Thursday, January 31, 2008

HMRC Blows Up

Forget it

Today is the final day for filing your tax assessment. If you fail, you will face the full penalty of the Law.

So what does HMRC do?

Yup, it closes down its online filing service:

Online Services

Online Service Temporarily Unavailable

(HTP John B, who has clearly failed to file and who will soon be rounded up and sent to the Scrubs. Except of course there are no places).

No Wonder MPs Feel Underpaid

Town Hall lift-off

As we know, Britain's MPs are grossly underpaid.

Just a month ago we spared a seasonal thought for Mr Punch, forced to survive on a pittance- a basic salary of £60,675 pa, annual expenses of £118,952, and an index-linked final salary pension paying just two-thirds pension after 26 years membership... why, you wouldn't treat a dog like that.

And now we hear of Hon Members forced to employ their own families simply to make ends meet. It's a national disgrace!

Today we get a fresh insight into just why MPs feel so hard-done-by.

The ever dependable TaxPayers' Alliance has published its latest paper on Council Spending Uncovered. This time it's on Middle Management Pay, looking at the huge growth of town hall managers now getting more than £50 grand pa. They find:

  • The average local authority is employing over nine times as many people on £50,000-plus packages as ten years ago – 66 people in 2006-07 compared with 20 people in 2001-02 and 7 people in 1996-97
  • By contrast, in the economy as a whole, the number of people earning more than £50,000 has increased by less than three times over the past ten years.

The TPA specially highlights the plight of MPs:

  • The remuneration of local authority middle and senior management is racing past that of MPs. There were 12,600 local authority middle and senior managers being paid at least £60,000 last year – equal to or exceeding the £60,277 salary of MPs in November 2006

Can you imagine? Many many of our MPs, especially Labour, are ex-council bureaucrats. Ten years ago, just like Mr Punch, they left behind their perfectly safe jobs for the promise of a better, glitzier, more lucrative life at Westminster. And now they find that those who stepped into their old town hall shoes are being better paid!

Ah, the pain of regret! Ah, the pain of squeezed differentials!

For as we all surely understand, one of the most powerful human emotions is envy: that, and coveting the neighbour's ox. Just imagine how much more powerful if you once held the council sinecure now paying £90 grand pa, with similarly splendid pension arrangements, and without the certainty of being unemployed in April 2010.

PS Well, yes, you can argue these LA employees are simply catching up with the private sector. But there's no denying the fact that they've done very well over the last few years. And certainly better than MPs.

2012 Aquatics Centre Costs Treble

An Olympian triumph of wishful thinking

The new Aquatics Centre for the 2012 Olympics was originally "budgeted" at £75m. A few months ago we learned it had escalated to £150m. We now find it's likely to be £214m. That's a literal trebling, which even by the dire standards of public sector procurement is a real humdinger.

The problem? Ludicrous, Olympian, wishful... er... "thinking". The Olympic Delivery Authority's own chief executive, David Higgins, says:

"You couldn't pick a more difficult site. It's the main entry to the Olympic Park and the major roadway to the Stratford shopping centre, most of the major services to the site pass through it, it's the most contaminated part of the site. The power lines go underneath, the canal runs round it, we have found the most archaeological remains here and it's flood prone. In addition to all that you decide you want to build an iconic venue."

What clothead imbeciles would ever chose to do that?

Ah yes, we remember now. It was HM Government, ably assisted by the People's Ken- the very same "winning team" who are still in charge.

We've blogged the Aquatics Centre before (see here), reporting how, contary to all best practice procurement guidelines, there is just one bidder for the contract, Balfour Beatty. They've been demanding £250m, and although the commissars have reportedly beaten them down to £214m, we're asking ourselves what quid pro quos have been offered? And will it be the fixed price contract always promised?

Commissariat spinners are now busy assuring us that this latest overrun will not blow the overall £9.3bn budget. But that's only because they've axed the planned fencing centre altogether.

And remember, we're still four years off: there's plenty of time to see costs escalate much further from here.

Wednesday, January 30, 2008

NHS Productivity Still Slumping

The Office for National Statistics has just published its new analysis of NHS productivity. It makes shocking reading.

The Big Picture is that since Labour turned on the spending taps, value for money has collapsed. In the most recent five years studied (2001-2006), spending increased by 54%, but output only increased by 19%. Which means that for every pound we spend, we're now getting nearly 30% less. Just imagine how long Tesco or M&S would survive if they served up that kind of value.

Between 2001 and 2006, annual spending increased from £58.4bn to £89.7bn, a rise of £31.3bn.

Where has all the money gone?

1. Excessive NHS cost inflation

Inflation gobbled up £9.7bn. That's a cost inflation of 17%, compared to 9% on the government's much vaunted CPI measure.

Actually, most NHS costs went up even more than that: labour cost inflation was 25%, driven by those notorious pay settlements (average earnings in the private sector increased by just 16%). The only reason the overall average comes down to 17% is that the unit cost of GPs prescriptions has fallen dramatically, by nearly 20%, apparently reflecting greater use of generic drugs (hope they work better than the "extra 6 inches guaranteed" generics Tyler buys from his Nigerian pharmacist).

2. Slumping productivity

Since 2001 NHS productivity has been falling by 2% pa. That's a 10% loss in five years, equivalent to £9bn pa at 2006's rate of spending.

And abysmal NHS performance contrasts horribly with the broader economy, where productivity rose by 10% during the same period.

We should also note that in the period before the spending taps were turned on, NHS productivity was actually much better: from 1995 (earliest year in study) to 2001, a period of more modest spending growth, productivity was roughly flat.

So once again, boom and bust commissar management ramped up spending far faster than the decrepit old system could handle, and much of it was simply wasted.

3. Weak output growth

The bottom line is that a 54% increase in NHS spending since 2001 brought forth a mere 19% increase in health output.

Bad enough, but when you probe deeper, you find it's even worse than that. Because by the far the fastest area of output growth was GPs prescriptions, which grew by a staggering 65% over the five years. So despite the fact that they comprise less than 10% of NHS spending, they accounted for nearly 6 percentage points of the total 19% output growth.

Which means that everything else- new hips, angioplasties, radiotherapy etc etc etc- only grew by around 14%.


Once again, despite considerable efforts by our health commissars to obfuscate the figures, the gross inefficiency of the NHS is laid bare. Productivity has continued to slump.

But there's also a much bigger message struggling to get out.

Labour inherited an NHS budget growing at 5-6% pa. In the five years from 2001 to 2006 they ramped it up to 9% pa. Yet output performance barely changed, increasing from c 3% to just c 3.5% pa (even less excluding GPs prescriptions). Why is that?

Could it possibly be (as the recent TaxPayers' Alliance paper suggested) that the real driver of healthcare improvement is not how much we spend on the NHS, but worldwide advances in medical technology?

And if that's the case, why are taxpayers being made to spend all this additional money?

We surely all understand that a nationalised healthcare system will never match the efficiency of systems based on choice and competition. And we surely also understand that a tax-funded free-at-the-point-of-use healthcare service will always need rationing. So instead of pretending we can have it all, why not opt instead for a cheap and cheerful tax-funded safety net, coat-tailing on foreign technology?

