Dec 2007 19

Several papers report comments made by Shadow Chancellor George Osborne. He said:

"I will approach each Budget thinking how I can reduce
taxes; how can I prepare Britain’s economy to compete with China in the
world economy. Lower taxes are good for people
and the economy. Next year I hope to set out plans for business
taxation so that Britain is competitive…

"My ambition is lower taxes. I would like to be the Chancellor that under-promises and over-delivers."

Quite right. It’s encouraging to hear positive words about reducing tax from the Shadow Chancellor. George Osborne’s inheritance tax announcement in October was so well received by voters, that further tax announcements will be extremely popular, not to mention being the right thing for the economy and hard-pressed families and businesses.

There are three further points to make:

1. We don’t yet know whether George Osborne is talking about reductions in the overall burden of tax (real tax cuts), or revenue-neutral simplifications that will allow headline rates to be reduced.

There is nothing wrong with a business tax simplification that removes allowances and exemptions and reduces the headline rate of corporation tax. It is quite likely that Mr Osborne will propose to align accounting profit with taxable profit for corporations, which will simplify the tax regime and allow a revenue-neutral 3p cut in the main corporation tax rate – this option was proposed by the Tax Reform Commission (although the Commission recommended a 5p cut in the main corporation tax rate) and PWC have been commissioned to produce a technical implementation plan.

But there are problems with simplifications that don’t reduce the overall burden of tax, as Alistair Darling discovered a couple of months ago. The losers will shout more loudly than the winners. To make simplification work, you have to reduce the overall tax burden.

Similarly, reductions in personal taxes that are offset by higher green taxes are unlikely to prove popular. Green taxes already more than cover the cost of Britain’s carbon footprint and, in an August YouGov poll, 63 per cent of the public said that "politicians are not serious about the environment and are using the issue as an excuse to raise more revenue from green taxes".

2. There really is no getting away from the fact that how much tax people and businesses are paying  overall is what counts. The public are likely to see through attempts to give with one hand and take away with the other – witness the reaction to Gordon Brown’s Budget in March, which did precisely that.

It is true that Mr Osborne’s inheritance tax announcement in October was, at least on paper, revenue-neutral overall. But of course for voters in a general election, who are not non-doms, it wasn’t – hence its popularity. It would have been a different story had the Shadow Chancellor said that inheritance tax would be abolished for almost all estates but that, to maintain economic stability, taxes on cars and flights for ordinary people would go up.

The inheritance tax announcement was a genuine masterstroke. But there are few revenue-neutral tax changes that will have the same positive political impact. Green taxes are unlikely to be one of them – let us not forget that the Conservative Party’s pre-conference slump in the polls came after the Gummer-Goldsmith report, which recommended higher green taxes, including a possible tax on supermarket car parking.

There is a genuine political space for the Conservatives to move into if they choose. A YouGov poll in August asked the question: "Thinking about the present levels of tax on the one hand and the state of the public services (like health or education) on the other, do you think the party you support should pledge to increase taxes, hold taxes at their present level or to reduce taxes?" The results were: increase taxes – 6 per cent; hold at present level – 38 per cent; reduce taxes – 44 per cent; don’t know – 12 per cent.

3. The crucial factor in whether the Conservatives can either offer reductions in the overall burden of tax or revenue-neutral tax changes is how much the Party will spend. We know all this already but it’s worth repeating: George Osborne has made it clear that he will not borrow to fund tax reductions, nor will he rely on dynamic forecasting. Therefore, the only way that he can reduce the overall burden of tax is to increase public spending more slowly than economic growth.

The plans of both the Conservatives and the Government are to increase spending by 2 per cent per annum in real terms for the next three years. With economic growth at 2.5 per cent to 3 per cent, this would clearly allow small reductions in the overall burden of tax. 0.5 per cent of government spending is around £3 billion – or close to a 1p reduction in the basic rate of income tax per year, with no need for tax increases elsewhere.

It now looks, however, that economic growth will be significantly lower for the immediate future. Growth is likely to be below 2 per cent in 2008, while yesterday Dresdner Kleinwort put the chances of a recession next year at 50-50. In these cirmumctances, increasing public spending at 2 per cent in real terms is likely to mean higher taxes or higher borrowing.

