Wednesday, September 29, 2010

Dear Chris...

He'd love to hear from you

As the spending battle reaches its climax, public sector bosses from the cops to the profs to the jolly Jack Tars, are starting to fight dirty. Cam and George need to be resolute.

The leaker of Doc Fox's letter to Cam is reportedly being tracked down by the very latest and highly sophisticated MOD drones. But given that the leaker pretty well has to be someone at the top of the MOD itself, it will be a miracle if the drones find anyone.

Still, there's no reason why we should stand by idly while the battle rages. We can help the good guys by at least showing them we're on their side.

And in that vein, the TPA has written to Energy Secretary Chris Huhne to urge the abolition of the useless £118m pa Carbon Trust. The letter neatly summarises why the Trust should be added to the quango bonfire, and the TPA suggests we all add our voices by e-mailing or writing to him at

Chris Huhne

Department of Energy and Climate Change

3 Whitehall Place



Well, what are you waiting for?

PS Grown-ups, eh? Of course we can all understand why Milli snr has stomped off in a huff because baby bro was given the biggest slice of cake (which of us can honestly say, etc). But the point about these people is that they're not supposed to be like the rest of us. They're the ones who reckon they are so grown-up that they deserve to be put in charge and to tell the rest of us how to behave. And talking of infantile behaviour, did you clock Milli jnrs' speech yesterday? Either he really believes all that tired old boilerplate crap about "a new generation" is actually meaningful - in which case he needs to grow up - or he thinks we'll have fogotten about the thousands of other manipulative chancers who've used exactly the same pitch - in which case he needs to grow up. Here's the benchmark performance - nobody has ever delivered it better, and to make it stick properly you have to die before your high flown promises turn sour... and not fall out with your bro:

Tuesday, September 28, 2010

Screwing Savers

So the Deputy Governor of the Bank of England thinks savers should stop moaning and start spending. He says:
"Savers shouldn't necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit... Very often older households have actually benefited from the fact that they've seen capital gains on their houses."
So now we know. Savers should not expect the Bank of England to protect them against the ravages of inflationary finance. The Bank's official advice is to spend your savings pdq before they disappear.

According to the Bank of England's own stats, the average interest rate on High Street savings accounts is a derisory 0.23% pa. Yet inflation is currently running at 3.1% on the CPI measure and an eye-watering 4.7% on the RPI measure. So after taking account of inflation, the real rate of interest is somewhere between -2.9% and -4.5% (the chart above uses the RPI).

As we've discussed many times, inflation is the ultimate stealth tax. It is a tax imposed by governments on those holding its debt (or at least its debt that isn't specifically indexed against inflation). And anyone holding their savings in a simple savings account at a bank or building society - still more anyone holding their savings in £20 notes under the mattress - is paying towards that tax.

And let's just remind ourselves of the Bank's shocking record on inflation. Since 2003, when the 2% pa CPI inflation target was first set, inflation has averaged 2.5%, and at times during the last couple of years it has been far higher:

And the prospects for future inflation don't look a whole lot better. Sure, the Bank regularly tells us that the current inflation overshoot is temporary, and that "inflation expectations remain well anchored", but frankly they've been singing that same tune for months now. And every time they publish a new Inflation Report they postpone the moment when inflation is expected to return to target. Just as a reminder, see if you can spot the difference between these successive forecasts:

Chart 1 - Bank of England inflation forecast February 2009

Spot it?

Yes, that's right - back in Feb 2009, just before they put the printing press into overdrive, they reckoned inflation now would probably be between 0% and 1%. A year later in Feb this year, they reckoned it would be between 1% and 2%. But now we're actually here, it's turned out at 3.1%.

Yet despite this dismal forecasting failure, they still continue with pretty much the same old story - there's no need to worry about that roaring printing press because inflation is about to fall below target.

Well, frankly, roaring printing presses should always worry us. And they should always worry savers in particular.

Of course we're not alone in our concern. The excellent Liam Halligan has consistently warned of inflation disaster ahead, and there are others. And now even those who have previously supported the roaring presses are starting to worry.

This morning we get a startling recantation from the Telegraph's Ambrose Evans-Pritchard. He is now alarmed by recent statements from the US Fed, seemingly intent on debauching the dollar:
"I apologise to readers around the world for having defended the emergency stimulus policies of the US Federal Reserve, and for arguing like an imbecile naif that the Fed would not succumb to drug addiction, political abuse, and mad intoxicated debauchery, once it began taking its first shots of quantitative easing.

My pathetic assumption was that Ben Bernanke would deploy further QE only to stave off DEFLATION, not to create INFLATION. If the Federal Open Market Committee cannot see the difference, God help America.

We now learn from last week’s minutes that the Fed is willing “to provide additional accommodation if needed to … return inflation, over time, to levels consistent with its mandate.”

NO, NO, NO, this cannot possibly be true."
Well done to Pritchard for apologising to those of us who have always taken the other view, but I'm afraid it may be too late. Those of us who recall the 70s remember only too well the global inflationary havoc caused by a soft money Fed intent on monetising the post-Nam post-Big Society Federal debt.

So what to do*?

First, get rid of your savings accounts. Don't wait for the Bank of England to rob you of your savings - do it now.

You need either to switch into index-linked gilts (although note that short maturities are priced to deliver a negative real return - so you'll still lose some of your capital), or switch into a real asset. You're probably too late for gold or grain futures, but the struggling UK property market - yes, that old one - might be worth a look. Cam's government have made it quite clear planning restrictions will be maintained, so if you can drive a fire sale deal, long-term supply shortages (at least in the South East) are far more likely to protect your savings than a building society account on 0.23%.

