Saturday, March 30, 2013

Facing Down The Unions

Impartial BBC journos off-duty

It's just like old times. The teachers are going on strike, the Post Office workers are going on strike, and even those most essential of essential workers, the BBC journalists are going on strike. The common theme? They're all employed by the public sector.

As you know, the public sector is the last bastion of British trade unionism: 60% of today's union members are employed in the sector, even though it contains only one-fifth of the workforce. And these unions will strike at the drop of a hat - even while Blair's government was busy ramping up their members' pay. 

Here's the latest version of a chart we've posted before. It shows the number of days lost to industrial action annually in the public and private sectors (the figures are rolling three year averages):

In the private sector, the number of days lost annually has fallen to around 100,000 pa, or roughly 0.004 days per employee. However, in the public sector it's running at 20 times that rate. Moreover, while private sector employees have stoically swallowed pay freezes and tougher working conditions since the Crash, public sector unions seem to think their members are entitled to same rewards as during the time of plenty. There is no acceptance that the world has changed, and hence this fresh wave of strikes.

Of course, the Coalition did impose that two year pay freeze, but as we blogged here, in reality that turned out to be a freeze in name only. Depending on how you measure it, pay increased by between 5 and 10% over the two years, and it's still increasing. Moreover, public employees are already paid getting on for 10% more than their private sector equivalents, on top of which they get those famous index-linked pensions that are simply not available elsewhere. As we estimated in the BOM book, the total reward gap could be as much as 30 to 40%. Even after recent pension reforms kick-in, it will still be well North of 20%. 

But credit where credit's due: the Coalition are certainly having a go at addressing the issue. They have reformed the public sector pension schemes to make them less generous, and although there's more to do, over time their reforms will save taxpayers some serious cash. 

And they are now tackling the issue of progression pay - the automatic annual pay increments received by a substantial proportion of public employees. Virtually unknown in the private sector, incremental scales deliver year-on-year pay rises irrespective of freezes or indeed individual performance. George says:
"We will seek substantial savings from what is called progression pay. These are the annual increases in the pay of some parts of the public sector. I think they are difficult to justify when others in the public sector, and millions more in the private sector, have seen pay frozen or even cut."
Quite right George (and yes, we do realise Chancellors have never enjoyed such increments, and you haven't had a pay rise for three years).

But it's going to be a helluva battle, with the teaching unions already launching an all-out assault on the Gove Line. The Association of Teachers and Lecturers passed a vote of no confidence in him and his Chief Inspector earlier this week, and the NUT is following suit. A protracted series of strikes looks well on the cards.

The Coalition must stay strong on this. Closing the public sector pay and pensions gap will ultimately save taxpayers at least £25bn pa. And although it will obviously be painful for public sector employees, they should understand it's a lot less painful than the Irish solution. There, public employees had to accept pay cuts averaging 15%.

PS Did anyone miss the BBC journos who went on strike last week? It should have encouraged more people to try out Sky News, and I suspect a good proportion will not return. A few more outages like that and even Mr Cam might start thinking about break-up and sale. Let's hope so. 

Thursday, March 28, 2013

Problems With The Roller

This may never turn into a Rolls Royce

Now don't laugh, but there used to be a theory that the Civil Service was a finely tuned Rolls Royce. Ministers had only to point it in their chosen direction, settle back in the plush leather seats, and leave the purring giant to convey them effortlessly down the road.

Of course, it was never actually like that in practice, but for politicians keen on expanding the scope and reach of government it was a useful and comforting myth. Attlee's New Jerusalem government reckoned Civil Servants were capable of managing everything from the commanding heights of the economy right through to the allocation of bedpans in their newly nationalised health service. Wilson's government pushed up the proportion of our economy under Whitehall management from 35% to 45%. And we all know what the Blair/Brown government did.

But if your base your approach on a myth you end up with a disaster. And far from settling back in the Connolly leather, ministers spend most of their time flat on their backs under the car wrestling with the transmission.

And this week we've got two very good examples.

First, the latest attempt by a Health Secretary to stop the dysfunctional NHS killing so many of us. The bureaucrats at the Department of Health having failed to come up with anything other than more paperwork, Jeremy Hunt is issuing his own Orders of the Day.

Order Number One. All hospitals and care homes will be officially rated by a the new Chief Inspector of Hospitals.

Order Number Two. Any state healthcare operative who fails to freely confess his own shortcomings will be shot. Well, maybe not shot exactly... but their employing organisation will be given a jolly good talking to.

Order Number Three. Before they qualify, all student nurses must spend a year... well, let's say "up to a year", actually doing some nursing with real patients.

Mmmm... no matter who's sitting in the big leather chair, the NHS just goes on fighting the Battle of Stalingrad. As we've blogged many times (eg here and here), running a huge organisation through top-down orders and fear may have worked for Stalin in 1942, but he wasn't trying to save lives (other than his own of course). In the NHS it's been a total flop: successive Health Secretaries have tried it, and it simply doesn't work.

As for the new Chief Inspector of Hospitals, he's only being introduced because Labour's Care Quality Commission has failed. And the Care Quality Commission itself was only introduced because its predecessor, the National Patient Safety Agency, also failed. A government regulator regulating a nationalised industry is always going to be the public sector marking its own homework. And while the Government Inspector may strike fear into the hearts of employees - witness the hatred of Ofsted among many headteachers - that's because the regulator becomes an instrument of Commissariat control rather than an objective assessor of standards.

And who ever thought it was good idea for nurses to qualify without having a hands-on apprenticeship of feeding and washing patients? When my Mum trained as a nurse back in a flagship pre-NHS hospital, one of  her duties was to make sure the patients in her care were eating and drinking properly: years later she still recalled being pulled up by matron for not cutting the crusts off some old boy's sandwiches. It was the Department of Health - miles away from the sharp-end of patient care - that later ruled that wasn't part of a nurse's duties.

Meanwhile our energetic Home Secretary has announced that she's breaking up Labour's useless £1.6bn pa UK Border Agency. The UKBA has become a byword for ineptitude, with among other things, an immigration case backlog well in excess of 300,000 cases.

According to Mrs May, creating this gigantic immigration super-quango may have looked neat on paper but in practice it was disastrous :
"First, the sheer size of the Agency means it has conflicting cultures, and all too often focuses on the crisis in hand at the expense of other important work. Second...UKBA was given agency status in order to keep its work at an arm’s length from ministers. That was wrong. It created a closed, secretive and defensive culture. The new entities will not have agency status and will sit in the Home Office, reporting to ministers."
This echoes two points we've long made on BOM - one, that bigger is almost always worse, and two, that delegating power to arms length quangos means rule by bodies unaccountable to anyone, let alone us poor schmucks out here paying for it all.

So good for Mrs May.

But not so good for Mr Hunt.

Because although both of them are attempting to fix the broken old jalopy of of Civil Service management, Mr Hunt ought to be trading it in for a superior model.

With border control Mrs May has little choice but to somehow get her Civil Servants working better: protecting our borders is an essential function of government, and she can't turn it over to others. She has to make it work, however hard that is.

But healthcare is something else entirely. It's not an essential function of government, and Hunt should be learning from the workings of superior systems elsewhere. The European Social Insurance systems put customers in charge via their freedom to choose between competing providers. In all likelihood their Civil Servants are no better than ours at running things, but it doesn't matter because they're not required to do so.

Unless we can shrink government back to its core functions we will never enjoy the standards of service we're already paying for. No matter how hard ministers may try, you simply can't build a Rolls Royce from the bits off an old Austin Allegro.

