A Nation Of Immigrants

Not all immigrants have been welcomed

I was watching the BBC's Question Time programme last night, and not for the first time I was struck by the ignorance of those who push themselves forward to rule over us.

The question was whether mass immigration is leading to Britain losing its identity?

Now, after a decade in which another 2.2 million foreigners (nearly 4% of our population) have come to live here (see this blog), and with two-thirds of Brits now saying they feel our culture is under threat, you'd think the panel would take it seriously. But the only panellist who did so was Nigel Farage. The others variously described the issue as "stale", or soluble by yet more of that marvellously effective state planning.

Two of the panellists- Sarah Teather and Carolyn Flint- repeated the old nonsense about Britain being a nation of immigrants, and it hasn't done us any harm so far, so what's the problem?

Incredible. We thought everybody now understood the history of immigration. But it seems they don't. We need to refresh our memories.

The rose tinted Flint/Teather argument takes various forms. At its most ludicrous (put forward by a R5 phone-in caller who joined Tyler in the shower earlier this week), it says that until 500,000 years ago there were no humans in Britain at all. So we're all immigrants. So we should all be happy. So QED.

The slightly more sensible variant says we've had successive waves of immigration over the last 1,000 years- Huguenots, Jews, Ugandan Asians, etc- and we've always benefited hugely. So shut yer gob, and think of the economic pay-off.

At the risk of invoking the bleedin' obvious again, there are two key points to make.

The first is that the recent wave of immigration is on a scale we have NEVER, EVER seen before. Here are the 1066 And All That facts (taken from the Civitas paper 'A Nation of Immigrants? A brief demographic history of Britain' by David Conway- unfortunately not online):

• 1066 - William the Conqueror arrives with c10,000 of those bad guys in chain mail; later, more arrive, but they never amount to more than c5% of the 1.5m population; even so, tensions between the immigrants and the indigenous population get so bad they eventually have to call in Kevin Costner
• Next 600 years - nothing much to report; despite that, there are periodic massacres of established British Jewish communities (most notoriously at York in 1190)
• 1685 - the Catholic Sun King's revocation of the Edict of Nantes leads to around 50,000 Protestant Huguenots coming to seek asylum in Britain (spread over the next thirty years or so); our population at the time is about 5m, so they represent an additional 1%
• Next 200 years - nothing much to report
• 1881 - the assassination of Tsar Alexander II triggers antisemitic pogroms in Russia and Poland; between 1880 and 1914, some 150,000 asylum seeking Jews settle in Britain, arriving at the rate of perhaps 10,000 a year; our population by then is about 30m, so they represent an additional 0.5%; despite their significant economic contribution, their arrival in London's East End is not universally welcomed, a tension later exploited by Oswald Mosley
• 1935-1941 - 70,000 German and other Jews fleeing Hitler get asylum in Britain; our population is about 48m so they represent an additional 0.15%; nevertheless, on the commencement of hostilities, many are interned as dangerous aliens
• 1939-49 - 300,000 Poles and other East Europeans fleeing the Nazis and the Commies settle here; our population is about 50m so they represent around 0.6%
• 1948 - Empire Windrush arrives at Tilbury with 492 West Indian immigrants, many returning servicemen
• 1955-1962 - 472,000 immigrants arrive from the Commonwealth, 0.9% of our 53m population; escalating racial tension and riots prompt government to impose immigration controls from 1 July 1962
• 1962-1980 - Commonwealth immigration continues at 70-75,000 pa; rivers of blood averted, but tensions continue
• 1972- 30,000 Ugandan Asians fleeing Idi Amin get asylum in Britain; they represent 0.05% of our population
• 1980-1996 - Commonwealth immigration around 50,000 pa; net immigration close to zero
• 1997 onwards - average 220,000 pa net immigration, partially offset by 70,000 pa net emigration of Brits; 2.2m new foreign immigrants in 10 years represents 3.7% of the population; BNP gets 48 local councillors elected

Notice any patterns?

From the Huguenots, to the Jews, to the Poles (Mk I), to the Ugandan Asians, virtually all of that historic immigration comprised asylum seekers, not economic migrants. And crucially, the scale of all these historic episodes was much MUCH smaller, averaging well under 1% of the indigenous population.

The second broad point is that despite what people like Teather assert, there is no serious evidence that Britain's recent mass immigration has made us any richer. According to the highly respected National Institute for Economic and Social Research (and see their Lords submission here), immigration between 1997 and 2005 raised GDP by 3.1%. But since it increased our population by 3.8%, it actually depressed GDP per head, which is what really matters.

Once again, we're left scratching our heads. Do people like Teather and Flint really believe what they say? Have they never checked the facts? Or do they think mouthing Progressive Consensus platitudes will somehow make the problem go away?

Trabant Hits Whelk Stall

Bottler doing his best

Down 11 points in just two months, Bottler's been rumbled. As Prof King says:

"YouGov's latest findings for The Daily Telegraph are among the most devastating for any Government in the history of opinion polling."

Jeff Randall, in another excellent article, likens this disastrous "government" to a Trabant:

"In its early days, Brown's leadership, which had been launched with a cheeky re-spray, pop-popped along quite convincingly. But very soon nasty noises emerged from under the bonnet; the Trabant's big end was banging.

Smoke started billowing from its exhaust, as Northern Rock crumbled. The clutch slipped when the personal details of 25 million citizens went missing. Finally, the wheels began to wobble over "unlawful" donations."

To Tyler, the poll's most interesting findings relate to the government's wholesale managerial failures. BOM readers will be familiar with the following litany of disaster, but YouGov has asked voters what they think:

From the NHS, to defence, to criminal justice, to immigration, the majority of voters rate Brown's government as Poor/awful. And frankly, we're surprised it's only a minority who think the same on the Olympics (already officially four times over Brown's original budget), foot-and-mouth (caused by a virus escape from a dilapidated government plague lab), and the summer floods (made much worse by shortcomings at the bungling Environment Agency).

Overall, 52% think the government couldn't run that famous whelk stall.

When we started BOM just before the last election, we did so because we were fed up with the way Big Government always seemed to get the benefit of the doubt on managerial competence. The Progressive Consensus said "yes, of course, there are a few problems from time to time, but they stem from the evil Tories, who systematically starved our public services for years; Labour's investing in the future and getting on top of things; with goodwill on all sides things can only... er... get better."

Well, the things have suddenly become a lot clearer. Voters are watching a masterclass in Big Government incompetence and deceit. Stalin may have won WW2 and never actually turned into Mr Bean, but this arrogant socialist clown sure has.

There's no way back now for Bottler. He looks completely f****d, and may need to take the Anthony Eden escape hatch*. But the real question now is whether voters are ready to make the next leap.

Do they really think Dave and Co could do a whole lot better? Do they still believe anyone is capable of running the gargantuan NHS? Do they still have faith in top down criminal justice? Do they think anybody is capable of running Big Government mega-bureaucracies like HMRC or DWP? Are they finally ready to listen to the case for downsizing government?

According to the Major's brainy friend Herr Docktor Professor Kuntz, the certain date of the next election is 29 April 2010 (the very last Thursday before the five years are up). So we've got 849 days left.

849 days of recession, house price collapse, public spending squeeze, higher taxes, higher borrowing, and deteriorating public services. 849 days to plug the message, and hope somehow that Dave takes it in (cf Mr Liberty's views).

*Footnote- Anthony Eden famously waited a decade for Churchill to give him a turn at the wheel. He lasted one year and 279 days before retiring on health grounds. Just like Bottler, his predecessor never thought he'd be up to the job. And just like Bottler, he presided over a disaster. But there the similarities end: Eden won an election (1955).

