Tuesday, 20 November 2012

NHS, the internal market and dirty tricks

There was an article yesterday about NHS procurement. Purchasing is not exciting, which is a shame, because getting it right is massively important. When we do hear about it in the news it's often tabloid-manufactured outrage that some kind of custom object needed for some reason is more expensive than a mass-market one.

But this case, this is genuinely shocking. Not simply because of the numbers (although half a billion a year is nothing to be sniffed at), but because of this quote:

Joe Stringer, from Ernst & Young, said the discrepancies were "staggering", and he warned that the problem was getting worse. Trusts, he said, were reluctant to share information for fear of helping their competitors.

I posted a brief note on twitter about this yesterday, and it got retweeted a lot. Some people replied, blaming the Tories. They've missed the point. The internal market in the NHS was already there. There are hundreds of little NHS purchasing departments making small orders and unable to use mass buying power to get good rates, even if they had been sharing information.

And they have a disincentive to share best practice, because of the NHS internal market. Trusts aren't being compared to some platonic ideal of efficient, they're simply trying to be as efficient as they can be compared to their rivals. That means not giving away their lead, if they've got one, say by having the best purchasing people. This is fine when you are selling potatoes or shirts, but when we're talking about providing medical care from state funds, it's another matter entirely.

If trusts already are reluctant to share information, to the general detriment to the health service as a whole (and it's not me or some leftist bloggers that's saying that, it's Ernst and Young), why should it stop there? This is already an ethical violation, but since it has taken the form of lack of action rather than action, it gets a bit of a pass. But the lines between not acting when you should and acting when you shouldn't can be rather blurred. Inaction is not neutrality. The internal market creates perverse and direct financial incentives for unethical actions. I fear it is only a matter of time before we see the first NHS dirty tricks scandal.

Monday, 13 August 2012

You may have been watching the Olympic closing ceremony last night, or not. I gave up halfway through and went to look at meteors. Something caught my eye during it - the medals awarded to the Men's Marathon.

Turns out it's tradition to award a set of medals during the Olympic closing ceremony. The IOC say:

After the athletes' parade, a medals ceremony is held. The IOC, with the help of the OCOG, decides which event will have its medals ceremony during the Closing Ceremony (it is generally the marathon for the Summer Games).

In London in 2012 it was the Men's Marathon. In Beijing in 2008 it was the Men's Marathon. In Athens in 2004 it was the Men's Marathon. In Sydney in 2000 it was the Men's Marathon. In Atlanta in 1996 it was the Men's Marathon. I could continue.

Friday, 6 July 2012

let's sell honours

There are an increasingly large number of people with huge piles of money. In trickle-down land, this is supposed to result in them spending this money and distributing it to everyone. In fact they appear to be hoarding the money, and making only safe investments (look at bond yields!). We are told that placing arbitrary taxes on them will discourage them from having made that much money in the first place. Well, whatever, let's go with that.

There's a practical limit on how much they can spend on their lifestyle, so there's a great demand for status symbols. We can see this in the art market.

The people benefiting from this art bubble are mostly the slightly-less-rich who bought stuff when it was cheaper. How can we get in on this action? Well, taxing it is difficult when the art market is global. Selling off the contents of the National Gallery is probably a non-starter, and in any case we can only do it once - it won't provide an ongoing source of income.

Anyhow, art isn't the thing, it's just a good demonstration of the willingness of high net-worth individuals to pay silly amounts of money for status symbols. See also: football clubs and newspapers. Perhaps we should create a status symbol of our own to sell to them. Something that can be made by the state for zero cost, and can't be replicated by any other actor. And something that doesn't represent an actual difference in material conditions.

I have just the idea - peerages! Once the House of Lords reform goes through, the peerage will be disconnected from the legislature entirely. What better way to get the nouveau riche to voluntarily pony up some money for society than to sell them prestigious titles? We already know people are willing to pay for honours - there might even be more people interested if it weren't so shady.

The system I propose is quite simple. Every year, set a blind auction, with a number of life baronies available for sale, along with one viscountcy. We'll see how much money we can raise. We run the risk of peerage inflation, so we'll keep earldoms, marquessates and dukedoms in reserve. I have absolutely no idea how much money we'll raise - the market will decide that, but in the worst case where it doesn't cover its administrative costs, we can just discontinue it after a couple of years.