Latest On Costs Of Immigration

Here they come

As far as Tyler is aware, our rulers still maintain that their policy of mass immigration is for the benefit of existing Brits. It makes us so very much richer, you see (for overview of real facts see this blog).

The bills are now coming in thick and fast- two more fell on the mat yesterday:

1. £350m pa for migrant maternity services

According to a BBC survey, nearly one baby in four is now delivered to a mother born overseas. One in four!

With NHS maternity services costing £1.6bn pa overall, that means it's costing us around £350m pa. Actually it's reckoned to be more than that because foreign born mothers are apparently more likely to have complications.

When Labour came to power only one baby in eight was born to a foreign mother, so the problem has doubled in a decade.

On average, immigrants have many more children than Brits. The average native British woman has 1.6 children. The average immigrant woman has 2.2. And the average Pakistani woman in Britain has 4.7 children (eg see here). We don't yet have figures for the new Eastern European migrants, but the Major has a hunch about how they're shaping up.

2. Welfare benefits for new EU migrants

We're now spending an estimated £50m pa on child benefit for children living in Eastern Europe:

"A loophole in EU regulations means migrants from other EU countries who are seeking work in the UK can claim state handouts for children they have left behind in their home countries."

As always the government is doing its best to keep the figures hidden from us, but we do now know we're paying £21m pa for 26,000 Polish children from 16,286 families. The total benefits bill for the Treasury is likely to be closer to £50million a year once other Eastern European countries are included.

A glance at the differing rates of child support across Europe quickly shows why we're paying:

Polish newspapers reportedly run regular features explaining how to claim benefits in Britain, and it's thought that many claimants are drawing benefit both here and back in Poland- there are no effective cross checks.

And note also this is just the cost of just one welfare benefit. It's reckoned the cost of payments under Brown's working tax credits for low paid workers are even higher. Because despite all that rhetoric about high skill migrants, in reality many are in low paid jobs we taxpayers are subsidising.

As we've blogged before, the truth about mass immigration is that the left sees it as an instrument of international aid. So it's hardly surprising it costs us money. We can certainly have that arm-waving debate about cultural benefits, but in terms of cold hard cash, the numbers increasingly tell us that the average Brit is almost certainly a loser.

Tuesday, January 29, 2008

A Banquing Beungule

The old stereotypes are always the best

What should we make of the man who broke the bank at Tours Société Générale? The multibillion "fraud" executed by M Kerviel has set a new world record.

The original story from Soc Gen's management never sounded credible. One junior trader could not possibly build up losing positions on the scale we were meant to believe: even the sketchiest internal controls would surely have picked it up, and somebody must have noticed the massive cash outflows as margin calls were paid away.

The reality seems to be that the activity had been spotted, but for weeks or even months management did nothing. Presumably that was because- just like Barings management- they were too big to ask how all those convoluted trades were actually supposed to work. And when last week they finally did hit the panic button to close the positions, they compounded the whole problem by mounting such a monumentally cack-handed trading operation the entire global stock market moved massively against them (see excellent FT Alphaville round-up here).

Yet despite all that, the top men still think it's perfectly OK for them all to stay on. How arrogantly hopeless is that?

In truth, Tyler has never been able to fathom France's big financial institutions. Unlike their Anglo-American counterparts, profit often seems to come a long way behind La Gloire- the projection of Gallic power across the globe. Indeed, whereas our top banks grew from the bottom up, Soc Gen was actually established top down by a decree of Emperor Napoleon III. Its current head is an ex-government commissar. For such institutions, the shareholders interest has always been a secondary issue: one way or another French banks and insurance companies have been able to draw support from the French state.

So for small government types it's tempting to conclude this bungle is yet another example of public sector incompetence.

But of course it's not as simple as that. We've had plenty of rogue trader/incompetent management bungles in our private sector banks, and the Crock's management team reminded us that arrogant ineptitude is not the sole preserve of state commissars.

No, catastrophic bungles can take place in any organisation, be it public or private. The key issue is what happens then? What is the consequence?

In the case of Barings, the bank went bust (and was gobbled up for £1 by a rival). In the case of the Crock, that's what should also happen. But in the case of mega-bungling Soc Gen there's no way we'll ever see that- the worst case would be renationalision as a "strategic asset", with the French taxpayer picking up the pieces.

Which illustrates why state bail-outs are so very costly. Not only do they involve the cost of the bail-outs themselves, but they also encourage managements to conduct themselves without full regard to the risks of their actions.

PS Talking of moral hazard, what about the head of the IMF calling for massive fiscal reflation? The IMF! The reason of course is that since last September the IMF has been headed by a buggins turn French socialist poilitico, Dominique Strauss-Kahn. Wiki says: "A former Finance and Economics Minister in Lionel Jospin's "Plural Left" government, he belongs to the center-left wing of the PS. He sought the nomination in the primaries to the Socialist presidential candidacy for the 2007 election but was defeated by Ségolène Royal in November 2006." So much for the IMF.

Monday, January 28, 2008

Latest State Blunders

Tax-funded blunder propaganda

When we began BOM three years ago, there were some days when the newsflow on government waste was quite thin. No longer. These days, the torrent of failure is difficult to keep up with. Here are four items that caught our eye today:

1. £1bn nurses desert NHS

"Thousands of nurses are leaving the NHS in search of better pay and working conditions abroad. More than 10,000 nurses and midwives left to work abroad in 2006-07, leaving the NHS just a few years from a staffing crisis, the country’s top nurse said.

Nearly 35,000 nurses - enough to staff the entire health service in Wales – have emigrated in the past four years. During the past three years there has been a 75 per cent rise in the number of nurses leaving for Australia alone, data from the Nursing and Midwifery Council (NMC) suggests."

In 1997-98 only 3,400 went to work abroad. And since, as we blogged here, it costs around £30,000 to train a nurse (excluding any costs incurred in training placements in hospitals etc), losing 35,000 is flushing well over £1bn down the drain.

What we're seeing is the good old public sector boom and bust cycle. When NHS spending was ramped up from 2000 onwards, thousands of new posts were created- far more than could be filled by newly trained British nurses.

So nurses had to be recruited from all over the world, many of them having pretty poor English (check them out in any NHS ward). British training places were simultaneously ramped up, but- doh!- the money then ran out.

So our newly trained British nurses couldn't get jobs.

So they are going abroad.

We've seen these boom and bust cycles many many times. But our revolving cast of clod headed this-time-we're-sure-we've-got-it-right politicos somehow never learn anything.

2. Another broken NHS promise

Health Minister Lord Darzi has admitted what we all knew- Labour's commitment to ending mixed sex NHS hospital wards will never be delivered.

"The only way we're going to have single-sex wards within the NHS is to build the whole of the NHS into single rooms.

That is an aspiration that cannot be met."

NHS dentists and single sex wards were two touchstone issues in Labour's NHS manifesto. They've spent the money alright- an extra £0.3 TRILLION so far- but they've totally crapped out on delivery.

3. Cost of migrant crime

Hard on the heels of those Romanian Fagin gangs:

"Britain's highest ranking black policeman has warned the Home Secretary his force is struggling to cope with an immigrant crimewave. Kent chief constable Mike Fuller told Jacqui Smith "migration surges" had contributed to an increase of more than a third in violent crime over five years to 7,800 incidents in 2007."