How To Make £10m A Year

£10.2m pa- a new record

In this blog, we explained how Mr Dido Mayue-Belezika managed to make £6m pa. He worked as a postman, nicked chequebooks, and used them to blag £20 mill. Then, even though he was one of the unlucky 24% of criminals to get detected, he only got sentenced to six and a half years. But as we know, since in British prisons you're only expected to serve half your sentence, it was actually only three and a quarter years. £20 mill divided by three and a quarter equals £6 mill pa. Lovely.

Now lay preacher Malcolm Edwards-Sayer has done even better. He's just been given ten years for a £51m VAT fraud. So that's five years inside, equals £10.2 mill pa. Yes, it's a new record.

Malc made his money on the Carousel. We've blogged VAT Carousel fraud several times (eg here and here): in essence, it involves setting up a chain of bogus import-export deals and reclaiming VAT which had never been paid in the first place. And until recently, HMRC paid up no questions asked. Which was nice.

Still, even at £10m pa, just like Mr Mayue-Belezika, Malc was unlucky. Not only did he get caught, but his Crown prosecutors actually managed to get through the trial without tripping over their own shoe laces. Eight (yes, EIGHT) other defendants walked free due to what the judge called "comprehensive failures" by the prosecution.

More Balls On Educational Conscription

Slippery Balls on the job

"Raising the participation age 'has potential economic benefits of £2.4bn per year group'

THE BIGGEST REFORMS TO EDUCATION, TRAINING AND SKILLS IN A GENERATION

Ed Balls and John Denham today published the Education and Skills Bill and outlined their plans to boost the skills and education of young people and adults... "

Thus begins today's propaganda release from the State Schools Commissariate on their disastrous plan to raise the school leaving age to 18.

Naturally, what caught Tyler's eye was the promise of economic benefits. The release says:

"Independently verified research also published today estimates the economic benefits of raising the participation age to be around £2.4bn per year group over the course of their lifetime. This is because staying on longer improves the skills and employability of young people and raises their earning potential."

Now given everything we know about the real world- disenchanted teenagers, dysfunctional irrelevant classes, intimidated teachers, large-scale truanting, etc etc- this "independently verified research" sounds incredible. We're very keen to read it.

Unfortunately, having Googled high and low, we can't find it. There are no links from the press release, and no links from the Department for Children, Schools and Families website.

We wonder why.

For the real facts on prolonging the agony of school, see this blog. There we discovered that the Local Government Association reckons raising the leaving age to 18 will entail set-up costs of at least £200m and ongoing costs of £750m pa. The latter includes £50m pa on "tracking, attempting to engage and enforcing the duty (including bringing any prosecutions)". What a dismal prospect.

The costs are certain.

The benefits are yet another helping of pie in the sky.

PS The non appearance of the paper hasn't stopped Balls getting the headlines he wanted, although in fairness, the BBC does put it in quotes- Staying on to 18 'boosts economy'. So they clearly haven't seen the paper either.

PIRLS From Miss Sharpe

We slump to 19th

According to the Progress in International Reading Literacy Study (PIRLS), English primary school pupils have slumped in the international league table of reading skills. The authoritative study of 40 countries showed them falling from third place in 2001 to 19th place in 2006.

Yesterday Commissar Balls blamed parents for allowing their kids to play computer games:

“Across the country we should be getting our kids to play computer games a bit less and to read a bit more. Most of them have their own TVs and mobiles, and 37 per cent are playing computer games for three hours or more a day."

You can't trust those parents with anything, can you. Thank God they're not allowed school vouchers.

Odd then, that Mrs T's old teaching colleague- the recently retired Miss Sharpe- blames not the parents but the Commissars. And she's noticed some very interesting bits in the PIRLS report that never made the headlines.

To start with, when Balls goes on about computers, he overlooks the fact that his government was a prime mover in pushing computers into schools. One result is that they are now widely used in teaching reading: PIRLS says 32% of English pupils now regularly use school computers for reading lessons, three times the international average of 11% (table 6.6). Miss Sharpe never approved, insisting that unfashionable traditional methods involving human beings were always far more effective. But the Commissars knew better.

She also points out that according to PIRLS, most of those hopeless parents actually seem to do a cracking job in preparing their children for school. In England, 56% of primary kids attend schools where at least 75% of them enter with good basic literacy skills. That's nearly three times the international average of 20%.

So how come they enter school with good literacy skills? Could it by any chance be down to the parents at home?

The big picture seems to be that most parents do a pretty good job with their kids up to school age. They then have to consign their heirs to schools which do a relatively worse job now than they did five years ago.

Brilliant.

Of course, the Major has another theory about why our schools are performing worse than they used to in teaching reading. And it's a factor not even mentioned in the PIRLS report, or the mainstream media coverage.

He reckons there are now three-quarters of a million immigrant children in English schools, many of whom do not have English as a first language. Worse, increasing numbers can't even speak English when they first arrive in the classroom.

Which may go some way to explaining why PIRLS finds our rural schools performing so much better than our urban schools. A pattern which is the exact reverse of experience in other countries:



So best advice if you want your child reading?

Teach her at home and send her to a rural school.

Britain's Most Useless Quangos- The Electoral Commission

Voting with our feet

In the interests of open and transparent dealing, Mr Tyler wishes to make a statement.

As a result of certain "established practices" at a political party's annual conference, he finds himself in possession of a quantity of Electoral Commission ballpoints. And also a number of corporate keyfobs, beer mats, and souvenir prophylactics provided by the same organisation.

At the time he acquired these gifts, Mr Tyler was under the impression that the Electoral Commission was paying for them from its own funds.

It has now become clear that the original source of funds was not the Commission, but a wealthy donor known as The Taxpayer. Further, it now appears The Taxpayer was unaware his funds were being used for such dubious purposes.

Naturally, Mr Tyler deeply regrets accepting such gifts, and has ordered a full independent enquiry to establish the facts. The enquiry will be chaired by a retired High Court poodle, fully vetted by the Major's spiritual provider, Mr Thresher.

******

The useless Electoral Commission costs us £22m pa and employs 150 people. Created by Labour in 2000, it's so far presided over cash for honours, banana republic voting systems, and this latest secret donor outrage. It has totally failed to demonstrate any grip whatsoever.

Unsurprising when you look at its Commissioners, who are a usual suspects bunch of Big Government insiders:

• Sam Younger (Chair): ex-BBC son of Labour minister (salary £150 grand pa)


• Sir Neil McIntosh : Scottish local authority bureaucrat (fee £30 grand pa)


• Karamjit Singh CBE: local authority lawyer (fee £30 grand)


• Peter Wardle (CEO): ex-Inland Revenue bureaucrat (salary £110 grand pa, plus a pension pot of £0.5m)


• Etc- full list here

The Commission reports not directly to the government, but to Parliament. In theory, that's supposed to make it more independent. But it practice it reports to the Speaker's Committee, membership last reported as follows:

�� Rt Hon Michael Martin MP, Speaker of the House of Commons (Chairman)
�� Rt Hon Alan Beith MP, Chairman of the Constitutional Affairs Select Committee
�� Rt Hon Lord Falconer of Thoroton QC, Secretary of State for Constitutional Affairs and Lord Chancellor
�� Mr Phil Woolas MP, Minister for Local Government
�� Lady Sylvia Hermon MP
�� Rt Hon Sir Gerald Kaufman MP
�� Mr Humfrey Malins CBE MP
�� Mr Gary Streeter MP
�� Mr Peter Viggers MP

Quite.

But while our politicos wheel and deal with total disregard for the law, and while our democratic institutions head for collapse, at least we taxpayers can be assured the Commission is ahead of the curve in the vital matter of ethnic and gender balance among its 150 staff. Its annual report boasts the following table:

We're so glad they've managed to get those old-style White British and Irish bigots out the door. They never did understand democracy.

Meanwhile Rome is still burning.

PS And no, we most definitely do not want to dole out even more taxpayers' money to support the politicos. As we've blogged before, one way or another, they already get over £50m pa (eg see this blog).

