If this were simply another case of public sector workers complaining about a poor deal from the Government because they weren’t going to get another inflation-busting pay increase the TaxPayers’ Alliance wouldn’t be particularly sympathetic. Public sector workers have had a pretty good deal over the last decade and most have very little to complain about. Taxpayers have to foot the bill and are hard pressed as it is.
However, the debate currently going on over the police deal isn’t really about the money. The police themselves will tell you – if you push them on the subject – that they’re pretty reasonably paid. Their deal is tough but in the harder economic conditions we’re facing at the moment a lot of people are having to tighten their belt. This dispute isn’t about pay restraint but about the way the Government went about securing pay restraint.
Essentially, the police pay deal is negotiated each year but often isn’t negotiated in time. When that happens the pay is backdated so that the torturously slow process doesn’t leave officers out of pocket. This year was particularly difficult and, in the end, went to arbitration. That means an external body taking over and, after both sides have made their case, deciding on what the final deal will be. The body in question is ACAS and their decision is binding upon the police – they have to accept it – but not legally binding on the government. The arbitration is not legally binding on the government but is clearly, in some sense, morally binding if the arbitration is not completely meaningless. The arbitration did not go the Government’s way and they’ve responded by refusing to pay the backdated pay which means that the police will only get their rise for nine instead of twelve months this year. They understandably see this as a huge breach of confidence.
The way to avoid disputes like this isn’t to throw ever higher salaries at public sector workers. A deal that was financially identical but reached in a less dubious manner would not have gotten the police nearly so wound up. Instead we need to address the real problem which is that ministers without the management experience to run an organisation on the scale of the police service – Jacqui Smith was a teacher – made a complete mess of the negotiating process.
The police are quite reasonably paid but they see other public workers striking, the government backing down and those workers getting more generous deals. The classic example was the Warwick Agreement where they backed down on essential reforms to public sector pensions. At the same time their morale is sapped by targets that prevent them getting on with their job. Just today it was discovered that the police now spend barely one hour in seven on the beat deterring crime – "incident-related paperwork" is keeping them busy. The present crisis is a result of these problems and the mishandling of the negotiations. It is right that the Government should try to control public sector pay but it will take good management, which centralised politics cannot provide, to do this without compromising services.
The world of quangos’ is one ripe for ridicule. Unfortunately, the jokes are often expensive ones. Much has already been written on the excesses of some quangos, the massive public expenditure that supports them (nearly £120 billion) and the bizarreness of some of their remits. What is not always considered is the considerable amount of overlap and replication that exists between quangos housed in different departments.
A case in point is the West Northamptonshire Development Corporation (WNDC). West Northamptonshire of course deserves funds for regeneration as much as any other worthy region, but does it really deserve its own dedicated quango, funded by the Department of Communities and Local Government to the tune of £15 million?
Taken alone, the WNDC may seem reasonable. But consider that the region already receives considerable financial attention from the regeneration orientated English Partnership Quango (also part of the Dept. of Communities and Local Government), the East Midlands Development Agency (a quango under the Dept. of Trade and Industry) and Culture East Midlands (a quango located in the Dept. of Culture,
Media and Sport), not to mention through the development programmes of local authorities, and the case for a dedicated WNDC seems slim.
That case goes from slim to ridiculous when it emerges that Micheal Hayes, the WNDC’s cheif executive, enjoys a salary of £115,000, and two other directors take salaries in excess of £70,000. Quango websites are always a good gauge for whether the quango has a real substantive raison d’etre:
‘WNDC is developing a framework that will set out how the regeneration of West Northamptonshire will be achieved. In an era of profound and lasting change, West Northamptonshire will only prosper if it embraces its position within the global economy…’
The WNDC apparently exists to identify ‘the drivers of change that provide the context for action’ and to ‘locate the priorities for action… to ensure West Northamptonshire makes the most of the opportunities and challenges arising from change’.
In amongst such management-speak there is a link to the WNDC’s ‘Task’. Revealingly, it leads to page with nothing on it but the words ‘coming soon’.
Despite having made headlines in The Sentinel for spending £23,000 on publicity, Stoke-On-Trent City Council have now recruited a new head of public relations and communications on a £75,000 salary.
When asked the question, ‘Do you think the £23,000 monthly cost of the city council’s PR team is good use of taxpayer money? A massive 84.7% of online readers voted ‘NO’. This new appointment has just added fuel to the fire.
How much longer can Stoke Council continue to ignore the wishes of their electorate in wasting money in this way?
At the Northern Crock, taxpayers remain on the hook for £25bn of loans and a further £15bn plus of guarantees for depositors (see previous blogs here, here, and here, and this Treasury statement which spells out that the guarantee applies not only to retail deposits, but unsecured wholesale deposits as well).
The short answer is precious little. What we have been told is that neither is offering to repay anything like the whole £25bn we’re owed on Day One. Branson has offered £11bn, and Arnold £10-£15bn, but since neither seems to have entirely tied up the commercial banks to provide the money, there isn’t a whole lot to choose between them. They are both planning to keep £10-£15bn of our cash to be repaid at some stage over the next few years, effectively on a best endeavours basis. And in an environment where house prices may well be sogging drastically.
Moreover, taxpayers need to remember a very important point- our loan to the Crock is in two parts. Around £11bn seems to be secured against mortgage assets. But the rest- the bulk- is unsecured. And this being the real world, we can be pretty sure that both Branson and Arnold are proposing to repay the secured debt first. By "unencumbering" £11bn of mortgage assets in that way they will be be able to reuse them to secure more borrowing from commerical banks.