Of course, if you're a widow or an orphan dependent on the income from your savings, then you're stuffed. Just like always, you are set to be the schmucks who have to pay for the mess visited on us by a bunch of vainglorious incompetent politicos.

Why do we elect these people again?

*Terms and conditions apply. The value of investments can go down as well as up, and Tyler hereby affirms amd asserts that he is in no way qualified to offer investment advice to you or anyone else. Including himself.

Monday, September 27, 2010

Fairness For All... Except Working Taxpayers

Everyone is entitled to a proper cooked breakfast

As we await the outcome of Iain Duncan Smith's think-the-unthinkable welfare review, news reaches us from an acquaintance out in the country. A cleaner he knows:
"...met up with someone she knows well from schooldays locally and they exchanged the usual. What are you doing now? asks my contact. I'm on the sick, was the reply. What's wrong with you then? Oh it's my nerves she said, in fact I'm trying to get permanent disability now. How does that work? Well, you just shake a bit and cry and they believe you.

My indignant contact told me that this individual was on £275 per week, and was just off on a holiday in the Med, on what promised to be "a bit of a booze cruise". She is never, she said, going to work because she couldn't possibly get as much money working. Naturally it makes the cleaner, who grosses less than £275 for a week's cleaning, very angry indeed."
It makes Tyler very angry as well.

We've blogged the welfare disaster so often, you will be bored reading it. But here we go again.

The current level of welfare is set not by reference to what people need to survive, but by what they supposedly need to be "included" in society. It is described as a relative rather than an absolute definition of poverty - the more everyone else has, the poorer you must be, and the higher must be the level of welfare support you need.

Holidays are a case in point. Since "everyone else" now takes holidays, welfare has to provide the funding for the unwaged to take them too. Which is why we're paying for the cleaner's "sick" friend to take this booze cruise. Even though the cleaner herself has probably never ever done such a thing, and is rightly outraged.

The whole corrosive concept of relative poverty was dreamed up half a century ago by a bunch of left-wing academics here in Britain. Yes, I'm afraid Britain was responsible.

And when we say left-wing, we don't of course mean anyone like Bob Crow, whose views of injustice might arguably have been formed by direct experience of life in poverty. No, we mean the usual suspects - Hampstead sons of privilege whose principle knowlege of poverty came from reading Dickens (one of the prime movers was literally 27th in line to the throne and had presumably grown up dining off gold plates - interestingly, he was also homosexual, which at that time made him an outsider, and Teach-Yourself-Freud says he was merely following the Cambridge spies in undermining the society that he felt excluded and denigrated him).

As we know, these Hampstead types have absolutely no idea how people operate out in the real world. Their own lives have been shaped by family wealth and privilege, and they simply can't relate to the rest of us who have to scrabble for cash by fair means or foul. They have no grasp of the idea that changing the pattern of financial reward will inevitably change the pattern of behaviour.

Similarly, they have no idea how people beyond the servants' hall live their lives. For example, one of their first attempts to define relative deprivation asserted that you were deprived if you didn't have a cooked breakfast every day. Obviously in Hampstead they were used to devilled kidneys and kedgeree served up by cook on those outsized silver salvers, so they reckoned that was the norm. Needless to say, down on our estate (council estate that is) I can't recall anyone having a cooked breakfast, and we can't all have been deprived.

Anyway, that's all in the past, and the question is what can we do about it now? What must we change to ensure working people on low incomes do not get faced with acquaintances on the sick swanning off on booze cruises?

Ideally, we need to redefine the poverty line back to what most of us always thought it was in the first place - the money that you need to feed, clothe, and house yourself, but not the money you might like to spend on holidays and booze. If you want the extras, you have to work for them.

Unfortunately, there is at present no accepted definition of what exactly constitutes need. We have no standard for measuring the poverty line in absolute terms.

There is however one thing we do know. We know that the reason these Hampstead types devised the notion of relative poverty back in the early 60s was to solve a problem. It was a problem for the left, and it was simply that the never-had-it-so-good era of post-War growth had to all intents and purposes ended absolute poverty. The left had thereby been robbed of its strongest sales pitch, and desperately needed a new one. Relative poverty was that new pitch.

So suppose we do the following. Suppose we take the average income from that same period back in the early 60s, which we know was well above the absolute poverty level. And suppose we uprate it for inflation since then. What would that be in today's money?

Luckily we don't need to crunch the numbers for ourselves because the IFS has made available a handy spreadsheet containing their own calcs. And according to them, the median household income from 1961, adjusted for inflation, is equivalent in today's money to an income of  £195 per week, or £10,140 pa*.

Which is very interesting.

For one thing, it is way below the £275 per week being handed out to our booze cruiser.

More fundamentally, it's under half today's median household income of £407 per week*. And as regular BOM readers will know, we have long argued for reducing the official definition of the poverty line from 60% of median income to 50% (eg see this blog). So a 50% poverty line would still leave welfare recipients better off than the average household in 1961.

Back then, a commitment to lift every welfare dependant above the living standard enjoyed by that year's median household would have been thought wildly generous. It would have been way above anything understood as poverty income.

So what's changed? The bundle of goods 1961's median income can buy today (adjusted for inflation) is still way above real poverty.

The only reason we even consider it might not be enough is because we somehow allowed those Hampstead socialists to persuade us that poverty is a relative concept.

It isn't.

And a system of welfare that has hard-working cleaners paying tax to fund welfare dependant booze cruises is something that shames us all.

We should never have allowed the left to build such a monster in the first place. We must not flinch now as it's rolled back. We owe it to that cleaner.