Post-Bureaucratic Dave

No pud for depressed Tyler

Dave wants big changes in "our very system of government:

"We're living with a 20th century model of government for a 21st century economy.

We've got decentralised, footloose, global companies.

We've got an informed, activist, grown-up population.

We've got amazing technology, enabling co-operation on a truly liberal basis - bottom-up and self-regulated. But we've got a government that tries to use that technology not to empower and liberate, but to control.

Big, cumbersome, centralised bureaucracies, trying to control a world that has moved on.

I believe that the days of big government are numbered."

Well, hurrah for that.

It's just that...

Yesterday Tyler lunched with a senior libertarian. Well, you don't get senior libertarians per se, of course, but this Very Bright Man has been on the libertarian circuit for longer than Dave's been on the planet. Let's call him Mr Liberty.

Anyway, he was appalled to hear Mrs T and I had attended the Tory Party Conference. Why on earth did we think the Tories would change anything? Even in opposition their promises are minimal, and once in power they will go right along with Big Government just like all other Westminster politicos. And what's Dave actually saying anyway?

As luck would have it, the man himself reminded us yesterday:

"Don't tell me we can't do better. Well let me make it clear: a big change is on the way.

We will be a Government for the post-bureaucratic age - careful with public money, competent in public administration, conscious of the limitations of government."

As we buttered our lunchtime parsnips, Mr Liberty scoffed: "sounds exactly like Tony Blair in 1996; or Gordon Brown, come to that; it's just more Soviet managerialism- we'll somehow manage Leviathan better."

Tyler racked his brains to think of some specific non-managerialist policy commitment. "Ah, what about allowing parents to set up new schools? The Commissars wouldn't come up with that."

"Yes, but the Commissars keep hold of the money. The Tories may try to present it as the Swedish school choice system, but it's nothing like that. In Sweden the critical point is that they have school vouchers- the money goes with the pupil, and all parents can choose to spend it at any school, including private schools. The Tory scheme isn't anything like that."

Hmm. True. But you know, we have to start somewhere, and the Tories are really the only game in town.

Mr Liberty shook his head. "The Tories will be more of the same..."

"Ah! No! What about Inheritance Tax! When George stood up at Blackpool and announced the £1m threshold, they finally showed us some beef. And look how sensationally it transformed the landscape! Say what you like about Dave, but he ain't dumb: he will have seen how popular a specific bankable smaller government policy turned out to be, and he must be working on more of the same."

Liberty smiled gently and stared at Tyler in disbelief. "Do you honestly think he'll do that? He only did it in Blackpool as a last desperate throw to stop Brown's election blitzkreig. Now Brown is holed up in Stalingrad, ten points behind in the polls and facing a criminal investigation, there's no way Dave will give us any more. He doesn't need to."

We skipped pud.

Tyler was too depressed.

PFI Millstone

Just stick your head through the hole

Anyone who's ever had building work done knows the Golden Rules of value for money:

1. Get at least three fixed price quotes in writing


2. Make sure they cover all the required work in full


3. On no account alter your requirements once you've hired your builder

Simple, aren't they.

A shame that the Private Finance Initiative doesn't follow them. Especially as PFI is so much more permanent than a here today, gone tomorrow, kitchen extension. Your builder comes, builds the extension, gets paid, and leaves. But the PFI contractor comes, builds the hospital, then runs its "hotel facilities" for the next twenty five years, with taxpayers making an inflation linked payment to him every single year. Mistakes today will be a millstone round our necks for the next 25 years.

And there are now 800 of these contracts, committing taxpayers to total payments of £155 billion over the next 25 years. Which is a lot of money on which not to be getting value.

We've blogged the PFI money-pit many times (eg see here), but the Public Accounts Committee has just given its update on how things are going. And against those Golden Rules, the news is not good:

• Since 2004 the proportion of PFI deals attracting only two bidders has more than doubled - to one-third - with the risk of no competition at all if one bidder is weak or drops out


• One third of public sector teams made changes to PFI projects after they had selected a single, preferred bidder


• The average tendering time for projects is nearly three years, deterring bidders and costing taxpayers more- delays to projects cost us at least £67 million


• Prices for contracted "soft" services (such as catering and cleaning) often get increased during the contract period (by up to 14% so far- and that's on top of the inflation-linked increases already factored in)


• Services are being reduced to contain costs- ie we're getting less for the money

And why's it such a mess?

Partly, it's because private sector is increasingly wary about dealing with our indecisive, half-baked public sector (see this blog on Shunning the Simple Shopper). But more fundamentally:

"There is a continuing lack of PFI skills and expertise across the public sector, particularly in local authorities, NHS trusts, and other locally-based teams where officials are usually encountering PFI negotiations for the first time... Good negotiating skills are essential if public sector officials are to secure good deals from private sector counterparts who are usually experienced in developing and managing PFI projects."

In other words, the same old Simple Shopper story: taxpayers picking up the tab for being represented by incompetents. And we're on the hook for at least the next quarter-century.

There's one other point to highlight for future reference. During the PAC hearing, the inestimable Richard Bacon tried very hard to make the Treasury mandarins tell us how much debt PFI now represents. This is something we've wrestled with on BOM, but it has been treated by HM Treasury and Bottler as a state secret, shrouded in Enron accounting obfuscation.

Here's the transcript of how Bacon got on:

Q101 Mr Bacon: I have been trying for several years to get to the bottom of how big is PFI, and it seems to be quite difficult to get an accurate answer. I have been told by various people, including by the National Audit Office, answers such as, “Well, really they do not know.”... you must have some notion of what is the likely amount of debt to arise there from going forward?

Mr Pocklington: The total stock of PFI projects has a capital value of approximately—

Q102 Mr Bacon: We have been through that. £54.55 billion, although if you look on your website it is actually now £58.067 when I printed that off this afternoon, so it has gone up by about £4 billion since you sent your note in...

Mr Pocklington: Table C19 from the Budget document includes our latest estimate for the years 2006-07 to 2033-32 on an annual basis.

Q108 Mr Bacon: If you add it all up what do you get?

Mr Pocklington: We have not published a number and I am afraid I am not able to add them up here...

Q111 Mr Bacon: Mr Pocklington, can you just give me, because funnily enough I have got a calculator, the numbers please?

Mr Pocklington: From 2007-08?

Q112 Mr Bacon: Yes, read them out. I will put them straight into my calculator and this will save us time.

Mr Pocklington: 7.3, 7.8, 8.2, 8.5, 8.6, 8.7, 8.8. etc etc

Q120 Mr Bacon: That comes to £157.9 billion. Is that then a rough proxy for the answer to my first question, Mr Stewart?

Mr Stewart: I think that is the liabilities accruing under PFI.

Q121 Mr Bacon: That is what I am interested in.

Mr Stewart: That is not equivalent to the debt.

Q122 Mr Bacon: Right, so the debt is something different?

Mr Stewart: The debt relates to the capital element so the unitary charges include payments for soft services.

Following the meeting, HMT eventually came up with this Sir Humphryesque statement:

"The total, if one were to add together these future and non-comparable figures without applying any appropriate adjustments, would be £170.8 billion. However, I must emphasise, as I already have to the Committee and to Mr Bacon, that this number has no meaning. To add together a figure in today’s money to a figure in the money of 2030, without making any adjustment for the changing value of money over time, produces a nonsensical number.

A more meaningful exercise would be to take the stream of future payments set out in the table and to aggregate them as a net present value. If one were to do this one would end up with total future payments under the PFI measured in today’s money which aggregate to £91 billion. The discounting methodology applies the Green Book rate of 3.5% to account for time preference and a discount of 2.8% to account for inflation. These two elements are compounded to give an overall discount rate of 6.4%. The inflation figure of 2.8% is HM Treasury’s projection for RPI inflation consistent with CPI inflation remaining at its 2% target."