This echoes last September's comments by Cambridgeshire's Chief Constable. She pointed out that new migrants often arrive with "different standards" from the native population, requiring much more intensive and expensive policing.

Indeed, all over the country police forces are facing a rising tide of migrant crime. The following table shows the huge increase in arrests of foreigners by various forces between 2003 and 2007. In the Met area arrests have soared from 21,000 to 35,000 - a 63% increase.

In particular, new migrants seem much more prone to using criminal violence. As the Times recently reported:

"Most murders in London this year were committed by foreigners. Of 47 killings between April and September where the nationality of the accused is known, 26 of the suspects — 55 per cent — are not Britons... There is growing evidence that new immigrants to Britain are killing and being killed."

The government is still in denial about all of this, but as we blogged here, immigrant crime is probably now costing us somewhere in the range £3- £10bn pa. In addition foreign prisoners are occupying 14.3% of our valuable jail places (end 2006).

And remember, according to our politicos, we need all these migrants to make us better off.

4. Cost in space

We've blogged the EU's grandiose and totally unnecessary £2.5bn Galileo satnav system several times (eg see here). Just before Christmas the Commons Transport Committee issued a damning report demanding we pull the plug. The government has refused on the grounds that although it's bonkers, Britain is powerless to stop it.

As the Register puts it:

" on Galileo: We can't stop it, just sign the cheque. Orbital gravy train off the rails.

HM Ministers say the other nations pretending to object to Galileo were merely holding out for more of the pork; and that they don't mind having UK taxpayers' money appropriated, even if the UK disagrees... it doesn't really matter whether Galileo is worthwhile - it's happening and that's that. All the UK can do is try to grab back as much of its own money as it can."

Remember that next time Bugs Bunny, the Orange One, or some other preening tax-funded twerp tells you what a marvellous thing the EU is.

Do You Want Fries With That?

Not to everyone's taste

So the state exam system is now so dumbed down and worthless it's having to visit McDonalds for a helping of credibility:

"McDonald's has won approval to offer courses which could form part of an A-level standard qualification. The fast-food giant, airline FlyBe and Network Rail are the first three firms to be approved to offer courses equal to units of the new diplomas. It means students could combine units from in-house courses with others to obtain the government's flagship new vocational and academic qualification."

You (almost) couldn't make it up.

Actually, Tyler is strongly in favour of workplace qualifications, organised and managed by employers themselves. Such qualifications are much more likely to be valuable than the useless Allmusthaveprizes confetti diplomas handed out by the state (see previous blogs on £11bn pa nationalised skills industry- eg see here, here and here).

But why pretend they are equivalent to academic qualifications?

Well, no, we know why: our one-size-can-still-fit-all-if-the elastic-is-stretchy-enough socialist rulers always think they can engineer away differences in aptitude and ability.

If I were a McDonalds shareholder, I'd be very concerned. As part of the Commissars' skool masterplan the company's qualifications cannot long maintain their current rigour.

Open-Ended Breastfeeder

No good comes of too much suckling

“The kind of open-ended breastfeeding of a private institution that goes on at the moment is the worst of all possible worlds.” (para 198)

Thus spake our old friend Professor Buiter, as he explained to the Treasury Select Committee how the hopeless Brown/Balls bank regulatory system has landed taxpayers with an open-ended commitment to prop up the Crock and all its various shareholders.

Most unusually the Committee's initial 181 page Report on the Northern Rock fiasco was published on Saturday. Presumably the Labour Chairman hoped thereby to muffle the explosions. Some hope.

The Report blasts the Brown/Balls system, not just in its operation during the crisis, but also its very design.

The Financial Services Authority takes the most severe roasting, its multiple failures of regulation spelled out in detail. But the Tripartite system itself- with responsibilities shared between the FSA, the Bank of England and the Chancellor- is also found to have failed and to require urgent surgery. And all the problems were compounded by lack of preparation and dithering.

Key points in the Report:
  • "The FSA... failed to tackle the fundamental weakness in NR's funding model and did nothing to prevent the problems that came to the fore from August 2007 onwards. We regard this as a substantial failure of regulation." (Paragraph 42)
  • "It was wrong of the FSA to allow Northern Rock to weaken its balance sheet [last summer]"(Paragraph 45)
  • "The current regulatory regime for the liquidity of United Kingdom banks is flawed" (Para 52)
  • "It was the responsibility of the Financial Services Authority to ensure that the work of the Board of Northern Rock was sufficient to the task. The Financial Services Authority failed in its duty to do this." (Paragraph 59)
  • "The FSA appears to have systematically failed in its duty as a regulator to ensure Northern Rock would not pose... a systemic risk, and this failure contributed significantly to the difficulties, and risks to the public purse, that have followed." (Paragraph 66)
  • "The Tripartite authorities and Northern Rock ought to have strained every sinew to finalise the support operation and announce it within hours rather than days of the decision to proceed with the operation... the Tripartite authorities and the Board of Northern Rock ended up with the worst of both worlds." (Paragraph 148)
  • "It is unacceptable that the terms of the guarantee to depositors had not been agreed in advance in order to allow a timely announcement" (para 165)
  • "The cumulative effect of these failures was to delay the guarantee until the evening of the fourth day after the run started and thus to make the run on the deposits of Northern Rock more prolonged, and more damaging to the health of the company, than might otherwise have been the case." (Paragraph 166)
  • "Responsibility for the legislative framework rests with the Treasury. Two years ago a weakness in that framework appears to have been identified and by late 2006 had been classed as requiring “urgent” action. Between late 2006 and mid-2007, the measures to rectify this weakness appear to have been pursued by the Tripartite authorities with insufficient vigour." (Paragraph 280)

There's much more in similarly devastating vein.

The bottom line is clear: as we've blogged many times, the Brown/Balls Tripartite system is unfit for purpose. Moreover, those operating it- not least the Chancellor himself- are simply not up to the task.

The crucial missing institutional elements are spelled out in the Report's recommendations, and they're hardly rocket science:

  1. No proper deposit insurance, so punters panic on the pavements- the coverage needs to be much greater, much more clearly explained, and properly funded
  2. Nobody in overall charge
  3. No FDIC-style special resolution regime for busted banks (which allows the bank to be taken into special administration, the retail depositors paid off, and the bank sold or run off over a period)

Why weren't these things thought about in 1997? Yup- it's the usual half-baked Labour approach to institutional design (cf the NHS or regional government).

Another hallmark of Brown's governing style is obfuscation over figures, and on that, the Committee highlights the fact that we still haven't been told how much taxpayers are in for:

"State support for Northern Rock has involved the Government entering into contingent liabilities on a very large scale... The Government... should not have relied upon either the Bank of England or the Northern Rock to be the sole sources on the scale of the State commitment. The House of Commons should be updated about the scale of the commitment on a quarterly basis."

Remembering this is our money Brown's committing, and it would be kinda nice to be told how much. Especially since we now know taxpayers will be supporting NR with huge amounts of money for the next five years, and quite possibly longer (see previous blogs here, here and here).

As for the future, we're unconvinced by the Committee's plan for a semi-independent Deputy Governor working inside the Bank of England. A much cleaner solution would be a fully fledged independent depository insurance operation, like the FDIC, working independently.

Apart from that, the Committee has done a surprisingly thorough job.

Even if they won't help us sleep any better.

