Friday, February 29, 2008

Living Too Long

Further to this week's posts on public sector pensions, we've refreshed our memory on life expectancy. Because of course, it's the increase in lifespans that lies at the heart of our looming pensions crisis.

When Lloyd George introduced his Old Age Pension in 1908, it was means tested, and he set pension age at the traditional three score and ten. Yes, that's right - five years beyond the current 65. That was pretty cheap because at that time anyone who lived to 70 was exceptionally lucky (or unlucky, depending on how you look at it). In 1908, average life expectancy began with a 4.

Fast forward to the 40s when Beveridge produced his famous report. Life expectancy had increased and now began with a 6. Yet despite this, the pension age had been reduced to 65 for men and 60 for women.

Fast forward again to today. Life expectancy now begins with an 8 (for women at least). And for those born today average life expectancy is officially put at 88.1 years for a boy and 91.5 years for a girl.

So just to recap. When the Goat invented OAPs in 1908 the average punter died more than twenty years before being able to claim. Pretty cheap. Even when Beveridge did his report, death before payday was still highly likely. So still manageable.

But now, most of us will get at least 15 years of pension. And even though the state pension age will increase to 68 by 2044, with average life expectancy already heading for 90, that will still mean more than two decades of payout.

Clearly the money doesn't add up; it's a total non-starter.

So there are only two possible solutions. Either we increase the pension age much further, and cut the pension rates even more. Or... umm... ahhh... well, we could adopt that other solution.

PS Of course, Lloyd George ripped off his Old Age Pension from wily old Bismarck, who'd intoduced them 20 years earlier, complete with a pension age of 70 and a life expectancy beginning with 4. In fact Liberal LG was always highly impressed by German Big Government, as we can see in this chilling 1936 home vid:

Local Government Pensions

Why Sir, a Defined Benefit inflation proof pension- that will do nicely

The Taxpayers' Alliance is making few friends among public sector pension fund members. Earlier in the week it published research highlighting the generosity and cost of of NHS pensions (see here), and today it does the same thing for local authority pensions (see here).

Overall, it concludes that around a fifth of our Council Tax goes to pay for the kind of gold-plated pension arrangements most private sector employees can now only dream of. As we described here, most council employees still get those expensive Defined Benefit pensions which are fast disappearing in the private sector. In money terms they are worth an average 25% on top of public sector pay.

It's not the first time someone has done this calculation. A couple of years back, the leading local authority pension fund actuary calculated the cost at 26% of Council Tax (see this blog). But he'd somehow overlooked the fact that his clients wouldn't be too keen on having such inconvenient truths bandied about. Within days his boss was forced into an humiliating public climb-down where he disowned the 26%- although he inadvertantly failed to explain why it was wrong.

Money talks, my friends. Money talks.

PS Following its paper on NHS pensions, the TPA has been accused in some public sector quarters of being "ultra right wing". As far as we're aware the TPA has never held torchlight processions or book burnings, but the accusation does underline why the Tories fight so shy of engaging in candid public discussion of such issues. And why non-party organisations like the TPA are so very necessary. As we've blogged before, one in four employed workers (nearly 7 million people) now work for the public sector, either directly or as contractors, and that is one huge block of voters. Add in welfare recipients and you're talking over half of the electorate being beneficiaries of the state. Many of them completely agree that taxes are too high, but -quite understandably - are as nervous as the plumpest turkeys when politicians start discussing the details of Christmas. But somehow it does need to be discussed. Nobody says public sector employees should be underpaid, but equally, we should all understand that their published pay rates significantly understate their overall remuneration.

PPS Tyler is not at home at present, and for various abstruse tech reasons, can blog but not read or respond to Haloscan comments. Responses at the weekend.

The Cost Of National Pay Scales

National pay scales in operation

One of the reasons we get such poor value from our public services is that government continues to operate national pay scales for its employees. National scales ensure we pay too much and too little, both at the same time.

In London and the South East they mean that the public sector doesn't pay enough (despite some regional allowances) to attract and retain sufficient good quality staff. In the poorer regions they mean the public sector wastes money by overpaying.

We've blogged this before, drawing on work by Prof David Smith to highlight the gross inadequacy of current regional pay weightings for public employees:

"Smith shows how median earnings are getting on for 50% higher in London than they are in the North East (44.2% in 2005 to be precise). Even in the South East outside London they are nearly 20% higher.

Yet if we look at say the DfES
teacher pay scales, even for Inner London we find the top of the main scale for classroom teachers is set at only 15% above the national scale (£33,936 compared to £29,427 nationally). And the premium for the London "fringe" is set at a meaningless 3%.

Such weightings don't reflect differences in the basic cost of living, let alone alternative employment options. As Smith highlights, ONS figures show that the general price level is 16% higher in London compared to the North East, and average house prices are an eye-watering 102% higher."

The Institute for Fiscal Studies has recently published its own analysis.

They've computed average earnings in the public and private sectors for each region. The following chart shows the results for male graduates, the type of people needed in a lot of key public sector jobs, such as teacher.

As we can see, in London there is a big difference between earnings in the two sectors, with average public sector pay- including regional allowances- being c 25% below the private sector level. In stark contrast, public employees in Yorkshire and Humber, Northern Ireland, the North East, and Wales do very well. In Wales, they earn on average getting on for 20% more than their private sector counterparts.

For public services in London and the South East, there are a number of serious consequences.

First, staff recruitment is more difficult, which is reflected in higher vacancy rates. So schools and hospitals will be understaffed, or be forced to use expensive temps (we've blogged this before in the context of nurses see here and here).

Second, staff retention is more difficult, reflected in higher turnover rates. The IFS has produced the following chart showing wide regional variation in teacher turnover:

As we can see, turnover in London schools is nearly 20% pa, whereas in Wales it's only 12%. Yet staff continuity is vital for any school to be successful.

Third, there is evidence that public sector staff differ quite markedly between the regions. For one thing, staff in London are on average younger and less experienced than those elsewhere: the IFS has found that 46.5% of teachers in London are aged under 40 compared with just 38.5% outside London. They comment:

"The characteristics of those delivering key public services differ quite dramatically across the country. Other aspects of the ‘quality’ of public sector workers may also vary as a result and there is some evidence that this makes a difference to outcomes in health."

What this all boils down to is that taxpayers in London and the South East are almost certainly getting worse public services than those elsewhere in the country. Their schools and hospitals will be staffed by less experienced and lower quality personnel, there will be more unfilled posts, and continuity will be low.

Against that, the poorer regions may gain correspondingly better staff. However, while that may work in picture-book market towns and scenic rural areas, it's most unlikely to extend to the real problem areas in our old industrial heartlands. And also, the presence of relatively well paid public servants pushes up local housing and other costs for those who have to work in the local private sector.

For taxpaying customers national pay agreements are an awful deal. As we've blogged before, we need a government that has the spinal equipment to take on the public sector unions and dismantle these seventies throw-back one-size-fits-nobody arrangements. It is a key condition for the fiscal decentralisation we so desperately need.

