Wednesday, March 31, 2010

An Easy Choice

How Labour's practical choices work

You have to admit they've got some nerve. According to the Great Helmsman today, Labour is the party of controlled immigration:
''By controlling immigration for a fairer Britain - by investing in the skills of our own workforce, and by ensuring our businesses secure highly-skilled migrants when they need them while continuing to maintain control of net inward migration...

This is the practical choice people must make for a better more secure more economically prosperous and socially cohesive Britain - the Britain of fairness and responsibility we all should want to see.''
Which all sounds fine, until you recall Labour's atrocious record in losing control of our borders.

We've blogged this many times, but let's refresh the key facts. First, Labour has permitted a massive surge in immigration. From 1997 to 2008 (the latest published comprehensive ONS stats*) net migration into the UK totalled 2 million - the biggest inflow we have ever had in our entire history (see this blog).

Moreover, during that period a net 0.9m British citizens left, meaning that the net inflow of non-British citizens was 2.9m - around 5% of our population:

So the numbers are staggering, and given that many of the migrants have tended to concentrate in certain specific areas (like teenage Tyler's home town of Slough), there has been huge pressure on public services and housing. Not to mention some very evident and alarming social tensions.

But even worse than the reckless surge itself, has been Labour's deceitful explanations of why it was being encouraged.

For years, they told us it was to make us richer - and you can see that's still the Helmsman's basic pitch. Yet the truth turned out to be very different. As soon as this claim was subjected to serious analysis it fell apart. For example, the House of Lords Economic Affairs Committee held a lengthy enquiry and concluded that claims of mass immigration making us richer were "irrelevant and misleading" (see this blog).

The truth is that while individual high skill immigrants can bring considerable value, on average, Labour's millions of immigrants have done nothing to increase UK GDP per head.

Labour then moved onto another tale, which was that we couldn't stop the immigration even if we wanted to, because the vast bulk of it was coming from the EU. And unless we were prepared to leave the EU, we had to accept it.

But again, the truth turned out to very different. In fact, of the 2.9m non-British immigrants, only 0.6m came from the EU - including the new EU members like Poland. The other 80% came from countries outside the EU, where we are under no obligation whatsoever to allow entry.

So no economic benefit from mass immigration, and no treaty obligations forcing us to permit it. Why then, was it encouraged? Given its well-known unpopularity with British voters, why would Labour pursue such a bonkers policy?

For years, Tyler puzzled over that very question, even suggesting it might be a covert extension of the international aid programme.

But then finally last October we discovered the truth - it turned out Labour's promotion of mass immigration was a deliberate and sinister plan to transform the British electorate and "to rub the Right's nose in diversity"  (see this blog).

And now they've got the brass neck to tell us they've got things under control. And yes, they have finally been shamed into introducing a points system for the 80% of immigration that comes from outside the EU, but there is no overall cap. And points without an overall cap on numbers is just so much window dressing.

So yes, when it comes to the issue of whose got the best ideas on controlling immigration, there is a choice to make.

But it's not a choice that will take very long.

*Footnote As you will have seen, our old friend Sir Michael Scholar - incorruptible head of the UK Statistics Authority - has now rapped Brown over the knuckles for misusing official immigration stats in his pitch. The ONS's full migration stats have only been published up to 2008, and Brown has been quoting apples and pears numbers for 2009. Why? Well, why do you think? The master of statistical mendacity has always been prepared to quote any old numbers that seem to support his case. Which is why if you've got any sense, you'll disbelieve any numbers he ever comes up with.

Tuesday, March 30, 2010

The People's Banks

It's the new market model Comrade

In case you'd somehow forgotten, we taxpayers are forced mega-investors in a number of banks.

Our two biggest holdings are RBS and Lloyds. In the case of RBS, we own 84% of the equity, and in the case of Lloyds, 41%.

These holdings cost us a total of £65.8bn - £45.5bn for RBS, and £20.3bn for Lloyds (not forgetting that we have also agreed to pump a further £8bn into RBS should they need it, giving us an overall potential exposure of £74bn - see this blog).

Now, this afternoon Tyler attended a fascinating roundtable discussion organised by Public Finance magazine. And the first issue on the table was how to get the best value for taxpayers from these stakes.

So what do you think? Sell, hold, or do something else?

Well, here's what Tyler thinks. To maximise taxpayer value we should get started on a sales programme soonest. The price of bank stocks has recovered hugely since the pit of the crisis, and with official interest rates close to zero, right now banks are once again steamingly profitable. Over the last 12 months, Barclays shares are up 140%, and the broader financial sector has roughly doubled. And both are now above their levels before the Lehman collapse.

And our holdings?

Hmm... not quite so good. In fact, despite the roaring bull market, we are still underwater on both Lloyds and RBS. In fact, at today's prices, our combined stake is only worth £57bn - £8bn down on what we paid.

Well how can that be, you exclaim. Surely we bought in at rock bottom fire sale prices - we must have shared the market ride since then.

Unfortunately not. True, there's been some modest appreciation since the absolute pit, but our banks have been held back. Partly, that's because the market knows we're going to sell at some stage. But more fundamentally, it's because the market doesn't like the message it gets from our politicos on the future of these banks.

In particular, it worries that politicos will stop RBS and Lloyds paying to attract and retain talent (which is why RBS is widely thought to be haemorrhaging key players), and also that politicos will direct lending activities.

And this afternoon's discussion was an interesting illustration of why the markets are right to be concerned. Because in arguing that continued political control is eroding taxpayer value, Tyler found himself in a minority of one.

The consensus view around the table was that HMG should balance getting a good price for our stocks against two other objectives: the need to increase competition in the banking sector, and the need to increase lending to "desirable" borrowers.

So we needed to think in terms of breaking up our banks in order to increase the number of competing providers in the market, and getting our banks to lend more liberally in order to improve the overall flow of credit to business. Tyler's view of maximising taxpayer value was felt to be far too narrow.

Fine. But let's just remember a couple of unfortunate facts:
  1. Increased competition should be good for consumers, but almost certainly not for bank shareholders. And if we break up our banks without changing the competition rules for everyone else, we ain't going to get much of price.
  2. Governments are rubbish at picking winners. If we insist on our banks lending more to "desirable" borrowers, the banks will lose more from defaults. A recent government study of experience with the Small Firms Loan Guarantee Scheme noted that the two-year default rate was between 25% and 45% - a disaster in commercial terms (and see this blog).
Of course, if you think it's worthwhile taxpayers spending a large chunk of our £57bn on desirable social objectives like more competition in high street banking and cheaper loans for worthy borrowers, then fine. Absolutely fine.

But speaking as a taxpayer, Tyler would far rather use the money to pay off some of that horrendous debt.

(And also, there's no economic reason to wait until our shares have broken even against our purchase price. Bygones are bygones, and we should focus on getting the best price attainable now).