*Footnote - The IFS figures relate to 2008-09, which is the most recent year for which we have official stats. Also note that they are figures for "equivalised" income, which means the raw data on individual household incomes have been adjusted to allow for different types of household (how many adults, how many children, etc).

Sunday, September 26, 2010

Severe Shortage Of Millionaires

Wrong message - we need more millionaires

With Red Ed at the controls, we can expect Labour to target the undeserving rich just as stridently as they ever did back in the day. But the middle class, no, they won't be squeezed. Labour under Ed will cherish and protect the middle class. It's those rich bastards who'll have to pay.

But who exactly are those rich bastards, and are there enough to go round? Robbing from the rich to give to the poor is one thing, but robbing from the rich to give to the teeming middle class requires the rich to have an awful lot of riches in the first place.

If we define the rich in terms of income, then the official stats tell us that the top 10% of households get 30% of the income (ie gross market income going to the personal sector before taking account of government transfers - welfare etc). Which at first blush might sound like an ideal target for Ed's Robin Hooding.

But he needs to understand a couple of key points. First, the top 10% are already paying more than their share of the taxes - 27% at the last count - and they might not take kindly to paying even more (like, they might down tools and leave). And second, the gross income level that takes a household into the top 10% is around £50,000 pa, which in London and the South East at least is viewed as a middle class income - certainly not "rich".

If instead we define rich in terms of wealth rather than income, we find an even greater concentration in the hands of the top 10%. According to the ONS, immediately pre-Crash, total household wealth amounted to £9 trillion. And of that, nearly £4 trillion (well over 40%) was owned by the top 10%:

A concentration like that looks much more promising for Ed. Taxing wealth is arguably less damaging to growth than taxing earnings, and those rich bastards would surely not miss the odd trillion.

Except that when we look closely, we can see that the biggest single chunk of this wealth comprises the value of pension entitlements, a golden pot that already took a severe walloping from Ed's mentor, the Great Helmsman. With occupational pensions now a thing of the past (at least outside the public sector) it has become a wasting asset.

What's more, the second biggest chunk of wealth comprises property assets, which again, have taken a serious walloping since the ONS compiled its numbers.

In fact when you focus in on the actual cash and other readily realisable assets owned by the rich - ie the financial wealth that Ed could actually grab and redistribute - you find it is very much smaller, at around £0.5 trillion. What's more, because it is so liquid, any attempt by Ed to grab it would swiftly result in its disappearance out of harms way.

The real problem is that there simply aren't enough millionaires to go round. According to the 2010 World Wealth Report, the UK has around 450,000 so-called High Net Worth Individuals (HNWIs), which sounds like quite a few. But a HNWI is defined as a dollar millionaire in terms of cash and other reddies, and these days even the average punter earns more than that over his lifetime. In terms of robbing the rich , it's pretty slim pickings.

No, whatever Ed may claim, robbing the idle rich could not possibly raise enough cash to protect the middle class from the squeeze. The reason that successive governments rob the middle class is simply because that's where the money is.

In  the real world outside Ed's fantasies, the only way the middle class can even hope to escape is if Cam and George push on with their spending cuts.

Friday, September 24, 2010

Quango Bonfire - Smoke Seen

Yes, that's definitely smoke

Today's leaked list of quango terminations makes interesting reading. Out of the 1000+ currently in existence, 177 are definitely going, 129 are being merged, and a further 94 are still awaiting sentence.

Onto the bonfire go some of BOM's real old faves: the Audit Commission (eg see this blog), the Qualifications and Curriculum and Authority (see this blog), the Thames Gateway Development Corporation (see this blog), the UK Film Council (see this blog), the Union Modernisation Advisory Fund (see this blog), and others too numerous to mention.

The DT has an absolutely excellent visual summary of the cuts here.

So where do we stand against our list of priority candidates set out in the TPA/IOD cuts paper? Here's our top 13 candidates for abolition/privatisation, along with their most recently published annual costs (as summarised in the TPA's 2009 quango report - see there for details):
  1. Standards Board for England (£10m) - chopped
  2. Office for Fair Access (£0.4m) - still awaiting sentence
  3. National College for School Leadership (£83m) - still awaiting sentence
  4. BECTA (£10m) - chopped
  5. School Food Trust (£6m) - chopped
  6. Welsh C4 (£98m) - apparently reprieved
  7. Football Licencing Authority (£1m)- apparently reprieved
  8. Commission for Architecture and the Built Environment (£12m) - still awaiting sentence
  9. Thurrock Thames Gateway Development Corporation; London Thames Gateway Development Corporation; West Northamptonshire Development Corporation (£125m) - all chopped
  10. British Waterways (£68m) - chopped (although presumably that really means spun off - as recommended by the TPA)
  11. Sustainable Development Commission (£3m) - chopped
  12. Carbon Trust (£94m) - still awaiting sentence
  13. Regional Development Agencies (£2,212m) - chopped
Overall, it seems 7 of the 13 are already chopped, with a further 4 still awaiting sentence.

Which is all quite impressive. But there's still a lot to do.

To start with, the 94 quangos still awaiting sentence include some prime candidates for the chop. Not just the Carbon Trust, but also our old friends the British Council, and the BBC (well, the World Service anyway). We mustn't have any last minute wobbling on them.

And then there's the Regional Development Agencies. They may have been chopped, but are they actually in the flames yet? We wouldn't want to find they've been hoiked out of the bonfire and surreptitiously given a new life under an assumed name.