Monday, March 25, 2013

Plan B Kicks Off

Get used to this

So here we are with a government spending far more than it can raise in revenue, building up a catastrophic pile of debt, and facing an election in just two years time. Spending cuts are needed to balance the books, but more cuts this close to an election just ain't gonna happen. What on earth can be done? George is prepping Plan B.

George's Plan A is to pray for growth, and in both the 80s and 90s it was a resurgence of growth that came to the fiscal rescue. Unfortunately, with debt overhangs and busted banks all around us, we're now in a much more difficult position than we were back then. The growth rescue looks to be way off, and George knows it.

Which is why he's now busily working on Plan B. It's the traditional plan for over-borrowed governments everywhere, and its ingredients are as follows:
  1. Engineer higher inflation by printing money - in an open economy like the UK it's quite easy because currency depreciation soon gets prices moving up.
  2. Fail to index tax thresholds in line with higher prices - that boosts income tax revenues as earnings respond to higher prices (aka fiscal drag), adding to the higher revenues flowing from VAT. 
  3. Limit spending in cash terms- hold spending departments to strict cash limits.
Over the last several months, George has taken action on all three components.

First, he confirmed in the Budget that under his new flexible friend Governor, the Bank of England will no longer be restricted to a 2% inflation target. In future, it will be allowed to set itself "intermediate thresholds", such as keeping "interest rates low while unemployment is high, provided inflation is not expected to rise too much". How much inflation is too much? That's for him and the Governor to choose, and you to fret about as you watch your savings disappear down the plughole.

Second, he's increasing the higher rate income tax threshold by only one percent a year, even though inflation is running much higher. The £150,000 threshold at which the top rate of income tax applies is frozen altogether, as is the £100,000 threshold above which the personal allowance starts being clawed back. The higher is inflation, the more harshly these measures will bite, with around half a million additional taxpayers being dragged into higher rate tax over the next two years. Similarly, the threshold for Inheritance Tax has been frozen at £325,000 since 2009.

Third, he announced in the Budget a huge increase in the scope of departmental cash limits. He said:
"The public spending framework introduced by the previous government divided government spending into two halves: fixed departmental budgets and what is called Annually Managed Expenditure. Except in practice it was annually unmanaged expenditure – and it includes almost the entire welfare budget as well as items like debt interest and payments to the EU.  
We will now introduce a new limit on a significant proportion of Annually Managed Expenditure. It will be set out in a way that allows the automatic stabilisers to operate – but will bring real control to areas of public spending that had been out of control."
Exactly how it's going to work is unknown, but the intention is clear enough. And it promises a revolution in the way that welfare spending is controlled. Because instead of pre-committing to pay whatever bill the agreed rates of welfare benefit generate, he's saying the total amount will be cash limited. Benefit rates and entitlement rules will have to be flexed to fit within a cash ceiling, and that will have to include upratings to cover inflation.

As for debt, higher inflation will obviously erode the real value of government obligations fixed in cash terms, notably its issues of so-called conventional gilts. True, its index-linked gilts will have to be adjusted in line with the higher inflation, but since they only comprise one-quarter of total gilt issues, the Chancellor comes out well ahead.

Of course, there is a serious risk that what he gains on the debt erosion swings he will lose on the debt interest roundabouts. If the markets lose confidence, as they did when a similar scam was tried back in the 1970s, interest rates on new gilt issues will shoot up and debt servicing costs will take off. Even so, because the existing stock of debt has such a long average maturity, it will take a couple of decades before the full impact is felt.

So that's Plan B. And it's worth noting what the world's most successful central bank ever has to say about it:
"Government debt fosters the risk of inflation. Central banks, too, are usually exposed to the strong pressure that burdens states with high levels of debt. This is because the higher the pressure on the government to get the public debt under control, the greater is the temptation to exert pressure on the central bank to lower interest rates via monetary policy measures... 
If, in order to safeguard its solvency, the government pressures the central bank to set a lower interest rate than is compatible with price stability, demand increases too quickly, and this ultimately leads to higher inflation. In this case economists speak of a regime of fiscal dominance: interest rates are no longer set according to the requirements of price stability but instead are dictated by the state’s need to reduce its financing costs. 
Measures taken by central banks in the past, under the influence or control of the state, to lower interest costs or to reduce the overall debt burden, have ranged from straightforward interest rate reductions to purchasing government bonds in secondary markets and to direct monetisation of government debt.  
To be able to resist this political pressure, central banks have traditionally been granted a high degree of independence. This was, among other things, a response to the experiences of the 1970s and 1980s. This era of oil price shocks posed a major challenge to monetary policy-makers. It became apparent that countries with independent central banks had much lower inflation rates – and similar or even higher growth – than countries whose central bank was answerable to the government.  
Central bank independence is therefore essential to inspire confidence that the central bank will keep inflation low. However, a high government debt burden can generate doubts about its actual independence and undermine its credibility, even if it has not actually changed its monetary policy course. Once doubts arise about of the monetary policymakers’ capability to defend their independence against political interference, they risk losing control of inflation expectations and thus over inflation itself."
That's the Deutsche Bundesbank speaking - the rock-solid guardian of German economic stability right up to   when the Germans were bounced into the Euro.

My advice? Get down to the building society, draw out all your cash, and get yourself some of these:

Yes, I know - easier said than done. Personally I'm going to contact the Major's old mucker Mr Gomulka who apparently has a lock-up full of them.

Saturday, March 23, 2013

Another Slice Of Salami Sir?

Glad someone's enjoying this

Long-time readers will know that the 2012 Olympics smashed the world record for salami slicing (see all 2012 posts gathered here).

The first slice - served up when we originally pitched for the thing - was a mere £2.375bn. But after landing the gig, the cost suddenly ramped up to £9.3bn, a fourfold increase. We later discovered the original costing had been cobbled together during a late night Withnail drinking contest down The Stoat and Weasel, but the process bore all the classic grease-marks of ripe salami. That's where project costs are deliberately low-balled so as not to scare taxpayers. One international study found that 90% of such projects overrun their initial budgets:
'The study concluded that lying, or intentional deception, by public officials was the source of the problem: “Project promoters routinely ignore, hide, or otherwise leave out important project costs and risks in order to make total costs appear low.” Politicians use “salami tactics” whereby costs are only revealed to taxpayers one slice at a time in the hope that the project is too far along when true costs are revealed to turn back.'
And in the case of the Olympics, the slices are still being piled on our plate months after the wretched thing ended. So yesterday we learned that taxpayers are being forced to shell out another £150bn - £190bn to convert the white elephant Olympic Stadium into a football ground for West Ham. Well, OK, £15m of that will come form West Ham, but for that we're giving them a £600m+ stadium.

It really does make you want to spit, even if Boris reckons it's the best deal available in the circs. Because if the arrogant Tessers originally in charge of the project had ensured the stadium could be used for football, we wouldn't now need to swallow this additional slice. Even a non-sporty potato like me understands that football is the only sport that could sustain such a monster, yet that point was clearly beyond Her Ladyship Tessa J. Even though her own Sports Minister says he explained it to her:
"The mistake was made in 2006/7 when they ruled football out of a retro-fit design as we had done successfully in Manchester with the Commonwealth Games stadium. I suggested retractable seating like the Stade de France in Paris but they insisted it should be a 25,000-seat athletics stadium. Time and again mistakes are made with Olympic Stadiums and the lessons should be learned for any future similar projects."
Lessons being learned for the future.

If our high spending politicos could learn lessons for the future, I doubt I'd be writing this blog. Value for our money never trumps political grandstanding, and grandiose projects like the Olympics offer the most imposing grandstands of all.

Friday, March 22, 2013

The Overspend Gets Bigger

See you at the airport

So what do we make of the budget?