Sunday, January 27, 2008

How To Fail

Rose still cashed out (C diff deaths in E&W: see here)

BOM readers will recall Rose Gibb (see this blog). She's the ex-CEO of Maidstone and Tunbridge Wells NHS Trust ("Kent and Snuff It") who presided over the deaths of 90 patients from C difficile. Following a damning enquiry she was exited, but not before the Trust very nearly paid her £400 grand "compensation".

It was a particularly outrageous example of the public sector rewarding failure, and there was a huge public outcry. Commissar Johnson was forced to step in, promising he'd stop it.

Predictably enough he's failed: last week we learned Rose is still getting £75K, a lot more than the C diff victims of Kent and Snuff It will see.

Even more jaw dropping, she has now set up her own company - Resolve Healthcare Consulting Services - "to tell doctors and administrators how to give a better service to the public".

Her partner in this venture is her partner in life, one Mark Rees, "who also quit a senior NHS job with an £170,000 payout amid claims of weak leadership after the trust he ran accumulated debts of £30million."

Advice on how to fail. Surely even our blinkered self-serving management consultant sucking health bureaucrats wouldn't be stupid enough to buy that.

Would they?

We need to be vigilant. Very vigilant.

(HTP Judith via Guido).

Arts Angst

Alternative funding for the RSC


Back from Stratford having seen an outstanding Henry IV 1 and 2. It's had somewhat "mixed" reviews, but we thought it six hours of brilliance. In particular, David Warner is Falstaff to the life- totally reprehensible, but still warm and engaging. It's not an easy balance to pull off, and this is the first time we've ever seen the part played so you can actually understand why, in the face of his constant lies, freeloading, cowardice, and all-round grossness, Hal and others still want him around.

The modern take is that Falstaff is Shakespeare's Homer Simpson. But of course, he's so much more than that: he's our own worst selves.

Brilliant stuff.

Back to business

Our RSC tickets cost us £28 each, for the best seats in the house. Splendid value, only made possible because the taxpayer generously picked up the other £46.32p. So our little jaunt got subbed by all those millions of uncultured taxpaying chavs to the tune of £185! Fantastic.

As we've blogged before, the RSC is one of the biggest recipients of state arts subsidies. It currently picks up £22m pa, against only £13.3m pa from ticket sales and theatre operations; which means for every £1 the audience shells out, the taxpayer adds a £1.65 subsidy.

And in addition to that, it's getting around £100m of public funds to rebuild its Stratford theatre.

Most of this money comes via the Arts Council quango which dishes out £600m pa of our taxes, around £400m from general taxation, and the rest mainly from the Lottery Tax (see Annual Report here and previous blogs eg here).

You'd imagine that handing out taxpayers' cash would at least be pretty cheap: after all, Mrs T and I would be happy to take on the task of picking our favourite arts chockies pro bono. But getting on for 10% of the AC's money (over £50m pa) goes on its own expenses, including the costs of employing 870 permanent arts bureaucrats and their expensive final salary pension scheme (employer's contribution currently 23.5%).

For future reference here's what their top quangocrats get paid, including eight on over £100k pa:

It's not exactly starving in a garret, and remember the dosh is on top of all that free champagne and boonie tickets.

But at least they have to deal with sullen ingrate artistes, who as we know, believe they have a God given right to everlasting public funds. And right now the artistes are throwing tantrums all over the shop, screaming and stamping their little feet about the AC's latest funding allocations.

The problem is that with the Olympics snaffling so much lottery cash, the AC has been forced to make some of those horrific "tough choices". And for some reason, the losers don't like it.

Actually, it's not just the losers. The winners are hysterical with survivor guilt, including the National Theatre's top man calling the decisions "bollocks" (such literary wit from the man whose socialist blockhouse gets £15m pa subsidy).

So the wibbling AC is backing down. It's back peddling on those tough decisons and spreading the misery as prescribed in the Jim Hacker Book of Non-Management.


£600m pa.

Would we have gone to see Falstaff if it had cost us £300 rather than £100? Possibly not.

But that still ain't no justification for taxpayers subsiding the arts.

Thursday, January 24, 2008

If Sack And Sugar Be A Fault, God Help The Wicked!

If sack and sugar be a fault, God help the wicked!
If to be old and merry be a sin, then many an old host that I know is damned:
if to be fat be to be hated, then Pharaoh's lean kine are to be loved.
...banish plump Jack, and banish all the world!

On the very day when the Commissars announce their latest bonkers scheme to tackle the plumpness epidemic, Mrs T and I are off to see Sir Jack at Stratford.

Paying people to lose weight is a Commissariat classic. All their previous half-baked interventions having cost taxpayers at least £1bn and been completely useless (eg see this blog), they now reckon that £130 in KFC gift vouchers will incentivise Sir Jack to lose weight.

Of course, when it comes to half baking, this week's directive from podgy Commissar Balls takes some beating: that compulsory "healthy living" cookery lessons are to be imposed on all state schools. No matter that head teachers say they don't have the staff or facilities to do it. ORDERS MUST BE OBEYED!
HJ highlights another aspect to this: the Tories actually launched the first anti-obesity programme in 1992 (see here). But when Labour came in they abolished it, on the grounds that... well, the Tories are evilNHScrushingboomandbustTories. Sure enough, years later they decided to reintroduce virtually the same programme, no doubt taken down from the same Department of Health shelf.

Things were somewhat different in Sir John's day. There was no NHS forcing taxpayers to treat those expensive bolting-hutches of beastliness, swollen parcels of dropsies, and huge bombards of sack. If you wanted to stuff yourself to death, nobody cared.

As we've blogged before, once we ditch the NHS and implement our social insurance system, we'd see some much more powerful incentives to healthy living- cheaper premiums for those who live healthily:

"By using ongoing premium rates to influence behaviour, the incentives are applied in real time when they can have the gretest effect- while the punters are actually smoking all those fags or eating all those Mackies- and not rolled up into some far distant Final Day of Reckoning.

And if it turns out the punters would actually prefer to carry on stuffing their faces and pay the higher premia, hey presto, the healthcare suppliers have the additional funding they need. Suddenly we are no longer dependent on the commissars to decide and decree how much healthcare we can have. We can decide for ourselves.

What's that? Cream skimming? Cherry picking? Insurance companies stacking their premium rates so as avoid insuring people with expensive conditions?

Clearly, under compulsory social insurance schemes, suppliers cannot be allowed to avoid customers with expensive pre-existing conditions. So they must not be allowed to select on the basis of medical conditions.

But incentivising healthy behaviour is not the same as penalising medical history. Yes, there would need to be guidelines (insurers would be prohibited from penalising limbless ex-servicemen for not running 6 miles a day etc), but there's no reason why that lifestyle scourge of fags, booze, and obesity should not attract higher premia."

So, now we've got that sorted, we can poodle off to Stratford with a clear conscience. The couple we're going with know the actor playing Hal, so we're looking forward to rubbing up against the actual greasepaint. What care we that the production has had mixed reviews, and that Falstaff is bizarrely miscast (the lean and hungry David Warner)?

PS Yes, once again we're guzzling those middle class arts subsidies: the RSC gets £22m pa which effectively halves the price of tickets (see this blog). We're not proud.