Thursday, February 28, 2008

Clothead Commissars Gave Away The Farm

Thank God they're not in charge of pie buying

This morning we've got the NAO drains up on that GPs pay deal. We've blogged it many times of course (see collection gathered here), and we'll be doing a proper post on this report later. Meanwhile, here's the NAO's own overview:

"The contract has cost the Department £1.76 billion more than it originally budgeted for.

In the first two years of the contract, productivity has fallen by an average of 2.5 per cent per year. GPs are working on average seven hours less per week than in 1992, partly because of the removal of the responsibility for out of hours care. While the number of consultations with patients has increased, these are not in proportion with the increase in costs.

The largest overspend of the contract was due to an underestimation of the amount that GPs would earn from the pay for performance scheme, the Quality Outcomes Framework (QOF). While there is evidence that the QOF has improved consistency in the quality of care, it is too early to say if overall patients’ health has improved as a result.

In 2005-06 the annual average pay of a GP partner was £113,614, an increase of 58 per cent since 2002-03. GPs report, however, that over the last year their pay has stayed the same or decreased. GP partners have taken more profit from the practice as pay while the average salary for GPs they employ increased by only three per cent in the first two years."

From a taxpayers' perspective, this is a disaster. No question.

But to reiterate what we've said before, the culprits are the commissars. If you were a GP partner, and some idiot offered you a pay deal beyond your wildest dreams, you'd take it too.

Oh yes you would.

Public Sector Pensions

If only he'd joined the civil service instead of invading Russia he'd have had no pension worries

Following our blog on the TaxPayers' Alliance NHS pensions paper, we said we'd update ourselves on public sector pensions. In particular, we wanted to confirm that they really are more generous than their private sector counterparts.

[WARNING- another blog with explicit numerical detail some readers may find unpleasant]

At the risk of the stating the bleedin' obvious yet again, the generosity of a pension arrangement comprises two key elements: what it costs the members in contributions, and what it gives them back in benefits. Luckily for us, the authoritative Institute for Fiscal Studies has recently examined the whole issue (see here and here), and much of what follows is lifted straight from them.

DB vs DC

Before getting stuck into the detail, we need to remember the difference between a Defined Benefit (DB) pension, and a Defined Contribution (DC) pension.

With a DB pension, the member's pension is defined - normally in relation to a certain percentage of final salary or career earnings. But with a DC pension (sometimes known as money purchase), all that's defined is how much will be contributed to his pension pot - what that pot is worth at retirement, and therefore how much pension it will buy, depends on a whole raft of unknowns, especially the performance of investment markets over many years.

So a DB pension is much more certain than a DC pension, and in almost all cases, infinitely preferable. And that points to a striking contrast between the private and public sectors.

In the private sector, DB scheme membership is plummeting as companies close these expensive schemes to new members (an established trend accelerated by Brown's 1997 dividend tax grab). But in the public sector, DB membership has soared, as Labour has cranked up staffing and kept their DB schemes open to new joiners. The following IFS chart tells the story:

Now, bearing in mind that the private sector employs around four times the number working in the private sector, we can see there's a vast difference here in terms of pension provision. The IFS gives us this handy summary:

So whereas only 17% of private sector employees are now members of the superior DB pension schemes, in the public sector the percentage is 76.5%. And 58% of those in private sector employment aren't in any employer sponsored scheme at all. With that in mind, let's press on, concentrating on the DB pension that most public employees get.


Members of public sector DB schemes contribute a percentage of salary according to a fantastickal hotchpotch of arrangements, as follows:

3.5% -11%... this isn't just any hotchpotch: this is government hotchpotch.

Private sector DB schemes have an even wider range of employee contribution rates, as you might expect, but according to the ONS, the average in 2005 was 4.4%.

So on the basis of contributions, you might conclude that public sector DB pensions are on average less generous than their equivalent in the private sector. Except, of course, only 17% of private employees actually get them, which is very important overall (as we note below).


In benefits, the public sector pension member definitely wins.

On accrual rate, there's little difference. Until recently, a typical public sector scheme accrued a pension of 1/80th of final salary for each year of service, PLUS a lump sum at retirement of 3/80ths for each service year. A typical private sector scheme accrues pension at a rate of 1/60th for each service year, but with no additional lump sum. Net net there's virtually no difference, and public sector schemes are now coming into line.

But there is a significant difference on pensionable age. Typically in the private sector it's 65, in line with the current state pension age. But in the public sector pensions are generally payable at 60, with some, such as fire and police pensions, being payable even earlier.

Earlier payment is expensive for pension funds. Not only are there more years to pay, but there are fewer years to gather contributions, and fewer years over which to earn investment returns.

There's also an important difference in respect of inflation protection. Public sector DB schemes offer full index-linking in retirement. Private sector schemes do not.

And finally, there's that all-important issue of security. Public sector schemes are fully guaranteed by HMG (well, OK, Local Government schemes- which are just about the only public sector schemes actually funded with real investment portfolios- are guaranteed by local Council Tax payers; but let's not split hairs).

Overall comparison

The IFS threw all this into their giant number cruncher and concluded:

"For public sector employees... the additional pension accrued for one more year in employment is on average worth a quarter of gross salary. So an average public sector employee who is a member of the pension scheme with a headline salary of £20,000 would have a remuneration package including pension worth not £20,000 but £25,000.

Private sector scheme members have a slightly lower accrual of about 20%, so that the scheme member on £20,000 would have a pay and pensions’ remuneration package valued at £24,000... The main reason for this difference is the lower normal pension age in most public sector schemes (generally 60, as against 65 in most private schemes)."

Now 25% vs 20% may not sound much of a difference. Until you remember the huge difference in DB membership rates (see above). Once they've adjusted for that, the IFS conclude:

"On average, to compare private and public sector remuneration including pensions, one needs to add about 12% more on to public sector wages than on to private sector wages – a dramatically large amount in this context."

So on average, public sector pensions are significantly more generous than private sector: to the tune of about 12% of pay (remembering also that average public sector pay is itself 10-15% higher than in the private sector- see this blog).

We will blog separately on what this all means for public sector debt and the true level of public borrowing.

PS Just found this useful Guardian article on some of the few DB schemes still open in the private sector.

Wednesday, February 27, 2008

Forsyth On Funding Tax Cuts

Where to in a downturn?

When Lord Forsyth's Tax Commission reported 18 months ago, it called for tax cuts amounting to £21bn. Ed Balls and the BBC immediately savaged it: "same old Tories - same old destroying the NHS - same old killing babies and pensioners in the street" etc etc etc (eg see this blog). George Osborne hastily caved in, distancing himself from the Report, and pronouncing:

“We will not be promising reductions in taxation at the election. Any changes in taxes will be revenue-neutral.”

Yesterday Forsyth himself came back with an excellent speech at the IEA. The speech tackles head on the issue of how an incoming Tory government could fund such cuts.

First, he points out that cuts in tax rates do not necessarily mean proportionately smaller tax revenues. You don't have to believe in Voodoo Economics to understand the by now considerable evidence to show that lower tax rates increase GDP (see many previous blogs), which increases the tax base and naturally boosts revenues. There is also considerable evidence that lower rates generate less tax avoidance/evasion.

