Oct 2007 31

Apparently it is Threatening Schools Week.  Yesterday the Charities Commission threatened to remove charitable status from private schools they didn’t think were doing enough to help poorer students.  Today the Telegraph reports that Gordon Brown is threatening to close schools that don’t reach a sufficient standard in GCSE results.

This is another in a long line of tired and obviously failing measures designed to try and beat schools into better performance from the centre.  It is supposed to complement the only other kind of measure this government understands – showering public services with taxpayers’ money.  It won’t work.

This creates an incentive to improve GCSE results but no direct incentive to improve educational standards.  If all we wanted was improved GCSE results all we’d need to do is further increase the pace of grade inflation.  What we’re really after is a system where young people receive a broad and useful education.

Schools facing a powerful incentive to improve grades can focus on teaching to the test at the expense of improving the education of a broader range of students (those who will never pass and those who will pass anyway are pretty much irrelevant to GCSE pass rates) and providing a broader education and set of skills.  Politicians who don’t want to make the hard choice to follow through on Brown’s threats can lean on the notionally independent QCA to weaken exam standards.

There’s nothing wrong with schools being held accountable and there may well be a need for bad schools to close.  However, instead of making schools still more accountable to politicians why can’t we make them accountable to parents?  Why can’t we make closing a school not a decision for politicians but the result of parents, having been given the freedom, choosing a more successful establishment or getting a new one set up?

Oct 2007 31

In what appears to be at least a partial climbdown, the  Government is considering re-introducing a capital gains tax retirement relief of £100,000 for small businessmen who sell up and retire. The Times reports:

"Three weeks after Mr Darling announced his plan for a single 18 per cent rate
of capital gains tax he is to soften the blow by giving £100,000 in tax
relief for small businessmen who sell up and retire. It means that business owners who would have faced a near-doubling in the tax
they pay on selling their assets – from 10 per cent to 18 per cent – will
now pay far less."

"The U-turn comes after sustained pressure from the CBI, the British Chambers
of Commerce, the Federation of Small Businesses and the Institute of
Directors, which joined forces against the Government after being flooded
with complaints from their members."

It will be interesting to see what finally does appear, and whether Alistair Darling will raise other taxes to meet the revenue shortfall, but this is a very positive step. The Government is finding it increasingly difficult to raise taxes, which can only be a good thing.

On another note, the same Times report reveals that doubling of the inheritance tax threshold for married couples (or at least those who didn’t have the know-how to take advantage of the existing loophole, which is probably a considerable number and in any case underlines just how complicated inheritance tax is) announced in the Pre-Budget Report was considered for inclusion in the March Budget:

"The Times has also learnt that Mr Brown intended in his last Budget as Chancellor in March to announce the £700,000 inheritance tax threshold for couples that was finally introduced by Mr Darling on October 9.  It was removed from the March Budget after Mr Brown concluded that the cost of making the changes retrospective to enable husbands and wives to use the allowance of their late spouses would be too high. He had also decided that a 2p cut in income tax from next April would be the eye-catching feature of his final package.

"But his decision to hold back on inheritance tax opened the way for the Conservatives to grab the initiative at their Blackpool conference with plans for a £1 million threshold. Mr Darling then went some way to matching the Tory plans by dusting off the proposals that were almost adopted in March and setting a threshold of £700,000 for couples from 2010.

"Ironically the capital gains tax changes eventually would have raised nearly £950million a year and would have gone a long way to paying for the inheritance tax shake-up, which will eventually cost £1.4 billion annually."

Now imagine how things would have looked had Gordon Brown listened more closely to the TPA and included the inheritance tax measure in March. It just shows how tax cuts make winning politics.

Oct 2007 30

It is reported in the Birmingham Post today that Birmingham City Council are looking to sponsor a proposed ‘media festival’ to the tune of at least £150,000.

The festival, planned for 2008, apparently hopes to show Birmingham residents ‘futuristic film screenings, interactive games and new technologies’ and is designed to replace the abandoned International Film & Television Festival, an event we can only assume was proving unpopular.

Birmingham City Council aren’t by any means the only ones throwing taxpayers’ money into the pot either, Advantage West Midlands are already committed to matching their investment and the organisers hope that the other bodies involved in the festival’s development – Screen WM, Arts Council WM, Marketing Birmingham and Business Link WM – are also likely to become primary funders, on top of the cost of the man hours they’ve already dedicated to the project. Suzie Norton, chief executive of Screen West Midlands states that, “This has been a collaboration so, we hope, all those involved will be prepared to invest”.Hologram1_2  

For all the agencies queuing up to ‘invest’ taxpayers’ money you might reasonably assume that the plans for the festival point to a sure-fire winner, but in reality the pay off from this investment is still pretty unclear. Birmingham seems set on the idea of cultivating an international festival at any cost, and seemingly regardless of what the festival celebrates.

Ideas being bandied around for this ‘media festival’ are fairly ambiguous, including “having short clips and programme information ‘beamed down’ to laptops and mobile phones” (which really just sounds like the internet), and perhaps more off-the-wall is the idea that there will be “interactive games that will take people round key city landmarks and bring them archive film footage, reviving the ghosts of the city’s founders”. Certainly not everyone’s cup of tea.

So many organisations, so many man hours, so much of taxpayers’ money – could it all be worth it? What could be the long-term benefit, and perhaps more pertinently, given the fate of the previous international festival it replaces, what could be the cost?