Given his starting point, George did a reasonable juggling job, and managed to sound as if he's serious about getting the economy moving again. His moves on company taxation and fuel duty are welcome, if relatively small... er... beer. His fresh attempt to inject life into the housing market is also potentially helpful, although we need to see more detail before we can be sure it won't simply re-inflate the property bubble and/or expose taxpayers to a huge Freddie and Fannie style default crisis. 

However, looking at the big picture, he failed once again to tackle the rampaging elephant that's still smashing up the fiscal room. That is, he did nothing to bring government spending back down into line with sustainable tax revenues.

Yesterday I took part in a TPA/IEA panel discussion on the budget, and the excessive level of public spending was by far the main concern for both panellists and audience. Unfortunately, nobody could see the current government gripping it this side of the 2015 election, and a Miliband government - with or without the Lib Dems - won't even try. 

By the end of the session I was ready to book a one-way ticket to... well, to where exactly? Cyprus would now appear to be out, and Mrs D's arachnophobia rules out the more exotic destinations. Must get back to researching it.

The following is a summary of my own presentation (some bits are updates of recent blog posts, and I'm afraid there are quite a lot of numbers).

As the Chancellor highlighted in his speech, government departments have been significantly underspending against their original budget allocations. The underspend for 2012-13 is now put at £11 billion, an unprecedented shortfall which has narrowly prevented this year's borrowing increasing above last year's (£120.9bn vs £121.0bn). However, of much more significance is the continuing overspend against the government's revenue base, a problem he did not address in the budget.

The Coalition's first budget in June 2010 set out a path for public spending that saw it rise from £669bn in 2009-10 to £757bn in 2015-16, an increase of 13%. Given the urgent need for fiscal consolidation, many commentators - including the TPA - thought that not nearly tough enough. However, it was justified on the basis that economic recovery would boost revenues and close the deficit, just as it had done after the recessions of the early 1980s and 1990s.

Unfortunately, that hasn't happened. Growth has been feeble, and the economy is now (2012-13) 4% smaller than it was forecast to be back in 2010. Worse, according to the OBR's latest forecasts, the shortfall is expected to go on getting bigger, reaching 7% in real terms, and 9% in cash terms, by 2015-16. Over the whole of this Parliament (2010-11 to 2015-16), the OBR now reckons the economy will grow by just 6%, compared to its June 2010 forecast of 14%.

Relative to our economy and its capacity to bear taxation, government overspending is even worse than it appeared in June 2010.

Spending still planned to increase

The following chart shows spending in cash terms (Total Managed Expenditure - TME) since the start of Labour's reckless spending surge. As we know, that surge more than doubled spending in cash terms and even in real terms increased it by one-half. From 2009-10, it compares three plans:
  • Labour's final plan
  • The Coalition's first plan - June 2010
  • The Coalition's latest plan - March 2013 

Key points to note:
  • All three plans incorporate a sharp slow-down in growth from the surge years, but there's not a huge difference between them. 
  • Spending in 2013-14 is now planned to be £720bn - almost exactly in line with the £722bn "spending envelope" set out in June 2010. Which in the narrow terms of public spending control is pretty precise management, and much better than most previous governments have managed.
  • However...
...because economic growth and revenue have both fallen well below what had been expected, as a percentage of GDP spending has turned out higher than planned, and revenue much lower. Spending is now running at 45% of GDP, a mere two percentage points lower than what the Coalition inherited back in 2010. Revenue will once again fall well short of spending, at 38% of GDP, leaving government borrowing an unsustainable 7%.

Spending already far too high

The following chart puts the budget spending and revenue forecasts into context, again showing the entire period from 2000-01 through to 2017-18. The gap between the two lines represents government borrowing.

Key points to note:

  • Since the privatisation of Britain's big nationalised industries (which removed a large chunk of trading profits from public sector revenues), no government has managed to raise revenues of more than about 38% of GDP: that seems to be the limit on what is politically acceptable and economically sustainable. 
  • The public spending envelope remains substantially oversized relative to sustainable revenue. 
  • The projected convergence of spending and revenue over the next five years depends crucially on the OBR's growth forecast being realised. 

The OBR is forecasting average growth over the next five years of 2.1% pa. Given recent growth performance, the continuing problems in Europe, our broken banks, and high energy prices, that may well turn out to be optimistic. If so, the convergence of spending and revenue may not happen at all.

Return to the 70s? 

For example, if instead of 2.1% pa growth, we get a prolonged period of 0.5% pa 1970s style growth, the gap remains stuck at 7% of GDP*. All of which will have to be borrowed.

In its first three years the Coalition has already increased the official government debt (PSND) by well over £400bn. By 2017-18, even on the OBR's forecasts, their increase will be nearly £900bn - more than doubling the debt total they inherited. And the official debt is only one small part of the government's overall liabilities.

Debt piled on debt

According the Office for National Statistics, the government's overall liabilities amount to well over £7 trillion, equivalent to five times GDP. The following chart shows the main components:

Interest on the official national debt is currently running just under £50bn pa. The OBR now forecasts it will increase to over £70bn by 2017-18. 

However, all of the government's liabilities require servicing, and if we add in those public and state pensions payments, along with PFI payments, total debt servicing is already running at £170bn pa, and is set to increase to £220bn by 2017-18. 

That means that by 2017-18, over 30% of government revenues will be earmarked to service past liabilities rather than to pay for current services.

Public spending that doesn't add up

With an increasingly large chunk of public spending earmarked for debt servicing, and NHS, Schools, and Aid spending protected inside their preposterous ring-fence, only around one-third of the spending is available for cuts. Nobody has a clue how that can be done inside George's existing spending envelope, including George himself. 

If we don't get a big shot of growth soon, we are facing a massive spending crunch. Forget public sector pay and benefit freezes: we are talking Irish-style 15% across the board cuts for everything. 

*Note I have calculated the impact of lower growth on the public finances using the OBR's own ready reckoner. It's almost identical to the old Treasury rule of thumb blogged here, and it says that a one percentage point shortfall in GDP raises public sector borrowing by 0.7% of GDP after two years. That comprises 0.5 percentage points on the spending ratio, and 0.2 percentage points off the revenue ratio.

Tuesday, March 19, 2013

The Spending Problem

It's almost certain that tomorrow's budget projections will incorporate yet another downgrade to growth expectations. Which means that the current plans for public spending have become even less affordable.

Since George's' first budget in June 2010, the Office for Budget Responsibility (OBR) has downgraded its growth forecasts almost every time it's opened its mouth. For 2015-16 - the last year of the current Parliament - it originally forecast GDP would be £1902bn. By last December, it had cut that to £1763bn, a reduction of over 7%. Some of that is accounted for by lower projected inflation (amazingly), but most reflects a real terms GDP reduction of 6%.

So by 2015-16 our national income will be 6% less than George expected back in June 2010. Yet far from trimming his spending budget, he's still planning to spend almost as much.

Back in June 2010, spending in 2015-16 was projected to be £757bn (Total Managed Expenditure - TME). So if he'd cut his cloth in line with the poorer outlook for national income, he should now be planning of spending closer to £700bn. Instead of which, spending is actually projected at £745bn.

Here's a chart of successive spending projections (TME). The top line is Labour's final effort (projection out to 2014-15), the others are successive coalition plans:

As we can see, the June 2010 budget cut Labour's planned 2014-15 spending by 5% in cash terms. And as we can also see, the latest coalition plans have cut it a little further (by about one percent). That's all to the good, but the problem is that with the outlook for GDP so much worse than George initially thought, it needs to go further.