So now we know. According to HMT, PFI debt currently amounts to £91bn (although since that ignores all payments beyond 2031-32, we should probably call it £100bn). That compares to BOM's most recent calculation of £90bn, and our updated guesstimate of £100bn. Looks like HMT must have accepted our figures.

PS The CBI has also commented on the poor contracting skills of public sector PFI clients: "In a survey of PFI contractors, the business lobby group found that changed orders, delays and added costs were common. In answer to a question as to what respondents' companies have experienced from the PFI, 69% said they had experienced changed specifications by the contracting authority before contracts were signed; 49% said they had experienced changed specifications by the contracting authority after contracts were been signed; 78% said they had experienced avoidable delays on the part of the procuring authority; and 76% said they had experienced higher than expected bid costs."

Sleaze Balls

Cash for planning permission in the Socialist Republic of North East of England? Has a familiar ring somehow.

This time:"Fresh questions about David Abrahams's donations to the Labour Party have been raised by MPs after it emerged that he is behind a £60 million business park granted planning permission after he gave £160,000 to the party.

Plans for the 540-acre Durham Green Business Park were originally turned down by the Highways Agency on the grounds that it would cause too much congestion on the A1. But last year the Highways Agency, which answers to the Department for Transport, removed its objections. The local Labour council approved the scheme."

Last time of course, it was John Poulson paying T Dan Smith for local authority building contracts, rather than planning permission. But the value of this Durham business park will come from the Lyons plan for relocating civil servants out of the South East.

Either way, taxpayers pick up the tab.

PS We're well used to Labour incompetence, but it comes to something when they can't even break their own laws competently. Does anyone take them seriously?

Family Silver Going Cheap

OK children- I'm going to explain how not to sell a company

We've blogged before about selling the family silver. In the Earl of Stockton's immortal words:

"First of all the Georgian silver goes. And then all that nice furniture that used to be in the salon. Then the Canalettos go."

Very distressing for all concerned. But even more distressing when you let it go too cheap.

We've just had the National Audit Office report on the bungled sale of QinetiQ, previously the Defence Evaluation and Research Agency (DERA). It confirms our worst fears- taxpayers lost a packet.

Briefly, in 2003 the government sold a stake in QinetiQ to private equity players, the Carlyle Group. Their job was to act as a "strategic partner" to help get the company ready for floatation on the stock market. That duly came in 2006, when Carlyle sold its stake for a large profit.

The NAO's headline findings are these:

• Carlyle got in too cheap, or in NAOspeak, "we consider that more money might have been raised from the 2003 sale to Carlyle, which generated total proceeds of £155 million" (para 13)... "weak competition (see paragraph 2.10) and the negotiated reductions in value (see paragraph 2.26) suggest that greater proceeds might have been achievable from the sale to Carlyle" (para 4.12)


• MOD bungled the sale by failing to agree a key longterm contract with QinetiQ before appointing Carlyle as preferred bidder (cf Virgin's appointment as preferred bidder on the Crock); because of that and other loose ends, Carlyle was able to beat down the price by £55m from their initial valuation after becoming preferred bidder (para 6)


• Senior management got far too much gravy - huge helpings of equity were made available to senior management in a juicy incentive scheme developed by Carlyle, with virtually no input from MOD (see below); in NAOspeak "we consider that the returns in this case exceeded what was necessary to incentivise management" (para 9)


• Wild inequity between taxpayers and "partners" Carlyle- "We have calculated that the Department made a notional internal rate of return of 14 per cent from the privatisation" (para 14).... "Carlyle made an internal rate of return of 112 per cent on their investment in QinetiQ" (para 15)

In other words, the catastrophic combination of politicos keen to raise some dosh, and bureaucrats incapable of commercial implementation has once again cost taxpayers a packet

Their dire performance is really underlined when you read the NAO's recommendations to avoid future problems. They are such statements of the bleedin' obvious that you'd blush to mention them to a six year old. Eg:

"If marketing activity demonstrates that there is limited interest in the opportunity, the public sector should reconsider the timing and structure of the proposed deal. In the public sector the impetus is often to press ahead in difficult circumstances rather than to attempt to maximise proceeds. It is not unusual for private sector deals to be postponed if the market is less favourable than anticipated."

Well, who could possibly have known that?

Clearly, MOD had no idea whatsoever about normal practice in the real world, and in all probability nobody was interested in finding out. The job was not to maximise taxpayer value but to satisfy Whitehall's asset sale target. Whatever the cost.

As for those laughing-all-the-way-to-the-bank senior managers... just like Cedric the Pig and the other civil servants who cashed out when the utilities got privatised, the boys at QinetiQ had the luck of Larry. Not only were they sitting in the chairs when the music stopped, defence and tech stocks performed extraordinarily well between them getting wedged and the floatation. Here's the NAO's table of who got what between the 2003 sale and the 2006 floatation:

As we can see, the executive directors made gzillions, with CEO Sir John Chisholm creaming off £26m, a return on his initial investment of 19,900%. Nice work if you can get it.

So much for the grisly facts, but there's another very interesting aspect of this report. For the first time Tyler can ever remember, the NAO has produced a report in which it records a serious disagreement between itself and the department under scrutiny.

Whitehall convention has been for the NAO and the department to lock themselves in a smoke-free room until they can agree a "form of words" to appear in the report. In effect, it's a joint report. That can be helpful because it means the PAC doesn't have to waste time trying to pin down the facts. But of course, the danger is obvious, and more than once, the truth has been smothered.

We saw that most dramatically in the case of last year's NAO probe into the NHS Supercomputer, when after a bitter Whitehall fight, the Department of Health nobbled the NAO report (see this blog). And the NAO has picked up a lot of flak about it ever since (eg see the Peter Oborne vid here).

Now, with Sir John Bourn on the way out, it looks like he's decided to throw cozy convention to the wind. Try this:

"4.12 The Department considers that its strategy to introduce a strategic partner maximised overall value and that seeking to achieve greater proceeds from the initial sale could have lowered eventual receipts. We recognise that the strategic partner model had benefits in improving the value of the business in advance of a flotation. We consider, however, that weak competition (see paragraph 2.10) and the negotiated reductions in value (see paragraph 2.26) suggest that greater proceeds might have been achievable from the sale to Carlyle. The Department and UBS Warburg disagree with this assertion. Various other indicators support our view."

The NAO's view is backed by a detailed analysis, including a revaluation of the company at the time of sale, subsequent performance relative to the market sector, and the fact that the net assets of QinetiQ were sold for less than their fair book value.

The MOD's response?

"The Department does not accept that the book value of QinetiQ at incorporation is a robust measure of the value of the business at that time and considers that it is not possible to derive an accurate estimate of the return it has achieved over the whole privatisation." (para 4.13)

It is not possible to derive an accurate assessment of the return it has achieved. Just think about that for a moment.

In effect, the MOD is telling us it sold an extremely valuable taxpayer asset to the private sector without having any idea what it was worth.

Would you do that?

Would a six year old child do that?

No, of course not.

But in Whitehall it's par for the course.

In the case of QinetiQ, MOD gave away £400-500m that rightly belonged to taxpayers. Yet nobody has been fired or resigned.

On 3 December, the PAC will be grilling MOD officials. Tyler is booking his place now.

Virgin On The Ridiculous?

So Sir Richard is about to tow away the Crock. Hurrah! Getting that thing off the front lawn will be a load off everyone's mind.

Although... is this by any chance the same Sir Richard pictured on the cover of The City Book of Very Sharp Operators?

Hmm.

According to today's Update on Strategic Review put out by NR, taxpayers will remain committed even after Virgin takes over. True, Virgin will repay £11bn of the Bank of England loan immediately, but that will still leave £13bn plus outstanding. And we will rank no higher than the commercial banks backing Branson (who may very well be on other sweeteners to ease a troubled mind).

How quickly will we get the rest back? And what happens if the bank gets into difficulties again? What happens in a world of falling property prices? And what happens if it can't attract new deposits without that Bank of England guarantee?