Forsyth quotes a number of US studies supporting these effects, including the work of surefire future Nobel laureate Prof Martin Feldstein. That concluded a 1 percentage point cut in personal marginal tax rates leads to an increase in taxable income by up to 2%. Which at current UK tax rates, suggests around two-thirds of the revenue foregone by cutting rates would be recouped via a revenue boost. And that's without considering longer term "dynamic" effects in lifting GDP growth.

Second, tax cuts can be funded by containing the growth of public expenditure, and yesterday Forsyth suggested holding real growth to 1.5% pa during the first Parliament. He says:

"Matching Labour’s plans to increase spending by 2.1 per cent a year in real terms for the next three years was a mistake, but one which the Conservative Party is unlikely to have to implement as the Prime Minister will almost certainly go to the wire before calling a General Election. Far more important is whether any subsequent pledges to match the Government’s spending plans are made – if they are, they tie the Party into spending promises that could mean higher taxes or higher borrowing in a downturn."

BOM has long favoured the adoption of a third fiscal rule to contain the size of government (see eg here), so we wholeheartedly support Forsyth's call for an explicit upfront commitment. As he points out, 1.5% pa spending growth over a Parliament would almost certainly be enough to finance the whole of his proposed £21bn of tax cuts. And without destroying the NHS.

Finally, he takes a good whack at the slippery Balls:

"Ed Balls is quite simply wrong – the price of not reforming our tax system is too great. Britain’s economy cannot continue to perform under the increasing burden of a higher, more complex, more uncertain and more unfair tax system. Political will and courage are now needed to grasp the nettle of reform."

PS ConservativeHome's spending campaign is getting more and more traction. Well done Tim and Sam- keep it up.

Elementary My Dear Krzysztof

Listen up!

British 'tecs really are going to the dogs, though, aren't they.

Take Lewis. In the old days, he used to be fine. He and Morse used to crack some truly, historically, impenetrable cases. You could settle down for two glorious backlit Oxford hours with a packet of Rolos, and not have a clue who'd done it, or why, until it was all explained and satisfyingly tied up just before the end.

But these days, we all know within two minutes. It's only Lewis and his disengaged smartass sidekick who take two slack disappointing hours to plod their way to the same obvious conclusion. Thank God the murderers have also gone downhill or they'd never crack it at all.

And this morning we hear that our migrant Poles have reached the same conclusion. They've only been here five minutes, but they've already realised our cops aren't up to the job:

"Detective agencies in Poland have reported a big increase in requests for help from their countrymen in Britain who have complained of poor or apathetic responses from UK police. They say they have been “left to their own devices” or received "zero support" when they become victims of burglars, muggers and other criminals - complaints which are regularly made by British crime victims too.

The Polish private eyes also claim that the British police are helpless in the face of Polish organized crime now taking root in Britain on the coat-tails of the estimated one million Poles who have moved to Britain in recent years.

“The problem is British police can't get to grips with the workings and culture of Polish emigration or Polish criminal groups,” said one detective."

BOM readers will recognise some familiar themes here. First, our target obsessed pc police are now so useless, everyone needs to think about private policing. As we blogged here, in posh areas of London it's a major growth industry.

Second, the challenge of foreign criminals is not some BNP figment of our imagination. As we blogged here, around 15% of our prison places are filled by foreigners, and migrant crime may now be costing us c£10bn pa.

So could these Polish gumshoes help us, just like their plumbers?

The Major likes the look of Polizer detective, Zbigniew Podyma, whose website features himself next to an image of James Bond actor Pierce Brosnan (check it out here). For real.

Krzysztof Rutkowski is apparently Poland's best known detective (check his Wiki entry here) and he definitely looks the biz. He says: "I have so many cases ongoing in Britain that I'm seriously thinking about opening a branch there."

Make my day Krzysztof.

PS So why are they still making Lewis? To Morse addicts like Tyler, it always looked an ill-advised venture. And it's definitely turned out that way - paper-thin predictable plots, none of the essential tension between the main characters, and no tragic back-story bubbling away underneath. Even the back-lighting looks tired. One of the junior Tylers has helpfully suggested a complete revamp in which Rebecca Front's sadly miscast mumsy Chief is hoofed out, to be replace by a black yank no-BS exchange Chief from the projects- like that guy from the original Starsky and Hutch (pic). Lewis gets a Judge Dredd makeover, indiscriminately gunning down bad guys and witnesses alike down the length of Cornmarket. "Lewis! Five witnesses shot dead! Was that strictly necessary? I've got the Mayor all over my goddam ass and I will not tolerate any more f**k ups! IS THAT CLEARLY UNDERSTOOD!"

Tuesday, February 26, 2008

Wagging Off School

Going up

There are three points to make about today's dire truancy statistics (see DCSF stats release here).

First, as the chart shows, overall truancy has continued to climb. The percentage of half days missed due to unauthorised absence in primary, secondary and special schools in England increased from 0.92% in 2005-06 to an all-time high of 1% in 2006-07. A decade ago it was 0.73%.

The picture in secondary schools is even worse, with a truancy rate last year hitting another all-time high of 1.5% compared to 1% a decade ago. That's a 50% increase under educationeducationeducation Labour.

Second, this has all happened despite Labour's much vaunted £1.5bn anti-truancy programme (see this blog). The stated aim was to reduce truancy by one-third: the outcome has been an increase of one-third. That money has been completely wasted.

Third, truancy gets much worse as pupil age increases. By Year 11 (15-16 year olds), the truancy rate is over 2.5%:

Now, looking at the chart you'd almost think that while kids will accept primary schooling, once they get into their teens at secondary school they are highly likely to kick against the whole idea of forced schooling. And the older they get, the more likely they are to feel that way.

Thank goodness then they can at least leave at 16. At least then the teachers can focus on the kids who want to be there, and not prolong the misery for those that don't.

Except... OMG, didn't I read somewhere that our arrogant clothead commissars are going to raise the school leaving age to 18?

Nah, surely even they wouldn't want to be explaining Year 13 truancy rates of 10-20%.

Would they?

EU Chip And Gravy Train

Where's the train?

Sadly missed Keith has sent Tyler a couple of teeth-grinding tech links under the heading EU Chip and Gravy Train.

1. EU throws €5.5bn at embedded chips and nanotech

The Register reports:

"The European Commission (EC) is coughing up a staggering €2.5bn in industrial research in embedded microcomputers. The joint technology initiative, dubbed ARTEMIS, was given the green light by the European Parliament and the Council of Ministers at the end of last year.

EU Information society and media commissioner Viviane Reding described the public and private R&D investment in embedded systems, used in the likes of credit cards, mobile phones and cars, as a “very worthwhile” project. She claims the ten-year initiative will help push European development in the field of microcomputers to the forefront."

As if that wasn't enough:

"The EU’s investment in nanoelectronics will be even bigger.

The EC said it would stump up a massive €3bn on R&D in miniature electronic devices over the next ten years under a joint private-public initiative called ENIAC.

Reding said: “The possibilities offered by nanoelectronics are only limited by our imagination. They underpin all aspects of everyday devices and so concern everyone in Europe.” She added that the huge investment was “a concrete way to ensure that such a key industrial sector continues its strong economic growth, right here in Europe”.