PS If you've got an hour or eight, you really should read yesterday's Treasury Select Committee report - Too important to fail. True, it doesn't come to any definite conclusions on what we should do about the risks posed by overlarge banks, but it is an excellent overview of the issues.

Monday, March 29, 2010

Cutting The Jobs Tax

A Big Blue Tick

Well done George.

As we blogged here, Labour's planned double-dose increase in the jobs tax is one of the most economically destructive measures even these clowns have managed to cook up. Work by Policy Exchange suggests it could cost up to half a million jobs.

And as we attempt to crawl out of the deep jobless recessionary pit Labour has dug for us, George's promise to rescind at least part of the increase in National Insurance Contributions is what we would describe as common sense economics.

Not that you'd have gleaned that from most of today's media coverage (the irreplaceable Jeff Randall aside). The BBC and C4 News both took the Labour line that George is spending money he doesn't have. Notwithstanding that the £5.6bn pa cost is fully funded by a £6bn cut in Departmental Expenditure Limits (DELs).

They variously commented either that George should put all his savings into cutting the deficit, or that increasing the jobs tax is somehow less destructive of jobs than cutting public spending - ie the traditional socialist view - or that the spending cuts can't be achieved by efficiency savings.

Normally of course, we too are highly sceptical about any government's ability to achieve efficiency savings. But in this case, George is concentrating his efforts on procurement spending (ie the £200bn pa HMG spends on outside suppliers), and that is the one area where the public sector has had some success in the past.

And even if he fails to achieve the promised procurement savings, in the context of £700bn pa public expenditure, a £6bn cut is hardly swingeing. As we blogged here, Darling's budget left us with public spending set to increase by 2% in real terms next year. All George's announced cuts have done is to halve that increase to 1%.

So a Big Tick for George. And some clear blue tax water. Excellent.


No time for further reflections just now - got to do some homework. Tomorrow I'm attending a discussion on what we should do about the banks, featuring John McFall (retiring chair of the Treasury Select Committee), St Vince, and various other notables. Homework comprises today's Treasury Committee report, which turns out to be a mind-crushing 250 pages. We will report back.

Sunday, March 28, 2010

Frankly, We Get The Government We Deserve

Millie Senior was on yesterday, attempting to explain why anyone with more than two brain cells to rub together could possibly believe Labour's new pledge card (Ollie Cromwell's excellent version above). And all he could come up with was "frankly". As in "frankly, these pledges are frankly pledges to which we frankly pledge ourselves".

But shouldn't they be running on their record? Given that they've been in power for 13 years, and all.

"Well, frankly, our record is something we can be frankly proud of."

Oh yes?

As you will recall, the last time they dropped a steaming great pat of their pledges on us was in the 2005 election. And their Number One Pledge then was "Your family better off". Since when, GDP per head has fallen by 2%.

So why aren't the Tories 20 points ahead? Just why are we still taking Millie's hopeless corrupt exhausted has-beens seriously?

You really can't avoid the conclusion that it's Tory failure. Failure to seal the deal, get the message across, put the ball in the net - whichever cliche you prefer. But more fundamentally, and more worryingly, still nobody seems quite sure what the deal/message/ball actually is. What does it look like?

Yesterday Cam had another go at explaining. He certainly delivered a good bash at Labour - Mrs T was on her feet cheering in front of the Big Telly - and he reiterated his three familiar headings - mend our broken economy, mend our broken society, and mend our broken politics. But after that it started to go a bit fuzzy.

The clearest and most compelling bit by far was where he covered the Gove schools plan - "busting open the state monopoly in providing schools" (see this blog). A real plan for delivering improvement via choice and competition, and a real break from more of the same under Labour. So hurrah for that.

But when it came to say taxes, or the NHS, or welfare reform, it all sounded pretty much like biz as is. Everybody talks about reforming taxes to help small businesses; everybody talks about undying commitment to a somehow more efficient NHS; and everybody talks about cracking down on benefits scroungers. In other words, to the first approximation, it won't make a blind difference whether we have Cam or Brown at No 10.

In fairness, there are a couple of other key policy differences between the Tories and Labour, but, unless I missed it, Cam never mentioned them. Like for example the Oz style cap on non-EU immigration, which is Tory policy, and which polling suggests is a clear vote winner (Labour is only offering an uncapped points system). Unfortunately, Cam's morbid fear of nastiness prevented him even acknowledging it.

 Which brings us to the excellent Janet's piece in today's Sunday Telegraph. She says that the Tories should stop being so scared of spelling out their true vision, which is one BOM readers will immediately recognise:
  • Big government is hopeless at running anything - it wastes huge amounts of our cash, drags down our prosperity, and ends up deploying Stalinist methods to enforce its will;
  • Decentralisation and personal responsibility deliver much better results in terms of overall efficiency;
  • Contrary to socialist mythology, decentralisation and personal responsibility can also deliver much better results in terms of fairness - remembering that fairness does not have to mean Marxist equality of outcome
And Janet puts her finger on the nub of the issue:
"This is normally the point in the argument when the Tory spokesman loses his nerve. Unable to assent to anything that would repudiate "fairness", the party retreats on to Labour's ground instead of standing its own. What it could be saying is, "Let's look at how successful Labour's approach has been. Has central government, with all its determination to deliver social equality, actually reduced deprivation and increased opportunity for the poor?" No, it hasn't – and the figures exist to prove it. Inequalities of educational achievement, health outcomes and earnings have not diminished under Labour.

So maybe the overweening, overspending, over-intrusive state isn't the answer. Perhaps, contrary to paternalistic, Left-wing myth, it is poorer communities that would benefit most from local self-determination. Perhaps deprivation is as much linked to passivity, defeatism and despair as it is to material poverty, and giving people more responsibility and power over their own lives would enable them to see a future for themselves that was not hopeless."
Spot on Janet.

There is a real argument to be mounted here - that despite all the expense and the waste, Labour's big government approach has failed utterly to deliver the fairness they themselves promised. And by undermining personal responsibility, it's made the situation of Britain's underclass ten times worse.

Once or twice in the past, Cam has summoned up the nerve to move onto this territory, and it really hit the target (eg see this blog including the vid).

But there's no denying it requires nerve. With much of the news intermediated by the BBC, anything that even hints at removing state support from the so-called disadvantaged can so easily be spun into that tried and tested nasty narrative.

Which is the very point currently preoccupying the Major. According to him and his brainy friend Herr Doktor Professor Kuntz, 13 years of Labour misrule have left Britain emasculated not only economically, but also politically.

The state has wormed its way into all aspects of our lives. 25 million voters are now directly dependent on the state for all or part of their incomes (see here) - that's over half the electorate. Our political establishment have been bought wholesale with lavish troughing rights and Zils. And the left's state subsidised media hegemony feeds the people an unbroken diet of Big Government propaganda, making it impossible for dissenting voices to get a fair hearing. We are therefore consigned to live under the yoke of state socialism for ever.