Which raises a broader point we mustn't lose sight of. While chopping quangos has a huge appeal to most of us, what really matters in terms of cost saving is chopping the programmes they are responsible for. Thus chopping the RDAs only saves big bucks if the underlying spending is also cut - if the spending carries on, only administered direct by St Vince, nothing much gets saved at all.

When the Comprehensive Spending Review is formally announced next month, we'll need to probe very carefully behind the quango headlines.

PS Talking of the BBC, it's good to hear they've finally agreed to allow the National Audit Office full access to the BBC's books. Except of course, they haven't quite - "stars" pay will apparently remain secret. It is disgraceful that a tax-funded quango should have been able to stop us knowing how it spends our money for so long - behaviour that stands in stark contrast to its own strident calls for transparency in everyone else's financial affairs (eg bankers bonuses). And compare their own lack of disclosure with the lip smackin' detail they are pumping out on who will lose from the public spending cuts.

Thursday, September 23, 2010

Policing - Just Like The Major Told Us

A rather big police error

So now even the police admit they've failed against the yobs. Her Majesty's Chief Inspector of Constabulary (HMIC) says:
"In the 70s, 80s and 90s every time there's been a cutback the first thing that's gone is the front line on the streets and I think it's been a big error and we've paid for it... anti-social behaviour... and its variants, that signal lack of control on our streets, have grown and evolved in intensity and harm."  
Needless to say, the Major was round first thing to make sure we'd understood - he'd been right all along:
"Isn't this precisely what I've been saying all these years? And you too pig ignorant to listen? We need good old-fashioned coppers out on the beat, not a bunch of pinko social workers filling in forms back at the nick."
Yes, of course, form filling has been a problem for ever, but under hopeless top-down pc Labour it mushroomed into a terminal condition. A condition made much worse by all the command and control systems imposed as part of Labour's tractor production plan.

According to HMIC, over the last 40 years police numbers have increased by well over 50%. And in addition, there has been a fourfold increase in other staff, including those famous numpties in yellow jackets:

And yet this is the very period during which HMIC says "cutbacks" gave rise to the withdrawal of frontline policing. In other words, the police withdrew services during the lean years, but never restored them during the fat.

What happened of course, is that the average cop has been spending less and less time actually out on the streets. As we've mentioned before, Mrs T's brother was a cop, and when he started as a young PC at Holborn in the late 50s, he'd routinely work 10 or 11 hour night shifts walking the beat alone (these days he'd have a watertight case under the Human Rights Act).

But the subsequent reduction in hours, plus all that paperwork, plus the demands of the burgeoning police bureaucracy, has had serious consequences for policing the streets. In today's police force as few as 6% of the total police strength are actually available at any one time to do what we most want them to do - ie patrol our neighbourhoods and respond quickly to calls for assistance.

HMIC has published this very interesting chart, summarising a survey of larger police forces. It shows what proportion of the police strength is actually available for neighbourhood patrols and response at various times during the week. And it shows how that proportion is derived from the total strength (click on image to enlarge):

So on Friday night at half-past midnight - ie a peak time for drunks smashing up town centres and pissing through your letterbox - only 6.4% of the total police strength are actually available to deal with things. Of the rest, half are permanently deployed on other matters, a further 42% aren't rostered for duty that night, and of those that are, a further 2% are off sick, on holiday, or on restricted duties. Which leaves just 6% available to do the job when we need it done.

And there's more. HMIC gives us some chapter and verse on the bureaucratic thicket down at your local nick - the over-specialisation, the silos that hamper coordinated action, the useless but time consuming local area partnerships, and the sheer wibble that pervades everything. Here for example is the chart of the model Police Management Structure for a borough, complete with its Professional Standards Champion, its Borough Partnership Manager, and its Victim Focus Team (click on image to enlarge):

It's the triumph of box-ticking over actually getting the job done.

Now nobody wants to be here, including the police themselves. But as always the question is WTF can we do about it?

As regular readers will know, Tyler has always been a big fan of elected local sheriffs - accountable to local communities for what happens on the streets, not what boxes have been successfully ticked. And we very much hope that Mrs May will implement the plan as promised.

But local sheriffs will only work if they are allowed to. There must be an end to centrally set tractor production targets, an end to fixed national terms and conditions (Ts and Cs - see this blog), and in due course, an end to reliance on central funding. Sheriffs must be free to experiment and discover what works in their own local communities.

That really is the only way. It's the only way we can be sure of local policing for local people. And at a time of big budget cuts, it's the only way the police will possibly make the leap in efficiency they must now deliver.

Wednesday, September 22, 2010

Debt Interest Takes Off

Yesterday's public sector borrowing stats gave us a sharp reminder just why we need to get on with those spending cuts. Net borrowing for August was actually up on last year, and year-to-date is only marginally below last year - despite the increase in VAT and throttling back on public investment.

Looking at the detail, the scariest single number is that for debt interest payments. Year-to-date they have increased by £8.1bn, a staggering 73%. Looking at the rolling 12 month total, they are now running at £39bn pa, up by £12bn pa from a year ago (see chart above).

The most recent official forecast for debt interest came with the Emergency Budget in June. It reckoned debt interest this year (2010-11) will be £43bn, and we're currently running a bit ahead of that.

The problem is that even if the Comprehensive Spending Review manages to deliver George's forecast cuts, debt interest is still forecast to rise to nearly £70bn by 2015-16. Which will be nearly £3000 pa for every single household.

And that is why there must be no backsliding. So far, the gilt market has been impressed by the coalition's resolve, and has actually cut the interest rate on government debt by about 0.6% since May. But disappointment on delivering those cuts could very easily reverse that, setting in motion the Doomsday Machine we've blogged so often (ie the situation where the government has to borrow more and more just to pay for increases in debt interest).