Given that an election is unlikely before 2009 or even 2010, this will be Labour’s problem, rather than a Tory headache. But that’s not the end of the story. For there is nothing stopping Gordon Brown/Alistair Darling from publishing the Comprehensive Spending Review, for the following three years, before an election. The Government could easily make the public spending settlement more generous, say, 3 per cent a year in real terms, and dare the Tories to undercut them. If the Tories pledge to match the Government, then no cuts in the overall burden of tax for almost the whole of a first Tory Parliament. If the Tories don’t, then Brown can fight the election on "investment vs cuts" all over again.

If the Conservatives don’t make the argument now for tighter public spending and reductions in the overall burden of tax, they risk falling victim to precisely this sort of scenario. But here again, there is good news. A YouGov poll in August posed the question: "The money the government spends on public services and other things comes mainly from taxation. Do you think…" and the responses were: "The government spends too much and therefore taxes us too much" – 64 per cent; "The government has got the balance about right" – 18 per cent; "The government spends too little and therefore taxes us too little" – 4 per cent; "Don’t know" – 14 per cent. YouGov asked the same question in March 2005 and the responses were 49 per cent, 25 per cent, 11 per cent and 15 per cent, respectively. Voters are therefore more ready than ever for a party to make the case for spending restraint and reductions in the overall burden of tax.

Dec 2007 19

In the midst of the festive season, as we all splash our hard-earned cash on our nearest and dearest, it’s interesting to see what our local councils are choosing to do with our money…

Staffordshire County CouncilFamily

Family Group Conference Convener (£27,594 – £30,598 Pro rata, per annum (subject to job evaluation)

The Family Group Conference Service is a county wide service and is looking to recruit casual conveners to organise and facilitate family group conferences. A Family Group Conference is a family-led, decision-making meeting, which takes place when families need to take decisions and make plans to address concerns about the safety, well-being or behaviour of their child/ren.
The role of the convener is to help the family, and those who work with the family, to engage in the process and to help the family arrange the meeting. Family Group Conference Conveners need to have a proven ability to relate to people in a non- judgmental way. Good communication skills are essential.
We are looking for applicants who are committed to involving families in decision making, listening to children and young people’s wishes and feelings.

Perhaps one we could all do with at Christmas time, someone to mediate between various family members and help us come to decisions, like what to watch on television perhaps?

In all seriousness, we are all aware that some families need real help, and this is why we have an army of social workers employed by local councils to deal with vulnerable family members in the way they judge best, restoring some harmony to ‘challenging’ households. We also have a police force for when communication completely breaks down.

What we have here seems to be another animal entirely, dedicated solely to the art of conversation and ‘decision making’ between family members. The job description is typically vague and one-dimensional psycho-babble, and yet the accompanying salary is well above the national average.

And is a family discussion really a ‘conference’ requiring a ‘convener’? It seems that Staffordshire County Council is taking their intervention to needless lengths, and unfortunately we are called to pay for the council’s insistence upon being involved in every angle of family life, including actively discouraging families from working through problems between themselves.

 

Grandparent_2
Warwickshire County Council

Project Leader – New Neighbours: Crossing the Divide (£18,907 – 20,736 pro rata
22.5 hours per week, fixed term till December 09)

We are looking for an enthusiastic project leader to enable us to develop the Bedworth Heath and Keresley reminiscence project: New Neighbours: Crossing the Divide.
The project leader will be working closely with Nuneaton and Bedworth Neighbourhood Watch Association and other partner agencies. You will take the lead in organising groups and individual young people to engage in oral history / reminiscence work in their community.

The job description goes on to elaborate; describing how this ‘Project Leader’ will facilitate conversations between the old and the young, something that clearly can’t be done without state intervention (do none of these children have grandparents?).

The fact is that both local history and folklore are passed on, and always have been, without the need of any council coordinated projects. For hundreds of years enthusiasts, historians and the older generation (particularly after a few Christmas Day sherries…) have successfully retold and catalogued the important events in each city, each town, each street, each household of the United Kingdom. What is more, much of this information is freely available in local libraries and bookshops to those who have an interest. If young people want primary sources, then they are more than able to engage with older people without state-paid officials mediating the process.

Terms like ‘crossing the divide” only serve to highlight the difference between the generations, and projects like this seem to contradict their own purpose by treating the old and the young as though they were different species or tribes at war who need to be tentatively introduced to one another.