That second point could be very important. As we've declared previously, rate tart Mrs T currently has a Silver Saver instant access account because it pays a market leading 6.3% and is fully guaranteed by HMG.

But we know- because Tyler looks into these things- that unsecured Crock debt is currently junk. Specifically, its credit rating for senior debt without the HMG guarantee is BB, a junk bond rating.

Now there are all kinds of reasons why you might want to invest in junk bonds, but only if you get paid for taking the risk. As we've blogged before, bank deposits are unsecured senior debt, and 6.3% is most definitely not being paid to take the risk (cf this sleep-at-night Halifax account on 6.25% ).

So as soon as the HMG guarantee goes, so does Mrs T's deposit. Along with a whole load of others, no doubt.

Of course, Virgin and their backers are aware of this risk. They are going to inject some new capital. The NR Update says it will be £1.3bn, plus the £250m current value of Virgin Money, which will be folded in. Call it £1.5bn, of which £650m will be raised via an issue of new shares at 25p each. Acccording to the Update:

"The Virgin Consortium expects that the Company will quickly re-build a deposit base to drive a more sustainable funding structure and is targeting a credit rating of no less than 'A'."

Single A? Halifax (HBOS) is a strong AA, much more comforting. Why would Mrs T leave her money with a Branson owned, single A targeting, recovering Crock, when she could get virtually the same interest rate from Halifax?

That's right- she wouldn't.

Our guess is that Virgin will find it difficult to rebuild the deposit base. Unless of course, it offers some pretty racey rates. But that undermines profitability, which is not at all what Branson and his backers will have in mind.

So how long before we get the money back? The Update says virtually nothing:

"£11 billion will be repaid to the Bank of England at completion of the transaction - and the Bank of England will have a clear path towards repayment in full."

The reality is that the clear path will meander on for many years. Meanwhile taxpayers will continue to underwrite the enterprise with an open-ended loan commitment. And under the Virgin plan, our loan will be at market rates, not even the penal rates charged up until now.

Good luck to Branson- he's certainly got cojones.

But we taxpayers should not presume the pain is over.

Not by a long chalk.

Update: NR's share price is up 30%. Clearly all those City spivs like the sound of that open-ended taxpayer funding. And also, in a highly unusual step, Branson's reportedly putting in £200m of his own money. It's clearly much worse than even we thought.

Defence Spending- Reptile News

The Major is still cheering the massive Combined Ops attack on Bottler's dug-out. Bottler staggered from the wreckage gibbering:

"I want to see the armed forces properly equipped with the resources that they need. And that's why we've been increasing expenditure on defence compared with the cuts under the previous government."

It's a horrible case of shell shock. The last year of Tory government saw defence spending at 2.9% of GDP; this year it's 2.5%; and by 2010-11 it will be 2.3% (see here, here, and here). If that's not a real terms cut, what is?

What's that? Deflating the cash spending figures by the GDP deflator shows defence spending has increased in real terms since 1997, and the government will increase it by a further 1.5% pa over the next three years?

Irrelevant. Everyone knows defence prices rise faster than average prices because of all that new fangled kit. Plus, the forces wage bill rises in line with incomes. Everyone knows that, don't they? The GDP deflator is a red herring- the only sensible broadbrush comparison is with overall GDP.

Sure, as a percentage of GDP, spending has been falling for as long as any of us can remember. And yes, the end of the Cold War did see a significant leg down. But the Tories, along with all Western governments, were taking the Peace Dividend (remember that?).

Anyway, WTF has that got to do with this clothead government plunging us into two HOT wars simultaneously, and cutting defence spending as a percentage of GDP at the same time?

Only a bunch of spineless reptilian incompetents would do that.

PS Here's the BBC report on that Nimrod fuel leak issue. They're still flying, so let's hope we were wrong.

Recent Bonfires- 85

Champagne bureaucrats

In the lavish expenses news this week:

Met chief spends £15 grand on drinkies- "Andy Hayman, the Metropolitan police anti-terrorism chief, has been questioned over thousands of pounds spent on hotel expenses and drinks for his staff. He has been asked to explain at least £15,000 expenses that included claims for “inordinate amounts” of drinking with colleagues. “Apart from the money, what happens if they are all out drinking when a bomb goes off?” said one Met official. The married father of two has been quizzed about his relationship with Sergeant Heidi Tubby, his former staff officer. Tubby is said to have accompanied him on foreign business trips at public expense." (Sunday Times 25.11.07)

£330 grand for MOD ducking stools and champagne- "DEFENCE officials entrusted with ensuring troops are properly equipped in Iraq and Afghanistan have spent £7,000 to go on a team-building event, featuring hot tubs, ducking stools and celebratory glasses of champagne... the Defence Equipment and Support division has allocated £330,000 for civil servants to go on courses." (Sunday Times 25.11.07)

Regional quangos blow £8m on boonies- "Nine regional development agencies... free-spending habits are revealed in documents obtained under the freedom of information (FOI) act, which show that expenses claims reached £8m (read the documents: click here and here). Eight of the nine development agencies decided it was essential to send a contingent to a property trade fair in Cannes. Seeda took 13 staff to Mipim, a four-day event based in the Palais des Festivals, spending £24,000 on dinner, brunch and other events at the exhibition. Meanwhile, the LDA flew in 14 people, allowing staff to stay at four-star hotels. The South West of England Regional Development Agency spent £61,000 at Mipim and the body promoting the West Midlands held an £8,000 cocktail reception in Cannes. Claer Barrett, managing editor of Property Week magazine, said Mipim was “basically a four-day party” with “loads of lobster and champagne” on yachts. Staff at Yorkshire Forward had an even more glamorous assignment: to mix with Hollywood actors, including Jean-Claude Van Damme, and Bollywood stars such as Preity Zinta and Shilpa Shetty, at the International Indian Film Academy weekend in Dubai in 2006. It cost £20,000 to fly 15 staff, 10 of whom flew business class, to the four-day jamboree." (Sunday Times 25.11.07)

Quango chief spends £50 grand pa on taxis and limos- "THE part-time chairman of the quango that promotes the southeast of England to business spent more than £50,000 on taxis and chauffeur-driven cars last year. James Brathwaite, who chairs the South East England Development Agency (Seeda) on a three days per week contract, spent £51,489 on taxis and “executive cars". (Sunday Times 25.11.07)

Defra books into £310 hotel rooms- "GOVERNMENT officials sent to contain the avian flu outbreak have enjoyed the luxuries of some of Suffolk's most prestigious and expensive hotels it has been revealed. Critics have rounded on the Department for the Environment, Food and Rural Affairs (Defra) for spending thousands of pounds housing staff at The Ickworth, describing the move as a “grotesque extravagance”. Standard double rooms for bed, breakfast and dinner at The Ickworth, near Bury St Edmunds, cost £310." (Evening Star 23.11.07)

£1.4m Home Office art fiasco- "An annual competition would invite members of the public to describe, in 150 words, what it means to be British. The winning entries would be engraved on the pavement outside the Home Office in Westminster. Yet four years after the "artwork" was dreamed up, at a cost so far of more than £18,000... only three stones have so far been engraved, and the words are almost unreadable. No work has been done for the past 12 months.... Funding has come from a £1.4 million budget for artworks in and around the Home Office's £311 million Marsham Street headquarters, which opened in 2005... This is the second art project to run into trouble at the building... a £125,000 deal to buy a six-storey high abstract sculpture by Eva Rothschild collapsed because it was too heavy to hang in the building's atrium." (Sunday Telegraph 25.11.07)

Total for week- £9,795,310

Your Bank Account For Sale

About those missing bank account details...

Official advice remains that you don't need to switch your account. We reckon that might easily end up costing taxpayers billions in compensation once the Russian cyber-gangs get to work.