Unless, that is, we act to throw off that yoke. The Major has lately been trying to persuade me to join what he calls his "balloon group". He tells me that he and a band of like-minded patriots are preparing for the day when said balloon goes up. "We get the government we deserve, Tyler, and it's no good just sitting around hoping for the best. The time has come for those of us who care deeply for the future of this once great nation to act."

He refuses to tell me what "acting" might entail, but I do know he's been in touch with the regiment, as in "you know, The Regiment".

Talk about the 70s. Back then, we had a weak Labour government way out of its depth amid a massive economic and social crisis. And back then, patriotic majors set up balloon groups, mercilessly (albeit amusingly) mocked by the BBC:

Fortunately, back in the 1970s we were eventually rescued. Rescued by a strong Tory leader prepared to lay it on the line, and to tackle the real issues however nasty the BBC said she was.

Friday, March 26, 2010

The Working Class Can Kiss My Rail Pass

TPA factcheck catches out union fatcat

It's scarcely believable. After everything we learned and did in the 70s and 80s, the bolshie trade union boss has come back to wreck our economy all over again. 13 years of Labour misrule and he's back on the picket line, as destructive as ever.
And what prize humbugs these people are. Bob Crow - head of the National Union of Rail, Maritime and Transport Workers - telling us with a straight face that the first national rail strike in 18 years is all about passenger safety. Tony Woodley - semi-head of the hilariously misnamed Unite union - telling us the BA strike is down to management's fanatical mission to destroy the union. Mark Serwotka - head of the Public and Commercial Services Union - telling us that a public sector pay freeze is impossible because his members can only just exist on their current diet of peanuts (for the real facts see here).

But at least today the TPA's Matt Sinclair landed one on Dave Prentis, fatcat head of Unison, another union that will soon be bringing our public services to a halt.

As it shows in the vid, although Prentis reckons his members have to subsist on peanuts, he himself was paid £127 grand in 2008-09 (salary and benefits).

And just so you know next time they're on the telly, here's what those other jokers got:
  • Bob Crow - £105 grand
  • Tony Woodley - £72 grand
  • Mark Serwotka - £111 grand
And you can peruse the full list of what other union bosses get here (Appendix 5).

Personally, I don't care what unions pay their bosses, but (a) I don't want to fund it - as Labour has forced me to do - and (b) I don't want to hear maxi-wedged humbugs lecturing me about why I should pay higher train fares/air fares/taxes to support their members - mainly so that they themselves can keep their own cushtie jobs.

Cuts? What Cuts?

Not up to the job

Labour's latest story goes like this: once the recovery is established, fiscal discipline will be imposed and there will be tougher spending cuts than even Thatcher managed.

Fine. In Labourworld, the recovery will be very well established by next year. In 2011-12, GDP growth hits 3%, before accelerating to 3.25% pa over the following three years. So just how big are those tougher-than-Thatcher cuts?

Here's the budget projection of public spending in real terms. And just for fun, we'll add in the history of public spending since Labour came to power in 1997 (figures are Total Managed Expenditure -TME -deflated to 2009-10 prices using the GDP deflator).

Now, I wonder if anyone can spot those tougher-than-Thatcher cuts. Yes, we can spot the monstrous 60% ramping up of spending over the last 13 years - we can spot that only too well. But can anyone spot the cuts?


Well, that's because you need a high powered microscope to find them. The truth is that on top of their reckless splurge since 1997, Labour is actually planning to increase spending further over the next 5 years. In real terms, spending in 2014-15 will actually be higher than this year.

It's scarcely believable, even for this bankrupt crew. They intend to increase spending by 2% next year, and then - despite all the huffing and puffing - leave it pretty well at the same level thereafter.

Of course, as the IFS has again been been pointing out, a static spending total (or "envelope" as the Treasury calls it), might still imply some pretty swingeing cuts for specific areas. Indeed, according to the IFS calculations, once you strip out rising debt interest, welfare benefits, and areas where budgets are protected (eg health), the budget's implied cuts in unprotected departmental budgets range between 5.3% and 7.1% per annum for the years after 2010-11.

But does anyone seriously believe that? Does anyone really believe Labour would cut transport, universities, housing, and defence by 25% over a parliament?

No, of course not. They'll faff around talking tough but hoping the problem might go away. Finally, after God knows what market crisis, the IMF would have to come in, taxes racked up even further, and across-the-board blind spending cuts imposed.

The budget is a mind-boggling exercise in unreality.

It's no way to run Belize, let alone once Great Britain.

PS Today sees the official publication of the TPA's new book - How to cut public spending (and still win an election). It's a rattling good read (including the Bloke's contribution on how decentralisation can help tackle our fiscal deficit). May I urge you to invest in a copy.

Thursday, March 25, 2010

The Great Efficiency Delusion

The... erm... "government" has been mercilessly mocked for its preposterous assertion in yesterday's budget that it will conjure up £11bn through yet more of its Gershon-style public sector efficiency savings.

Although not detailed in the main budget document, it transpired these savings are to include £550m pa from somehow making our heavily unionised NHS staff throw fewer sickies, and around £100m from the highly improbable introduction of "smart management".

And how's the rest of the £11bn made up? In an attempt to find out, James Committee veteran and TPA stalwart William Norton spent several hours yesterday sifting through a huge pack of explanatory notes from individual departments. He unravelled precisely how each of them intends to fulfil their mandated savings, and then laboriously added up the totals for each category of savings. Here's his summary (presented at this morning's TPA budget briefing):

Now, that may be a little too small for you to read, but don't worry - you can easily see that by far the biggest source of savings is the green bit, accounting for over half the £11bn total. And what's the green bit? Ah, that's the bit officially categorised as "unspecified". In other words, nobody has a clue how those savings will be made - they can't even come up with something half-baked.

And there's another important point to note here - not all savings are equal.

Although Darling and the slimey Liam Byrne spent yesterday implying that this £11bn was A Saving - as in "saving" - in truth, it's nothing of the kind. A saving Saving saves money. That's the point of it. But a government efficiency saving usually doesn't save anything - other than ministerial face, that is. It's a pure deckchair rearrangement, and doesn't release any actual cash to help with the deficit.

It was ironic that on the very day of the budget, the Office for National Statistics released updated figures for how public sector efficiency is really going. It says that NHS efficiency has been falling by 0.3% pa since 1995 - ie taxpayers have had worse and worse value out of every extra pound they've spent.

And that 0.3% pa fall is after taking account of various quality improvements the ONS thinks may have taken place. They are always very difficult to define, and so the ONS also publishes a series excluding them. And that's even more concerning. 

In Labour's first 11 years, they increased health spending by an eye-watering 138%. But as we've blogged many times, much of that disappeared in ludicrous pay deals and other cost increases, and the ONS reckons the volume of inputs only actually increased by 67%. Against that, the volume of outputs only increased by 55%. So excluding those mooted quality improvements, productivity (ie outputs divided by inputs) fell by 7%, or 0.7% pa.