Unfortunately, that leaves taxpayers standing in line with all the other unsecured creditors for repayment of the other £15bn. And according to that leaked NR sales memorandum (see this blog), £74bn of the Crock’s £90bn mortgage assets are already "encumbered" (ie pledged as security to existing lenders). So the unsecured lenders are pretty thinly covered.
In reality, we will only get our unsecured loans back anytime soon if NR’s retail deposits base can be rebuilt, with fresh deposits being used to repay us. But is that in any way feasible? And more specifically, is it feasible without a continuation of the government deposit guarantee?
Both bids seem to envisage keeping that guarantee in place for "a period". Darling’s plan had been to step away under cover of an increase in the general bank deposit guarantee up to £100,000. But that’s now being opposed by the commerical banks on cost grounds (see here), so it looks very much like taxpayers will be staying on the hook.
True, Branson’s bid does look the likelier of the two to survive without the guarantee. Whatever the City may think, many members of the public do seem to trust him, and since he launched his bid, NR’s loss of deposits has reportedly dropped from about £200m per day to roughly zero. Arnold has no such credibility, and his intention to stick with the busted Crock brand looks like pie in the sky.
And even with the Branson bid, does anyone seriously imagine Virgin could capture a quarter of all new UK retail deposits, as apparently envisaged in their plan? Just take a look at the deposit market breakdown pre-crisis, with NR on just a 3% share: Source: British Bankers Association
As we’ve said many times before, it’s very difficult to imagine taxpayers escaping intact from this fiasco. And at the end of the day, it may very well be that nationalisation and an orderly run-off is the best we can expect.
But what we should not accept is a deal where we continue to underwrite the bank while existing shareholders retain a stake. If the bank can’t survive without state support, it’s effectively bust, and shareholders must lose everything. Taxpayers should never be forced to bail out shareholders.
These two bidders should be asked to reshape their bids so that taxpayers are taken out whole soonest- no continuing loans, and no continuing guarantees.
If they can’t do so, then Kaletsky nationalisation is the least worst option: the government gives notice that all loans must be repaid in full by end-February (including rolled up interest); failure to do so means Northern Rock will be nationalised for £1, depositors paid out, the assets sold off over a period of time, and the entire operation closed down.
Not the only hangover from Mr Hoon’s time at MOD
Last week your correspondent attended the Public Accounts Committee hearing on MOD’s bungled 2003-06 sale of QinetiQ (transcript here and see previous blogs, including here). BOM readers will be familiar with the huge profits made by the purchaser- Carlyle- and the company’s executives led by Sir John Chisholm.
As you might expect, PAC members launched a heavy attack on the witnesses, who included Sir John himself and the present MOD Permanent Secretary, Bill Jeffrey. Overall, both came out of it with their wickets intact, inasmuch as they stood their ground and the Committee learned little beyond the NAO report (see here).
But it was still a sobering reminder why civil service mandarins cannot be trusted to avoid a skinning when it comes to dealing with the sharp end of the private sector. PAC Chairman Leigh described MOD officials as "naïve babies in a sea of sharks".
One exchange is especially worth highlighting. Leigh was questioning Chisholm, who as you will recall, made a £25.8m profit on his £100,000 investment (a 19,900% return):
Q18 Chairman: What the public think is that it is frankly appalling. It goes totally against any concept of ethical capitalism, Sir John, that you can put £100,000 into a business and emerge with £25 million of taxpayer’s money. Nobody from outside can understand it. Do you have any sense of shame here before us?
Sir John Chisholm: I have a considerable sense of having led a team to create £1 billion worth of value for the taxpayer. I think that is a great achievement by the team…
I believe in any deal like this there was a contractual agreement put by the investor to the management team that had considerable risk for the management team at the time and they signed up to it…
The NAO report itself says that if the company had not achieved a 20% return at least then the management team would have lost their whole investment.
It wasn’t a popular line with the Committee, but we have some sympathy with Chisholm. He did risk his own money, and he was only receiving what had been agreed by MOD. Why should he be ashamed?
The shame rightfully belongs to those who committed taxpayers to the transaction- ie MOD ministers and officials. They were the ones who let in Carlyle at too low a price, and they were the ones who then agreed the juicy incentive scheme for execs.
And lest we forget, the Defence Secretary at the time was Geoff Hoon, now Labour Chief Whip. The MOD Permanent Secretary was Sir Kevin Tebbit, now a director of Smiths PLC, the technology company, and also Chairman of Finmeccanica UK. Both companies have extensive defence businesses, and… well, whaddaya know… extensive contracts with MOD.
But behind both of them was the Treasury, pressuring the MOD to secure a sale in order to hit its top-down asset sales target. Now remind me… who was Chancellor at the time? When we talk of shame, let’s locate it in the right place.
PS This is not the first time BOM has disageed with Chairman Leigh on blame attribution. Regular readers will recall the appalling case of the Norfolk and Norwich hospital PFI contract, where the contractors cleaned up at taxpayers expense. Sir Edward described them as the unacceptable face of capitalism, but the real blame lay squarely with the Simple Shopping Department of Health.
PPS The QinetiQ debacle contains some ominous pointers for the Northern Crock escape plan- public officials under political pressure to reach a quick deal, a preferred bidder arrangement that went disastrously wrong, and some pretty sharp operators on the other side of the table. We’ll be blogging it separately.