The EU really is Return to the Seventies- hands up everyone who remembers Jim Callaghan going on about how unless the government "invested" in chips we'd be f****d. Inmos, the state chip maker started off with £50m from the National Enterprise Board, but ended up costing us £211m (c £1.5bn in today's terms) and never turning a profit.

It's right back to picking winners, and while the EC commissars claim private sector companies will also provide funding, don't hold your breath. That's exactly what they said about the multi-billion Galileo satnav project, where in reality taxpayers have been left paying for an intergalactic white elephant in its entirety (see previous blogs eg here).

Another €5.5bn of taxpayers hard earned cash wodged out straight into the hands of the EC's favoured and protected tech suppliers.

2. EU partners with BBC on P2P Next internet TV service

IPTV reports:

"The European Union is planning to invest £10m to develop a next-gen BitTorrent client which will allow streaming as well as P2P downloading.

The project, called P2P Next, will see broadcasters such as the BBC, the European Broadcasting Unit (EBU), and 19 universities, collaborating on the development of Europe’s next-generation Internet television distribution system."

But why? The private sector has already developed the technology. As Reg comments:

"It’s an initiative which fails to address the fact that the market-led IPTV standard is already a reality, and an area that European ISPs such as BT Vision and Tiscali are continuing to spend and focus heavily on."

£10m of our money (plus an unspecified contribution from the BBC) for something we already have.


PS What is the origin of gravy train? Mrs T and I were wondering just the other day. According to the Word Detective "It is unlikely that "gravy train" ever referred to an actual train or any other sort of conveyance. "To ride the gravy train" means to secure an ongoing situation that provides good pay or other benefits with little labor or trouble, the equivalent of "living on Easy Street." It may be that the phrase originated among hoboes and other vagabonds who hopped trains as a way of life and for whom "gravy train" would be a likely metaphor for an easy existence. In any case, "gravy train" seems to have first appeared in the late 19th century. Michael Quinion of World Wide Words ( has uncovered an example in an 1895 Pennsylvania newspaper, the earliest citation to date." Sounds a bit lame- can that be right?

PPS Chips and gravy though, eh? Yum yum. Coming from down South Tyler had never even heard of such decadence until he spent a few fine dining months in Liverpool. The trouble is you can't get them South of Watford, and Mrs T has banned oven chips. Disappointing.

Monday, February 25, 2008

Public Employees Going Private

The TES has been talking to some of the thousands of state school teachers who send their own children to independent schools.

For obvious reasons, many of them won't talk, but this is John, a primary deputy head in Norfolk:

“People say to me: ‘How can you teach in a state school if it is not good enough for your own child?’, but what I choose to do for a job shouldn’t come into it. Nobody has to bring their child to the school I work in; they go to the school they think is best, whether they have to pay for it or not. I know some people find it difficult, but I’m not going to give my daughter a poorer quality of life if I can help it.

I think I’m a good teacher, but I wondered whether I was good enough for my daughter. She goes to French club and knitting club, there’s a computer club and sports clubs, swimming and karate. She wouldn’t get that in a state school. She has developed and become more confident and can sit and read Harry Potter books. I can’t prove that wouldn’t have happened in the state sector, but I doubt it.”

Andrea Caish, an ex-head at a state primary in Gloucestershire, says:

“We weren’t happy with the large classes in state schools... we felt [our daughters] were drowning. One year the school had a mixed class, and as Victoria and Alex are only 18 months apart they were both in the same class, which we didn’t like too much. You are reduced to the level of the lowest in the class and if a child doesn’t behave then everybody suffers.”

Sam, a state school teacher in Kent, says:

"It went against my politics and it was something I wouldn’t have dreamt of considering a year or two earlier, but you have to be realistic. They’re your kids and you want the best for them, so you compromise your principles.”

We don't know how many state school teachers do this, but a couple of years ago the TES polled 700 of them, and a quarter admitted they would if they could afford to.

A vote of confidence in state provision it ain't.

Things are no better in the NHS. Last month we learned that 31,000 NHS health professionals have joined a cut-price Bupacare private scheme, including 12,000 doctors (5% of the UK total) and 15,000 nurses (2%).

Overall, as we blogged here, 22% of NHS doctors already have private medical insurance, and one in three would prefer to be treated privately.

Peter Fisher, president of the NHS Consultants' Association, says:

"This demonstrates a lack of confidence in the NHS services they are providing if they won't take it themselves."

Er, quite.

So is it hypocrisy?

As very well informed consumers, they're making the rational choice for themselves and their families. And we can hardly hold that against them.

But as with Ruth Kelly and Diane Abbott, there is one teensy caveat.

Although they can quite reasonably go on earning a crust in the public sector, they do owe it to the rest of us to get out there and start arguing for the same choice to be extended to those who are not so well placed.

Because while we plutocrats, NHS GPs, and state school teachers can pay for private services on top of our taxes, most people simply cannot afford to do that. For the vast majority, our dysfunctional top-down public services are all that's on offer. And they are blocking the path to improvement.

PS How many MPs have their children privately educated? We don't know for sure but it's obviously loads, including all those notorious Labour hypocrites. But Labour MPs are locked into their hopeless Stalinist ideology and so the real world is always driving them to act immorally - it's the nature of the beast and we all surely understand that. There's no such ready excuse for Tory MPs. They're supposed to believe in small government and personal responsibility. So when they send their kids to private schools, they are morally bound to extend comparable choice to ordinary parents.

NHS Pensions

The TaxPayers' Alliance latest Research Note is on NHS pensions. Focusing on top pensions they find:
  • 8,500 retired NHS staff have retirement benefits worth £1 million
  • Total bill for these is £8.5 billion

Let's recap on how these pensions work:

  1. They are unfunded- there is absolutely no money invested to back them and the entire future burden will fall on taxpayers
  2. Pensionable age is generally 60 rather than 65 as is normal in the private sector
  3. Public pensions are still almost entirely final salary, rather than the money purchase plans now almost universal in the private sector (thanks to G Brown's great pension dividends grab)
  4. Public pensions are fully protected against future inflation, unlike almost all pensions in the private sector

The TPA's actuarial advisor Terry Arthur walks us though the calculations: 8,500 retired NHS employees in England and Wales are currently receiving an index-linked pension of at least £33,000 pa; the cost of an index-linked annuity of £1 pa for an annuitant currently aged 60 (with a 50% pension for a surviving spouse) is £26; 26 times £33,000 equals £858,000; add in the entitlement to a three-times lump sum on retirement (£99K) brings that up to £957,000; round up to £1m to take account of the fact that many of these people are actually getting more than a £33,000 pension.

It's a lorra lorra money.

The story is covered by the Telegraph here and Mail here.

PS Not all NHS pensions are equal. A GP can expect to get a 50% pension based on career average earnings after 40 years service, but few will achieve that. In contrast, senior DoH mandarins can easily put in 40 years, after which they now get a two-thirds pension.

Bugged By Biodiversity

Pricey bird

The other day I noticed the excavators had moved back into our local patch of Surrey woodland. Well, I say woodland, but actually these days it's more like a scene from the Battle of the Somme. Where once we had trees, we now have vast tracts of open muddy ground, fought over by squadrons of earth-movers and rough tough looking men armed with chain saws.