When the coalition took over, public spending was running at 47% of GDP. That was far higher than government revenues at 37%, and wholly unsustainable: as ministers kept telling us, it meant government was borrowing one pound in every four it spent. The plan was to get public spending down under 40% of GDP by 2015-16, and to increase revenues to 39%. Which they reckoned would leave borrowing at a comfortable level.

Unfortunately, things haven't panned out like that. With weaker growth, revenue is falling short and borrowing is significantly overshooting.

Of course, there are plenty of people who say we could solve the problem without further spending cuts. For example, we could tax the rich: except as we've blogged many times, there aren't enough of them. Moreover,  we should note that no government in at least the last 50 years has ever managed to raise much more than about 38% of GDP in tax revenues - that seems to be the limit of acceptability and/or practicality (see BOM book).

Or maybe we could borrow more. Except with inflation a looming problem, and Sterling subject to attacks of the vapours, those fickle bond and currency investors could well take it the wrong way. Especially when we understand that the only reason the coalition's spending totals have stayed within their initial projection is that debt interest has so far been lower than forecast (saving an expected £9bn next year alone). We really cannot afford to upset the gnomes of Zurich, or anywhere else.

But surely, you say, once the economy recovers back to full strength, revenue will rise and these problems will take care of themselves.

Yes, if only.

The problem is that we can't be at all sure what full strength means any more. Back in 2008 the economy suffered a heart attack, and although the jump leads got it back upright again, it's still hobbling around and avoiding strenuous exercise. It may no longer be capable of scaling the peaks it sprinted up during its Ben Johnson years of unlimited debt steroids.

The OBR tries to work out if and how quickly we can expect a full recovery, by assessing potential output both now and in the future. But it's the first the recognise the problems:
"The amount of spare capacity in the economy (the ‘output gap’) and the growth rate of potential output are key judgements in our forecast. Together, they determine the scope for actual growth as activity returns to a level consistent with maintaining stable inflation in the long term. The size of the output gap also determines how much of the fiscal deficit at any given time is cyclical and how much is structural. In other words, how much will disappear automatically, as the recovery boosts revenues and reduces spending, and how much will be left when economic activity has returned to its full potential. The narrower the output gap, the larger the proportion of the deficit that is structural, and the less margin the Government will have against its fiscal mandate, which is set in structural terms... 
But neither the level of potential, nor the pace of recovery, are possible to estimate with confidence, not least because the former is not a variable that we can observe directly in the economic data."
Here's its summary table on potential output growth:

Many people (probably including the OBR) wonder if they are being too optimistic on these key judgements. For example, it assumes that the potential growth of labour productivity in the future will be 1.9% pa, whereas the average growth over the last 15 years is only 1.4% - and since 2008 it's actually fallen.

The horrible reality is that the economy now looks a lot weaker than when the coalition came to power. And with a weakened poorer economy we cannot afford to maintain their initial spending plans. GDP is going to be much lower than he assumed then, but he hasn't cut his spending plans. George needs to recognise that tomorrow and tell us how he's going to address the problem.

Sunday, March 17, 2013

Our Scary NHS - 3

Maybe he should have a crack at the NHS

According to government health adviser Professor Sir Brian Jarman, ministers and officials could have saved at least 20,000 lives had they listened to his warnings over dangerous NHS hospitals.

Jarman is the co-founder of the Dr Foster company, which provides comparative information on health and social care services. Among other things it produces statistics on hospital mortality rates (Hospital Standardised Mortality Ratios - HSMR) that flag up hospitals with significantly higher levels of mortality than the average. Jarman says their stats identified the problem at mid-Staffs long before any official action was taken, and similar issues at other hospitals now finally being reviewed by the government. He says:
“Those hospitals which had persistently high death rates over all those years and have now been listed for investigation should have been investigated earlier, because it’s quite possible we would have had fewer deaths in those hospitals... [there] must be at least tens of thousands of avoidable deaths in those hospitals alone, when we should have been going in and we should have been looking at them”.
In just the 14 hospital trusts* now being reviewed by the government, he reckons excess deaths number "a bit over 20,000".

This is bad enough. But even worse is the fact that even when Jarman flagged up his concerns directly to Labour Health Secretary Andy Burnham, nothing was done. In March 2010 he sent Burnham a list of hospitals with significantly high death rates and nothing happened. Nothing.

It's not hard to see why. Because March 2010 was just two months before the last election. No way would Burnham - or any other Health Secretary - have wanted that blowing up during the campaign. With politicians at the controls, patient safety must always come second to political imperatives.

Not that Burnham ignored Jarman outright. According to Burnham's own account, he referred the matter to the Care Quality Commission, who "did not find that there was anything to worry them". Further, Jarman's HSMR data was "new" and "the government could not put it's full weight behind it".

Hmm. Here we have an officer of the state, warned that his state owned industry is going seriously off the rails, and relying on his own state commission and own state statistics to check it out. Does that sound like a recipe for customer safety?

Now, nobody's saying Burnham's a bad man. True, he's a politician, but just like every other Health Secretary in living memory he found it impossible to manage our huge NHS to deliver as he (and his customers) would have wished. He found himself as one against one-and-a-half million staff, staff who know far more about their business than he could ever hope to find out. And if his managers choose to tell him there's nothing to worry about, how can he possibly hope to find out what's actually going on down at ward level? As always, information is power.

Which is why the current Health Secretary, Jeremy Hunt, is now making it a criminal offence to fiddle NHS stats. In future, anyone cooking the figures for hospital mortality, or waiting lists, or anything else in the NHS, will face a jail sentence and their employing trusts will be fined millions. Hunt says:
“This is about a transparent, honest and accountable NHS. Patients and the public should be confident that they can trust information about how hospitals are performing, and a culture of honesty and accuracy will help those organisations drive up standards of care."
A new culture, yes, that's what we need all right. But can criminal sanctions deliver it? Out East, they have plenty of criminal sanctions to support the right culture - and we're talking sanctions that are a tad more bracing than three months in Ford Open Prison. Yet their new management team inherits a state behemoth with all the NHS problems plus a few more besides.
"President Xi Jinping told the nearly 3,000 delegates gathered at Beijing’s hulking Great Hall of the People that his government would “resolutely reject formalism, bureaucratism, hedonism and extravagance, and resolutely fight against corruption and other misconduct in all manifestations.” Shortly afterward, freshly appointed Premier Li Keqiang said the central government would slash its payroll and freeze spending on overseas trips, guest houses, office buildings and new vehicles in response to falling revenues. “The central government will lead by example and all local governments must follow suit.”
Formalism, bureaucratism, hedonism, extravagance, corruption, and other misconduct in all manifestations. Well, maybe the NHS hasn't quite ticked all of those boxes yet, but on my count it's done at least four out of six.

Good luck to the reformers, both out East and here in the NHS. But meaningful reform in big organisations whose customers have no choice is next to impossible.

*Just so you know, here are the 14 hospital trusts now under review for having significantly higher than average death rates:

Saturday, March 16, 2013

How Big's The Deficit?

Rather bigger than we're led to believe

Dave and George have long boasted about cutting the deficit by a quarter. And if you look at the official numbers, they're right: over their first two years (2009-10 to 2011-12), Public Sector Net Borrowing fell from £159bn to £121bn, equals 24%.

But as you may have seen elsewhere, everybody's authoritative fiscal expert - the Institute of Fiscal Studies (IFS) - now reckons there's a greater than 50% chance that borrowing will go back up again this year. So despite the boasts, and despite all that "austerity" the BBC keeps banging on about, borrowing is actually going up.

Well, when we say borrowing's going up, what we mean  is that it's going up if we strip out a couple of fiddles George has inserted to make sure that the headline total goes down.