PS "The Government's agenda, is not one of laissez-faire. Markets are often irrational or rigged. So I am shining a harsh light into the murky world of corporate behaviour. Why should good companies be destroyed by short-term investors looking for a speculative killing, while their accomplices in the City make fat fees? Why do directors forget their duties when a fat cheque is waved before them? Capitalism takes no prisoners and kills competition where it can." Poor old St Vince. He has always played to the gallery, and is clearly having immense problems controlling himself, now he has a real job with real responsibilities. It would be a kindness to relieve him of those responsibilities and allow him to free rein to shoot his mouth off like he always used to. We all agree markets are often irrational or rigged, but as Richard Lambert reminds us, there is no practical alternative. It's markets that have delivered the standard of living we enjoy today. Left to government we'd still be living in mud huts.

Tuesday, September 21, 2010

Latest On Three Old Favourites

Another of the Major's money saving ideas

1. Public Sector Rich List

When the BBC puts on an entire show about public sector fat cats, and even compiles its own Rich List, you know the landscape is changing (see here).

Last night's Panorama told us that a staggering 9000 public sector employees are earning more than the Prime Minister. And despite the irritating background music, and despite Panorama's inexplicable failure to credit the TPA as originators of the Public Sector Rich List, and despite letting the top-paying BBC off the hook*, the programme is a landmark. Worth a watch (watch again here).

2. No Wonder Work Doesn't Pay

Mr Brillo draws our attention to the case of a benefit cheat recently convicted of falsely claiming £84 grand in income support and housing benefit.

Let's set aside the fact that she hasn't been sent to prison (defending counsel successfully pleaded that "she has a low IQ and her offences were not complex"), and let's set aside the fact that she got this money by reason of having five kids (aka kids as a career option). What really leaps out is the sheer amount of cash she wangled.

The precise figure was £84,130 obtained over 5 years. Which works out at nearly £17 grand pa. Had she gone out to work, she'd have needed to earn well over £21 grand pa to net the same income.

As we've blogged many times, the welfare safety net is simply too high. We will never make work pay if someone like this can get the equivalent of £21 grand pa on welfare - even if she'd been telling the truth.

And talking of kids as a career option, we note the case of Keith Macdonald, who has fathered 10 kids by 10 separate women. All are supported by the taxpayer, at an estimated total cost to age 16 of £1.5m. Needless to say, MacDonald himself is also entirely tax-funded, and spends his days... well, I think we can see how he spends his days:
"Macdonald, who first had sex at the age of ten, refuses to wear a condom and boasts that he has since slept with more than 40 women.

He met many of the mothers of his children at bus stops and bus stations, and says it is ‘easy’ to find women this way."
On one level you have to admire the guy's hit rate. But WTF should I pay for it?

(The Sun offered to pay for him to have his testicles trimmed, but he declined. Or as the Sun put it, "Slob snip snub". The Major has developed a range of even cheaper options, except of course they wouldn't be optional - see pic).

3. India Tells DfID To Get Lost

We've blogged the lunacy of development aid for space race India many times, but now India itself is saying it doesn't want any more from us (HTP Rob A). According to the excellent AidWatch:

"The External Affairs Ministry has instructed the Finance Ministry to inform London that India will not accept further aid from next April…

“…[I]t would be better if our decision not to avail any further DFID assistance with effect from 1st April 2011 could be conveyed to the British side in an appropriate manner at the earliest,” [Foreign Secretary Nirupama Rao] wrote to Finance Secretary Ashok Chawla.

Ahead of Cameron’s visit, India had considered rejecting DFID offer in view of the “negative publicity of Indian poverty promoted by DFID”.
As we've noted before, UK aid to India is directed at pet projects inside India where Britain is basically saying to the Indians "you may be the world's largest democracy, and you may have one of the world's fastest growing economies, and you may have your own foreign aid programme, and you may have kicked us out 60 years ago, but we think you are doing a shocking job of managing your own internal affairs, so we'll do it for you".

Hardly surprising they want us out.

We should withdraw immediately, saving us a quarter of a billion every year (see this blog).

*Footnote - According to Panorama, the BBC is unusual in the public sector because it is paid for not from taxation, but from the licence fee. Er... yeees... You see, the licence fee is a tax, just as the duty on booze and fags is a tax. Sure, you don't have to pay it if you don't wish to indulge, but for most of us it is an unavoidable tax, payable under penalty of the criminal law. The only unusual feature of the telly tax is that it is ring-fenced (hypothecated) solely for the use of an individual quango. No wonder the BBC can afford to employ so many outsized moggies.

Monday, September 20, 2010

Party Political Broadcast On Behalf Of The Envy Party

BBC R4 has just completed a week of propaganda broadcasts for the Envy Party, funded by your telly tax (you can listen again here).

They conducted a survey asking poor people if rich people get paid too much. And guess what - it turns out they do! It turns out that FTSE chief execs shouldn't get the average £2.1m pa they apparently pull in today, but only £118k - a cut of 94%. And at the other end, care assisitants should get an immediate raise of 50%. The BBC has a related quiz online, where you can test your own envy responses, and impose your own ideas of fair pay on our turning world.

Where to begin?

First of all, those of us who recall the 1970s well remember what happens when politicos try to impose their own ideas of fairness on the labour market. Back then we had punitive taxation intended to squeeze the rich until their differentials squeaked. We also had incomes policies specifically intended to stop the market operating. The result? You know the result - enterprise died, Britain suffered a catastrophic brain drain, and we slipped way down the international economic league tables. All of us were made poorer.