Obviously, when these guys first appeared a couple of years back we assumed it was yet more houses, and girded up our nimby loins to protest. But it wasn't that at all.

It turned out that all across Southern England thousands of acres of woodland are being uprooted as part of a commissariat masterplan to recreate Egdon Heath. Something called Tomorrow's Heathland Heritage is costing us £25m plus, and will take at least a decade to complete. It's biodiversity, Jim, the idea being that we need fewer trees and more Dartford Warblers (pic above), rare bees, rare heathers etc etc.

There are some familiar points to make. First, much of our heathland only disappeared originally because a previous generation of commissars planted socking great forests on it after WW1 (ie the Forestry Commission). But of course, this time round the commissars are sure to have got it right. Right?

Second, nobody asked me or other local residents what we thought. The website for our local restoration project promises more adders, spider-hunting wasps, and flesh-eating sundew plants to wriggle their way up our trouser legs. Is that what we want? Cos that's what we're gonna get. Plus, residents have had to put up with all the noise, mess and general harassment of the work, and are losing their tree privacy screens into the bargain.

Third, why should we pay taxes just so the commissars can have a go at playing God? Who says heathland is better than woodland? IIRC most of Southern England was forested until the arrival of agriculture. Why should the commissars decide heathland is the landscape of choice for us?

But this is part of a much bigger picture.

On Friday morning I was nibbling my muesli when the Today programme ran yet another eco item. One of their scores of eco-reporters was hunkered down on the Dartford marshes with some guy from Buglife. The good old state broadcaster was providing Buglife with a four minute slot to push its campaign for demolishing the Dartford Bridge to save an endangered bug. Or something like that.

Now fair play to Buglife. They are a campaigning group, and of course they'd take a free R4 propaganda slot like that (mental note: must enquire when the BBC can offer a similar facility to the TaxPayers' Alliance). But as always, I was left wondering about money: who are Buglife and how do they fund themselves?

Buglife is a registered charity, and their website lists an impressive array of private funders and corporate sponsors (including Morrisons supermarkets, which presumably explains why the Major found that hairy orange spider in his grapes last week). But nestled right in among them we find the 2010 Biodiversity Action Fund, the Environment Agency, the Heritage Lottery Fund, Natural England, and the Scottish Environment Protection Agency. In other words, the taxpayer.

So how much are we taxpayers in for?

As always, it's fiendishly difficult to find out. But according to their latest published accounts, in 2006 they had total funding of £284,218, of which £208,711 was "restricted"- ie "the charity successfully bid for a variety of grants". We're guessing most of that £208K was from us.

But let's not pick on Buglife: they're just one of a raft spider of NGOs who get our money for biodiversity projects. And the NGOs are just one part of an even bigger picture.

According to Annual Biodiversity Indicators In Your Pocket 2007 (ONS), in 2005-06 the government spent no less than £360m on UK biodiversity projects, and a further £25m on global projects. That's well over twice as much as the NGOs raise for themselves.

We have no objection to Buglife. Or their campaigns. Or any of the thousands of similar campaigns that have sprung up around the place.

But we do object to being taxed to pay for them. And we do object to the massive quangocracy that has inevitably sprung up on this patch of reclaimed heathland: the new superquango Natural England spends around £250m pa, including £90m pa on staff (see their first Report and Accounts here).

And we have no confidence in the commissars' ability to manage our biodiversity. None whatsoever. They spend most of their time trying to stamp out diversity, and according to the following Wiki chart, biodiversity managed pretty well for billions of years before anyone even thought of commissars:

And while we'd have much more trust in the bottom-up enthusiasm of voluntary groups, as we've blogged many times (eg here), voluntary groups principally funded by government grant are no more than biodiversified quangos.

So stop taxing us to play God.

And stop bulldozing our woodland without asking us.

PS At least nobody is (yet) suggesting the reintroduction of wolves to Surrey. Up in Scotland there's a long-running campaign to bring them back. Indeed, some NGO character by the name of Alan Watson Featherstone, says "The wolf probably has the worst public image of any large animal on the planet, fed by children's fairy tale stories like the Three Little Pigs and Little Red Riding Hood, which is exacerbated by Hollywood movies about werewolves. They have a very, very bad PR problem. People think they're a real threat, but that's just not true." Hmmm. We only just got shot of the Surrey Puma.

Sunday, February 24, 2008

Recent Bonfires- 88

Don't don't cry little girl- we're not going to hurt you

It's been a while since we updated Recent Bonfires, so here are some recent snippets:

£50,000 to ask five year olds how to govern- "A Government-funded scheme is canvassing the thoughts of children under five and even babies about how council services can be improved. Staff say they are quizzing the youngsters to see how playtime can be spiced up and the transition from nursery to reception school made easier. The three-year drive to set up the Young Children's Voice Networks is being funded by the Department for Children, Schools and Families. The scheme, which currently receives about £50,000 a year but is likely to have its funding increased in the future, is run by one project manager who travels round the UK helping councils to set up the networks. (MoS 24.2.08)

£23m bonuses for HMRC bunglers- "Bungling managers at HM Revenue and Customs will be picking up £23 million in bonus handouts for their overall “good performance"... Matthew Elliott, chief executive of the TaxPayers’ Alliance campaign group, was horrified at the bonus payments to thousands of HM Revenue and Customs staff. He said: “It is shocking that the taxpayer is footing the bill for these rewards for failure. HMRC severely let down the public, and they should be punished for it, not patted on the back. Public services will never improve unless we have proper accountability, and that means bonuses must be conditional on performance." (Kent News 23.2.08)

£181m for Bloody Sunday enquiry- "The cost of the Saville inquiry into the Bloody Sunday shootings has hit £181 million, the Government said yesterday. The inquiry chaired by Lord Saville was set up in 1998. It is the longest and costliest inquiry in British legal history and there is still no sign that Lord Saville's final report is to be released in the near future." (Telegraph 21.2.08- HTP Edward M)

£6m for Diana circus- "Mr Fayed claimed the Duke of Edinburgh was a "Nazi racist" and that the Prince of Wales had conspired with his "Dracula" family to murder his former wife in Paris in August 1997 so that he could marry "crocodile" Camilla Parker Bowles, now the Duchess of Cornwall. Mr Fayed appealed to the "ordinary people" of the jury to stand against the "murderous forces" of the British Establishment. The inquest is expected to cost taxpayers up to £6 million and there were claims last week that it had descended into a circus." (S Telegraph 24.2.08)

Speaker Martin helps himself to another £75 grand- "Michael Martin faced further allegations over his expenses last night as it emerged he had claimed £75,000 in taxpayer-funded payments to help run his £400,000 home in Glasgow. Mr Martin followed the example of many MPs in claiming the Additional Costs Allowance (ACA). Most use the money to meet mortgage payments. However, the Commons Speaker owns the detached, four-bedroom villa outright and does not have a mortgage on it. " (S Telegraph 24.2.07)