International Festivals put in place to promote the area on the regailed ‘global stage’ are not to be criticised – they could potentially attract business and investment to the area. This being the case surely those who are likely to benefit the most from this, namely local business and enterprise, should be called upon to cover the majority of the costs and like any investment, take the financial blow if it doesn’t work out?

Instead we have a queue of quangos, desperate for something to do and with our money burning a hole in their pockets. Those behind any business sponsorship have a vested interest in making it work, but local quangos can happily sweep it under the carpet and move on to the next expensive publicly funded project after making their excuses.

There is no telling whether this Internation Media festival will be a success, but as costs escalate and public investment soars it is in all of our interests to monitor what exactly our money is being spent on.

Oct 2007 30

The Telegraph reports that the Charities Commission are threatening to get tough with private schools who they believe don’t provide sufficient benefit to poor students:

"Charity officials may carry out snap inspections of independent schools to make sure they are benefiting poor pupils, it has emerged.

They will have the power to strip schools of their charitable status – collectively worth £100 million a year – if they fail to pass the new test of "public benefit".  Other schools failing to comply could have their trustees suspended or bank accounts frozen."

This can’t be separated from a political pressure from the Government that has seen private schools complaining that over-regulation is undermining their independence.  During the Labour deputy leadership race many contenders argued that they would like to see tougher conditions or a complete removal of charitable status from private schools.

A key rationale for giving charities tax breaks not available to other organisations is that they provide a service that, without the charity, government would need to provide – lifeboats are a great example.  Private schools clearly fit into this category as if their were no private schools there would be a significant number of additional pupils that the state sector would have to cater for.  There is no good reason to single out private schools for ever more onerous demands for additional public benefit.

Politicians should be spending their time trying to sort out an education system with massive problems.  From the Better Government Position Paper (PDF):

  • 11 year-olds: 25% leave primary school without sufficient ability in reading and writing to tackle the secondary school curriculum.
  • 14 year-olds: almost 30% do not reach the expected levels in English, Maths and Science to tackle GCSEs.
  • 16 year-olds: almost 60% do not achieve a GCSE grade C or better in all the three core subjects of English, Maths and Science.
  • After 11 years of state education at a cost of over £75,000 per child, pupils are leaving school functionally illiterate, innumerate and unskilled:
  • 40% do not achieve at least a C grade in GCSE English.
  • Some seven million adults in England cannot locate the page number for plumbers in an alphabetical index to the Yellow Pages.
  • 47% would be unable to achieve a grade G at GCSE maths.
  • The OECD finds that Britain has the second highest level of low-skilled 25-34 year olds in the 30 countries of the OECD – twice the level of Germany or the USA.

None of those problems are the fault of the roughly 7% of children who are educated privately.  Real reform of the education sector with politicians getting out of management should be the order of the day rather than class warfare politics.

Oct 2007 30

The think tank Reform has released an updated version of its important report on the IPOD generation. This time, it focuses on government policies, or lack of them, to deal with the central problem that young poeple are facing – higher taxes to deal with an ageing population, but no guarantee that they will not have to provide for themselves when they reach retirement age.

The report argues that much of the developed world is facing up to the demographic challenge:

"The developed world is facing an unprecedented demographic change, as the “baby boomer” generation moves into retirement and the ratio of working age people to retired people falls sharply. Politicians will face temptations to increase entitlements to healthcare and pensions; but these will place an unfair burden on the smaller numbers of young people.

"The OECD brought together the global discussion in its latest Economic Outlook. It argued that most developed countries must make urgent structural reforms to contain future spending on pensions and healthcare. If such changes are not made, the higher spending will necessitate higher levels of borrowing and debt – reducing investment in a manner described by the OECD as “explosive” – or higher tax burdens, undermining economic growth.

"The right policy response is to rein in public spending. The best means to do this are fiscal rules that include explicit expenditure targets. 11 OECD countries now operate an expenditure target.

"The policies outlined by the OECD are now under active discussion in many countries, with the best policy discussion taking place in the USA. Arguably the most important global policy maker is the Chairman of the Federal Reserve in the USA. Ben Bernanke made intergenerational fairness the central theme of his outstanding presentation to the Senate Budget Committee in 2007 (included as an Appendix to this report). His predecessor as Chairman, Alan Greenspan, also singled out the demographic issue in his recent autobiography, warning that “almost all of the developed world is at the edge of a demographic abyss for which there is no precedent”."

Unsurprisingly, Gordon Brown’s Britain is singled out for criticism:

"The policies which have tipped the tax / spend balance against young people – higher health and pensions entitlements and higher public spending overall – have remained in place. And the specific decisions of both the Pre-Budget Report & Comprehensive Spending Review (PBR & CSR 2007) and Budget 2007 have actually worsened the situation.

"PBR & CSR 2007 pledged major spending increases on both healthcare and state pensions. NHS spending will increase from £90 billion to £110 billion (cash terms) by 2010-11. State pensions will increase in line with earnings from 2012, or at the latest from the end of the next Parliament…

"In 2012, a typical grduate will face an effective tax burden – including near compulsory payments on higher education and pensions – of 49 per cent."

The solution? Spending control, tax reductions and education reform:

"a new concept for economic policy making – the “investment margin”, which measures the resources available to individuals to spend on training, healthcare and retirement;

"a “Growth Rule” for public spending which would deliver a rate of public spending of 35 per cent – the level of Ireland and Australia – within two Parliaments;

"co-payments for healthcare. This is realistic given the high net worth of the baby boomer generation;

"targeted tax reductions, with one option being a much higher income tax personal threshold of up to £15,000; and

"education reform based on choice and supply side liberalisation."

Quite right. And something to be done on public sector pensions too.

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