Of course young people should learn about their responsibilities towards their community, but half-baked projects fleetingly exposing them to local ‘oral history’ and the reminiscing of local elders seem a lot less worthy of taxpayers’ money than our faltering education system.


Solihull Metropolitan Borough CouncilDance

Sub Regional Dance Development Officer (£25,320 – 31,606)

Dancescape is the dance development project for the sub region of Coventry, Solihull and Warwickshire.
The Sub Regional Dance Development Officer works with partners, dance practitioners and organisations to strategically promote and develop all forms of dance practice across the sub region, acting as a focal point for dance development and information and managing a range of projects and programmed events
.

£30K well spent? We’ve had officers paid to help families talk to each other, officers paid to make sure that the old and the young communicate, and now we have an officer paid to make sure we’re all dancing (or watching it at the very least). Although there doesn’t seem to be much to dance about with Solihull pleading poverty once again over government funding, and warnings in the local press about severe council tax hikes next spring.

Solihull Council may very well justify this post by having us believe that dance is something that would be wiped of the face of the planet were it not for the state funding/meddling that keeps this delicate and dying art form alive. Unfortunately Solihull Council would be flying in the face of thousands of years of evidence that proves that, much like most forms of artistry, people like to dance, and it is a primal enough urge to ensure that they always will – even without Solihull Council’s Sub Regional Dance Development Officer at the helm. If there is enough interest in dance around the Coventry, Solihull and Warwickshire area then dance schools and dance performances will soldier on independently, just like they always have.

The great thing about ‘dance development’ is that it needn’t cost the taxpayer a penny. Those who like to dance often like to teach it too (and usually for only a nominal fee), and that is why every week night after school/work and on every Saturday afternoon community centres, church halls and school gymnasiums are full of people enjoying learning to dance. At the opposite end of the scale, many quality professional companies run like a business, keeping themselves afloat by the patronage of their loyal audiences and topping up their coffers by appealing to donors.

Regardless of the future of dance development in Solihull, it is absolutely plain that the money spent on this post would be better spent on frontline services and necessities, rather than flights of fancy that stop well short of benefiting the community at large.

Dec 2007 19

The Guardian reports today on a National Audit Office report that criticises botched reforms to neonatal care:

"Scores of premature babies may be dying unnecessarily across England because the NHS mismanaged a reform of neonatal units in 2003, parliament’s spending watchdog reveals today."

Most of the Guardian’s account speaks for itself but this section needs some attention:

"Jacqui Smith, when health minister in 2003, said she agreed with recommendations from the British Association for Perinatal Medicine for minimum staffing ratios. But the government did not order NHS trusts to implement them.

The NAO says there was "confusion" over whether staffing ratios were mandatory, making it difficult for unit managers to convince NHS trusts they needed more staff."

This might be taken to suggest that a lack of targets and other central intervention was the problem.  The NHS Trusts were waiting around for the Health Minister to tell them what to do and without the wisdom of the Department of Health things went wrong.

The truth is that too much central intervention, not too little, is the problem.  When you have so many targets and so little local discretion – as pay, drugs, funding and IT expenditure and a host of management decisions are made centrally – anything that isn’t made a target is ignored.  Local decision making can always go wrong but biasing decisions towards prioritising outcomes that central Government is able to, and gets around to, making a target will lead to worse decisions overall.  That is the case here: the target culture is to blame for making a target necessary.

Dec 2007 18

Darling’s the one in the cap

Today, Chancellor Darling has extended the taxpayers’ guarantee to virtually all Northern Rock’s borrowings: retail deposits, wholesale deposits, unsecured borrowing, secured borrowing where the security actually turns out to be insufficient, collateralised and uncollaterised derivatives, onshore and offshore. The whole kit and caboodle.

Which totals c £100bn.

Or £4,000 for every household in Britain.

(Yes, the HMT press release excludes subordinated debt, but that’s only a few billion; and yes, it theoretically excludes the £40-£50bn still borrowed through the offshore securitised Granite programme- but only so long as Granite can carry on rolling over its borrowings… which it will only do with that HMG guarantee).

So now we’re formally guaranteeing a bank that remains fully owned by shareholders. It requires a breathtaking disregard for taxpayers’ interests to even contemplate such a situation. Our bungling rulers are giving us the worst of both worlds- we bear all the downside but any upside goes elsewhere.