Ah, say the "new" socialists, money isn't everything. We might have been poorer back then, but we were all so much happier. No, don't laugh - that's what they say. Because incomes were much more equal, there was much less envy eating away at our souls. We were all in the same boat - just like the War.

How quickly these new socialists forget. Back in the 70s Red Robbo/King Arthur disputes over relative pay were much more rancorous and damaging than they are now. Why, even respected philosophers from the socialist paradise of Sweden were racked with envy:

No, the 70s should have proved once and for all that attempts to impose a "fair" income distribution not only make us all poorer, but they also leave us feeling just as envious and angry as the BBC reckons we are today.

Which of course is why socialists tend not to dwell on history - ie our actual experience. Instead, they point to how much better things are in more equal societies elsewhere. Supposedly.

The latest attempt to prove this got a lot of BBC airtime last week. It's a book called The Spirit Level which we blogged here. Written by a couple of left-wing academics, it has already become a key text for those advocating big increases in taxation and spending aimed at levelling out income inequalities, presenting as it does a slew of statistical evidence purporting to show that our big social maladies - like low life expectancy and mental health - are largely driven by income inequality.

The BBC and the rest of the left have adopted the book as the new gospel. But in reality, it is one of the most astonishing concoctions of statistical fudge and flummery you are ever likely to see. Once you start to probe the stats deployed they disintegrate.

The BBC's own Tim Harford did a pretty good demolition job when he interviewed one of the book's authors (a social epidemiologist, no less). His questions comprehensively undermined her credibility, although he was far too polite to dish out the humiliation the book truly warrants (do listen again here). The TPA paper we blogged here - written by three Swedish economists - does an even more comprehensive job. In fact, The Spirit Level turns out to be so bad, soft-hearted Tyler almost feels embarrassed for the authors.

Which kind of makes you wonder why the left still quote it as being gospel. Except of course, socialists have never let the facts get in the way of a good story.

The truth is that despite all the BBC hand-wringing, it is by no means clear we are as unequal as claimed. According to the most recent OECD analysis (ie real properly based stats), we rank well under the OECD average for the proportion of the population living below 60%, 50%, and 40% of median income:

In fact, as we can see, on this straightforward measure, Britain (GBR) is more equal than most of our major competitors, including Germany, Italy, Canada, Australia, Japan, and the US.

Where we seem to differ is that we do seem to have much higher rewards at the top end of the income distribution, which is why on some distribution measures we come out as being relatively unequal (eg the Gini coefficient).

But we really do need to remind ourselves of the benefits that have flowed from the increase in top pay since the bleak 70s. The boost to enterprise, and the re-rating of the UK as a good place to make money.

Because it isn't just the rich who have benefited. Despite the claims of the left, there have been trickle down benefits to the poor. The OECD calculates that from the mid-80s to the mid-00s, the real incomes of those in the bottom 25% of the UK income distribution increased by 1.6% pa. In contrast, in egalitarian Sweden, they only increased by 0.9% pa. So over the entire 20 years, our poor saw their incomes grow by 37%, compared to only 21% in Sweden.

Ultimately, it does come down to that simple old choice - would you rather be equal and poor, or unequal and rich? The left deny the choice is necessary, but those of us who are guided by what happens out in the real world know different.

Saturday, September 18, 2010

Mysteries Of State

Tyler is personally inclined towards Hokeycokeyism, but he has no problem with the Pope visiting Britain. None whatsoever.

Where he does have a prob is with the reported cost to taxpayers. £12 mill seems like an awful lot of money for a state visit, especially when the visitor has brought his own Popemobile. Where can it all be going?

Policing? Well, no - apparently that will cost a mere £1.5m. Leaving another £10.5m unaccounted for.

State banquets? No time, given all the other stuff being crammed in (especially when we factor in time out for the Pope's afternoon naps).

Overtime for Her Majesty? Maybe, but she did her bit during the normal working day, so it should have been included in her original quote.

Even George Dubya's state visit in 2003 only cost £4.1m. And according to the BBC, he was the most unpopular and despised man in the world, so if anyone was going to cost, he was.

It's a mystery.

But then again, so is the entire business of state visits. I mean, who decides which visits should take place? And on what basis?

We know the Foreign Office conducts no cost-benefit analysis of putatative state visits (see here), so it's presumably decided on a whim. But whose whim?

Here's the list of previous state visits over the last 10 years - maybe it will give us a clue:

16-18 February 2000 Queen Margrethe II and Prince Henrik of Denmark

12-15 June 2001 President and Mrs. Mbeki of South Africa

6-9 November 2001 King Abdullah II and Queen Rania of Jordan

24-27 June 2003 President Putin and Mrs. Putina of the Russian Federation

18-21 November 2003 President and Mrs. Bush of the United States of America

5-7 May 2004 President and Mrs. Kwasniewska of Poland

18-19 November 2004  (Official Visit to mark the centenary of the Entente Cordiale) President and Madame Chirac of France

1-3 December 2004 President and Mrs. Roh Moo-Hyun of South Korea

15-17 March 2005 The President of the Italian Republic and Signora Ciampi

25-27 October 2005 King Harald and Queen Sonja of Norway (Official visit)

8-10 November 2005 The President of the People's Republic of China and Madame Liu Yongqing

7-9 March 2006 The President of the Federative Republic of Brazil and Senhora Marisa Letícia Lula da Silva

13-15 March 2007 The President of the Republic of Ghana and Mrs Kufuor

30 Oct - 1 Nov 2007 The King of Saudi Arabia

26 - 27 March 2008 The President of the French Republic and Mrs. Nicolas Sarkozy

27 - 29 October 2009 The President of the Republic of India and Dr Devisingh Ramsingh Shekhawat

2-5 March 2010 The President of the Republic of South Africa and Mrs Zuma

Including the Pope, that's 18 visits altogether. 2 for France, 2 for South Africa, but only one for the US, and none for Germany or Japan.

