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.

Dec 2007 18
How a pensions black hole works

Yesterday our battered beleaguered rulers bunged £3.9bn more taxpayers’ money into yet another pensions black hole.

Now, all of us sympathise with the 130,000 people who lost all or part of their pensions when their companies went bust up to 2003. And all of us can see that they were grossly misled by that stream of official assurances that their final salary pensions were safe (see here for Mail’s campaign).

But as taxpayers, we need to be quite clear about one thing: once again we’re being forced to pay for clearing up a pensions mess largely created by our rulers.

If the government had not issued all those incorrect and misleading assurances that final salary pensions were safe, these pension members and their trade unions would have had no basis for their legal case.

More fundamentally, if successive governments had squared up to the truth about final salary schemes, they’d have established an insurance scheme long before 2004.

The whole pensions universe abounds with hugely expensive black holes. And as we’ve blogged many times, successive governments are in denial about the looming crisis (eg see this blog). Despite a string of weighty reports (eg the Turner Commission- see this blog), they are still not gripping the real issues. Which are:

  • Pension age- increasing life expectancy means the State Pension Age (SPA) needs to be increased sharply; the current plan is to raise it to 68 by 2044: pension experts reckon we need quicker action and that SPA needs to go to 70, which would save us about £15bn pa- c 1% of GDP (eg see this blog);
  • Public Sector pensions- the scandal of largely unfunded public sector pensions continues (eg see this blog); in the face of pressure from their union paymasters, Labour backed off increasing the retirement age from 60 (or even below in some cases), and the total cost to taxpayers is currently put at about £1 trillion- twice the officially declared National Debt.

As we’ve said many times, the combination of spineless politicos and our chequebook is not a happy one. And unless you want to spend your old age living on Value Buy pizza, some people suggest you move your savings offshore and don’t plan on retirement until 75. At which point you should emigrate.

PS The splendidly opulent pension arrangements enjoyed by the boys and girls in blue are once again highlighted by the case of Ian Johnston , who leads the British Transport Police (BTP) and is a national police spokesman on organised crime. It turns out he is the highest-paid officer in the country with an estimated pay-and-pension package of £260,000 a year. The reason? He retired from the Met at age 55 on his full £70 grand pension, and then promptly got himself a new job with the BTP on £195 grand pa. Plus of course, the usual generous police expenses (£6,964.40 last year). If only everyone had such a cushy pension deal.

Dec 2007 18

Christmastax_2Christmas is a time of giving, but few families appreciate how much they are being forced to give to the taxman.  Virtually all Christmas purchases, from iPhones to crackers, are subject to VAT, and granny’s sherry attracts excise duty on top, not forgetting the fuel tax levied on journeys to see family and friends.  New calculations by the TaxPayers’ Alliance reveal the startling size of the family Christmas tax bill:

This Christmas, British families will pay an average £225 tax on their festive spending, equal to 600 Tesco Finest mince pies as well as 15 bottles of Harvey’s Bristol Cream sherry.

The total Christmas tax bill will come to £5.65 billion, more than enough for the Treasury to buy every single turkey in the EU.

Download The Tax on Christmas (PDF)

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