Since we last looked at Northern Rock a week ago, things have got worse for taxpayers on a number of fronts:

Bid progress… minimal

The two bids from Branson and Luqman Arnold are still out there, but are looking shakier by the day. Arnold has now been forced to promise more equity capital, but it’s only £200m more- peanuts in the current situation. And his promised total equity injection is still less than Branson’s. Against that, NR shareholders prefer Arnold, and reckon Branson’s management team has been weighed and found wanting.

In terms of we taxpayers getting our money back, neither bid looks credible. A "City Expert" told the Sunday Times:

“The basic problem is that the banks don’t have a lot of money available, and both Branson and Arnold are finding it difficult to get support. The two bidders are pretty lightweight. Branson is the nearest thing in the business world to Princess Diana.”

The Treasury is so worried it’s appointed Goldman Sachs to assemble a financing package that would be available to either bidder. Sounds like a long-shot, and taxpayers should also remember that super-smart Goldmans are not known for working on a charitable basis. Who will pay them, we wonder…

Finance… not available

With all major Western banks under the credit cosh, the chances of them stumping up even £10-15bn are diminishing. And for taxpayers, that’s not enough anyway. We are in the hole for a loan now approaching £30bn.

Deposit and borrowing guarantee… boxed in

Even before today’s announcement, taxpayers were on the hook for the Treasury’s 100% NR deposit guarantee, and as we blogged previously, there’s a real question over whether the Crock can survive without it- even after a sale. Last week we noted that Branson’s presence had apparently stopped the haemorrhage of NR’s retail deposit base, which was encouraging. But latest reports say that it’s started again.

Make no mistake- the guarantee means taxpayers are exposed to the risk, just as much as with a continuing loan.

Mortgage assets… heading South

We were initially assured NR’s £90bn mortgage loan book was of unimpeachable quality- as safe as houses. Now we know it’s showing signs of "credit impairment" (eg see this blog), and the latest dire news on the housing market means it can only get worse. Much worse. Which of course is precisely why the commercial banks are wielding those 20 foot bargepoles so vigorously.

Non-mortgage assets… heading South

In September NR told us their £15bn of non-mortgage assets were all super-high quality:

"Northern Rock invests in high quality and well diversified assets… Northern Rock only has a £75 million direct exposure to the US sub-prime market which is all rated AAA, and a £200 million exposure to the US CDO market, within which there is indirect exposure to US sub-prime. Of the £275 million combined exposure, £193 million is rated AAA. We also have £325 million of investments in a number of Structured Investment Vehicles (SIVs)."

AAA huh? Just three months later we learn they’ve written down their SIVs by more than one-third (£118m) and their CDOs by two-thirds (£130m). Taxpayers- most of whose exposure is unsecured (see previous blogs)- should be alarmed.

Shareholders… demanding recompense from taxpayers

According to the Telegraph, the disappointed hedge funds that bought into the Crock in the hope of a quick killing, may now demand a direct payment from taxpayers:

"A nationalisation of the bank could force the Government to pay £1.7bn to Northern Rock’s shareholders, including Rab Capital and SRM Global, the hedge funds that bought big stakes in the bank after its problems became apparent.

SRM’s Jon Wood is understood to have received legal advice indicating that precedents across Europe suggest the Government would need to pay no less than £4.10 a share to nationalise the bank – equivalent to Northern Rock’s book value."

Shark is as shark does. But who reckons we can depend on Darling and Brown to defend us?

Decisive action… forget it

When we first blogged the Crock three months ago, we said:

"Darling has emerged from his hole to assure us there’s no need to worry… We taxpayers should be anything but calm. What if the collateral against which we’re now lending to NR turns out to be worth less than NR claim? How confident can we be about the value of those highly geared mortgages in an environment of rising rates and (probably) falling house prices? What about their £15.4bn of other assets, including exposure to CDOs, SIVs, and SIV-lites (see this blog)- how secure are they? The answer is nobody knows- which is precisely why the money markets no longer want to lend to them.

Of course, there’s no way NR can now maintain its independence… No doubt "the authorities" are right now frantically trying to strongarm someone into taking them over. And no doubt the possible buyers are saying they will need some form of government guarantee on that dodgy loan book. And maybe the authorities will offer some form of… what shall we say… douceur.

But there’s one thing we must be absolutely insistent on. Before taxpayers are required to shell out a bean, the NR shareholders must lose everything. As we argued here, they’ve had the upside, and now they must pay the price."