Wednesday, January 23, 2008

Renewables Masterplan

The cost of renewables (source: PB Power)

By Order of the Reich Commission

Under Commission Order 2007(3), by 2020, 20% of all energy usage in the Greater Europe Economic Co-prosperity Sphere will come from renewable sources.

Commissioners today confirmed that even the backward citizens of North West Special Administrative Measures Zone IV will be permitted to make a patriotic contribution of 15%. Gauleiter von Brown will implement appropriate arrangements to drive improvement from the present wholly unacceptable level of 2%.


Let's just remind ourselves of some facts (see previous blogs here and here):
  • To hit our 15% target, by 2020 75% of our electricity generation (about 20% of total power usage) will have to come from renewables; at present we're on about 5%;
  • Cheap hydro power can only make a very small contribution (in marked contrast to eg Sweden which has many more hydro resources and a much smaller population);
  • Electricity from renewables typically costs 2-10 times coal fired generation;
  • With an average household electricity bill already running around £400pa, the typical household will therefore face a price hike of anything from £300-£1000pa- call it ten quid a week.

Oh, and prepare for regular South African style power cuts.

Crock Questions Still Unanswered

Still parked out front

I've just heard Prime Minister's Questions. What a waste of time.

For the second week running, Dave focused exclusively on the Crock. And for the second week running the only response he got was a series of jibes and questions about his own proposals.

Now of course, the Tories are seeking to make political mischief with the Crock bail-out. And of course they want it to be Labour's Black Wednesday competence issue. But despite that, we taxpaying voters still deserve some answers (see this blog):
  • Just how big is the subsidy we're giving to Branson in the form of the loan and deposit guarantees? Bottler keeps repeating that everything is secured against the Crock's wonderful assets, but as he knows full well, Crock debt without the HMG guarantee is junk. No private sector insurer would take the risk. Our fag packet estimate is that the loan guarantee is worth £0.5bn pa (see last blog), and the deposit guarantee might easily be worth the same again (further investigation underway).
  • How long does Bottler intend leaving the subsidies in place? Five years, at a prospective cost of say £5bn? And what happens then if the Crock still can't survive without them? Would Bottler ever have the spinal rectitude to pull the plug?
  • How do the costs compare to the alternative of FDIC-style administration? A responsible government should not dish out £5bn of taxpayers funds without costing the alternatives.

None of these vital questions has been answered. That may be because, as per, sly deceitful Bottler doesn't want to own up to the bad news. But just as likely, on the don't-ask-don't-tell principle, he simply doesn't know.

Let's just make sure we understand what's going on here.

Bottler's prime concern is to get someone to tow the Crock away. Ideally, that would have been a straight private sector buyer, but as the original Lloyds TSB "offer" highlighted, that's never been a runner. So, given that nationalisation has been effectively ruled out, that means either taxpayer loans, or loan guarantees.

Now, as we know, loans would go onto the public sector balance sheet. But guarantees almost certainly will not (the "independent" ONS will decide).

And there's another aspect of guarantees. In Bottler's Enron-style public accounts, the cost of providing them doesn't register. Cost? Yes, taxpayers are writing credit insurance, and just as with house insurance, there is a cost associated with that- we are on risk. A private sector company providing such guarantees would have to recognise it in the accounts. But somehow that doen't seem to apply to the government. Indeed, judging from today's PMQ performance, Brown even thinks he might be able to book some "profits" (and any "profits" will most assuredly appear on the books).

Following that logic, Bottler could transform the public accounts by turning HMG into a credit insurer. Post credit crunch, fees for such services have gone throught the roof, and private sector capacity has collapsed. If HMG entered the market, it could clean up. The fiscal deficit problem would disappear overnight. Magic.

I'm wondering if Bottler would give me a free HMG loan guarantee. I've already exchanged several emails with the Major's friend Herr Doktor Professor Franz Kuntz (currently en route to the Davos egofest), and we've assembled a whole raft of finance scams innovative financial solutions. With a freebie open-ended AAA guarantee we could get weaving straightaway.

You know it makes sense.

PS The reason why the Tories can't get the Crock to resonate like Black Wednesday, of course, is because it isn't accompanied by economic pain. But boy, is that about to change.

Whacking Benefit Fraud

Every year taxpayers lose at least £5bn to benefit fraud and error- £200 for every single British household.

£3bn is down to benefits administered by the Department of Work and Pensions, especially Housing Benefit, Income Support, and Jobseekers Allowance (see eg this blog and the NAO summary above). The rest is largely down to HMRC via its administration of Bottler's convoluted tax credits (eg see this blog).

Why do we lose so much? And why does it continue year after dismal year?

Part of the explanation is the usual bureaucratic bungling. Both DWP and HMRC are notorious quagmires of complexity, malfunctioning IT systems, and low grade demotivated staff. Leadership? DWP is currently headed by an arrogant orange clown described by his own boss as incompetent, while HMRC reports to way-out-of-his-depth Captain Darling.

Unsurprisingly, and too borrow a phrase from our banana republic electoral arrangements, fiddling the benefits system is now childishly simple . What's more, getting caught is extremely unlikely.

So what should we do?

As we've blogged before, the Major has a very simple proposal: increase the penalties. Specifically, his suggestion is to impose a prison sentence equal to the total amount defrauded divided by a minimum wage level annual income. Thus if you defraud £100,000, you serve ten years (equals £100K divided by £10K pa). It's simple, easily understood by all, and fair- sentences are entirely proportionate to the crime.

Unfortunately, our hopeless criminal justice system doesn't see things the same way.
Take yesterday's news of Mr Kato Solomon (right). Mr Soloman obtained £100,000 in benefits by pretending he was too disabled to work and needed a wheelchair. Even though at the time he was actually working as a healthcare assistant at a local NHS hospital.
Let's pass over the obvious question as to why the public sector's right hand apparently had no idea what the left hand was doing. Focus instead on the fact that most unusually he was caught and convicted.
In sentencing him, Judge Graham Arran noted his "repeated lies" and told him:
"The gravity of these offences, as you obviously appreciate, is you were stealing the honest taxpayer's money... You no doubt deprived another person of a facility that is genuinely needed. These must be marked by a prison sentence."
Damned straight. Ten years under the Major's tariff. Ten years to contemplate his own sinfulness, and more important, ten years to send a strong message to any other lying cheating conman who might be thinking of doing the same thing.
So what did he actually get?
A fifteen month suspended sentence.
Fifteen months.
The judge accepted Solomon's plea that prison would be "too onerous".
What is the point? What message is it sending out? And since when did we little people consent to letting criminals walk free on the grounds that prison might not agree with them?
Let's remind ourselves of a couple of other fraud cases we've covered on BOM. Regular readers may recall Mr John Kaduwanema (right), an illegal immigrant from Uganda. He somehow (duh?!?) got a job as a finance manager for Birmingham City Council's social care and health finance department, from where he proceded to defraud the Council of more than £1 million in public funds.
The Major's tariff would have given him 100 years in jail: he actually got seven and a half years, which with standard remission will be half that, the equivalent of £270 grand pa.
Or then again, the case of Mr Nawaz Sharif, an "unemployed" immigrant taxi driver (right), who built a seven bedroom mansion in Pakistan after making £2m in benefit fraud, credit card scams and fake passports. He should have got 200 years: he actually got five, halved under remission, netting him £800 grand pa. Nice.
And remember this: the c£5bn pa we lose in benefits/tax credit fraud is just the tip of a very large iceberg. We estimate that overall taxpayer losses to fraud- including old favourites like VAT carousel fraud and the broader black economy- probably amount to around £60-80bn pa.
That's around £3,000 pa for every British household, and for that kind of money we could abolish Stamp Duty, CGT, and IHT outright, and still have enough left over to cut the standard rate of income tax to 8p.
PS The Major points out that BOM's fraudsters all seem to have something else in common, other than fraud. Hmm.