OK, we have covered the BRICS, with one apiece for Brazil, Russia, India, and China - which must be good tradewise. And OK, we have covered a couple of big arms customers. And fair enough that Her Majesty gets to invite her few remaining crowned relatives from places like Norway and Denmark.

Actually, I take it all back. Most of these state visits do seem to have been targeted on key markets (although Germany is a glaring omission).

Which just leaves the Pope.

And his £12m price tag.

What do we get out of it again?

PS The other day I heard some BBC type saying that he hadn't heard anyone outside the Murdoch press calling for the telly tax to be abolished. Well, he hasn't been listening very carefully. Round our way the call is getting louder by the day.

Friday, September 17, 2010

Paper Factories Still Booming

Another consignment ready for processing

Tyler was once told by an ex-Cabinet Secretary that Whitehall is "a bit of a paper factory". Tyler was shocked - he'd previously believed Whitehall's output comprised nothing but high quality governance services.

The funny thing is, despite all that stuff about e-government, Whitehall's observable output still largely comprises paper. And we'd like to know what it costs.

We don't know exactly how much paper the public sector gets through every year, but according to the government waste quango - who are surely the undisputed authority on paper usage - "office workers can get through 50 sheets of paper a day". No, wait... later in the same paragraph they go on to say "the average office worker uses up to 100 sheets of paper every day in a typical office". Well, whatever - it's a kakload of paper, and if those are averages across both public and private sectors, we can safely assume public employees are towards the top end.

So let me see... 100 sheets a day, say 220 working days pa, that's 22,000 sheets pa per public sector office worker. 6 million public sector workers employees, say half of them are safely tucked up in the office, so that's... blimey... that's 66 billion sheets pa. Or enough to go round the world half a million times.

WTF must it cost?

As it happens the National Audit Office has recently published a useful report giving us a pointer.

The NAO has returned to an old BOM favourite - the huge range of prices paid by different bits of the public sector for the self-same standard items, and the fact that some bits are paying far more than they should be (eg see this blog). Despite all the promises, and the expensive Office for Government Commerce, the problem has not gone away.

Here's what they found on the cost of paper. They surveyed 112 public sector organisations, collecting prices paid for a standard box of 2500 sheets of photocopy paper (ie a box of 5 reams):

As we can see, prices are all over the place, and contrary to what you'd expect to find out in the real world, there is no clear inverse relationship with volume.

Anyway, the average price seems to be about £10 for 2500 sheets. And applying that to our estimate of paper throughput, we get an annual cost figure of £264m pa.

So there we have it. Our public sector paper factories cost us around a quarter of a billion every year just for the raw materials. And that of course excludes the processing costs - which are immense - and the recycling costs.

In fact, here's a suggestion - instead of spending so much on waste recyling plants, why no simply close a few paper factories.

Thursday, September 16, 2010

Public Sector Job Cuts

Don't believe everything they tell you

The skirmishing is nearly over and Cam's government is confronting the reality of public sector job cuts. Yesterday Theresa May stepped up to the plate, facing down the boys in blue with their hysterical claims of imminent social breakdown, and leaving them in no doubt that the cuts are going to happen. Their job is to deal with it. To find ways of working more much more efficiently with fewer staff.

It's going to be a bloody couple of years right across the public sector, and we're going to hear many more scare stories of breakdown and giant snakes roaming the streets of our great cities.

So let's just remind ourselves of a few key facts about public sector employment. In particular, let's remind ourselves of how much it grew over the last 13 years (see latest ONS stats here):

As we can see, from 1997 to 2010, the public sector payroll grew by 0.9m, or 17%. Now, 0.2m of that comprised the staff of our newly nationalised banks, and arguably we should omit them (on the grounds that it is a "temporary" nationalisation). But even when we do that, the growth in public sector employment still comes to around 13%.

So where has this growth been?

Well, over half of it (excluding the banks) has been in the NHS. Since 1997, the NHS has increased its staff numbers by an astonishing 35% - from 1.2m up to 1.6m.

A further 300,000 have joined the education payroll. Education staff have increased from 1.1m up to 1.4m, a rise of 27%.

The police - the guys screaming at Theresa? Their payroll increased by a cool 28%, from 230,000 up to nearly 300,000.

In fact, the only identified areas where there was a decline over the period were construction - which was largely accounted for by outsourcing (including staff transfers) - and, yes you guessed it, HM Forces. So the bit of the public services which by common consent has shouldered the biggest burden over the last 13 years is one of the few bits that has been cut.

The key point here is that most areas of the public sector got substantial employment increases under Labour. Fat has almost certainly increased. And for several key areas, including the police, even a 25% cut would still leave payrolls about the same as they were in 1997. And IIRC, there weren't too many giant snakes roaming around back then.

So where should the cuts fall?

The following chart shows current staff numbers across the main public sector "industries":

Just take a moment to study that chart.

Now ask yourself where would a rational cutter start?

Yes, that's right - with the areas which employ the most people. And right up at the top is that fourth biggest employer in the world - the NHS. The bit that had the biggest staff increase under Labour, and where great wobbling layers of fat now block every corridor.

Which brings us back to an issue we've blogged many times - whatever may have been said in the past, the NHS really can't be exempted from the cuts. It accounts for over a quarter of the public payroll, and however it's dressed up, it's going to have to make a contribution.