We were wrong about only one thing: when we said "no doubt "the authorities" are right now frantically trying to strongarm someone into taking them over", we were being wildly optimistic. The "authorities" have been totally stymied by Brown’s crisis of morale. They are incapable of making decisions about anything that matters.

And as for Darling’s half-baked idea that henceforth decisions on banking crises should be made by a Cobra-style committee headed by ministers, it would be hilarious in any other circumstances. Can anyone seriously imagine that bunch of spineless incompetents making decisions about difficult and risky stuff like this? Photo ops and wasting our money, sure. But sorting out a banking crisis?

Personally, I’d rather trust details of my name, rank, and bank account to Her Majesty’s Revenue and Customs.

Dec 2007 18

Orwell_2Orwellian comparisons are always popular in political debate, but whilst surveillance cameras, biometric ID cards and politically correct "thought-crime" laws are certainly of some concern, it is in the field of language that Winston Smith would find the Britain of 2007 most recognisable. Newspeak is undoubtedly the policy area of IngSoc that is most developed.

The excellent Plain English Campaign has for years been emphasising the importance of clear use of language. It’s perfectly simple – explaining things clearly is the best way to get ideas across. Confusing jargon and mangled English lead to misunderstandings, which waste money and make services inaccessible. As a tactic for deceit and obscuring the truth, it undermines accountability and restricts public scrutiny of politicians and the public sector.

My colleague Mike Denham reported recently on an unmanned police station which, residents have been told, will be closed unless they pretend it is manned and open:

Cricklade residents (aka the customers) are angry because their local police station is closed- ie if you go there you find nobody manning the front desk, and even if you shout, nobody comes. But rather than putting it right, North Wiltshire’s top cop advises them to pretend the station’s functioning properly as it is. Otherwise, he says, it will be perceived the residents perceive it’s closed, and it will be closed. Even though in real world terms, it’s closed already. 

Confusing, isn’t it?

Sadly, this example is far from unique. The case of Cricklade police station is apparently one of a police force talking nonsense in order to wriggle off the hook and obscure the issue. Plenty of other agencies similarly use the practice for deceit, whilst others just don’t seem to engage their brain before opening their mouth or tapping the keyboard.

For example, a TPA researcher has just received another classic gobbet of gibberish, this time by email from Welwyn Hatfield Council, whose Customer Services Advisor’s email sign-off describes the Council as providing

access to your services and information 24 hours day, 7 days a week.

It then goes on to explain that

The Contact Centre and Offices are open
Monday to Thursday from 8.45am to 5.15pm
and Fridays 8.45am to 4.45pm

That’s right – in Welwyn, "24 hours a day, 7 days a week" actually means "eight and a half or sometimes eight hours a day, five days a week". That might well be a perfectly adequate service for people, but why is it necessary to describe it as something it simply isn’t?

The EU is another arena in which Newspeak reigns supreme. Famously, after the French voted "Non" to the EU Constitution, Jean-Claude Juncker, Luxembourg’s Prime Minister who was EU President at the time, announced

"The French and Dutch did not really vote ‘No’ to the European constitution"

Except of course that they, erm, did. Immediately after the referenda went the "wrong" way, the EU establishment set about preparing the ground for forcing the constitution on the people irrespective of their wishes. It is testament to the power of language that their first step was a barefaced attempt to redefine the result as one that was actually favourable to the Constitution.

This deceit not only wastes money and confuses people, it conceals a multitude of sins. By not only denying failures but actually redefining them as successes, disgraceful disasters are allowed to continue, and popular opinion is ignored or manipulated.

The EU Constitution rumbles on despite its outright rejection at the ballot box by two founder nations of the EU, Cricklade’s residents have to pretend to talk to police officers who aren’t there whilst continuing to live without adequate police cover, children and pensioners live in fear of "care" as a word which is actually synonymous with "abuse", Welwyn residents get 24/7 information from a 8.5/5 service and confusion reigns supreme. War is Peace, Freedom is Slavery and Ignorance is Strength.

The mangling of the English language hobbles our democracy, obscures scrutiny, wastes money and cheats the needy of access to services. We cannot win purely by getting the sums right and the numbers to add up, we will also have to win a cultural victory by demanding clarity from the people who spend our money and run our government.

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