It's difficult to know just how much we might lose, but a starting point is the black market price of stolen account details. And as you can see from the price list above (taken from Symantec's latest Internet Security Threat Report), they fetch up to $400 apiece.

You have to figure on at least a ten-times multiple in terms of prospective take from your account, don't you? So 7m accounts times $4000 equals $28bn, or roughly £14bn.

And like we say here, it could be more.

Bill For Black Week

Last time round taxpayers weren't forced to pay

After a week in which all the wheels came off and the axles scrawped deep into the tarmac, what's the damage so far?

Black Week: Running Tab for Taxpayers

Item- The Crock.... c £40bn taxpayer exposure: prospective cost £4-8bn (for detail see this blog)

Item- Open access bank accounts.... prospective cost £200m- £20bn (see here and this blog)

Sub-total... £4.2bn- £28bn

£28bn is well over a grand for every household in Britain.

Enjoy.

(And hope that the rumours about other shaky High Street banks aren't true).

PS Not the government's fault? NOT THE GOVERNMENT'S FAULT?!?!? They were the ones who set up the incompetent tripartite bank regulatory system, with an FSA that failed to understand the extraordinary risks being taken by Northern Rock, and which fumbled the ball when it came hurtling towards them in the summer. And they were the ones who destroyed the basic competence of HM tax collectors to implement even the most basic data security measures. Both of these disasters are unprecedented in modern times.

How Much Will We Lose On Northern Crock?

The Crock- "rotten as a carrot"

Having glanced under the bonnet, none of the prospective buyers thinks the Crock is even worth a fiver. And they're only prepared to tow it away for scrap if we taxpayers provide them with fully comp insurance for free.

So how much are we going to lose? [NB this post has got longer and longer- you may need the towel wrapped especially tight round your head to get through it- alternatively, cut to the conclusion].

It remains very difficult to estimate because the whole grisly business is shrouded in mystery. But we do have some further small chinks of light this morning.

In his Commons statement on Monday, Darling tried to give the impression our loan is all secured against "quality assets". We were sceptical, and today the Guardian reports that only half of it is secured:

"The first tranche of the Bank's emergency lending to Northern Rock in September has been secured against specific assets. But the second tranche is secured only by a more general floating charge, which would mean the Bank would be vying with other creditors for repayment if Northern Rock failed. It is not clear how much money was loaned in each tranche, but the emergency loans are thought to have been for about £11bn each."

When we looked at taxpayers' exposure, we pointed out that at mid-year £54bn of NR's £87bn mortgage portfolio was already pledged against wholesale market borrowings (our analysis has since been picked up in an interesting piece in The Business).

We also noted that NR's leaked sales memorandum (now suppressed by court injunction) reportedly shows that £74bn of mortgage loans are currently "encumbered". We hoped and presumed that the £20bn growth from £54bn to £74bn represented the security given against the BoE loan.

It now seems we were too optimistic. One reason may be because we ignored the fact that the offshore financing vehicles (including Granite) through which that £54bn of secured wholesale borrowing was done, contain more than £54bn of NR mortgages. In other words they are "over-collateralised", so as to provide a safety margin for NR's wholesale funders. Leaving, of course, fewer mortgage loans on NR's core balance sheet to pay off other lenders in the event of liquidation, at least in the near term.

And according to this week's Economist, the amount of this over-collateralisation is £7bn. The implication is that of the £74bn pledged mortgage assets, £61bn or so is ringfenced inside the offshore companies. On that basis, the assets pledged to us only amount to around £13bn, or less.

The truth seems to be we taxpayers have £11bn or £12bn of unsecured loans to the Crock. And that's on top of our unsecured exposure via the guarantee to depositors: at mid-year such deposits amounted to £30bn, but we estimate they've since halved to around £15bn (see previous blog).

So out of our total loans of £35-40bn, our total unsecured exposure is now ballpark £25-30bn. Including several hundred million of subordinated debt (again, see previous blog).

Of course, if NR's assets are all top notch- as Darling originally asserted- it needn't be too much of a problem, at least in the long-term. But we've always feared the loans are not all top notch, and here the Guardian has more bad news:

• Mortgage loans of over 90% of the purchase price of a house have soared to £16bn, from £2.7bn, in the space of three years


• Loans have exceeded the value of the property on nearly 2,500 mortgages, with a value of £263m. Three years ago, the figure was just £13m on 158 properties


• 10,000 Northern Rock customers are a month or more in arrears on their mortgages, on loans worth nearly £1.2bn. At the end of 2003, there were only 2,500 in the same difficulties, with mortgages worth £168.8m


• In 2003 Northern Rock repossessed 80 properties. Last year more than 1,000 properties were repossessed. By the end of September this year 912 properties had already been repossessed.

And note this analysis is of the mortgages that have been pledged to NR's offshore financing vehicles. They may well be the best of NR's overall mortgage book, in order that NR could ensure the credit rating agencies gave their offshore funding issues high ratings. The mortgages left back home on NR's residual "rump" book may well be the ones the international wholesale market wouldn't have liked.

So to summarise, the Crock has £87bn of mortgages (mid-year), some £61bn of which are ringfenced inside the offshore companies. Leaving around £12-13bn pledged against the Bank of England loans, and a mere £13bn to repay all unsecured lenders, including depositors. And since we know virtually nothing about those mortgages, they could be quite badly exposed to a housing market... umm... "correction".

Of course, NR also has around £25bn of other assets (mid-year), but again, the quality may not be the highest. For example, £8bn of that was unsecured personal loans, including NR's "Together" top-up loans for mortgagees, which could take their combined loan up to 125% of their house value (note- the secured mortgages seem to have been shunted off into the offshore companies, with the unsecured top-up loans left on the main NR balance sheet). And for all we know, some of those non-mortgage assets may well have been pledged against specific loans from other wholesale lenders: we just don't know.

And understand this: because NR's offshore company borrowing is overcollateralised by £7bn, in the event of a liquidation, that's £7bn less to pay out its other creditors, at least in the short-term (say, the next 5-10 years). Now, if the Crock does get liquidated, shareholders will lose all their funds, which at mid-year, amounted to £3.3bn (including so-called reserve and subordinated capital debt). But even netting that off the £7bn, there's still a shortfall of around £4bn. So not all onshore creditors will get paid out any time soon.

OK, so what could it all mean for taxpayer losses?

Let's assume house prices fall by 10% from the values currently assumed by NR- by no means an extreme assumption given current market conditions. The Guardian's analysis suggests up to £16bn of the £61bn offshore pledged mortgages would then be underwater- ie one quarter. On that basis, we should assume that at least a quarter of the £26bn probably lower quality mortgages in its rump book would also sink beneath the waves: call it £6-8bn.

Of course, just because borrowers have negative equity doesn't mean they will default. But we now know that at least 10,000 customers are already in arrears, and many are facing considerable hikes on fixed rate deals resetting over the next twelve months. There will be many more arrears on properties that no longer cover the outstanding loan. Yes, repayments can be deferred and mortgages extended, but defaults would definitely increase.

And if borrowers do default in a falling market, then we're looking at a fire sale. The kind of knock-down repossession property auctions we saw back in the early-90s, when the discount on fair market price was often 20-40% (see here for recent 20-30% repossession discounts in a strong market).

A large-scale fire sale would mean Big Discounts. A quite plausible one-third discount on £6-8bn nominal value would mean a loss of £2-3bn.

So for a 10% house price fall, is £2-3bn our prospective loss? In theory, it should be less. Apart from the fact that not everyone would default, our £11bn of secured lending should incorporate a collateral margin, just like with NR's offshore funding programme. But can we be sure the BoE insisted on that? We don't know.

Also, NR's other unsecured creditors should take a share of the pain. Judging from the mid-year report, they hold about £18bn of senior unsecured NR debt, and should rank pari passu with our £25-30bn unsecured exposure in a liquidation.

Drawing this together, our best guess is that a 10% fall in house prices could leave taxpayers with £1-2bn loss on repossessions.