Tuesday, January 22, 2008


Going back to the real thing...

As Tyler tucked into his kedgeree this morning, the wireless brought news of fresh financial disasters from around the world.

The glee of BBC announcers was unconfined. The Day of Judgement is at hand. The Mighty Sword of Destiny is well and truly unsheathed, flashing around the Temple smiting the money changers and their evil Legions of the Damned. Only the righteous not-for-profit green living staffers at tax-funded quangos and NGOs will be spared. And great will be the rejoicing in the land.

So is this really 1929, as the BBC would have us believe?

Er, no.

To start with, there's the question of scale. The current sell-off in financial markets is much smaller than 1929-32. As the chart below shows (taken from the excellent Calculated Risk), by the end of 1932, the US Dow Index was down 90% from its peak: this time it's only down 15% so far (guess 20% by the end of today). That kind of fall quite likely signals a normal recession (denoted by the blue bars on the chart), but hardly a thirties style depression.

Note also that all those humongous bank credit write-offs we hear so much about are big, but not that big in relation to global GDP. The write-offs so far amount to around $100bn, with analysts talking about a final figure of $150bn-$300bn. But global GDP is around $50,000bn- or $50 trn- so even $300bn is still only around half of one percent of world GDP.

Second, as has been well documented, the US Federal Reserve Bank bungled its handling of the 1929 Crash. It failed to cut interest rates as required (cf the Bank of Japan in the early 90s). This time though, the Fed has already indicated it will act if necessary, and with its key official bank rate (Fed Funds) standing at 4.25%, it has plenty of scope to cut.

Third, the US government- mired in debt though it is- has already indicated it wants to reflate by cutting taxes.

And even here in debt balloon Britain, there's still plenty of scope to head off depression. The Bank of England can cut interest rates substantially from its current Base Rate of 5.5%. And while Brown/Darling are theoretically slam bang up against their fiscal rule limits, in practice you and I both know they've already gone beyond them (according to the OECD, Britain has the largest structural fiscal deficit in Europe). And they'll definitely go even further, given the nightmare of fighting an election in the teeth of a recession.

No, the real prospect for us is not a thirties depression, but another jobless joyless dose of seventies style stagflation.

With energy, food and other commodity prices racking up, sterling heading down, the housing bubble deflating, and private companies being bailed out with taxpayers' cash, we're already halfway there. All we need is an energy crisis three day week and panic buying of sugar, and the picture will be complete.

Maybe we could have the real Sweeney back as well.

Update 15.00: the Fed has indeed acted, with a bigger than expected 0.75% cut in Fed Funds.

PS On days like this the BBC always manages to find the most extraodinarily hysterical "City experts" to pontificate. I've just listened to some character from a broker I've never heard of saying "I've been in the market for 44 years and I've never seen anything like it". What never seen anyfink like it? "I've never seen anyfink like it in my life". I'm presuming he was out to a broker's lunch on Monday 19 October 1987, when the Dow fell by 22.6% in a single day(today's post-Fed fall looks like being a trivial 1-2%), or 16 September 1992, when Sterling crashed out of the ERM, interest rates yo-yoed from 10% to 15% and back to 12%, and the FTSE was all over the place.

Monday, January 21, 2008

Unanswered Questions On Crock Bail-Out

Couldn't he just have done something else with his life?

I've just listened to Darling's Commons statement on the Northern Rock bond bail-out. There are rafts of unanswered questions.

Before we run through them, let's just remind ourselves of one simple but crucial fact.

This is Brown's fault. We taxpayers only find ourselves in this dire situation because the Brown/Balls reorganisation of bank regulation in 1997 was half-baked, based on theory rather than practical experience. They swept away the old Bank of England regulatory regime, tried and tested through 150 years, and replaced it with an arrangement that failed its first real test.

Brown's regulators not only failed to pick up on NR's risky business model as it ballooned out of control, but they then failed to stitch together any of those traditional City rescue packages. Yes, you can criticise the informality and opacity of those classic deals done in smoke filled City dining rooms, but the system had been tried and tested, and had successfully fended off High Street bank runs for one-and-half centuries.

Neither did Brown give us the more formalised system they have elsewhere. He could have copied the US Federal Deposit Insurance Corporation (FDIC) system. That not only provides more generous retail deposit insurance, but also has powers to take failing banks into special administration, allowing depositors to be paid out immediately and the bank to be restructured and sold off over time.

But we have none of that, and it is Brown's fault. Worse, he's compounded our problems by dithering for five months since the crisis first broke (NR hit the funding wall last August- a whole month before the queues on the pavement).

So here we are, with Darling finally admitting that a "purely commercial solution" is impossible. That being the case, his clear duty- apart from offering his resignation- is to protect taxpayers from further pain by nationalising the Crock and putting it into an orderly run-off.

But as we know, taxpayers' interests trail a long way behind political calculation. Hence this fudged worst-of-both-worlds nationalisation, where taxpayers take the downside and shareholders take the upside (see this blog).

So what are the next questions?

1. What will we be paid for the unprecedented open-ended £25-£30bn loan we are extending to NR?

Alliance and Leicester recently negotiated new funding at a rumoured margin of 1.6% over LIBOR (see this blog). At current market rates, that's equivalent to about 7.3% pa.

We should get much more than that for lending to the Crock, because unlike A&L, without our support it is bust.

Darling hasn't given any clue what we'll get, but noises off suggest he's thinking of something closer to LIBOR. Apart from anything else, Crock can't afford to pay a commercial 7%+ since its mortgage book only yields c6%.

In BOM's view a yield of LIBOR would be at least 2% pa lower than a fair price.

Cost? At least £0.5bn pa straight taxpayer subsidy to NR shareholders.

2. What will we be paid for the guarantee on NR's bonds?

Darling told us we'd be getting a fee for guaranteeing the new NR bonds when and if they find private buyers. How much?

The Crock is a bust company and its unsecured debt is junk. Specifically, when last sighted its credit rating for senior debt without the HMG guarantee was BB, a junk bond rating (see this blog).

In recent years, such companies have been able to "credit enhance" their debt by buying insurance from so-called monoline credit insurers. But for obvious reasons, those insurers are themselves now imploding. So unsurprisingly, Darling's discovered insurance is not available on "acceptable terms". No problem- he's going to force taxpayers to supply it instead.

Obviously we don't want to- we'd have to be insane- but somebody seems to have elected these clowns, so we have no choice.

At least we should be told what we're getting paid.

3. What happens if nobody wants to buy the Crock bonds?

On the face of it, with a full HMG guarantee, there should be no problem selling the bonds. If they offer any yield premium over gilts there should be a ready demand (the Major, Mrs T and I will be loading up).

But if the bonds are just 5 year maturity (as hinted) what happens when they mature? What if commercial credit insurance is still far too expensive (as it may be if most of the commerical insurers have been wiped out).