Euro MP claims £36 grand pa double expenses- "A BRITISH Euro-MP is receiving thousands of pounds in EU expenses for an office already paid for by the UK taxpayer. Baroness Emma Nicholson, a Liberal Democrat MEP for London, qualifies for almost £3,000 a month from the EU’s “general expenditure allowance”, which the EU Parliament says is primarily to cover the cost of running an office in the UK.But as a working peer Lady Nicholson is already entitled to a free office in the House of Lords, which she also uses as the base for her MEP activities in Britain." (S Express 24.2.08)

Dept of Health spends £200,000 pa on bottled water- "The Department of Health has been accused of wasting taxpayers' money over its failure to have a clear policy to encourage its staff to drink tap water. A new report published today by the food and farming charity Sustain says the department is wasting almost £200,000 every year on bottled water. This could have paid for 14 baby incubators, 34 hip replacements or 244 cataract operations, it claims." (Guardian 18.2.08)

Police translators now cost at least £24m pa- "Police forces spent £2,700 an hour last year on translation services so they could better communicate with suspects and witnesses, it emerged yesterday. The figures were obtained by the Conservatives, who sent a Freedom of Information request to all 43 forces in England and Wales. Thirty-seven replied, revealing a total bill of £24.1 million for translation in 2006/07, up 64 per cent from £14.6 million in 2004... Gwent was the only force able to provide a language-by-language breakdown. In the past year it spent almost £6,900 on Vietnamese translators, £6,850 on Arabic and £4,350 on Urdu. It also had to call in experts in other languages such as Lithuanian, Moldovan and Slovak. (Telegraph 22.2.08)

Another €1056m on EU spending fiddles (let alone VAT fraud)- "MEPs yesterday voted to adopt an “own initiative” report on the fight against fraud. The report detailed irregularities across the EU, pointing out that the amount affected by irregularities rose by seven per cent from €328m in 2005 to €353m in 2006... Meanwhile, abuse of structural funds increased, with €703m affected in 2006, up 17 per cent. Of 95 projects audited over the period, 60 were affected by “material errors in declared project expenditure".... However, they almost pale into insignificance when set against the amount lost to VAT fraud. The MEPs’ report expressed extreme concern over the financial losses to carousel fraud - a crime typically associated with small, easily moveable electronic items such as chips and phones... estimated losses were up to £4.75bn for 2005/06 for the UK alone. They backed the contention that "the current mechanism for intra-Community VAT transactions is not sustainable". (Channel Register 20.2.08 HTP John B)

Total- £1,026,361,000

Saturday, February 23, 2008

Et In Arcadia Waste

We British waste watchers tend to cast admiring glances at the US. After all, their waste watchers are much better established than we are, and have achieved a number of notable hits.

Hits such as the Federal Funding Accountability and Transparency Act of 2006 which requires the Federal government to maintain an online searchable database of all entities or organizations receiving federal funds. In the Senate it commanded high level bi-partisan support, being introduced by both John McCain and Barack Obama.

Contrast that with the Tories' attempt to get such a bill passed here last year (see previous blogs here and here). It failed comprehensively, with just 23 MPs (3.5% of the total) pitching up to discuss it on second reading last July. It simply went phut on quorum grounds (see here).

Oh, if only we could cut government spending back to US levels- as a percentage of GDP, they're around 10 percentage points below us. But alas, none of our Westminster turkeys seem terribly enthused about the idea of Christmas.

Still, at least the US isn't all efficiency and lean government. It is after all the land of the $600 government toilet seat, and as the vid above shows, there's still quite a bit of fat around the Federal midriff.

But if they're fat, we must be morbidly obese.

Friday, February 22, 2008

Euro MEPs At The Trough

In case you missed last night's Newsnight report on MEPs expenses, I've ripped it and posted on YouTube. Yes it's David Grossman, but it's a good summary (the facts on expenses are also set out here).

As you will know, the audit report of 167 MEPs’ staff expenses - which the European Parliament has attempted to suppress - found:

" who had set up companies to pay staff who did not seem to exist and others employing unqualified family members or paying the whole allowance of €15,496 (£11,710) a month to one person. In addition more than 20 appeared to have paid excessive Christmas bonuses, which the auditor felt were hard to justify."

It's called fraud. Anywhere in the real world, there'd be instant dismissals and a police investigation. In the European Parliament there are secret meetings and a systematic cover-up.

The total amount involved seems to be somewhere between £100m and £200m.

And these are the people who dare to tell us how to live.

Credit Where Credit's Due

Keith has sent us this excellent PowerPoint presentation showing exactly how debt repackaging works. You'll need to concentrate very hard because it's highly technical. But it's well worth the effort. (You can access a full screen view by clicking on "view" under the pic and following instructions on slideshare).

PS In the comments on this post, Ginger Yellow says we've got it wrong about Granite. On the issue of whether Granite might be put into "rapid amortisation" if NR doesn't replace its redeemed mortgages, he says :

"This simply isn't true. There would be no sale of assets. All it means is that if NR's share of the trust declines below the required minimum (if for example it didn't replenish the trust) repayments on the mortgages are diverted away from NR's share so that bondholder's get all of them, until they are repaid. At that point NR has all the beneficial interest in the trust, and receives all the payments from the overcollateralisation. There are additional complications for holders of individual classes of bonds, but that's what it means for the trust as a whole. Once bondholders are paid off, NR gets the remainder. I repeat - there is no sale of assets. Check the prospectus."

We must admit we took our point from the financial press (Times Biz News), so we're digging into that prospectus as Ginger suggests (it ain't exactly bedtime reading). But it still doesn't alter the fact that for the high quality mortgages pledged as Granite collateral we taxpayers rank behind Granite bondholders.

PPS Guido has posted an update on the Crock's repossessions. The bottom line is that they are the market leader with 700 claims in February alone. You may be assured it will get a whole lot worse as the housing market crumbles.

That 50% Uni Target

There is a cheaper way to those bits of paper*

One of Labour's best known New Jerusalem targets is that 50% of our young people should be educated to degree level.

But why? How did our "evidence based" rulers reach that conclusion? Especially with higher education now costing taxpayers £12bn pa, and costing the students themselves many billions more in foregone earnings and fees.

The Public Accounts Committee has had a go at finding out. During their recent probe into university drop out rates, they asked the two mandarins in charge: Ruth Thompson, Director-General of Higher Education at the Department for Innovation, Universities and Skills, and Professor David Eastwood, Chief Executive of the Higher Education Funding Council for England.

It's worth quoting some of the exchanges because they underline the arbitrary way this highly expensive policy was decided.

Here's Labour's excellent Alan Williams, the last surviving MP from Wilson's 1964 victory and now Father of the House, who's seen it all a million times before:

Q144 Mr Williams: What evidence is there to show that 50 is the correct proportion to have going to University?

Professor Eastwood: If you look at the latest OECD statistics, participation varies a lot. It can be as high as 85%. We are working with the Government. We are certainly demonstrating that there is unmet demand for higher education. As the sector has grown...

Q145 Mr Williams: I am sorry, but you are not answering my question. My question is what evidence is there that 50% is correct? It seems a coincidental figure. It is too smooth, is it not?

Professor Eastwood: The two countries that I would point to, which I visited recently, are Australia and Japan. They are not dissimilar countries and they are at 50% participation....

