95% than 80%.

The question remains- who's going to take the haircut? Who's going to pick-up the bill for all the bad debt we know is wobbling around out there?

The choices are shareholders, depositors, or taxpayers. On BBC Today this morning, Will Hutton argued it should be taxpayers. He says the government should provide a 100% deposit guarantee, and stand ready to nationalise banks in trouble.

Darling wasn't prepared to sign that particular blank cheque, but he seemed pretty short of other ideas.

Looks like that £1.7 trillion of public debt is heading up.

Sunday, September 16, 2007

Recent Bonfires- 78


Let's just keep this between ourselves
In the news this week-

Labour's union sweetheart deal costs us £4.468bn- "The cost to business of Labour's backroom deals with its union backers now runs into the billions... the true cost of the so-called Warwick Agreement, signed by Tony Blair to secure £8m of union funding and support ahead of the last general election, is only now becoming apparent. The Government estimates that one pledge - to increase statutory holiday entitlement to 28 days, in a series of phases starting from October 1 - will cost business up to £4.4bn a year. Additional maternity and paternity leave and pay, introduced in April, is already costing up to £58m a year... Taxpayers have also forked out £10m for a union modernisation fund to meet a separate pledge to "work in partnership with strong, modern trade unions and to help unions grow". (Telegraph 11.9.07)

£90,000 wasted on Stalinist bulldozer survey- "FURIOUS residents have clashed with the council after branding a development survey for their estate as a shambles and misleading. The consultation on plans to bulldoze homes and gardens to make way for new housing on the Barnsbury Estate in Woking... took six months to complete and cost taxpayers £90,000. Council officers will now consult residents again, at yet more public expense, after it was accepted the consultation did not reflect the desires of the people... Growing pressures from Westminster to up the number of new homes being built in the south are causing dismay in communities such as Barnsbury... Cllr Bellord said: “We have central government dictating the terms and flexing their muscles with their vision of the south east. They’re happy to tell us what we need. Stalin is alive and well in central UK government.” (Woking News and Mail 13.9.07)

£98m runaway road project- "Four years ago, the Welsh Assembly Government pledged “over £30m” for the Porth Relief Road in the Rhondda but, unveiling the road yesterday, First Minister Rhodri Morgan revealed the final cost was £98m. The figure – which works out at £21m a mile – had never previously been quoted by the Assembly Government, Rhondda Cynon Taf (RCT) council or builders Costain. In 2003, Economic Development minister Andrew Davies said: “We are investing over £30m in this road development which will bring environmental benefits and improve access to employment opportunities.” In the programme for yesterday’s ceremony, the cost was put at £65m. Even yesterday morning, it was still being reported elsewhere that the final cost was £85m, but by the time Mr Morgan addressed representatives from the various companies involved in the scheme the price had soared to £98m." (South Wales Echo 4.9.07)

Lavish lunches cost £25,000- "The man charged with ensuring public money is used properly has spent almost £25,000 of taxpayers' cash on dining out in the past three years. Sir John Bourn, head of the National Audit Office (NAO), has run up an average restaurant bill of £154 during 160 meetings since 2004. Details of his lavish expenses, which were revealed after a Freedom of Information request, come just months after it was disclosed that Sir John had spent £336,000 on a series of trips to destinations around the world." (Mail 16.9.07)

Total for week- £4,566,115,000

Saturday, September 15, 2007

MiniTeeth- Wooden Gnashers Off Ration


Patriotic People's Plate before customisation

More excellent news comrades!

Thanks to the success of its visionary 10 year National Gnashers Plan, the Ministry of Teeth- or MiniTeeth as it's now known- has announced that wooden dentures will no longer be rationed.

Comrades will no longer have to undergo the lengthy and tiresome procedures involved in crown and bridge work. Instead, they will be issued with a pair of all-purpose Patriotic People's Plates.

Made entirely of melamine faced MDF, Patriotic People's Plates can be customised to suit any personal dental requirements, using only a pair of pliers and a junior hacksaw.

In use, they are perfect for all* requirements (*all except certain extreme "high stress" processes, such as drinking wet liquids, and eating).

Reality check- according to figures from the Dental Laboratories Association, since the new contract for NHS dentists was implemeted in April, there has been a sharp 57% drop in the number of complex treatments, like dentures, carried out for NHS patients. The DLA reckons financial rather than clinical concerns are driving decisions - to the detriment of patients:

"DLA chief executive Richard Daniels says that the service was "going back to the Dark Ages of dentistry"

Mr Daniels argued that his association had comments from "some of the most vulnerable" patients who had required dentures and instead were given tooth extraction.

He blamed the new contract, which does not record the specific treatment carried out.

"For example, if you had a tooth missing under the old contract very regularly you would have received a single crown.