Just for the record, here's the ONS summary chart, excluding quality improvements, and breaking down the totals into the separate contributions of GPs (FHS on the chart), hospitals (HCHS), and GPs prescriptions (the volume of which has increased by a jaw-dropping 200%):

Of course, none of this is new: we all know that public sector productivity has been falling for years, and we now have the ONS analysis to show just how much.

But for some reason, politicos of all persuasions still reckon they can save money by making the arthritic public sector elephant dance, releasing gzillions of efficiency savings.


Well, we know why. Because if they confess that they can't save money by lifting efficiency, then they will be forced to admit that the coming spending cuts will mean cuts in services. Which might prove to be a tad awkward.

So what we get instead is a delusional and dishonest public debate in which the real issues don't get discussed at all.

Issues like breaking up the NHS, and replacing it with the European model of competing social insurers - a model that delivers significantly higher standards of healthcare for similar cost.

Issues like decentralising government, and making local authorities responsible for organising and funding local services - a structure that can deliver much greater levels of public sector efficiency (see this TPA Research Note).

And issues like downsizing government, and leaving people with more of their own cash to make their own arrangements with suppliers who can offer competitive prices based on real efficiency.

Wednesday, March 24, 2010

Wasting Time

You wouldn't think we're facing the worst fiscal crisis since 1815. According to Darling, the economy is on track for 3.5% pa growth, and we don't need to cut government spending anytime soon. There's time to bash people buying mansions, but no time for a proper review of departmental budgets.

Actually, you know what? I can't be bothered to waste any more time analysing this appalling sham. The only budget that matters is the real one to be delivered (hopefully) in early July.

So I'll just rip off what the Bloke wrote for the TPA this afternoon.


Government Debt - Fiddling While Taxpayers Burn

Although the budget has revised down the government's forecast of borrowing and debt, in terms of the big picture it has made virtually no difference. Total debt is still forecast to rise to £1.4 trillion by 2014-15, which is £56,000 for every household in Britain.

What's more, the government's definition of debt excludes a number of items that add hugely to taxpayer liabilities. These include public sector pensions, PFI debt, Network Rail debt, and of course the liabilities relating to the bank bailouts, which extraordinarily are omitted from the official debt total. Adding in all of those items increases our total debt by around £1.4 trillion.

However, even setting these Enron style debts aside, the official public debt on its own is going to impose a substantial and increasing burden on taxpayers over coming years.

Hidden away in its detailed tables, the Budget projects an increase in public sector debt interest payments from £31.5bn this year to £73bn in 2014-15, a rise of 130%. Which means that in four years time, the average household will have to pay £3000 pa in tax just to pay the government's debt interest bill.

And debt interest will be eating up an increasing share of the government's income. Instead of going to fund public services, a bigger slice of our taxes will be paying debt interest:

So whereas over most of the last decade the public sector was spending 5-6% of its income on debt interest, by 2013-14 it will exceed 10%. That takes us right back to the 70s, when debt interest was a constant drain on the public finances.

Worse, the budget assumptions on government borrowing costs (gilt yields) may well be too optimistic. The Treasury is assuming yields remain in the range 4-4.5%. But given its continuing need for substantial borrowing throughout the forecast period, plus the fact that the Bank of England will probably not be repeating its huge gilts purchases last year (Quantitative Easing), there is a real risk that gilt yields move higher. And that would increase debt interest costs.

To gauge the possible additional costs, we have looked at three alternative scenarios for gilt yields: that yields move 1%, 2%, or 3% higher than assumed by HM Treasury in the budget. Some may argue that a 3% increase to over 7% is extreme, but we should remember that yields have been far higher than that in the past - as high as 17% in the 70s.

And if yields did increase to 7%, we project that debt interest costs reach £94bn by 2014-15, adding the best part of another £1000 pa to the average household's tax bill:

Taxpayers are about to rediscover the costs of deficit financing. Whether we believe the Treasury's rosy assumptions on gilt yields, or expect an increase, we are facing a massive escalation in debt servicing costs. And the budget has done nothing to contain it.

The Final Insult

No proper blog today - Tyler's heading round to the TPA to help dissect Labour's final budget (well, it's either Labour's final budget, or Tyler's final one - if we somehow manage to re-elect this corrupt crew, Tyler's off). We'll be blogging our conclusions on the TPA site.

Meanwhile, copies of the TPA's new book How to Cut Spending (and still win an election) have arrived at the office. A rattling good read (including the Bloke's chapter on fiscal decentralisation) - place your order now.

Tuesday, March 23, 2010

The Cost Of Denial

Maybe it was another false alarm

The story so far: Britain stands on the edge of an abyss: Labour has created the biggest fiscal hole anyone can remember; a bigger deficit than any other developed country, even the PIGS; the only reason the bond vigilantes have not yet mounted a raid is because they think the coming election will produce a government committed to national defence of the public finances; within weeks we face a make-or-break trial; yet for most people, the crisis still seems far away: gas-masks were issued months ago but they haven't been needed, and now they're stuffed away in the back of some cupboard; people are questioning the need for any wartime restrictions, and our politicos don't feel inclined to argue; leadership has fled overseas.

Now read on...

Yesterday, thinktank Reform had another go at rallying support for a serious package of fiscal salvation. Pointing out that current plans leave our overall indebtedness (debt-to-GDP ratio) rising for years - maybe decades - to come, they call for a bigger retrenchment than any of our politicos are currently contemplating. By 2013-14 they say we should have reduced annual borrowing from 12% of GDP to 4.5%, and that the vast bulk of the action should comprise spending cuts rather than tax rises.

The headline figures are a £100bn pa fiscal squeeze, £87.5bn of which falls on spending (ie 7 pounds out of every 8, mirroring the successful Canadian programme in the 1990s). Here's their summary comparison against the Labour, Tory, and LibDem plans (click on image to enlarge):

Clearly, the Reform programme requires much bigger public spending cuts than any of the politicos will admit to - £85.7bn vs Labour's planned £57.8bn - but it sounds much closer to what we need. As we all know, the only thing that will rescue us in the long-term is growth, and tax rises will kill growth stone dead.

And Refom also reiterate a couple of points we've made here many times. First, to make spending cuts on the required scale will mean all programmes (including the £110bn pa NHS) have to take a share. And second, much of the cutting will have to fall on the £200bn public sector paybill, and the £200bn pa welfare bill (including the estimated £31bn pa currently spent on middle class welfare). Taken together the paybill and the welfare bill account for nearly two-thirds of public spending.

As a benchmark, Reform have also looked to see what other heavy deficit countries are doing to tackle their crises. From Ireland, to Greece, to Spain, to Portugal, to France, they find some consistent themes:
  • Public sector pay freeze/cuts
  • Public sector recruitment freeze/cuts (both France and Portugal have imposed a "2 out for 1 in" recruitment rule)
  • Public sector pension entitlements cut/employee contributions increased
  • Welfare entitlements cut
All very sensible, and the sooner we get started the better.