Mr Williams: But they are different economies from us. What is right for them is not necessarily right for us.You cannot say that because Australia has 50%, Britain should have it too. Why Australia? It just happens to fit, does it?

Professor Eastwood: No, there are some structural similarities in the way that their higher education system and ours work...

Q147 Mr Williams: I asked what evidence there is. Is it empirically based, or is it just aspirational?

Professor Eastwood: There is a target to continue to grow the sector.

Q148 Mr Williams: It is aspirational? It has no scientific base?

Chairman: Yes or no?

Professor Eastwood: It is an aspiration to continue to grow the sector, yes.

Q149 Mr Williams: Okay, so it has no statistical validity. It is just an aspiration. That is fine, as long as we understand that... it is a target figure that has largely been plucked out of the air.

So that 50% target was plucked out of the air.

But at least they've established the economic benefits of getting a degree.

Haven't they?

Here's BOM's old friend Richard Bacon MP trying to pin down exactly what evidence the government is using. As you will see, there are a number of wildly different figures to choose from:

Q33 Mr Bacon: I want to ask you about the economic benefits of a degree.The [NAO] Report says that a still unpublished Pricewaterhouse Coopers study said that the economic benefit was £100,000. Is that correct? I remember the Government vociferously repeating a number of £400,000 at the time of the student funding debate [in 2002].

Professor Eastwood: There have been a number of attempts to calculate a lifetime’s earning benefit to a graduate.The figure given at the time of the Higher Education Bill was a gross figure rather than a net figure. The figure that I gave when I was last asked by a Select Committee about the lifetime’s earning premium was £160,000...

Ruth Thompson: May I add to that? The £400,000, as Professor Eastwood says, was a gross figure. It was also not discounted to present values. The subsequent work that we have done... has led us to refine and improve that figure... We have come up what we tend to say is a premium of "comfortably above" £100,000 over a lifetime."

Later, Alan Williams threw another figure into the potage:

Q153 Mr Williams: The Department’s estimate was £120,000 a couple of years ago, was it not?

Ruth Thompson: The Department’s estimate that we now use is comfortably over £100,000 net and discounted to present values.

Q154 Mr Williams: Comfortable is a relative term, is it not? It is as relative as your 50% figure. What is "comfortably over 100,000"?

Ruth Thompson: I am unable to give a precise figure because it moves about.

It sure does Ruthie.

Now the way these mandarins talk about their graduate lifetime earnings calculations, you'd think they were at the leading edge of experimental economics: 2002's £400K figure was an early result that through unstinting labour and matchless diligence has since been refined down to a state of the art £100K.

That is complete and utter b*****ks. Tyler will now break the Official Secrets Act to reveal he personally worked on such calculations over 30 years ago while a civil servant at the Department of Education. And it was hardly new even then.

The truth is that Labour's policy to expand higher education came first, and the "evidence" was cobbled together afterwards. And the only reason that ludicrous £400K figure was cooked up was to provide cover for DfES ministers pushing through Brown's order from the bunker to raise tuition fees. Simple as (and see here).

As we've blogged before, that £12bn pa on higher education pays for 2.3m students, or 4% of the entire population (including 27,000 doing our old favourite, the degree in media studies). Participation is still being ramped up, even though according to the OECD, at 39.3%, our graduation rate is already above the 34.8% average, and ahead of both the US (33.6%) and Japan (36.1%).

Unsurpisingly, the economic return to higher education is falling as supply increases. And for many of the new degree subjects at the new universities it is close to zero, or even negative. The latest published study from PWC (2007) shows how the discounted lifetime gross earnings premium for arts subjects has already fallen to a mere £35,000, and that's before taking account of earnings foregone while at college, and tuition fees:

Like so much else, the 50% participation target is based on nothing but wibble and wishful thinking. It is a stupidity Britain cannot and should not afford.

*Footnote. Yes folks, you can obtain an absolutely genuine 100% certifiable degree in five days for just $130. You'll get a real certificate and everything (and no cheap stick-on seals like some competitors offer). It takes less than one minute to order, and it will be worth at least as much as a degree in Fanzine Studies from the University of Basildon.

Thursday, February 21, 2008

Tyler's Manners

"I don't mind if you don't like my manners. I don't like them myself. They're pretty bad. I grieve over them long winter evenings."

Over the last six months I've done quite a few posts on immigration.

I first got into it through investigating news stories about the strain mass immigration is imposing on our public services. In particular, I looked at Slough, a town I know well having grown up there, and which has readily accepted previous waves of immigrants for well over 80 years (eg see here).

The more I investigated the facts, the more shocked I became. I had no idea there had been such an influx: an estimated 2.7m in decade, three-quarters of whom headed for London and the South East. I had no idea the strain on public services and housing was quite so great. And I had no idea the evidence of net economic benefit was quite so flimsy (see this blog for round-up of the facts).

It became clear why people like Sir Andrew Green have been so agitated. This Labour government has lost control over our borders and gives precious little indication it knows how to get a grip. Indeed, for most of the last decade it's firmly denied there's any problem at all.

Something needs to be done, and as a first step we need to discuss it openly.

But there's the problem: it's so very difficult to discuss any of this without having people wonder if you're a closet BNP supporter.

Indeed, it's even worse than that- reading back what I've written I sometimes wonder if I might be a closet BNP supporter.

Am I?

I certainly think we should not allow mass immigration on anything like the scale we've see recently. The costs in terms of both economics and social cohesion are just too great. But does that put me in the BNP?

To be honest I'm not quite sure what they believe, and I have no great desire to find out. But I do know I wouldn't be up for "facilitated repatriation".

Moreover, we live in a globalised (ugh!) world, and I believe Britain does benefit significantly from some immigration (if only to balance the mass "brain drain" exodus of native born Brits).

It's a question of balance. Which is why I favour an Oz style points system with an annual limit, kept under review and openly debated. I don't want it simply left to the commissars and our clothead politicos.

Is that racist? Inflammatory?

Surely not.

So why do I keep getting flak when I blog about it?

My conclusion is that I must be using the wrong tone. When writing about migration I need to be a lot more careful about the way I do it- less of the usual flippancy, and much more gravitas.

I need to improve my manners.

I will try to do better.

PS That OECD report about our brain drain is pretty unsettling: "Britain is experiencing the worst "brain drain" of any country as highly qualified professionals settle abroad... Record numbers of Britons are leaving - many of them doctors, teachers and engineers - in the biggest exodus for almost 50 years. There are now 3.247 million British-born people living abroad, of whom more than 1.1 million are highly-skilled university graduates." What can it mean?

PPS Yes, Bogart and Bacall look ludicrously stylised today. But Chandler's Philip Marlowe is still the best PI you'll find down any mean street in any novel. If you like that kind of thing.

Half-baked Rock 2

All the selected and graded ones went to Granite

Are we all up to speed with Northern Rock's offshore financing vehicle Granite? It has featured heavily in the debate this week as it finally dawned on everyone that a socking great chunk of NR's mortgage assets has already been pledged to Granite as security for its wholesale borrowings, and they are therefore excluded from the assets being nationalised.

