Jul 2007 24

More congestion…0

The future may look a little brighter today for those in the West Midlands who are in opposition to costly road pricing proposals (Birmingham Post, 24.07.07), as the region will now not be amongst the first to pioneer the plans.Trafficdm1202_400x419_2

However, we mustn’t be fooled into thinking that this was a competent decision as in actual fact it only arose from a lack of agreement between the relevant councils and the general consensus that their bid was insufficient, despite costing the public millions. After ten months of talking, deliberating and, of course, spending, the seven district councils are claiming that they need yet more time to draw up what they call a ‘workable plan’.

We can be sure that more research, consulting and discussing will amount to more millions squandered, as those with a blind commitment to the project unite with those who have a vested financial interest to seek ever more absurd ways of getting the wheels in motion – or not.

Whilst the expensive answer to the logistical problem of putting a tracking device in every vehicle that might perhaps maybe someday use the roads in the West Midlands is sought, at least those who feel strongly about the potentially disastrous impact this will have on the region’s economy can grow even more vocal in their attempts to get these plans shelved for good.

Jul 2007 24

Government doesn't have a magic wand9

2007_harry_potter_order_of_the_ph_5

                                                        Freedom Fighters?

Harry Potter and the Deathly Hallows, the seventh and last book in the Harry Potter series, has just become Britain’s fastest selling book in history, beating the record held by the previous Harry Potter book. Given that level of market penetration, it is perhaps not surprising that commentators, reviewers and the chattering classes have come to consider some of the implicit themes within the books, and ultimately the lessons they impart to children.

We have, no doubt, all heard of the Evangelical Christians who wish to ban Harry Potter and denounce its satanic influences, and of the more mainstream views that the books offer a clear moral contrast between right and wrong through considering themes like racism and sexism and exploring concepts like temptation, sacrifice and mortality from a mostly Christian perspective. However, in the buzz that surrounds the subtle (and not so subtle) references to Nazism and Christianity, another important interpretation has arisen that particularly interests us at the Taxpayers’ Alliance.

It has been argued, by a Professor at a US law school, that Rowling’s portrayal of government shows the kind of healthy scepticism of politicians and bureaucracy associated with public choice theory. Public choice theory applies the assumptions and analytical tools of economics to the workings of bureaucracy in particular, and government in general. Too often, the public choice theorists argue, the comparison between market and state outcomes has been unfair. It is a well established canon of neo- classical economics that whilst markets are by far the most efficient and effective means of allocating resources and creating wealth, there are cases of market failure. Lack of information (and its asymmetric distribution) and uncompetitive practices by firms, lead to distortions in the price system and so imperfect results.

It is in these cases of market failure that the government often intervenes on the grounds that it will be able to achieve better results than unfettered markets. This is where the unfairness lies. The behaviour of markets in reality (i.e. with imperfections) is compared with an ideal about how politicians, bureaucrats and planners behave (i.e. as enlightened, public interested servants). Reality is compared to a hypothetical. It is this imbalance public choice seeks to reconcile by assuming that government agents are self-interested individuals seeking to maximise their own budgets and power. This leads to Parkinson’s Law and the associated Empire Building that is so common in large organisations. As such, government failure occurs just as surely as market failure, and its results are frequently far worse than market outcomes.

Rowling starts the series of Harry Potter novels by describing a bumbling but well meaning bureaucracy, with numerous departments with ludicrous names and dubious raison d’etre. However, as the series progresses the ministry uses its power to cover up the rise of the villainous Voldemort, often by mobilising its full range of coercive power: detention without trial, torture (of children), altering the educational curriculum and turning the press into a propaganda rag. Furthermore, the “Ministry for Magic” is shown to have institutionalised previously sympathetic characters turning them into ambitious pen-pushers with no loyalty, whilst those characters who maintain moral worth are unable to progress up the government ladder. This is an unelected, overtly bureaucratic government that operates without a free press, and uses all of these advantages to peruse its own (damaging) agenda.