Ah, but... those discarded gasmasks... where's the politico who's going to speak truth unto the people?

And frankly, where's the politico who's even going to grip the problem post the election? Even if there's a 50 seat Tory majority is that nice Mr Cam really going to cut spending by £87.5bn? Is he really going to attack teachers and nurses and old people and babies and fluffy little lambs?

Or is he going to fall back on that good old British standby - muddling through? Yes, we stand for fiscal discipline and tough decisions, but no, of course we won't attack fluffy lambs... we'll leave that to someone further down the chain of command.

Because that's what happens when Westminster politicos fail to take the really tough decisions - they get passed all the way down to the frontline where decisions have to be taken. And in the heat of battle, in impossible circumstances, those decisions are often the wrong ones.

History tells us that top politicos sitting in their grandiose Whitehall offices can in extremis be persuaded to cut spending - ie budget allocations. But what they're much less good at is making decisions on which particular fluffy lambs will be sacrificed to realise those cuts.

We have a couple of good examples in the news today - both sadly familiar to BOM readers.

First, the Public Accounts Committee reports a £36bn black hole in the defence budget. Under Liar Brown's stewardship, the MOD has never had sufficient funding for all the various requirements landed on it by the government, and now faces a £36bn shortfall. According to the soon-to-be-retired-and-sadly-missed PAC chairman Leigh:
"Matters have worsened to the point where the department will have to take difficult decisions, such as to cancel whole equipment programmes."
And we all know how that ends - British troops literally on the frontline being forced to dice with death because inadequate budgets mean they don't have the right kit for the task they've been given.

Second, the College of Emergency Medicine says a key NHS target - to treat people visiting accident and emergency units within four hours - is compromising care and patient safety. Sure, the College has got an axe, inasmuch as their members don't like being pressurised by targets. But as we've blogged before, the NHS target regime has long record of producing perverse results - the tick-box targets get met, but only at the cost of extensive resource diversion from untargeted activities, even where they are also essential. In other words, politicos have passed the tough decisions right down the the frontline, which is where the fluffy lambs have to be dealt with.

How much better it would be if the politicos had the balls to make the real decisions on priorities right there, where the buck ought to stop - with them.

But instead of that we seem to be drifting yet further into a replay of the 70s script, which in case you need reminding, goes like this:

The politicos fail to take decisive action to correct the budget deficit; the market vigilantes attack; the politicos are finally forced into action, but without the breathing space for proper planning; their emergency measures involve big tax rises and big spending cuts; the cuts are across the board, lacking detail on what specific services should go; far down the chain of command, right out at the sharp end, public infrastructure decays, class sizes increase, hospital waiting lists lengthen, and soldiers die.

Don't miss the next exciting episode.

Monday, March 22, 2010

Destroying Jobs

It seemed like a good idea at the time

A very interesting new report from Policy Exchange today. Andrew Lilico and Hiba Sameen have been looking at the effect of various different types of tax on economic growth and employment, and have come up with some striking conclusions.

They've used the Oxford Economic Forecasting model - which is very similar to the Treasury's model of the economy - to analyse the impact of various tax changes. And they raise a big red flag over Labour's planned increase in National Insurance Contributions (NICs).

Now as we all know, National Insurance Contributions are a tax on jobs - pure and simple. They make it more expensive for companies to employ people. When Labour came to power, the standard rate of employers NICs (contracted in) was 10%, but after a string of increases, as from April 2011, they will be 13.8% - one percentage point higher than now.

So Policy Exchange has run the model, and discovered that a 2 percentage point increase in employers' NICs after three years produces a one million increase in unemployment. Which would imply that the planned increase of one percentage point next year will cost half a million jobs.

Now, sure, you can argue with the detailed assumptions built into the model, but this must be pretty close to what HMT discovered when they ran their own model. And yet Brown went ahead with the NICs increases anyway.

When Darling gets up on Wednesday and tells us how they don't need to increase VAT because they've already taken the tough tax decisions, you want to remember this. Labour's planned tax increases are just about the most jobs destructive of all.

PS The Policy Exchange report also has a good summary of the increasing volume of research showing a link between the tax burden and long-term GDP growth (see page 20). For example, a 2008 study of OECD and EU countries over the period 1970 - 2004 found that a one percentage point increase in the share of total tax in GDP reduces output growth by 0.12 percentage points.

PPS Several correspondents have drawn attention to today's report that UK government spending has now reached 52% of GDP, as opposed to the 48% quoted on BOM's sidebar. The 52% comes from the OECD and differs somewhat from HMT's definition of public spending - the source of the 48%. But we're investigating further and will report back.

Farewell To The Doc

Scooter boomer

As you may know, the Doc has hit 60 and hung up his stethoscope. After years of wrestling with the NHS, he's simply had enough.

Worse, he's also hung up his quill pen. The NHS Blog Doctor will no longer be holding his indispensable cyber-surgery. We've lost our definitive voice on matters healthcare.

Naturally we wish him well in retirement, but it's a sad day for must read blogs, and 2 minutes silence are most definitely in order.

And while you're silent, you should consider what the Doc's retirement means for you.

Because just like Tyler - long since retired from paid employment - the Doc is a member of the famous Baby Boomer generation that is set to become such a burden on the rest of you over the next 40 years.

As we've blogged many times, the problem with old people today is that they seem to have forgotten they're old people. Not only do they go on cruises and buy themselves Harley Davidsons (actually, in the Doc's case it's a scooter), but they forget that they're supposed to shuffle off in reasonably quick order. They're not supposed to hang around for decades drawing pensions and demanding increasingly expensive healthcare. It's not nature's way.

According to the Office for National Statistics, the Doc can expect to live for another 21.5 years, all of which will be supported by his NHS pension. And that's  fair enough because he's earned it. But as we know, NHS pensions are unfunded - ie his pension will have to be paid largely out of future taxes.

He will also need increasing infusions of healthcare, as we all will. And he may well need some of that highly expensive care for the elderly.

Overall, he and the rest of us Baby Boomers are going to be Eye-Wateringly Expensive. According to the European Commission, over the next half century, the rising cost of old people is going to impose additional costs on everyone else of 5.1% of GDP - equivalent in todays' terms to about £75bn pa. And as we can see, that's a bigger increase than the EU average of 4.7%:

What can we do?

As we've mentioned before, there are really only three options:
  1. Shoot everyone once they reach their allotted three score and ten - Tyler is gradually turning against this option.
  2. Get someone else to pay - we could, say, import a load of young Polish plumbers to work hard and pay lots of UK tax, and then send them home just before they retire... except in the real world, they don't go - they stay here to increase our problem even more.
  3. Increase the pension age to 70 or higher - tell people like the doc that they have to go on working.

In reality, the third option is the only game in town - which is where our politicos are now finally, but still hestitantly, taking us. They need to speed up, and the fiscal retrenchment of the next few years ought to give them the courage and spur they require.

Meanwhile, we Baby Boomers seem to have got out of jail free.