"Under the new contract you'll be finding you'll get a one tooth denture and the cost of those are significantly different, yet the dentist's income will still be the same."

Yes, Mr Daniels has got an obvious axe, and yes, the government denies the whole thing. But regular BOM readers will recall this is not the first reported problem with the new NHS dentist contract (see this blog). And who do you believe?

The fact is that we are spending £2bn pa on NHS dentistry, yet established dentists are still abandoning the NHS in droves. Most of us don't know anyone who still has an NHS dentist.

So where is all that money going?
PS The pic shows George Washington's famous wooden dentures. Don't expect anything that good on the NHS.

Friday, September 14, 2007

Tyler's Morals Hazarded


Do I look like an arrogant opinionated brilliant Dutch economist?

I've just watched Prof Willem Buiter on C4 News laying into the Bank of England's intervention to prop up Northern Rock. Prof Buiter is one of the world's leading monetary economists*, and an ex-member of the Bank's Monetary Policy Committee.

He reckons the Bank was pushed into its move by Brown/Darling, and warns:

"Moral hazard has received a boost in the UK banking sector and in the UK financial system as a whole. We will all pay the price in the years to come, when the next wave of reckless lending washes over us. Let's hope that the collateral requirements and penalty rate charged on the credit line will be tough enough to limit the damage."

Who could disagree? (See this morning's blog).

But moral hazard is a slippery beast.

As mentioned this morning, Tyler has a small deposit with NR, the residue of a somewhat larger deposit moved out earlier this year on concerns that NR was heading for the shredder (phew!). What that means is that he could switch funds in again very easily- no need for any account opening admin etc.

Now, pre the Bank's bail-out it made no sense to do that- far too risky for the return on offer.

But now, it makes perfect sense. Strapped-for-cash NR is currently offering 6.71% on a one year fixed rate bond- far higher than you can get on such an investment most other places on the cyber high street. And it's effectively guaranteed by the Bank of England.

What a snip! Even if taxpayers are being forced to subsidise the whole thing.

Not for the first time, Tyler's morals are in the hazard.

*Footnote- The splendid Buiter turns out to have his own blog where he lays out his trenchant views on the NR support operation. Many years ago- as we may have mentioned before- he ran macro economics seminars for students on the LSE's Masters course. Tyler attended, and was somewhat taken aback at the first session by Buiter's characterisation of the course- the course he was supposedly teaching- as "Micky Mouse economics". B didn't really help anyone through the exams, but he certainly opened a few eyes to fear and loathing among academics.

Yours!


Congratulations! If you're a taxpayer you're now the proud owner of Northern Rock's mortgage book.

Northern Rock has been a crisis waiting to break. They have been just about the most aggressive mortgage lender: they have been lending at very high income multiples, and they have been prepared to top up their mortgage loans with further unsecured lending. Just in the first 8 months of this year, despite the toppiness of the housing market, their net mortgage lending increased by 55%, driven by their low rate mortgage deals (see their emergency statement here).

To fund this lending, they have been very heavily dependent on the wholesale money markets. Whereas the Halifax gets more than half its funding from retail deposits (ie personal savers), NR only gets about one-quarter. The rest has to come from the markets, the same markets that have now refused to lend.

So we lucky taxpayers have had to step in.

Darling has emerged from his hole to assure us there's no need to worry. Well, for depositors at NR, that's certainly true- they're now guaranteed by us taxpayers (declaration of interest- Tyler has a small residual deposit with NR).

But we taxpayers should be anything but calm.

What if the collateral against which we're now lending to NR turns out to be worth less than NR claim? How confident can we be about the value of those highly geared mortgages in an environment of rising rates and (probably) falling house prices? What about their £15.4bn of other assets, including exposure to CDOs, SIVs, and SIV-lites (see this blog)- how secure are they? The answer is nobody knows- which is precisely why the money markets no longer want to lend to them.

Of course, there's no way NR can now maintain its independence. Other banks have been looking at it for some time, but reckoned it was overpriced. Now that the shares have plumetted (down 20% today, and 60% from their peak earlier this year), a buyer may be more interested. Analysts at Credit Suisse comment:

“We assume Northern Rock will cease writing new business. The lack of new business flow and a penalty cost of funding will have a detrimental impact upon Northern Rock’s earnings ... Northern Rock is unlikely to remain independent but the value of the company to an acquirer may be significantly below the current share price.”

No doubt "the authorities" are right now frantically trying to strongarm someone into taking them over. And no doubt the possible buyers are saying they will need some form of government guarantee on that dodgy loan book. And maybe the authorities will offer some form of... what shall we say... douceur.

But there's one thing we must be absolutely insistent on.

Before taxpayers are required to shell out a bean, the NR shareholders must lose everything. As we argued here, they've had the upside, and now they must pay the price.