How long must we support this operation?

4. What's our equity share?

The suggestion is taxpayers will get some share of any upside. But how much?

5. How much will we be paid to guarantee NR deposits?

As we blogged here, and confirmed by Darling today, the HMG guarantee on NR deposits will remain in place for the forseeable future. No other commercial bank can offer such assurance, and in these troubled times, it's extremely valuable to Crock shareholders.

So far they've had it for nothing, which may be acceptable in a crisis, but not as a long-term business model. What is Darling going to charge in future?

On a Black Monday when almost every other equity share in the world was falling through the floor, NR's shares went up by 46%. That tells us all we need to know about who's getting the best deal out of Brown and Darling's rescue plan.

Once again, these wibbling simpletons have given away the shop.

Sunday, January 20, 2008

Youth Injustice

Serious youth crime is rocketing (source: Youth Justice Annual Statistics 2005/06)

Following the trial of Gary Newlove's teenage killers , we are inundated with shocking revelations about our ineffectual youth justice system (and see this blog for BOM's own criminal justice summary).

1. Violent youth crime is soaring

According to research by the Sunday Telegraph:

"In three years the number of under-18s convicted or cautioned over violent offences rose from 17,590 to 24,102 - an increase of 37 per cent.

Total youth offences climbed steadily from 184,474 in 2003 to 222,750 in 2006, the last year for which figures are available - a rise of 21 per cent. But the increase in violent offending was steeper, while robberies rose even more dramatically, up 43 per cent over the three years."

And take a look at the Youth Justice Board's own stats above (click on chart to enlarge). They show the fastest growing category of recorded youth crime is violence against the person, closely followed by criminal damage and breach of control orders (ASBOs etc).

2. The government orders bail for thugs

We were all appalled to discover one of the scum who murdered Mr Newlove was actually out on bail awaiting sentence for a previous vicious attack. Especially given his history of criminal violence (see his full record here).

Even worse, it seems releasing thugs onto our streets is standard practice, ordered by our we-know-best clothead rulers.

The Telegraph research finds "three-quarters of all violent crime suspects are freed on bail while awaiting Crown Court trials".

In the Sunday Times, Rod Liddle quotes chapter and verse on the policy:

"Two years ago the Crown Prosecution Service (CPS) sent out advice to all those working in the courts advising that Her Majesty’s Courts Service (HMCS) had new stipulations on the granting and not granting of bail, regardless of the offence committed. The CPS advice reads: “Remands in custody should only be sought when only [sic] absolutely necessary, in circumstances when bail conditions cannot meet bail objections.” And, in 2003 the HMCS (for which we ought to read “the government”) “invited courts considering . . . custody to consider curfew”.

The latest advice from the government’s Sentencing Guidelines Council is even more simple and straightforward: “All youths appearing before the youth courts are entitled to unconditional bail” unless there are extraordinary extenuating circumstances."

This is all down to our rulers once again deciding to ignore what we little people want, and to impose their own half-baked wishful thinking, irrespective of how much danger and loss the rest of us might suffer.

3. Them and us government

One reason that our rulers don't take our wishes seriously is that they exist inside a pampered, highly secure bubble, well insulated from the realities of life out here.

As if to emphasise the point, the Sunday Times carries an extraordinary interview with our ineffectual Home Secretary. Asked whether she would feel safe walking on her own around Hackney at midnight, Jacqui replied:

“Well, no, but I don’t think I’d ever have done. You know, I would never have done that, at any point during my life.” Asked why not, she answered: “Well, I just don’t think that’s a thing that people do, is it, really?”

It was pointed out that some people, such as shift workers, had no choice. “Well, I wouldn’t walk around at midnight and I’m fortunate that I don’t have to do that,” she replied."

Yes, love, very fortunate. Any suggestions for the rest of us?

4. Your life in their hands

Last week saw the appointment of a new £85K pa head for the Youth Justice Board (HTP BG).

The YJB is the £0.5bn pa quango that "oversees the youth justice system in England and Wales. We work to prevent offending and reoffending by children and young people under the age of 18, and to ensure that custody for them is safe, secure, and addresses the causes of their offending behaviour."

As we can all see, they are doing a shockingly poor job. And indeed, their annual report tells us they've missed all their own key performance (PSA) targets:
  • Preventing first-time offences- missed- numbers rising

  • Reducing re-offending- missed

  • Reducing use of custody- missed (despite government orders noted above)

  • Improving assessement and services (eg teaching 3Rs to young criminals)- missed

It is in fact a clean sweep of failure.

Which is hardly surprising when you see the kind of person they appoint as head. Whereas you and I might pine for Clint Eastwood, or that sheriff from Alabama they had on the telly, Justice Secretary Straw has decided the very best person for the job is Frances Done CBE.

Who she?

She turns out to be a local authority bureaucrat from Manchester, who is also an ex-Labour councillor. And she says of her new job:

'The Board plays a crucial role in working with partners to protect both the public and the interests of children and young people. I look forward to collaborating with all those who can help to build safer communities and ensure that young people do not end up in the criminal justice system.'

Translation: yet more partnership protocols, yet more hand wringing, yet more excusing, and yet more yob violence.

Another £0.5bn pa we could save.

Or spend on 12,500 more prison places.

Saturday, January 19, 2008

We Pay For Brown's Crock Fudge

You've got to hand it to the guy

As feared, Bottler's going to fudge the Crock nationalisation. He's reportedly decided to make taxpayers keep all NR's liabilities, while giving any unencumbered assets and all future profits to Branson and the existing shareholders.

Rather than getting himself branded with the N word, spineless dithering Bottler would rather leave the rest of us exposed to a tanking property market and Branson's well known appetite for public cash.

Let's just recap on what we know so far:

1. Taxpayers currently on the hook for around £60bn of Crock liabilities.

Just before Christmas the Treasury widened the taxpayer guarantee to cover a broader range of liabilities. The Governor of the Bank of England told the Treasury Select Committee:

"Essentially, this does widen the scope of the guarantee to pretty much the whole balance sheet excluding the capital and the Granite securitisation."

He went on to say that about 40 per cent of Northern Rock's £114bn balance sheet related to the Granite programme, a third was deposits and other liabilities covered by the extended HMT guarantee, and 25 per cent was Bank of England and Treasury loans, "leaving a very small residual that is essentially capital".

In terms of money, we reckoned that meant we'd lent c £29bn directly to NR (equals 25% of £114bn), and guaranteed a further c £38bn (equals 33% of £114bn). Which totalled c £67bn, some small part of which has apparently been repaid (see this blog). So let's call it £60bn still outstanding.

(Remember too that the c£46bn outstanding under the Granite securitisation programme - despite having its own ring-fenced asset backing - could still come back and bite taxpayers: see this blog).

2. Taxpayer loan will remain in place

Originally, Branson promised to repay £11bn of the £25bn or so of HMT loans immediately (see this blog). Now, it looks like he'll repay nothing. NOTHING.

Instead, the whole £25bn will be relabelled as bonds. They will remain on the government's balance sheet (blowing Bottler's so-called Sustainable Investment Rule), until they can be sold off to private investors, when and if demand materialises.

But note this key point: even when the bonds are sold off, they will reportedly remain fully guaranteed by taxpayers. So even if they then move off the public balance sheet, the economic risk remains with us.