What luck. Calls for a spin on the Yamaha. Maybe the Doc and I should meet up with the other aging rockers outside that caff near Dorking.

Sunday, March 21, 2010

Any Answers

We know whose side they're on

Don't know if anyone heard BBC R4 Any Questions this week, but it was a cracker - Hague, Balls, Heffer, and some pantomime eco-communist woman (no, really).

William Hague's appearance naturally allowed the BBC to spend yet more time on the Ashcroft saga*. But let's not dwell on that. As we've said many times, if Cam's got any sense he will ensure the BBC gets a serious pruning post a Tory victory - it's insane for the Tories to tolerate a taxpayer-funded lefty propaganda organ of the BBC's vast size, and we taxpayers need a break.

But the bit that made Tyler scurry off to the datavault was Balls' argument that we shouldn't get so upset about the BA and railway strikes because strikes were much worse under the Tories.

And that reflects a developing Labour theme. On Friday, C4 News told us that comparisons with the 1970s are ludicrous because "this is nothing like the 1970s". So let's look at some facts.

First, here's the UK's history of strikes - ie days lost through strike action:

There are a couple of things to note.

First, compared to the 1920s, even the strikes in the 70s and 80s pale into insignificance. The grand-daddy of all strikes was the 1926 General Strike, when Britain lost 162 million working days. Which makes the 29 million lost in 1979 look like a virtual blip.

Second, almost all the big strikes were down to one particular group. Yup, you guessed it, the heavily unionised working-class-hero miners. They were behind nearly all the spikes in the chart - 1912, 1921, 1926 (with support from other unions), 1972, 1974, and 1984. In fact, the only spike not down to them was 1979 - Labour's Winter of Discontent year. Overall, the miners and their unions inflicted more damage on the British economy than probably even the Third Reich managed.

Of course, as soon as we discovered gas in the North Sea, the miners were living on borrowed time. But it was only after Thatcher had actually faced them down that the single biggest source of strikes was removed from the equation.

And the mine unions were not the only unions Thatcher had to face down. Which is why the average days lost to strikes during her administration ran at 6.7m pa (about 4m pa if you exclude the miners' strike). But even that, note, was way better than the average 12.7m pa during the dire 1970s.

And note too, that under Major, average days lost to strikes fell to 0.6m pa, almost exactly where it has stayed ever since. Until now, that is.

So yes, Balls - a member of the striking Unite Trade Union - is right in saying that that there were many more days lost to strikes in the 80s than there have been under Labour. But the reason is that Thatcher was dealing with Labour's creators and paymasters - the unions that had brought our economy to its knees.

25 years on, we're getting a sharp reminder that Thatcher couldn't finish the job. The public sector remains highly unionised, which will be a major obstacle as we wrestle with our fiscal deficit. And underneath all the spin, Labour remains a creature of the unions - a creature that once again will be supporting the unions all the way as they strike against Cam's attempts to bring the public sector pay bill back under control.

*Footnote - Ashcroft continues to command headlines at the BBC, at the same time as they persist in glossing over Labour's tax-dodging donors. It will be interesting to see what coverage they give to the freshly broken cash for influence scandal involving Labour ex-ministers like Pants-on-fire Byers, CPO Commissar Hewitt, and the dreaded Hoon. We all understand that Westminster is a sleaze pit, and the BBC ought at least to make some vague effort to cover all the sleaze, not just the bits that suit their prejudices.

Saturday, March 20, 2010

Can Big Be Beautiful?

Big - but also competing for customers

As you may possibly have gathered, Tyler isn't terribly keen on Big Government. Yet, in some ways, Big Government ought to have some Big Advantages.

Take procurement spending - something we've blogged many times on BOM. A Big Buyer, buying in Big Size, ought to be able to buy stuff much more cheaply than a load of small buyers.

The Institute of Directors has just published an interesting new report on this. Towards Tesco - improving public sector procurement reminds us that the UK public sector is one of the biggest buyers in the world, spending £220bn pa - 15% of our GDP. And yet, it has never fully exploited that size. It has never managed to emulate Tesco and the other big supermarkets in grinding their suppliers down to rock-bottom pricing for volume.

The IOD blames public sector procurement fragmentation, and the fact that it "still organises itself on the “corner shop” model, with the majority of purchasing organised in small scale silos – e.g. local authorities, NHS trusts, small central Government departments, each doing their own thing".

It argues we need more centralisation of the buying process:
  • Centralised buying organisations that handle all key supplier relationships and all national and major contracts on behalf of the whole public sector;
  • Where there are regional and local requirements, we need regional procurement hubs to provide expert contracting support to all bodies in the region;
  • A single leadership point (e.g. the Office of Government Commerce) for the above structure.
  • Mandatory use of the above structures by all public sector bodies.
If we did it right we could save "at least £15bn in the procurement process and £10bn in the outsourcing process" - a chunky £25bn pa, which would go a long way to filling our fiscal black hole.

Now, there's no doubt that public sector procurement is a shambles. For example, the report tells us that Greater Manchester's various local authorities "have over 100 specifications for tarmac, when seven are adequate – a potential saving of 10 per cent. Greater Manchester councils are unable to collaborate on dust cart procurement as they cannot agree on the specification and make – a potential saving on total cost of ownership of 10 per cent."

The question in Tyler's mind is whether more central control would actually deliver the mooted £25bn savings. After all, wasn't that the idea behind the Office for Government Commerce (OGC)?

Because as regular readers will know, the OGC has flopped. Indeed, as we blogged here, and here, the National Audit Office and the Public Accounts Committee discovered that it's actually managed to negotiate supplier prices that are higher than you or I could get (eg its cheapest price for a pack of 12 Post-It notes was £4.41, whereas they were freely available outside for £1.75).

The thing about Tesco - and its Big Difference from the public sector - is that it faces competition. Tesco may be Big, but it's been made beautiful by the constant day-to-day battle it faces to keep its customers. It's forced to wring every last penny of pricing concession out of its suppliers so it can deliver a better deal for its customers on the retail park.

The public sector simply doesn't have that spur. And unfortunately, experience from Stalin to the OGC shows that without the spur, Bigger all too often means Bigger Mistakes. And where the Simple Shopper is involved, much more costly ones.

As we've blogged to the point of miaow-miaow hallucination, the single most important step we have to take is to break up the public sector and find ways of injecting competition. And as far as possible, the ultimate buying power must rest in the hands of customers.

PS BOM correspondent PT has been monitoring the problems with the student grant/loan system. The delays in students receiving their loans have had much publicity over recent years, but PL points out that such delays were much fewer back when local authorities dealt with student funding. A key reason for that is that the new centralised system doesn't work properly. And whereas in the old days colleges and students could always find an individual at the funding authority who could sort things out, the only people you can speak to these days are call centre operatives with limited knowledge and limited discretion. And yet another dysfunctional mega-IT system.

Friday, March 19, 2010

Public Sector Pay - Who Gets What?