Fiddle 1: This year's investment spending total has been artificially reduced by netting off £28bn of investment assets transferred in from the Post Office pension fund. That transfer arises from the government's decision to take direct responsibility for paying retired postman their pensions, so it is very far from being free money. It is a one-off receipt against which taxpayers are now on the hook for a liability well in excess of £28bn. Yes, it's another one of those off-balance sheet jobs that G Brown used to do so well.

Fiddle 2: Government income has been artificially increased by taking into the Treasury's coffers the interest receipts earned by the Bank of England from its Quantitative Easing (QE) programme. As you know,  the Bank has bought £375bn of interest earning assets (mainly government gilts), and had been keeping the income in its own accounts. Now George is taking it, which will cut borrowing by an estimated £6.4bn this year. And yes, that's another stroke that reduces borrowing today, but increases it tomorrow - almost certainly by a lot more than today's reduction.

In fact, the QE programme could end up costing taxpayers quite a lot. Because at some stage, the Bank will have to put the programme into reverse, selling all those gilts it has been buying since 2009. If gilt prices have fallen by then, it will make a capital loss. And gilt prices are highly likely to have fallen because there will be a major seller in the market (ie the Bank), which had previously been a major buyer: instead of propping up prices, the Bank will be undermining them. True, the Bank itself currently reckons the price falls will not be sufficient to wipe out the gains previously made. But in reality, by the time of the sales, inflation is likely to be a whole lot higher than now. Which means interest rates will have ramped up, gilt prices will have crashed, and taxpayers will be on the hook for tens of billions of losses.

Stripping out these fiddles, the IFS reckons that government borrowing is set to increase from £121.4 billion in 2011–12 to £125.4 billion in 2012–13 (or from 7.9% to 8.0% of national income).

As for government debt, during those 13 years of Labour profligacy, the official national debt increased by just over £400bn. Under the Coalition, in just 5 years, debt is projected to increase by around £600bn. Absolutely effin' brilliant.

Of course, there are plenty of people who will tell you we needn't worry about high government borrowing or mounting debt. We're in the middle of the biggest recession since the 30s, and government needs to keep up spending to get us through. Government borrowing may be high in the short-term, but once the economy recovers, tax revenues will come pouring in, spending can be throttled back, and the government finances will be back in the black. So stop worrying!

Sounds great, but how can we be sure the economy will recover enough to do that? If the economy doesn't recover, then tax revenues won't come pouring in, and we won't be able to throttle back on spending. We'll just go on building up a bigger and bigger national debt, until something goes bang. And we most assuredly wouldn't enjoy that.

Economists attempt to get a handle on this by distinguishing between the government's actual budget deficit and what's known as its structural deficit. And indeed, George's main fiscal rule is to eliminate the structural deficit on current spending by five years in the future.

The idea is that the year to year deficit is driven in large part by the temporary effects of the economic cycle, and to get a proper fix on its underlying fiscal position we need to strip out those effects, which will correct themselves as the cycle reverses. That is, as we enter the upswing, tax revenues will automatically grow, and social security spending will automatically fall (the famous automatic stabilisers).

Last December the Office for Budget Responsibility (OBR) estimated that public sector borrowing next year (2013-14) will be about £100bn. And of that £100bn, getting on for £40bn will be temporary cyclical borrowing, the stuff we don't need to worry about.

So straight away we can see that £60bn is not temporary. And of that, well over half is current spending (ie it's not investment). Which is spending we need to rein in soonest.

Moreover, although in theory it's easy to distinguish between the structural and the cyclical components of the deficit, in practice, it's very hard. Nobody actually knows how much of our current economic weakness can be put down to temporary factors, and how much represents a permanent state of affairs. Nobody knows how much of the downturn is cyclical and will reverse, and how much is a loss of all that frothy unsustainable business that built up during the Brown bubble.

The cyclical shortfall between the actual level of output in the economy and potential output is known as the output gap. For 2012, the OBR estimated that the gap was about 3%. However, outside analysts reckoned it could be anywhere between 1% and 5%:

Without going into all the arithmetic, that range of opinion on the output gap translates into a range of opinion on next year's structural deficit running from £40bn up to £90bn. At the high end, that implies that nearly all of next year's deficit will be permanent: it will not automatically disappear as the economy recovers back to its full potential output.

So where's borrowing now?

We'll get the latest detail in George's budget next week, but net of fiddles, it looks very much like it's increasing. It's likely to be higher this year than last, and looking forward, those so-called automatic cyclical factors may not bring it down nearly as fast as many hope.

Spending cuts, George. More of them, and soon.

Tuesday, March 12, 2013

Staffing Shambles

According to the Managing Director of Manpower, the recruitment agency:
"We've noticed that a number of public sector organisations have begun recruiting again with renewed vigour... in their efforts to implement budget cuts there has been a degree of over-firing. We've seen the number of people leaving public sector employment slow as they reach the minimum they need to provide services, while some have gone too far and they need to begin re-hiring."
Yes, that's right: the public sector is now trying to replace staff it only just fired. And it's doubtless paying organisations like Manpower a big fat fee along the way, having already doled out who knows how much in redundancy payments.

The big picture is that public sector employment has fallen by about 600,000 from its peak under Labour. That's a headcount reduction of around 10%, and although the cut in full-time equivalents is less (around 400,000), that seems like a pretty impressive response to the fiscal squeeze. Maybe George is going to do it after all. But not if the reductions are now being reversed.

The public sector has a long and sorry history of cutting the wrong jobs, and then having to shell out even more to fill the gaps.

In some cases, that means bringing in temps who are much more costly than directly employed staff, even though they are often the very same people who've previously been employed by the public sector. For example, back in 2006 it emerged that the NHS was spending nearly a billion a year on agency nursing staff to cover for a shortage of permanent nurses (see this blog).

Even worse, we've seen innumerable cases over the years of staff being made expensively redundant only to be rehired back into the very same organisations. Take this story from last year:
"MORE than £3 million was paid out in redundancy packages to 171 council workers – only for them to return to work for the same authority in new jobs. Staffordshire County Council ran up the bill over the past three years, paying off staff who had lost their posts. But the same employees were later rehired to fill new roles at the local authority. 
The details have emerged after The Sentinel revealed neighbouring Stoke-on-Trent City Council had shelled out £330,603 in redundancy payouts to 25 workers, only to re-employ them. One person was taken back on the council's books just 27 days later."
A big problem here is that public sector management fights shy of deciding who specifically is going to lose his job. Making people compulsorily redundant is never pleasant (trust me, I know), and it's much easier to offer voluntary redundancy or early retirement packages. Unfortunately, what then happens is that it's often the people you don't want to lose who take the money and go. The people you would quite like to leave - maybe the ones doing the least productive jobs - tend to stay, sensing perhaps that they'll be lucky to find a comparable job elsewhere. And according to the man from Manpower, that's certainly happened here:
"In central government there has been a reliance on voluntary redundancies. This allows some people in key roles to leave, creating gaps that need to be filled at a later date. Some of the hiring over the next few months will be re-hiring to fill these gaps."
Well, isn't that great. In the private sector, managers cannot afford to wimp out of making tough decisions on who goes and who stays. But public sector managers leave the choice to their staff, with the costly consequence we now see.

What this reflects of course, is a much broader management failing right across the public sector: its chronic inability to connect up resources and delivery. Or as the Public Accounts Committee put it last year:
"Most departments cannot link costs to outputs to identify the consequences of changes in spending. This lack of basic management information is a serious impediment to making sustainable cost reductions that minimise the impact on frontline services. An understanding of how spending relates to key outputs is a necessary prerequisite of good decision-making and is essential if departments are to understand the impact of changes in spending."
Organisations that cut staff and spending without having a clue how that will affect the services they deliver are organisations that need to go out of business. But while the public sector still has a monopoly on our vital services that isn't an option. Break it up, bring choice and competition to bear, and force managers to think about efficient service delivery rather than blind cost cutting.