Wednesday, September 15, 2010

Our Overpaid Public Sector

Sorry... what pay cuts are you talking about?

Yesterday's research study from the Office for National Statistics confirmed what BOM readers have known for some time - Britain's public sector employees are on average paid much more than their private sector counterparts.

Here's the summary table (click on image to enlarge):

As we can see, the ONS have done their comparisons both for gross pay, and for gross pay plus employers' pension contributions. They have looked separately at men and women, and they have also looked at different points in the income distribution.

The conclusion is overwhelming - for both men and women, for both high and low earners, for incomes including and exlcuding pensions, public sector employees do much better than private sector. The median employee in the public sector gets nearly 30% more than his/her counterpart in the private sector, once we take account of the employer's pension contribution.

And in truth, the public sector does even better than the ONS numbers suggest. That's because the ONS only takes account of the employers' explicit pension contribution, a contribution that hugely understates the true cost of public sector pensions.

As we blogged here, the true cost of public sector pensions as a percentage of salary averages around 25% more than current pension contributions. Which means that we need to gross up the public sector total reward numbers even further. At the median income level that takes the public sector premium up to a staggering 50%+.

Now, the ONS paper argues that since most private sector employees no longer get company pensions, the comparison ought to be confined to those that do. And if you do that, you find that the private sector actually does better than the public.


You see, these days (thanks largely to the destruction wrought by the late unlamented Great Helmsman) private sector pensions are mainly confined to senior employees. So by restricting the private sector sample to those with company pensions, you introduce a massive bias towards the better paid. Hardly surprising then, that group does better than the average public sector employee - it also does a lot better than the average private sector employee.

No, the numbers say that - once you take account of the full cost of pensions - the typical public sector employee gets up to 50% more than the typical private sector employee.

Skills differences?

That's the argument used by the public sector unions. They say that the typical public sector worker is better qualified and does a more demanding job.

Yeah. Right.

For one thing, nobody should be prepared to pay more just because people have more paper qualifications. As everyone surely knows, degrees these days are ten a penny.

And when we looked at the evidence on the kind of jobs people actually do (occupational mix) we found a very muddy picture. The public sector does indeed employ more "professionals" than the private sector, but  it employs far fewer "managers and senior officials", and virtually no "skilled trades". And at the bottom end of the scale, there is virtually no difference in public and private sector employment of "elementary occupations".

As others have commented, yesterday's ONS report blows a massive hole in the union case against a public sector pay squeeze.

There must be no wobbling on either the pay freeze or the reform of public sector pensions.

PS A piece of really good news for the autumn. Sky News has expanded Jeff Randall Live to one whole hour. It's now on at 7pm, which means Tyler need never watch the ghastly pontificating Bishop ever again. Last night Randall conducted a lengthy and revealing interview with Iain Duncan Smith. Unlike virtually every other interviewer, he allowed IDS time to explain his programme of welfare reform, he didn't sneer, and he didn't keep interrupting with smart aleck attacks. Required viewing.

Tuesday, September 14, 2010

So What's New?

Didn't we go round these loops before?

After Tyler's disgraceful summer of idling, BOM is finally returning to the air.

So what's new?

Well, there's been much leaking and speculation re the forthcoming public spending review. The public sector unions are threatening a General Strike against job cuts, the police warn that cuts will mean the breakdown of law and order, the Navy and RAF reckon some as yet unidentified foe will roll over us unless we keep their boys' toys nukes and fast jets, and the arts establishment say subsidy cuts will usher in the abyss of a new dark age.

Indeed, according to our friends at the £3.5bn pa tax-funded BBC, we are teetering on the brink of Thatcherite destruction. The Italian hotel telly brought daily BBC World headlines that this or that economic stat was about to turn out much worse than expected (only to report later - much further down the bulletin -that said number had come in freakishly, inexplicably, better than expected).

So just as a sanity check, let's review the Economist's latest summary of consensus world growth projections (click on image to enlarge):

In case you can't read the numbers, for the UK the consensus GDP growth forecast is 1.5% for this year and 1.9% next. Sure, it's not a runaway boom, and sure, it might turn out to be lower than consensus. But a yawning abyss it ain't.

Tyler's specialpleadingometer is registering well into the red zone. The BBC may see the public sector union leaders as champions of civilisation, but those of us who remember the 70s, are thanking God for Thatcher's historic victories over King Arthur and Red Robbo. Today, it's only in cosseted public sector backwaters like the BBC that union barons still hold sway. Union membership across the economy as a whole has halved since the 80s.

The key point here remains just as it was when we left for the hols: public spending has to be cut in order to keep interest rates and taxes down so that the market economy can lift us out of the hole left by Commissar Brown. There really is no sustainable alternative.

But what about unemployment?

Hmm, yes.

The horrible truth is there is something very unfortunate about our economy. Those at the top - the bankers, the lawyers, the consultants etc - can do very well in the big wide world. They have something to sell that commands a nice premium price. But those at the bottom have nothing valuable to sell at all. Their poor skills command no premium, and their poor attitude means the low-skill jobs are all taken by Romanian migrants.

It's a serious problem to which there are really only two possible solutions.

The first is to tax our successful workers to support those left behind. The trouble is that's not very appealing if you're one of the successful workers already shelling out zillions in tax and wondering if you should relocate to Hong Kong.

The alternative is to somehow get the unsuccessful to work. And that means making it attractive for someone to employ them  - ie cutting employment taxes, cutting welfare for those of working age, and abolishing the minimum wage.

You know, I have the strangest feeling we might have covered this ground before.

Despite our prolonged break, it already feels like there's nothing new at all.