But in addition, because of the £7bn "excess" collateral tied up in those offshore companies, we would also have to wait a number of years to get the rest of our money out. At 7% pa the interest cost on that would be around £0.5bn pa, of which £0.3bn pa would fall to us. Call it 5 years delay, equals £1.5bn.

And we also have to consider prospective losses on the £25bn of non-mortgage loans and investments. It's anyone's guess, but the £8bn of unsecured personal loans are particularly concerning, especially those "Together" top-up loans. It would be surprising if we got away with less than another £1bn loss there.

Plus of course, there will be all the usual costs of a bankruptcy. In the case of MG Rover, taxpayers took a hit of £250m on redundancies and other incidentals.

Totting it all up, we get to around £4bn.

And if- heaven forbid but it's certainly on the cards- the housing market went for a real walk, say 20% down, our costs would be considerably higher. Many more mortgages would default, and we could easily be looking at a doubled bill- let's call it £8bn.

As Darling contemplates these risks and the huge political hole he's in, the temptation to do a sweetheart deal with one of these prospective scrap bank dealers is likely to be overwhelming.

But taxpayers should understand we won't avoid the costs. Any buyer will insist on that fully comp insurance.

If things work out, the car doesn't crash, and the buyer manages to sell the bits on, he will take all the upside. But if the bottom drops out of the engine compartment on the way to the yard, and it causes a pile-up, guess who'll be paying.

PS Tyler's first car failed its first MOT. On returning to the garage to pick it up, he was told it was "as rotten as a carrot", and he'd be well advised not to drive it home. Even so, he still sold it- to a somewhat dodgy looking geezer- no questions asked, for 30 notes, cash in the hand (the equivalent of at least £300 today). He's trying deperately to track down the geezer to see if he'd be interested in an MOT failure bank.

Doctor, I'm In Pain

Kenneth Williams has his wallet surgically removed in Carry on NHS Waste

The Public Accounts Committee has just issued its report on that Simple Shopper pay deal for NHS consultants.

We blogged the original NAO report here, so we won't repeat it. In summary:

• Thanks to the NHS "new contract" pay deal, hospital consultants got a 25% pay rise for doing less work


• Costs were wildly understimated- at least £715m vs a forecast £565m- which contributed to the NHS deficit crisis

Since 2000, the paybill for NHS consultants has doubled to £4bn pa. Consultant numbers only increased by around 30%, and their productivity (so-called finished consultant episodes per consultant) slumped:

Just like with the notorious GPs contract, we taxpayers have had shocking value, paying considerably more for considerably less.

Qinetiq

Q clocked out just before payday

We'll be blogging the NAO's report on the scandalous cut-price sale of Qinetiq when it's published tomorrow.

As you will know, Qinetiq was formed out of the MOD's Defence Evaluation and Research Agency, and floated in 2006. When we looked at it here, we noted that the Carlyle private equity group had made £300m in three years. And also that the ex-civil servant management were generously wedged with cut-price shares.

According to reports:

"Sir John Chisholm, chairman of QinetiQ - and also chairman of the Medical Research Council - and Graham Love, the chief executive, turned investments of £129,000 and £108,000 into assets worth £22m and £18m respectively when the firm was floated in 2006.

A year later, Love, a motor-racing enthusiast who owns three vintage Jaguars, re-sold 2.9m shares for £6m. The directors made the huge profit in three years.

Today both men, who are still on the board of the defence technology company, own 20m shares between them."

Tomorrow we get the NAO's chapter and verse. We'll highlight the horrors.

Meanwhile, for a reminder of Bottler's other great sales triumph- selling our reserves to Goldfinger for twenty quid- see here. And just to rub it in, today's gold price is $802 per ounce; Brown sold at less than $300. 400 tons sold at an average $275... Tyler's fag packet says it's cost us $7.2bn.

How's The Old Penile Dysfunction Sir?

Your records coming here

The sadly missed Doc Crippen warned Tyler some time ago. Once the NHS Supercomputer gets going, he said, the first question the traffic cops will ask when they pull you over on the A3 is how your penile dysfunction is coming along.

Tyler crossed his legs and laughed.

He shouldn't have.

The Doc's concern was that his confidential patient records were being taken over by the state and woven into the Surveillance Society. First, they'd be available right across the NHS. Next, Social Services would be given access. Then, the Department for Work and Pensions, to check entitlements. Ditto, HMRC.

The police would be next, followed by the Department for Communities and Local Government, the Schools Department, the Health and Safety Executive, the Equalities and Human Rights Commission, and Transport for London. Pretty soon, all officials would have instant access to your complete health record via a handheld terminal.

Three-quarters of his fellow GPs feel the same way, with 59% saying they'll refuse to load their patient records onto the system at all.

But as we've just seen, there's an even bigger worry than Big Brother: the government is simply not capable of safeguarding our personal information.

When it was all held in paper files, the damage was limited. But with huge digital databases like HMRC's, or the planned ID project, or the NHS Supercomputer, all of our details are available to anyone at any time. The NHS alone has 1.3m employees, many highly disgruntled, and any one of whom could help themselves.

Yes, we know. Access will be "strictly controlled", and cleaners will not be able to peruse your problems in the trouser department. But does anyone now believe that?

Our only hope with these gigantic new databases is that the government never actually gets them to work. Unfortunately, with unlimited amounts of our money chucked at them, it's much more likely they'll be coaxed into a stuttering form of life, cumbersome and tricky in use, but with all the security of a sieve.

Safest and cheapest by far to stop them now.

(htp A Tory)

Brown's Blunderbuss Blows Up

Those HMRC staff cuts

Yes, Bottler can blame the junior official who downloaded the data and sent the discs through the ordinary mail. But come on. How on earth was it possible for him to do it? What's to stop one of those illegal immigrant types getting a job round at HMRC and just helping himself? How do we know it hasn't happened already? The entire set-up is a shambolic disgrace.

And from what we know so far, it looks like a major factor was the impact of staff cuts. As HMRC's Annual Report shows, since 2003-04, the department has cut over 10,000 staff (net, full-time equivalent), with a further 2,500 going this year.

These cuts are part of the Gershon "efficiency" programme, very familiar to regular BOM readers, and the personal idea of one G Brown. It was his blunderbuss scheme to make government more cost effective by cutting spending and staff so as to "release resources for the frontline".

He launched it amid much fanfare in the 2004 Budget, with the following ambitious targets:

Right from the off, it was a classic top-down exercise visited on departments, with very little practical idea how the cuts could be achieved down at ground-level. So right from the off, departments used every trick in the Sir Humphrey playbook to deliver their targets without necessarily making real cuts. Which is why BOM has always been very sceptical about the overall savings (eg see this blog, and many others).

Since 2004, in every budget and pre-budget report, we've been given an update on supposed progress. By October this year, according to Darling's Pre-Budget (pre-aborted election) Statement, the Gershon programme had delivered "annual efficiency gains of over £20 billion... and is on track to deliver the goal of £21.5 billion by the end of March 2008". Moreover, there have been "gross reductions of over 79,000 civil service and administrative and support related military posts towards the target of 84,150, with over 13,000 of these reallocated to frontline roles" (para 3.28).

But according to the Public Accounts Committee, based on the most recent National Audit Office probe (see this blog), only one-quarter of the reported cuts are "reliable". By implication, the rest are a figment of the commissars' fertile imagination.

So on that basis, of the claimed £20bn savings, real savings are only about £5bn.

But even those "savings" have come at a considerable cost in terms of service quality. For example, the PAC found that "savings" at the Department for Work and Pensions had increased the average time taken to process Jobseeker’s Allowance claims from 11 days to 16 days. And the Department of Health, while reporting over £1 billion of efficiency gains from reducing the average length of time patients stay in hospital, had taken no account the fact that emergency readmissions had risen consistently.