The sympathetic characters even set up their own private army to provide the defence force that the ministry is unable and unwilling to provide – the kind of non-state militia fighting for its freedom in the face of government inaction and incompetence that only the most hardened anarcho-capitalist would dream of.

It all adds up to a damning indictment of government.

Rowling has been feted for many things, not least the fact that many young males have discovered the lost habit of reading through her books, yet her greatest and most lasting achievement may well be creating a generation more sceptical of government projects and more open to the benefits of embracing markets, personal responsibility and lower taxes.

Jul 2007 24

A Night At The Fag Packet Olympics0

2012 planning meeting
As we’ve blogged many times, the 2012 London Olympics is a classic of fag packet planning. And that original £2.375bn budget was almost certainly dreamed up over an evening playing the Withnail drinking game down at the Stoat and Weasel.

Last week the National Audit Office produced its second report on the whole disaster (see this blog for PAC hearing on first report). And this time they’ve had a go at unravelling just how such a half-baked budget could ever have been cooked up.

What they conclude is a shocking testimony to the prevalence of wishful thinking and outright deception among our rulers.

The fag packet was first scribbled on one evening down the Weasel in 2002. It was then that the DCMS, the Greater London Authority, and the British Olympic Association jointly commissioned consultants Arup to produce "a study".

At £85 grand, it wasn’t cheap. But it was certainly half-baked. It purported to be "a high level cost-benefit analysis of a ‘specimen’ Games (excluding regeneration) for appraisal purposes". And it reckoned the whole thing could be done for a public subsidy of just £494m (para 25).

That’s right. £494m.

Even though the Sydney games- one of the most successful ever- had just cost Aussie taxpayers over £1bn, and Athens was well on course for £5bn.

The DCMS ordered up another round (£31,000) and asked PWC to do another "study". Sniffing the political air (or something), they reckoned it would cost between £1.1bn and £2.1bn (para 26)- both figures being way beyond the initial Arup estimate.

So in the space of just two rounds, the fag packet had gone from £494m to maybe £2.1bn.

It was at this point that Tessa Jowell entered into a "memorandum of understanding" with Ken Livingstone to go ahead and bid. The agreed cost figure was £2.375bn (para 27).

But then someone pointed out they still hadn’t agreed where precisely these so-called "specimen games" were going to be staged. So they cobbled together a site in Stratford and the Lea Valley and got PWC to do another "study" (for a further £182,000). This time they reported that "the net costs associated with hosting the Games" would total "some £4.5 billion" (para 28).

That was clearly far more than the politicians wanted to admit, so they scurried around trying to cut public sector costs. In particular, they got Partnerships UK, the Treasury quango that promotes PFI deals, to guess at how much private funding might be available. PUK guessed an extraordinarily precise figure of £1.336 billion (para 30).

In the event, they decided to halve that figure, and put in £738m. (That was still wildly optimistic, with the latest guess now standing at just £165m).

Somehow, through systematic optimism and entirely omitting a whole raft of stuff like tax payments and security, they got the figure back to £2.375bn.

But it wasn’t worth the fag packet it was written on.

We now know the real figure was £9.325bn. Plus a further £8bn or so in transport and other infrastructure.

But as taxpayers we should still be very concerned. Because given the shambles so far, the NAO also asked whether the latest £9bn budget presented in March (see this blog) is at last sound and complete.

And the answer is- surprise- nobody really knows. There’s still big uncertainty whether the contingency reserve will be enough, how much construction inflation will be pushed up by all the building work, what will be the detailed design specs, how keen contractors will be to undertake the work, and the detailed cashflow benchmarks.