Monday, March 11, 2013

Every Little Bit Helps... But It's Not Enough

Today's IEA speech by Doc Fox was a sharp reminder of how far we have strayed from the paths of fiscal righteousness. We have overspent, over-borrowed, and overtaxed. We have encouraged welfare dependency, and stifled the economic dynamism that made us rich. We have left undone those things we ought to have done, and done those things which we ought not to have done, and there is no health in us.

The question of course, is how do we put it right? And in particular, how do we get government spending down? The Doc makes a number of excellent suggestions, including the abolition of universal welfare benefits, and removal of the protective ring-fence around the NHS and foreign aid. But his big headline idea is a 3 or 5 year freeze on public spending, which he estimates would save us over £300bn.

Which sounds very appealing, but could it work?

A 5 year freeze would lop around £90bn off spending in 2017-18, or about 12% of what's currently planned. It would take spending in real terms back to the level it was in the middle of the last decade - mid-way through Labour's spending splurge. Given all those tens of billions of waste we blog about, that hardly sounds like it would destroy our public services, so maybe it could work.

Well, it could work if it was done right.

The wrong way to do it would be to freeze spending across the board and simply leave public sector bosses to figure out how to make the savings. That's known as "starving the beast", and although it has the attraction of simplicity, past experience tells us that a starved beast is much more likely to deliver waiting lists and terrible services, rather than efficiency and value.

A more promising approach is to cut spending by focusing directly on value-for-money: managing things better and getting more for less. That's the good housekeeping approach of every little bit helps, and it's pretty well what successive governments have been attempting for at least the last forty years.

Take government procurement spending. That's running at well over £200bn annually, and it has long been a target for efficiency savings. It was a major element in Brown's failed Gershon efficiency programme, and one of the Coalition's first acts was to commission retailer Sir Philip Green to identify procurement savings. The idea is that government (aka the Simple Shopper) bumbles around buying the wrong stuff at grossly inflated prices, so there must be huge scope for doing it better. And after his probe, Philip Green reckoned he could save £20bn pa just from central government procurement "without even breaking sweat".

But in practice, delivery of the savings always turns out to be very much more difficult than ministers are led to believe.

For example, the National Audit Office has recently given us an update on the Coalition's attempt to institute a systematic programme of central purchasing for central government departments. Although the"strategy is the most coherent approach to reform to date", the NAO reckons it's only actually saved £426m out of total spending of £45bn - a derisory 1%.

So why's it been so difficult? Because individual spending departments don't want to hand over their purchasing authority to a central agency under the control of the Cabinet Office. And in practice, there are precious few levers to make them do so. As the NAO notes:
"It is a major programme of change for central government, with considerable shifts in behaviour required within departments to ensure it meets its objectives. Its success will depend on full participation among central government bodies, and it is important that the Cabinet Office has in place appropriate governance structures to enable this shift in behaviours."
A shift in behaviours. Yes, that's certainly what's needed. But how do you get it? How do you get central government bureaucrats to prioritise saving money over departmental power? And if it can't even be done within Whitehall itself, how on earth can we expect to do it across the rest of the public sector, such as the NHS and local councils? Because the Coalition's centralised procurement programme only applies to central government departments, which account for less than one-fifth of total public sector procurement.

The reality is that every little bit will help, but to achieve the kind of savings the Doc has in mind will take something far more radical than either starving the beast or good housekeeping. It will take the kind of fundamental reform outlined in the book of BOM: downsize, decentralise, demonopolise, and deuniversalise. To get a real shift in behaviours we have to dismantle our hugely centralised welfare state, and introduce the spur of competition.

We don't suppose that's telling the Doc anything he doesn't already know. But we do wonder about some of his colleagues... well, quite a few of his colleagues actually.

Sunday, March 10, 2013

Recent Bonfires - 90

Spotted recently:

£210,000 to rehouse 18 newts - "Town hall bosses will spend £210,000 of taxpayers' money on two new ponds for just 18 newts. Cheshire East Council agreed the plans yesterday after being told it must create new habitats for a colony of great crested newts that are protected by European law before construction on a £30 million bypass can begin. An environmental survey of the affected area counted just 18 of the rare amphibians spread over a 500m area - putting the cost of the project at £11,666.66p per newt." (Daily Mail 6-3-13)

£1m on golden goodbyes - "Britain's former chief fraud buster Richard Alderman was branded "dilatory, sloppy and slovenly" by MPs yesterday over the way big payoffs to former senior staff were handled... MPs listened aghast as he sought to justify golden goodbyes of around £1m for the Serious Fraud Office's former chief executive Phillippa Williamson, chief capability officer Chris Bailes and head of IT Ian McCall, as well as "exotic" employment packages. These included the £27,600 spent by the agency in one year paying Ms Williamson to travel down from the Lake District, where she worked two days a week, and for hotel stays during the remaining three days in which she worked in London." (Independent 8-3-13)

£6.5bn defence overspend - "The Ministry of Defence has overspent its equipment budget by £6.5bn and some of its major orders are likely to be delivered 39 years late. The 16 most costly projects should have taken 159 years to deliver between them and cost a total of £56.5bn. But the National Audit Office (NAO), in its latest report into the MoD's spending, reveals they are now set to take a total of 195 years and cost £61.1bn." (Sky News 10-1-13)

£16,000 to phone speaking clock - "There was once a saying: 'If you want to know the time, ask a policeman'. But not in Manchester, apparently. New figures have revealed Greater Manchester Police has spent £16,000 of public money on calls to the speaking clock and directory enquiries. The force has notched up the substantial bill since April 2010, which included more than 35,000 calls to either high cost 118 or 123 numbers up to October last year... Last year it was revealed the Metropolitan Police had spent more than £35,000 on 110,000 calls to the Speaking Clock in the previous two years. The force also spent £200,000 calling directory enquiries." (Daily Mail 26-2-13)

£320,306 annual carpark subsidy - "Cardiff council has come under fire for subsidising a loss-making park and ride that loses nearly £30,000 every month. The Pentwyn park and ride off the A48(M) has not made a profit since it was set up in 2009 and now costs taxpayers an effective subsidy of £3.31 for every car that uses it...  Between April 2011 and March 2012 the council made a loss of £302,306." (Wales Online 15-2-13)

Total for week: £6,001,546,306

Friday, March 08, 2013

Terminological Inexactitudes

"As the independent Office for Budget Responsibility has made clear, growth has been depressed by the financial crisis, the problems in the Eurozone, and a 60 per cent rise in oil prices between August 2010 and April 2011. They are absolutely clear that the deficit reduction plan is not responsible. In fact, quite the opposite." 
Oh dear, oh dear, oh dear. Surely someone should have checked the facts before putting that in Mr Cam's speech.

Because now the head of the Office for Budget Responsibility has quite rightly pointed out to the entire world that Mr Cam is seriously misquoting him. Far from saying that the deficit reduction plan is not to blame for weak growth, the OBR actually says that the plan probably cut GDP by 1.4% in 2011-12. Either the PM didn't bother to look at what the OBR had said, or... well... he's tried to get away with an inexactitude.

Of course, that figure of 1.4% is only an estimate, and as the OBR explains, different left and right handed economists have a wide range of opinions as to what the true figure might be. But the key point is that our PM should at least have checked the OBR's view before quoting them as a reference.