Don't you believe it

Whoever wins the election will have to tackle the pressing issue of public sector pay. At a time of grave fiscal crisis, with taxes rising and private sector pay under the cosh, the current arrangements are simply not sustainable.

Clearly, discussions in this area tend to generate more heat than light, so we thought it would be useful to set out some facts on who gets paid what.

Let's start with an old favourite - GPs. As regular BOM readers will recall, Labour's crazy new contract stuffed GPs mouths with so much gold they nearly choked (eg see this blog, and this). And as it happens, a BOM correspondent has recently sent Tyler a confidential document showing just what GPs are now earning, five years on.

It turns out that in the most recent year, the average GP practice earned each of its partners £135,000 pa.

And the top paid GP got £380,000. Yes, that's right - a heart-stopping £380,000.

In fact, 5% of all practices now generate over £200,000 pa for each partner.

Now, you may say they're worth every penny. And you may be right. But there's no denying it's quite a lot of money, especially when you put it in its market context.

According to the latest survey from the Office for National Statistics (Annual Survey of Hours and Earnings - ASHE 2009), median annual earnings for full-time employees in 2008-09 was £25,800. And just 10% earned more than £51,500. So virtually all GPs are comfortably in the top 10% of earners, most getting a multiple of £51,500.

HMRC also publish data on the distribution of total taxable incomes (ie including pay, pensions, and investment incomes), and their latest release shows that in 2007-08 only 5% of the population had pre-tax incomes above £61,500. And only 1% had incomes above £149,000.

So we can see that relative to the rest of the population, most GPs are now extraordinarily well paid.

And what about other less wedged public employees? Where do they stand in the pay rankings?

We've taken a rummage through the ONS data and come up with the following overview, covering all the usual "frontline" headline grabbers like teachers, nurses, firemen, and policemen (full-timers only, and note that Medical Practitioners includes not just GPs, but also somewhat less well paid groups like junior hospital doctors):

As we can see, all these groups on average earn more than the median full-time earnings across the economy as a whole. And senior staff groups are comfortably within the top 10% of earners.

So what does that tell us?

Fundamentally, it says that a squeeze on public sector pay will not trigger a huge recruitment and retention problem. Not only are jobs outside going to be hard to find, but public sector pay levels currently look generous against the wider economy (and that's without even considering those famous gold-plated indexed public pensions - widely reckoned to be worth another 25% on top of salary).

It also tells us we should be strong. Teachers 'n' nurses are always wheeled out to headline the resistance to pay restraint, but overall, they ain't doing too badly.

And what about those rascals who live in the Palace of Westmnister? This week we've been treated to a whole bunch of "retiring" members telling us how MPs need a whacking great pay rise to compensate for the new limits on troughing rights. Well, MPs pay is just about to rise to £65,737, plus a continuing range of allowable expenses. The pay sounds about right to us - in line with the median pay for senior civil servants (see chart). But as we've blogged before, the accommodation allowance should go - we should provide state owned flats, such as those that will be left over after the Olympics.

Thursday, March 18, 2010

Three Options - All Bad

The Brothers have already had their chance

As we all know, somehow, some way, we have to cut public spending. And we have to cut it by more than public spending has ever been cut since the 1920s - ie before even Tyler Senior was a lad (see this blog).

Yesterday Tyler attended another of thinktank Reform's excellent sessions on how this might be achieved through reform rather than a blunt instrument. The principal speaker was a senior private sector consultant who has spent years advising the public sector.

He was very informative, and with the aid of a Powerpoint chart, he explained how there are really only three options:
  1. Increase public sector efficiency
  2. Contract services out to more efficient private suppliers
  3. Cut services.
Which sounds spot on.

Except when you remember we've already seen how those options pan out in practice:
  1. Increase public sector efficiency - precisely what Brown's Gershon efficiency programme was designed to do; it flopped, degenerating into a Marx Bros farce of frantic deckchair rearrangement and party-of-the-first-part-herinafter-known-as-the-party-of-the-first-part sanity clauses (eg see this blog, and all Gershon posts gathered here); when the National Audit Office looked into it, they found only about a quarter of the declared savings were provable, and that was just on the initial tranche, which presumably gathered in all the low-hanging-fruit so beloved of efficiency consultants.
  2. Contract services out to more efficient private suppliers - precisely what the Simple Shopper has been doing for decades - buying services in from the private sector under contracts it negotiates to deliver value; except of course, the Simple Shopper is incapable of doing that, and from the NHS Supercomputer, to spy-planes, to GPs contracts, it ends up paying through the nose for services that often don't even deliver what was required; indeed, the Shopper is so hopeless at negotiating and managing commercial contracts, that many private suppliers are now wary of dealing with the public sector in case there's a subsequent political firestorm (eg see this blog).
  3. Cut services - yup, that's what you end up with.
In fairness, the consultant was much more optimistic than Tyler about the possibility of making the public sector more efficient, and training the Shopper to do a better job. Well, that's a view. But as far as we can see, we're facing three very unappealing options - two that don't work, and one that we don't want.

Which is why we need to think much more radically. The fundamental reason the public sector is so inefficient is that it is too centralised and lacks the competitive spur. And the only way we can realistically expect to drive higher efficiency is, in one way or another, to introduce competition.

How? Well, to repeat some very familiar themes, we need to break up the public services, decentralise, and introduce choice and competition. which means among other things:
  • School vouchers - education buying power put directly into the hands of parents (eg see this blog)
  • Social health insurance - the continental model of compulsory insurance with competing providers
  • Fiscal decentralisation - devolve much greater tax raising power to local authorities and make them fund themselves, accountable to local tax payers
  • Directly elected officials - eg those sheriffs
Of course, that won't be enough on its own, if only because it will take years for such reforms to deliver improved efficiency (BA is still struggling with its residual legacies a full quarter century after privatisation).

So in the short-term, there will need to be cuts of the kind set out in the TPA/IOD paper last autumn (see this blog), and most people at yesterday's meeting agreed on the need for Irish style cuts in public sector pay, pension entitlements, and payroll (see this blog). The £200bn pa welfare bill will also have to be cut.

But if we are to come through this crisis with public services that have a future, fundamental reform is absolutely essential. Decentralisation and competition is the only way.

PS Another very familiar question came up yesterday - is Britain actually ready for cuts? As one attendee put it, out in the real world away from Westminster, there's very little sense of the hole we're in. Unlike the 70s, there's no sense of real world crisis and impending doom. Sure, if you've lost your job, you may think that's a problem, but you're hardly likely to be calling for spending cuts. Until mortgage rates start going through the roof, the crisis just doesn't seem real. It will be a brave politico who cuts ahead of the crisis. We may indeed need another Dunkirk before we accept the horrible truth.

Wednesday, March 17, 2010

Unemployment - What's Really Going On?


...although they have got better at fudging the numbers

Does anyone understand what's really going on with the unemployment numbers? Today's shock ONS stats showing that the number of unemployed claiming benefits has gone down seems frankly incredible. And yet the ONS are not liars, so what's happening?