As the NAO chillingly concludes: "The budget for the Games as announced by the Secretary of State is in effect an outline budget… A baseline budget should be underpinned by clear definitions to help ensure that costs are allocated consistently and financial information can be relied upon… The budget was finalised only shortly before the Secretary of State’s announcement to Parliament, but the timescales meant that the formal drawing together of the budget, the key assumptions and judgements underpinning the cost estimates, and the key deliverables which the Olympic programme is expected to bring had not been completed." (paras 78-82)

We will need to watch them very carefully.

Jul 2007 23

Temping Docs0

Hands up anyone who’d like to try a brain op
We’ve blogged before about how the NHS wastes vast amounts of money through employing expensive- and quite possibly poorly qualified- temps (eg here).

Now it turns out that hospitals are having to employ hundreds of locums to cover for shortages caused by the disastrous breakdown of the junior hospital doctor recruitment system (MTAS- see here).

Junior docs are supposed to start their new jobs next week (1 August), but thanks to the MTAS fiasco, 2,320 of the training posts are still unfilled. Many of the gaps are being filled by locums (eg see here for situation in Basingstoke).

Cost? We don’t know. But the Northern Ireland Audit Office recently reported on the cost of locums there, and highlighted the case of a locum radiologist who was paid £240,000 for a year’s work- well over three times the cost of a permanent radiologist.

The NI Auditor General also underlined how such waste had escalated over recent years:

"Expenditure on temporary and locum staff in Northern Ireland [rose] from £8.7m in 1999-00 to £31m in 2003-04."

A near fourfold increase.

Readers of BOM will be quite familar with this. The NHS spends around £1bn pa on temporary nurses alone.

More broadly- as we blogged here- the public sector is by far and way Britain’s biggest employer of temps. Whereas government employs around 20% of Britain’s workforce, according to the Office for Government Commerce, it accounts for 50% of the temporary labour market. The Gershon Review put the overall cost at £12bn pa.

Why?

The fundamental reason is shocking management. Flipflop strategy, fantasy planning, and gripless implementation- a surefire recipe for chaos and waste.

Temping docs are just one more symptom of a far, far deeper malaise.
Jul 2007 23

Cost of Government Day: Monday 23 July0

The TPA has extended the concept of Tax Freedom Day, long championed by the Adam Smith Institute and now an established part of the political calendar (in 2007 it fell on 1 June) and can now provide an estimate of the Cost of Government Day.  This is the date in the calendar year on which the average person has earned enough gross income to pay off his or her share of government spending and regulation.

The result for 2007 is as follows:

  • The average person must work for 204 days of the year to pay off his or her share of government spending and regulation.
  • The Cost of Government Day in 2007 is 23 July.

The Cost of Government Day calculation is done in two parts:

1. According to the OECD, total government expenditure will be 44.9 per cent of GDP this year. This means that for 2007:

  • The average person must work for 164 days of the year to pay off his or her share of government spending.
  • The average person was free of the cost of government spending in 2007 on 13 June.

2. The Better Regulation Task Force (now the Better Regulation Executive), which is sponsored by the Government, has estimated that the cost of government regulation is between 10 and 12 per cent of GDP.  Taking a mid point of 11 per cent means that for 2007:

  • The average person must work a further 40 days of the year to pay off his or her share of government regulation.
  • The average person must work from 13 June to 23 July just to pay off the cost of government regulation.

The Cost of Government Day is an important concept to develop as it captures the hidden costs of government, which encompass far more than stealth taxes:

  • Under Gordon Brown, government spending has for a number of years been higher than government receipts.  The resultant government borrowing will have to be paid off by taxpayers eventually – the future bill is being accrued this year.
  • The cost of government regulation on the economy is even murkier, but it will eventually fall on taxpayers in the form of lower wages, higher prices and fewer jobs.

Cost of Government Day has been getting later in recent years and falls later in the year than in many other OECD countries:

  • In 2000, the Cost of Government day fell on 26 June, almost a full month earlier than this year’s date.
  • The Cost of Government Day in 17 OECD countries falls earlier than in Britain in 2007.

Download the full Cost of Government Day report (PDF)

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