The very worst cases have been where cuts have been imposed in areas already struggling with other changes.

For example, last year, we had the fiasco at the Rural Payments Agency (eg see this blog). There, a quango was attempting to develop and implement a brand new, highly complex, and IT-intensive farm payments system, at the same time as Gershon cutting 45% of its staff (see this blog). The combined effect was disastrous. RPA staff were reorganised into specialisms, rather than the previous "case-working" structure, because that seemed to be more efficient. But it meant that there was no fallback when the new IT systems failed. The old experience and knowledge had simply been discarded.

And taxpayers had to pick up a big tab to put things right- around £0.6bn, including a £436m fine from the EU for failing to meet their deadline (see this blog). In other words, the Gershon "savings" ended up costing us money.

And now we have HMRC.

As we blogged yesterday, the problem goes beyond a simple matter of staff cuts. Just like at the RPA, there are also new IT systems, and there are new "lean production" work patterns being imposed- less case working, and more specialisation (aka dumbed down production line jobs). It's a toxic combination, and staff morale is rock bottom.

Now, as taxpayers, we naturally applaud any sensible moves to make government more efficient. But imposing arbitrary staff cuts ahead of securing the IT systems required to support them is a recipe for disaster. And a shortcut to even higher costs.

Let's just think the unthinkable. Let's suppose these data discs have fallen into criminal hands. What will it cost us?

The going rate for bank account details on the international crime market is reportedly around £200 each. We don't know how many of these lost 25m records include bank accounts, but given what we do know, 5-10m seems a reasonable guess. Which means the black market value of these two discs is an extraordinary £1bn - £2bn.

But if their black market value is £1-2bn, you have to believe the likely loss from bank accounts is a multiple of that. We have no idea what multiple, but five-times is as good a guess as any other. Which means a bill of £5-10bn. A ten-times multiple means £10-20bn.

And who do you think will pay? It won't be the banks, despite the impression Bottler and Darling have sought to give. It will be us taxpayers.

And the cost doesn't end there. Everyone will need a new bank account (if you've been claiming Child Benefit in the last five years and haven't switched yet, do it tomorrow). Everyone may need a new National Insurance number. And for the next 18 years children hitting 18 will need to check their credit records to make sure someone isn't applying for credit in their name.

And we taxpayers will have to make good all the losses.

You know, it may be time we stopped politicos playing with blunderbusses altogether.

The Politicisation Of The Treasury

Just watch the vid. Five months may be a lifetime in politics, but you can't mistake the enthusiasm of Treasury civil servants for Bottler as he leaves them for No 10.

Tyler was at the Treasury during the years of Healey and Howe. There is no way such scenes would have taken place then. Still less would the TV cameras have been invited in to broadcast them.

Back then we were naive: we genuinely believed we were somehow above politics. As Tyler's first Perm Sec (Sir William Pile, now administering upstairs) explained to us new entrants in 1973, our job was to stop the politicians doing anything too stupid.

What's my point?

Brown replaced the top Treasury civil servants with political appointees. Ed Balls was the most egregious appointment, as Chief Economic Advisor, but who can forget the way he got rid of the Treasury press office and replaced them with Charlie Whelan?

It set the tone. Brown wasn't in the market for old-style Sir Humphrey "stop them doing anything stupid" advice. He wanted "can do".

Thus we find ourselves here. Wildly complex new tax systems, HMRC and Inland Revenue banged together whatever, massive staff cuts imposed irrespective, huge new IT systems dropped down from on high at the same time, crackpot new "lean" car factory working methods dreamed up by consultants.

Nobody it seems had the motivation or balls to point out it couldn't all be done without huge risk. And if they did, they presumably didn't last long.

This catastrophe is the inevitable result of Brown's top-down blunderbuss management style. Surrounded by yes-men, he pushed ahead whatever the consequences.

And now we're paying the price.

PS Later today, we'll do another blog on the Gershon staff cuts. Because this isn't the only case where they've caused masssive problems.

HMRC Catastrophe

Once upon a time Chancellors took responsibility

Just imagine that Lloyds TSB had loaded all its customer records onto an unencrypted CD and then lost it. What do you think would happen?

First off, there'd be a huge public outcry, led by the media but with our name and shame politicos tut-tutting loudly from the grandstand.

The share price would tank.

Shareholders would insist that the CEO and half the board resign (that is, if they hadn't already gone on the announcement). No way would the sacking of a departmental manager be enough.

The regulators would send in a hit squad.

Customers would queue round the block to get their money out.

Competitors would say thank you very much, while frantically checking their own procedures to make sure it couldn't happen to them.

And Lloyds TSB would get taken over by a bank with credibility.

Compare and contrast that with the catastrophe at HMRC. 25m Child Benefit records lost, including parents' and children's names, addresses, dates of birth, child benefit and national insurance numbers and in some cases, bank or building society details. Two unencrypted computer CDs, downloaded by an office junior, and sent through the post unregistered. Millions of people exposed to financial fraud and possibly worse.

And yet the Chancellor- who is already presiding over one catastrophe- remains in post. He fires a departmental manager, claiming that the tax department is in fact independent and nothing to do with him. And he remains in post.

And for the next two years there's absolutely no way he can be ousted. Unlike shareholders we can't insist on it, and unlike customers, we can't take our business elsewhere.

And that's really the nub of the issue. Yes, the public clamour may sink Darling, but do we really think that would improve matters?

HMRC- Her Majesty's tax collectors and once the epitome of dependable, responsible government- is fundamentally bust.

As was pointed out in the Commons this afternoon, this is the THIRD such loss of confidential personal records by this dysfunctional department in just over three months. And each time we've been assured procedures were being changed to ensure it couldn't happen again.

Just two weeks ago, we learned of a virtually identical case:

"Around 15,000 Standard Life customers could be at risk of fraud after their personal details were lost by HM Revenue & Customs (HMRC).

The data was on a CD sent from the Revenue office in Newcastle to the company's headquarters in Edinburgh. But the disc containing names, national insurance numbers, dates of birth and pension data never arrived at its intended destination."

We've blogged the massive problems at HMRC many times before (eg see here ). To recap:

• Tax credit fraud- officially put at around 10% of total payments, or £1.25bn pa (see here)
• Missing Trader VAT fraud- last officially estimated at up to £1.9bn pa (see previous blogs, eg here and here).
• Incorrect tax assessments- 1.6m people over or undercharged income tax as a result of processing errors at HMRC. The total sum involved was £0.6bn, or around 400 quid each
• Inadequate accounts- HMRC accounts qualified by NAO for the last five years
• Hopeless IT systems- over 250 separate "major" computer systems
• Ramshackle organisation- hundreds of disparate local offices
• Wildly unrealistic Gershon staff cuts- Pacesetter programme cutting 8,500 jobs soonest
• Half-baked management- introducing "lean production" methods, originally designed for car manufacturing, and including whacky rules for positioning bananas on desks
• Rock-bottom staff morale- some offices now suffering annual sick leave averaging 23 days, or nearly five weeks pa (the private sector average is just 6 days pa); so many people have left, some offices are 25% staffed by temporary contractors

HMRC is now a complete and utter shambles.

Just like the Home Office.

Just like DEFRA.

And just like any number of other government departments.

How dare these people tell us how to order our lives. They are incompetent, irresponsible, and treat our interests with utter contempt. Why should we ever trust them with anything important, like our personal financial information?

Surely nobody will now want to go ahead with that crazy and insecure £20bn ID cards project.

And if you've been claiming Child Benefit in the last five years, our strong advice is to switch your bank account.

PS Darling tried to suggest in the Commons that he somehow isn't responsible for HMRC. According to him, HMRC is "operationally independent of government". This takes us right back to Tesco Government, and it is total rubbish. As the Treasury website records, Darling's junior Jane Kennedy, Financial Secretary to the Treasury, has "overall responsibility for HM Revenue and Customs". Maybe Darling should read it.