We've blogged Granite many times before (eg see here). Last November we explained its significance thus:

"Not all creditors are equal. Some have claims that rank a long way ahead of ours... At the top of NR's claims tree are the secured creditors. They are people who've lent money specifically secured against a chunk of those high quality mortgage loans we've heard so much about... Those mortgages have been ringfenced, most via NR's complex offshore financing vehicle Granite, for the benefit of investors in its Medium Term Notes. Others have been assigned to a presciently constructed "bankruptcy remote special purpose vehicle" as security for NR's Covered Bond programme."

Now for taxpayers, there are two key problems with this.

First, the mortgages that have been pledged to Granite are almost certainly the best quality ones NR has. Which means the stuff we're left with- the "unencumbered" rump- contains a concentration of dodgy loans, including all NR's unsecured lending.

Second, the value of the mortgages pledged to Granite exceeds the value of the loans raised through Granite. In other words, Granite is "overcollateralised". That's standard practice with these vehicles, and largely explains why the Crock was able to borrow more cheaply through Granite than directly on the market: Granite's investors know they have a safety cushion of overcollateralisation in the event of mortgages defaulting and are therefore willing to lend at a lower average rate.

But of course the converse is also true: lenders to NR directly have less security, because the assets backing their loans and deposits are reduced by the amount of Granite's overcollateralisation*.

Thus Granite hits taxpayers two ways, greatly increasing our exposure to default on the Crock's mortgages and other loans.

But there's more. As we've blogged before, Granite imposes other obligations on NR: it isn't "fire and forget" funding. In particular, NR is obliged to maintain Granite's pool of mortgages as they get repaid. It has to replace redeemed mortgages with new ones of comparable quality and characteristics.

If it doesn't do that, "the trustees of the fund could call for a “rapid amortisation” of Granite, which would require bondholders to be paid back in full." In other words, there'd be a fire sale of assets, in which Granite's trustees would act purely in the interests of bondholders. They'd probably be fine because they could afford to use that overcollaterisation to cut prices. But for taxpayers itw would be very costly: they'd certainly lose as the mortgages were sold off cheap.

Which of course is why Ron Sandler may find it difficult to stop NR extending new mortgages- he has to keep the pipeline going or risk Granite going into "rapid amortisation".

What a mess.

So what's the scale of the problem? What's the likely damage?

As usual it's difficult to tell because we've had no proper accounts from the Crock for months, and Darling won't tell us anything (after all, we're only the taxpayers). But the number that's been bandied about is £49bn.

Of that, a wedge will be the overcollateralisation. Last November, the Economist reckoned it was £7bn; the current estimate is around £6bn. Either way, that's a big chunk of taxpayer value at risk.

And that's without considering the fact that Granite forces us taxpayers to hold the lower quality assets. For example, as at end-June last year, £8bn 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.

There's so little hard information about NR's true financial position, we can't really put a figure on our prospective losses. But as we said the other day, given the prospects for the housing market and NR's mounting problems with bad debts, a £10-20bn loss is by no means inconceivable.

*Footnote: Granite is an excellent example of financial sleight of hand. By bundling its highest quality most secure mortgages off its main balance sheet, and adding in a fat collateral cushion, Crock was able to borrow at lower rates in the international wholesale market. But its existing onshore lenders and depositors (in particular Mr and Mrs Joe Public) were left lending to an entity that was correspondingly much less secure. Of course, they had no idea what was going on and imagined NR was just the same old safe-as-houses High St presence it had always been. What a shame we didn't have a financial regulator full of bright savvy people, poring over the books and blowing the whistle before things got out of hand. But all we had was Brown's hopeless FSA.

PS For excellent further analysis of the Crock and Granite, see Richard Murphy's Tax Research UK. Tyler has manifold issues with Murphy's philisophical adherence to Big Government, but on the grisly details of this disaster he's definitive.

Wednesday, February 20, 2008

Making 'Em Pay

The real world? What's that?

Like all Home Secs, Jacqui loves to talk tough. Her latest foray is to make migrants pay for all those public services they consume. It's time to Get Tough, and newcomers will be Made To Pay. It's all clearly set out in her radical Green Paper The Path to Citizenship.

Well, no.

Not really.

That was just the spin on the pre-publication leak. The reality is a bit different:

"Money... will be raised through increases to certain fees for immigration applications, with migrants who tend to consume more in public services – such as children and elderly relatives – paying more than others. We will work closely across Government to develop a clear and transparent methodology for the appropriate surcharge. We would aim to raise tens of millions of pounds, with the fund operating from April 2009."

So as per, they haven't a clue how it will work. What's more, the revenue target is minimal: today's side briefing says £15m.

Let's just remind ourselves of some facts.

When we first blogged this issue it was in the context of Slough's problems with a massive wave of migrants from Eastern Europe (see here). At that point, the official line from the Commissars was that the issue was hugely overblown. Ludicrous wibblers like the £13m pa tax-funded Immigration Advisory Service, assured us that Slough's 15,000 new arrivals were young and single, so didn't make much call on public services. That was despite the fact that just two of Slough's primary schools had taken in 50 Polish and 60 Somali kids in just one term.

Now, just 18 months later, everyone accepts it's A Big Problem. Because in truth, the vast majority of immigrants are not those high earning, high tax-paying, non-service consuming, skilled workers who feature so heavily in government propaganda. In fact, many are not even workers at all. They are dependents of one sort or another.

As we blogged here, the independent and authoritative National Institute for Social and Economic Research has dredged through rafts of official stats and came up with the following conclusions (based on the Labour Force Survey for Q1 2007):
  • 4.6% of the British population arrived here in the last decade- an extraordinary 2.7m people
  • Only 20% of arrivals were working in high skill jobs ("professional, managerial, and associate professional occupations")
  • 1.3m were not working at all- ie roughly half of all arrivals
  • 0.5m were not even of working age- ie roughly one-fifth of arrivals were children and old people

So nearly half of all arrivals are not contributing directly to GDP, but they are most certainly consuming public services. Not just schools, hospitals, and social housing, but also our criminal justice system: as we blogged here, foreigners are now responsible for more than half the murders in London, immigrant crime is costing us somewhere in the range £3- £10bn pa, and foreign prisoners are occupying 14.3% of our jail places (end 2006).

Now compare those ESTABLISHED FACTS with what Jacqui's wibbling Green Paper says today:

"Today, migrant workers are filling skills shortages and meeting labour market demands... In the same way free trade and capital mobility boost our income, so does migration... The Treasury has estimated that total net migration contributed around 15-20% of trend growth between mid-2001 and mid-2006, adding about _ a percentage point to annual output
growth, equivalent to £6bn of additional output."

"about_a percentage point"? Yes. That's taken verbatim from the Green Paper, and it tells us they're not even on top of their own propaganda. Most serious studies now reckon the impact of recent immigration on per capita GDP has been zero at best (see many previous blogs eg here).

One thing the Green Paper does not do is shed any more light on how precisely Jacqs intends to control immigration numbers. Yes, we know she's going to have an Oz style points system, but without an annual limit that's meaningless. If there's one thing we don't need it's yet another expensive pile of useless forms to process.