It's yet more of the Enron-style financial fiddling for which Bottler is notorious.

3. Deposit guarantee will remain in place

Despite all the puffing about how much punters trust the Virgin brand, Branson knows the truth: they don't trust it enough to deposit their money with a Virgin labelled Crock. So he's made it very clear his bid depends on HMT continuing their deposit guarantee (eg see here).

As we've blogged many times, the moment HMG's deposit guarantee goes, so does Mrs T's deposit. Along with a whole lot of others.

Without the guarantee, it's ludicrous to suppose Branson could possibly secure 25% of the new retail deposit market, as his plan assumes. Just as a reminder, here's the breakdown of the retail deposit market pre-crisis, with NR on a 3% (now probably half that):


With the taxpayer loan remaining in place, and with the deposit guarantee remaining in place, you may be asking what Branson is bringing to the table. If the property market goes down the plughole, we're still the ones taking the hit. What exactly does Branson bring?

True, there's that £650m of new capital he promised (see this blog). But you know, even if he comes up with it (and believe that when you see it), £650m is not that much to pay.

Not only does he get the upside should he actually manage to grow the Crock, but he gets a £90bn mortgage book to "re-engineer", £25bn of indefinite taxpayer loans, an open-ended and free taxpayer guarantee to help attract deposits, and the possibility of further taxpayer subsidies to come (Virgin Rail gets well over £1bn pa of taxpayer subs). Meanwhile he's charging NR £5m to mount the bid, and will take £10m pa for use of the Virgin brand.

Even more than in the British Energy bail out (see this blog), in order to cover their own political embarrassment, our gutless clothead rulers are lumbering us with the downside and giving the upside away.

Friday, January 18, 2008

News From The Swill Bin

Always happy to help out in an advisory capacity- speak to my bank manager

So CPO ex-Health Commissar Hewitt has got herself a nice little earner with Boots. What a stink.

She joins the ex-Dear Leader who turns out to be getting bunged $5m pa by that investment bank. Also, such notables as the self-styled "Socialist MP for Makerfield" Ian McCartney, a "Right Hon" ex-DTI minister who cashed in by taking a part-time £115,000 pa job with the Nukes industry. Etc etc.

It is inconceivable these people would get any of these jobs without having been ministers. Their new employers are after access to the giant money pot that is Westminster.

The other day I was listening to an African academic discussing the election disaster in Kenya. He was asked why African democracy never seems to work. He said that in poor countries, the best way of getting rich is to get control of the government. Simple as that.

Of course, here in the UK we fortunately have many other ways to get rich. But Big Government always means Big Money. And when it comes to resisting temptation, politicos have never exactly been role models.

PFI Plug Sockets

How much the Simple Shopper will pay for an electric socket

The National Audit Office has just reported on yet another hidden PFI cost. It seems the public sector has been getting ripped off over changes to PFI service contracts.

The problem arises because, although public sector requirements are specified at the outset of a PFI contract, over the course of 25 to 30 years of operation changes will inevitably be needed to the services and assets provided. And as anyone who has ever had building work done will know, once you vary from the originally agreed spec, you can find yourself looking at some serious additional cost.

In the case of PFI, that unplanned additional cost is already running at £180m pa (2006). and that's on top of the £5bn pa being paid out in base PFI charges.

Now you might have expected that even the Simple Shopper would have anticipated such issues, and incorporated appropriate safeguards in the initial contracts. Forget it. The NAO says:
  • "Changes to operational PFI deals are often poor value for money"
  • Large changes are not always competitively tendered
  • Even where they are, because it's the private sector PFI "partner" doing the tendering, and the public sector paying, cost management will not often be a top priority- it's not their money
  • Small changes are often expensive and late- as the chart above shows, the cost of installing an additional electrical plug socket, a very common requirement, varies from £30 to £302, an extraordinary tenfold variation; again, the labour cost only for fitting a whiteboard ranges from free to an extortionary £150.
  • Changes attract £6m pa unjustified fees- "most private sector PFI partners charged additional management fees, typically 5-10 per cent, on top of those made by service providers to cover their overheads and profit, which were very often not justified in terms of the work needed to process small changes., It is estimated that, in 2006, these fees cost the public sector £6 million"

The Report also highlights a point very familiar to BOM readers- the staff handling these negotiations for many public sector PFI customers are simply not up to the job. They report "poor control of change requests, inadequate job briefs, no checks or challenges over costs and disputes over relatively insignificant matters."

As we've said many times, having the public sector intermediate itself between us and those sharp private sector operators is a recipe for rip off.

TPA On NHS Underperformance

Brown's billions made no difference to a trend driven by technological catch-up

The TaxPayers' Alliance has today published an extremely interesting study of NHS performance. It finds that compared to major European healthcare systems, NHS underperformance is causing 17,157 deaths per year, and that £34 billion of extra spending under Brown has made no difference to UK mortality.

In a triumph of determined number crunching, TPA Researcher Matt Sinclair has analysed data from the World Health Organisation to estimate the number of deaths that could plausibly have been averted by the NHS since the 1980s. The measure used is known as “mortality amenable to healthcare”, originally developed in work for the British Medical Journal, and principally focused on cancers and circulatory diseases.

The study finds:
  • If the UK were to achieve the same level of “mortality amenable to healthcare” as the average of the other European countries studied (Germany, France, the Netherlands and Spain), there would have been 17,157 fewer deaths in 2004, the most recent year for which data is available
  • This is equivalent to over five times the total number of deaths in road accidents and over two and a half times the number of deaths related to alcohol in 2004.
  • Steady improvements in mortality rates have been made at almost exactly the same rate throughout the Thatcher, Major and Blair governments despite huge increases in spending from 1999 to date. Brown's massive extra NHS spending has made no discernable difference
  • If NHS spending had continued to increase relative to European peers at its pre-1999 rate £34.3 billion – £1,350 per household – less would have been spent between 1999 and 2004. In 2004 alone, £9.8 billion less would have been spent, 9.7 per cent of total spending in that year.

The report confirms the view of many inside and outside the NHS, that Brown's billions have largely been wasted. An unreformed and increasingly bureaucratised nationalised industry has simply become even more bloated.

Professor Karol Sikora, Medical Director of CancerPartnersUK, steering group member of Doctors for Reform and author of the foreword to the report, says:

“The NHS should not be a religion, with its structure set in tablets of stone. We face a choice between a modern, consumer driven service for all or a decaying, bureaucratic system which only those with their own resources manage to escape. Politicians need to read this report carefully and determine the optimal strategy they can put to a well informed public. Those that capture the best way forward will carry the British voter with them.”

How true, Prof. How very true.

PS That chart is stunning, isn't it? It shows how rates of "mortality amenable to healthcare" are going down both here and in Europe, but we are lagging. We've often been criticised on BOM for drawing simplistic conclusions from charts, but surely the Big Message here is clear: we should thank God for (largely American) technology. The politico dominated NHS has lagged international best practice for years, but we can at least coat-tail on technological progress made overseas. We will never catch up with Europe unless we implement a choice and competition model, but even the NHS has now learned how to buy new life saving technology (eg angioplasty was invented several decades ago, became the the most common medical intervention in the world ten years ago, and is now finally available on the NHS).