In reality, while the financial crisis, the Eurozone crisis, and the oil price hike have severely dented GDP, not many doubt that the deficit reduction plan has also had a depressing effect: spending cuts and tax increases tend to do that. As always with fiscal retrenchment, it's a question of short-term pain against the long-term gain of lower deficits and - in the case of spending cuts - lower taxes.

Ironically, the OBR estimates do support another point that Mr C might have made. And that is that it was Labour's deficit reduction plan - the plan Mr C inherited - that was responsible for the bulk of that 1.4% GDP reduction. Because as the OBR notes:
"Discretionary consolidation between 2009-10 and 2011-12 was planned to be 2.8 per cent of GDP at the time of Labour’s last Budget. The Coalition increased this to 3.7 per cent of GDP in June 2010."
In plain English: 75% of the deficit reduction measures through to 2011-12 were Labour rather than Coalition decisions. Despite what Balls and Millie might inexactitudinally suggest, most of the deficit reduction plan was down to them rather than the evil Tories.

Which just goes to show how very timid Mr Cam has been.

Thursday, March 07, 2013

Walking Out With Tina

"One of the best ways to help hard working families is to cut their taxes. As a low tax conservative I absolutely believe in doing this. That is why we’re already cutting fuel duty and freezing council tax. And from this April, we are delivering the biggest ever increase in the income tax threshold... 
Now, of course, there is a case for going even further – and making even more tax cuts. But the key point is this: you have to be able to fund them... Margaret Thatcher understood that a tax cut paid for by borrowed money is no tax cut at all… …when she said: ‘I’ve not been prepared, ever, to go on with tax reductions if it meant unsound finance’  
Getting taxes down to help hard working people can only be done by taking tough decisions on spending. That is what we are doing in our plan. And this month’s Budget will be about sticking to the course. Because there is no alternative that will secure our country’s future."

Well, she's been away quite a while, but we all remember Tina as a no-nonsense kind of a gal, and if Mr Cam is now walking out with her that's excellent news.

The public finances must add up, and to get sustainably low taxes, public spending needs to be a lot lower than it's been over the last decade. Tina loves that kind of talk. But she'll also be asking how the economy's supposed to get motoring without some serious tax cuts. Monetary policy could hardly be looser, with the currency down 20% over the last five years, but it hasn't done the trick. We surely need more tax cuts.

OK, we'll come back another day to the issue of whether unfunded tax cuts can pay for themselves. At least Tina will agree with Mr Cam that he needs to take those tough decisions on spending. The problem though, is that he hasn't taken enough of them.

As we blogged a few days ago, the cuts so far announced have done little more than scratch the surface of Labour's huge spending surge. Spending continues to grow year by year, and government debt continues to mount, leaving serious tax cuts as jam tomorrow. Even when we adjust for inflation, total spending is only planned to fall by 5% from the level inherited by the Coalition. A big chunk of that reflects the fall in emergency capital spending, and for the rest, much of the detail has yet to be agreed (hence the public arguments between cabinet "colleagues").

Yes, spending cuts are fiendishly difficult to make: wherever the cut falls, somebody will suffer, and sufferers rarely accept their fate quietly. But that's where Tina comes in. Had she been around last year, she'd have insisted on a continued and more effective public pay freeze, and maybe imposed an across-the-board freeze on benefits as well. She'd probably have abolished universal benefits, replacing them with means-tested help for the poorest only. She'd certainly have cut foreign aid, focusing it much more on humanitarian relief rather than all those development projects of dubious use. And then... and then... well, and then what? Cut the NHS budget? Oooh, perhaps not. Cut schools spending? Hmmm... Cut the police and the military even more? Ahhhh....

Difficult, even for Tina. And last time she was around back in the 80s, she didn't get it right.

What happened back then was that our key public services like health and education were starved of funds for over a decade. Public spending wasn't actually cut overall, but budgets failed to keep pace with the growth of demand, most obviously in the health service. The NHS fell ever further behind its European counterparts in the acquisition of new drugs and technology, and the condition of its hospitals. Many tens of thousands of us died from conditions that should have been treatable. Balancing the fiscal books resulted in public services that failed to deliver what we wanted.

Which is why this time Tina must think more radically than just cutting or even starving. She needs to think about restructuring the public sector and the way our public services are delivered.

Because as a recent book has argued, the public sector currently wastes many tens of billions of our cash. If we could make inroads into that, we'd stand a realistic chance of balancing the books without crippling our public services or leaving the poor to starve in the gutter. But to do so we're going to have to take some really tough decisions, decisions that will change the entire public sector landscape. And here are the four key-words for Tina to memorise (in ascending order of ugliness):

  • Downsize - small governments are the most efficient
  • Decentralise - decentralised governments work best
  • Demonopolise - break up public sector monopolies in health and education
  • Deuniversalise - confine welfare to the poor

We hope Tina is reading this, and we'll be giving her more detail on each of them in blogs to come.

PS Last night the TaxPayers' Alliance hosted a launch event for Burning Our Money, the book. It was great to meet some BOM readers, and I hope that those who bought copies of the book find it interesting and useful. Here's a pic of some grey haired old bloke autographing a copy (a sure-fire collector's item):

Tuesday, March 05, 2013

Our Scary NHS - 2

Postponing our appointment
"The UK has had universal free health care and public health programmes for more than six decades. Several policy initiatives and structural reforms of the health system have been undertaken. Health expenditure has increased substantially since 1990, albeit from relatively low levels compared with other countries.... However, the UK performed significantly worse than the EU15+ for age-standardised death rates, age-standardised YLL rates*, and life expectancy in 1990, and its relative position had worsened by 2010."
Today's report in the Lancet is a timely companion to yesterday's blog. Not that it tells regular BOM readers anything particularly new about the under-performance of our nationalised healthcare system, but the facts need to be known much more widely, and this Lancet study has certainly grabbed the headlines.

The study focuses on premature death, and as we've blogged many times, compared to its counterparts just across the Channel, the NHS is pretty poor at keeping us alive. In the BOM book we summarise the key figures on premature death, including our low survival rates for cancer and heart disease. In fact, every year around 50,000 of us - the population of Salisbury - die from diseases which should in theory have been treatable (so called Mortality Amenable to Healthcare). Of course, no healthcare system manages to prevent all such deaths, but the European social insurance systems do much better.

And although our life expectancy has increased hugely under the NHS, nobody can seriously argue that's down to the NHS itself. While life expectancy has increased by around 13 years since the NHS was founded, in the previous five decades it had increased by 20 years. These are worldwide trends, and they reflect improvements in medical knowledge and diet much more than the efforts of our underperforming NHS.

However, despite the headlines, the Lancet article did not set out to be an NHS hatchet job. Rather, it puts the blame for our poor showing on our own unhealthy lifestyles - too many horse burgers and not enough press ups. And the report's authors clearly want more state intervention to control our unhealthy lifestyles. More public health programmes, more booze taxes, more fat taxes, more sugar taxes, more indolence taxes, etc etc.

You can certainly see how you get there - if we could all be hassled or forced into living healthier lives, we'd almost certainly live longer and probably save the NHS a shed-load of cash. It's exactly the kind of thinking that drove Labour's anti-obesity programme, although somehow they never did get round to fat and sugar taxes.

Except of course, that's not how the better performing countries do it. Although France, Spain, and Italy all outperform us in this study, my own extensive research suggests that their booze taxes, at least, are an awful lot lower than ours. The issue is rather more complex than comparative tax rates and public education campaigns.

What this study really highlights is that when it comes to health, we have a lot to learn from our neighbours. None of them have a nationalised health system, yet most of them enjoy longer healthier lives than us. Instead of pretending our healthcare system is the envy of the world, we should have the humility to look and learn.