The first thing to remember is that not everyone who is unemployed claims benefits, or even registers with a JobCentre. Tyler personally knows one unemployed City type who has been jobless for a year but has not registered for anything - it wouldn't help him, so why should he bother? And from what we can see, many of the newly unemployed middle class feel exactly the same way. The claimant count numbers are highly misleading.

So rather than looking at the headline claimant count, let's concentrate on the ONS stats for the total jobless, whether claiming benefits or not. And let's put them in the context of the growth of the overall population of working age.

Now, the ONS distinguishes between those it says are unemployed (whether claiming benefits or not) and those who are of working age but are economically inactive. But what does that mean exactly? Here's how the ONS explains it:

"Economically inactive: People who are neither in employment nor unemployed. This includes those who want a job but have not been seeking work in the last four weeks, those who want a job and are seeking work but not available to start work, and those who do not want a job."
In contrast, the unemployed are defined as those who are:
"without a job, want a job, have actively sought work in the last four weeks and are available to start work in the next two weeks or;
out of work, have found a job and are waiting to start it in the next two weeks."
So what does that mean for Tyler's City acquaintance exactly? He most certainly considers himself economically active, but he's sitting on a reasonable pile of cash, and he's not scrabbling round applying for any old job that happens to come up in a given four week period.

So in ONS terms, is he unemployed or economically inactive? Or does he flip between the two, depending on whether during the last four weeks he's had a chat with some contact about a possible job working for a Maltese hedge fund?

The ONS probably won't have a view on that, if only because they've never asked him. And if they did, he'd probably tell them to... er... push off.

Which highlights another important point about the ONS figures - they're based on an entirely voluntary survey, and unsurprisingly, the response rate has been falling through the recession. It's now standing at just over 50%, which means an awful lot of potential non-respondent bias, especially from people like Tyler's acquaintance.

With that in mind, how do the figures actually stack up?

The latest ONS stats are published as a moving three month average, and the latest relate to the 3 month period November 2009 to January 2010. Comparing them to the corresponding figures from 12 months ago gives us the following picture:

So as we can see, over the last year, employment has fallen by nearly 500,000. And it would have fallen by much more if the public sector had not gone on a hiring binge. Between autumn 2008 and autumn 2009, 70,000 joined the public sector payroll, while private sector employment shrank by 600,000.

On the technical ONS definition set out above, unemployment has risen by just under 400,000. But at the same time, the working age population has grown by 200,000. Consequently, the ranks of the so-called economically inactive have swollen by 370,000. And while that may have nothing to do with the collapse of employment opportunities, a much more likely explanation is that most of these newly inactive are in the same boat as Tyler's ex-City acquaintance - ie unemployed in the normal meaning of the word.

Which means that real unemployment has risen by 750,000 - virtually double what the headline number says.

Of course, another factor holding down declared unemployment is that the government runs a multitude of scams schemes to get people off the unemployment register and into some kind of disguised unemployment training programme. But while that reduces the number of official unemployed, in terms of the stats we're unclear how many of them show up as "employed" and how many as economically inactive - we'll try to find out.

Conclusion? The next time some government minister or apologist spouts all that stuff about how brilliantly they've managed to stop unemployment rising in this recession, you need to remember two key points:
  1. Unemployment has been artificially held down by a 70,000 recruitment binge in the public sector - a binge that will have to be reversed after the election.
  2. Real unemployment - including the 370,000 growth in the number of so-called economically inactive - has increased by 750,000 in the last year.

Footnote 1: When you scratch beneath the surface of the ONS stats you find a bit of a mess. In particular, their numbers for employment and unemployment - but not economic inactivity - include those over state pension age. Still, that doesn't affect our conclusions here - if anything, it means we are understating the real rise in unemployment because we are excluding the increased number of unemployed pensioners who would take a job if one was available but haven't actively searched for one in the last 4 weeks.

Footnote 2: Apologies - the initial version of this quoted an incorrect figure for the growth of public sector employment. We had forgotten to adjust it for the redesignation of Lloyds and RBS as public sector employers. It's now corrected, and it doesn't affect our figure for the real growth of unemployment (HTP a number of correspondents).

Tuesday, March 16, 2010

Old New Same Old Labour

In another 5 years they'll have control of the police too

Once upon a time you knew where you were with Labour. They spent shedloads of your dosh on half-baked social engineering projects undermining the social fabric, they wrecked the economy, and they were hostage to the unions.

Then Old Labour got replaced by New Labour. They spent shedloads of your dosh on half-baked social engineering projects undermining the social fabric, they wrecked the economy, and they were hostage to the unions.Very confusing.

So it's good to see New Labour replaced by Same Old Labour. They spend shedloads of your dosh on half-baked, etc etc.

Labour's financial dependency on the unions stinks. The unions fund the party, and the party gives the unions millions of your money in the form of various douceurs such as the £7m so-called Modernisation Fund.

Even more damagingly, the party also gives the unions a whole raft of workplace regulation - like statutory paternity leave - that imposes a huge cost burden on business (eg the notorious Warwick Agreement, under which Blair gave the unions increased holiday entitlements, and they gave Labour £8m to fight the 2005 election campaign).

Of course, post-Thatcher, the big unions are now mainly confined to the public sector. We've blogged this many times (eg here), but here's the key chart showing how union density (ie the proportion of employees who are union members) is nearly four times higher in the public sector compared to the private:

Unsurpisingly, the public sector's strike record is much worse than the private sector's:

The TPA has just published an updated analysis of this strike record relative to numbers employed in each sector. They find that the average public sector worker is 15 times more likely to strike for a day than his counterpart in the private sector.

BA is one of the few big private companies with high unionisation, reflecting its origins as a nationalised industry. But there the similarities with the public sector end. Unlike our Old-New-Old Labour government, BA management have made it quite clear they are prepared to take the unions on.

And take them on they must. According to Tyler's correspondent airside, BA cabin crew are ludicrously overpaid relative to industry averages. Judicious exploitation of allowances can apparently bring BA long-haul cabin crew up to £70 grand pa, which is simply not sustainable in these straightened times.

Indeed, it's no more sustainable than the existing pay and conditions of our unionised public employees. As we've blogged before, whoever wins the next election will have to prune the public sector paybill drastically. It's now running at 15% of GDP, and must be cut. Some combination of redundancies, pay freezes, and increased employee pension contributions, will have to be imposed.

Now, does anyone see Bottler Brown suddenly turning into Willie Walsh?

PS So even the Big Government European Commission reckons Labour's budget plans are wildly irresponsible. They say “The fiscal strategy... is not sufficiently ambitious and needs to be significantly reinforced. A credible timeframe for restoring public finances to a sustainable position requires additional fiscal tightening measures beyond those currently planned.” We'll take a closer look at the EC report later, but this is a pretty clear vote of no-confidence, and sterling has already taken another downward lurch.