PS I've just been listening to Sir David Nicholson being grilled by the Health Select Committee. I must say I admire the guy's sheer nerve. Yes, he says, terrible things happened at mid-Staffs while I was in charge of the regional health authority, but I knew nothing about it. Barclays tried that one, but Diamond still had to walk the plank. And even if Nicholson didn't know, he surely should have done. As we've said many times on BOM, you can delegate authority, but you can never delegate responsibility.

*YLL is Years of potential Life Lost

Monday, March 04, 2013

Our Scary NHS

The bald facts**

Two years away from blogging, and it's time to check how the NHS is doing under its current consultant Mr N.H.S Cameron.

We have to start with mid-Staffs. It ought to be old news - we started blogging it in 2009 - but last month's Francis Report has shone an even more scary light on how an NHS Foundation Hospital (yes, a Foundation Hospital!) managed to kill as many as 1200 of its patients.

I've been reading the report, intending to quote some of the many personal accounts of horrific standards of care meted out to patients: loved ones left lying for hours in their own urine and faeces - their cries for help ignored by staff - left without food and water, illnesses made worse rather than cured, and bed sores, broken bones, gashes, and hospital infections just a routine part of the grim patient experience.

But the more I read, the more upsetting it became. These are real people talking, and to use their anguished accounts merely to make a blog point feels grossly intrusive and disrespectful. So let's simply quote Robert Francis's own summary:
"I heard so many stories of shocking care. These patients were not simply numbers they were husbands, wives, sons, daughters, fathers, mothers, grandparents. They were people who entered Stafford Hospital and rightly expected to be well cared for and treated. Instead, many suffered horrific experiences that will haunt them and their loved ones for the rest of their lives."
As for management claims that the original press reports had been exaggerated:
"A number of staff and managers at the hospital, rather than reflecting on their role and responsibility, have attempted to minimise the significance of the Healthcare Commission's findings. The evidence gathered by this Inquiry means there can no longer be any excuses for denying the scale of failure. If anything, it is greater than has been revealed to date. The deficiencies at the Trust were systemic, deep-rooted and too fundamental to brush off as isolated incidents."
The harrowing events at Mid-Staffs highlight many of the critical NHS failings we've blogged in the past. In fact the Report sometimes reads like an excerpt from BOM:
  • target-driven priorities – a high priority was placed on the achievement of targets, and in particular the A&E waiting time target. The pressure to meet this generated a fear, whether justified or not, that failure to meet targets could lead to the sack.
  • disengagement from management – the consultant body largely dissociated itself from management and often adopted a fatalistic approach to management issues and plans. There was also a lack of trust in management leading to a reluctance to raise concerns.
  • low staff morale.
  • isolation - not as open to outside influences and changes in practice
  • lack of openness - One particular incident concerning an attempt to persuade a consultant to alter an adverse report to the coroner
  • acceptance of poor standards of conduct – an unwillingness to use governance and disciplinary procedures to tackle poor performance... incidents of apparent misconduct which were not dealt with appropriately, promptly or fairly.
  • denial – In spite of the criticisms the Trust has received recently, there is an unfortunate tendency for some staff and management to discount these by relying on their view that there is much good practice and that the reports are unfair.
The management of the Trust clearly bears a heavy responsibility for all this, and the Report shows how they made a series of ill-informed and ultimately catastrophic decisions about resourcing and organisation. It also shows how they routinely dismissed and suppressed criticism, even when confronted with the cold hard statistics of rampant death on their wards. 

Ah yes, those cold hard mortality statistics. BOM always tries to support argument with stats, but when it comes to public sector performance, the stats so often turn out to be damned lies, fabricated to hit targets and tick boxes rather than illuminate the truth. And so it seems to have been with hospital deaths.

The problem is that not all hospital deaths have been counted in a hospital's official mortality stats. For example, hospitals were allowed to exclude the deaths of those receiving palliative care (ie terminal patients who were merely being given pain relief while they died). So at the Wolverhampton Hospital, deaths recorded under palliative care were bumped up from 2% to 20%, double the national average; deaths from other causes - the ones that did count in the official stats - were correspondingly reduced. The Royal Bolton Hospital seems to have pulled a similar stunt with septicaemia deaths, which are also excluded from official mortality figures. And there are probably countless other examples around the country.

Now of course, all of this took place under the previous regime, so we can't blame Mr N.H.S. As a Conservative he fully understands the disastrous consequences of the old Stalinist regime, He's pledged to abolish targets, stop box-ticking, and enforce accountability via the criminal law if necessary.

Well, er, he kind of suggested that's what he'd do. What he's actually done seems to fall some way short.

Most extraordinarily, he has not fired the Chief Executive of the NHS - Sir David Nicholson - even though at the time of mid-Staffs disaster Nicholson was first in charge of the local Strategic Health Authority, and then CEO of the entire NHS. Long-time readers may also recall that when we first encountered him at a Public Accounts Committee hearing in 2006, we were somewhat less than impressed. He should be gone.

And then there are those targets. I've perused the Department of Health website desperately trying to pin down what's actually happened to them, but I'm blowed if I can work it out. It's possible they've largely been abolished, although I'd need to do much more digging to find out for sure. And on the ground - ie down in the hospital wards - personal experience just before Christmas suggests the nurses are still spending just as much time ticking boxes and filling in forms, rather than caring for patients.

Besides, even if the targets and the tick-boxes have gone, there's a much more fundamental problem with the NHS. And it's one that bubbles just under the surface of the entire Francis Report: the insidious effect of unaccountable institutionalised power. 

We've recently seen how corrosive this can be in other organisations, from the Catholic Church to the Liberal Democrats: powerful men abusing their positions, and even when they're discovered, continuing to enjoy the protection of an institutional cover-up. And in the case of mid-Staffs, Francis spells out how staff felt intimidated by management, making them reluctant to report problems, still less blow whistles. From the disassociated fatalism of the consultants through to the cowed cowering nurses, nobody was prepared to stand up for fear of losing their job.

But most striking of all is what Francis has to say about the complicity of patients and their relatives:
"Patients’ attitudes were characterised by a reluctance to insist on receiving basic care or medication for fear of upsetting staff."
We all recognise this. We've all been there. If you complain, are you just going to make things even worse? You or your loved one are in an extremely vulnerable position, entirely dependent on the service provided by staff. If you piss them off, who knows what might happen? You are stuck, and your only hope is to schmooze and nudge them into doing the right thing.

Being a member of the sharp-elbowed middle class, I like to think I'm fairly good at doing that. Disgusting myself, I'm prepared to use every trick in the book - crawling, sympathy, flattery, the works. Often that does the trick. But it shouldn't be necessary, and what if you're no good at it? And what if it fails? Personally, I've developed a technique of suggesting escalation to higher authority without actually threatening  to do it: more along the lines of "look, I can see you're doing your very best, but you're obviously stretched beyond the limit, and I've got to consider my sick child. I'm seriously concerned and I can't just stand by... who would I talk to?"

Of course, if this was Tesco, you wouldn't need to do any of that. You'd just take your business elsewhere - no fuss, no schmooze, no problem. Or rather, there is a problem, but it's Tesco's not yours. And either they ensure there can never again be horsemeat in their value meals, or their biz nosedives.*

The power of choice and competition. The power of simply being able to take your custom elsewhere. The power of a paying customer rather than a helpless supplicant. So much more direct and effective than hoping Mr N.H.S can somehow sort the problems before we get killed.

* Apologies to Lost Nurse for getting back on the Tesco worship so soon. We do realise that healthcare is not quite the same as groceries, and we will try to limit our grocery sermons.

** Excellent graphic from MHP Communications.