Why not? I mean, what's in danger - the dignity of the honours system?

Thursday, 5 July 2012

housing benefit and the argument for social housing

You may have heard, there's a recession on. They're expensive things. Tax receipts drop and people start claiming benefits. The number of households claiming housing benefit in Great Britain increased from 4.2 million in November 2008 to 5.0 million in March 2012. The total housing benefit bill has increased from £16 billion/year to £27 billion/year. I can't find a figure for exactly how many people that represents, but it's certainly at least 7 million.

How has this happened? The statistics show that 98% of the rise has been from under-65s. The rise was split about equally between the employed and the unemployed, although the employed and pensioners still make up a majority of clients.

There has been a modest increase of claimants in social housing, but the number in private accommodation increased by 60%, from 1 million to 1.6 million. During this period the average award in the private rented sector went from £100.35 a week to a peak of £111.76 and then declined to £107.24. The total amount being spent in this sector went from £495 million per month to an all-time high of £762 million.

In other words: since November 2008, because of the recession an additional £7,000 million has been given to private sector landlords by the government.

Who are these private sector landlords? Well, we know that the amount of private rented accommodation went up in England from 2.1 million in 1997 to 4 million in 2010. There are 1.4 million outstanding buy-to-let mortgages in the UK, which accounts for most of that.

So, it looks like a large number of people are living in buy-to-let properties, and paying enough to cover their landlord's mortgage payments (unless the landlord is unwisely depending upon capital appreciation to make up the difference). In the olden days, Housing Benefit could make mortgage payments, but only on interest - this has appears to have been replaced with a Support for Mortgage Interest payment. Neither of these things would repay the capital for a very good reason - it wouldn't be a very good use of taxpayer's money to pay off someone's mortgage.

I am not entirely clear on why it is a good use of taxpayer's money to pay off someone's mortgage if they are a buy-to-let investor. Furthermore, it appears that lots of buy-to-let investors dodge tax, possibly because they were unaware that only the interest part of their repayments can be set against the rental income. Regardless of whether or not this was intentional, some buy-to-let investors would only have done so because their sums were wrong, and they could not actually legally run at a profit (I've asked HMRC for their estimate of tax evasion from this, it'll be interesting to find out). Tax evasion-led buy-to-let investment probably inflated the housing bubble somewhat, even!

So, there is a problem. Housing benefit is going directly into the pockets of people who were already rich enough to have invested in extra housing during the housing bubble (and also, let's not forget, people who won the right-to-buy lottery), who are possibly also tax scammers. Housing benefit claimants are, let's admit, not going to be massively price sensitive as long as they are within the allowed limit (I mean, why should they be?), so what incentive is there for private landlords to reduce the amount they are charging?

To their credit, the Tories have diagnosed some of this problem, but they then attack it from the wrong end. The state is paying for approximately 1/3 of private rented accommodation. It should have immense negotiating power in the housing market, but it cannot exercise this because this is split between millions of negotiating agents acting independently, and who are being played off against each other by those landlords willing to accept DSS tenants... So, we have their solution to this which is: caps on what people can claim. Which will fairly inhumanely move people out of a few hotspots, perhaps saving the odd million or ten, but it will do nothing to address the underlying problem.

So, how can the state actually properly exercise its massive buying power? One way might be to impose rent caps from the other side. I somehow don't see a Conservative government doing that. Funny thing is though, it used to be part of the political discourse (along with price controls and a 95% marginal rate of income tax!), having only really been abolished by Thatcher. So, are there any approaches that simply involve the government as an actor rather than using its legislative power to bypass the free market? Well, it could block-rent an awful lot of private property, getting a better deal on rent than the individuals could manage on their own, and then sub-let to people eligible to claim housing benefit.

Hang on, this is getting awfully reminiscent of something, isn't it? So: it could get in the game itself. This is why social housing was such a good idea in the first place. The rent covers its operating costs, but the the average social housing award is £30/week less than a private one. That saving over fifty years will easily cover building costs, and then the state will have the asset, not the random third party.

But perhaps we don't need to do a massive building programme just yet. Another factor is that there are over a half a million empty houses in England alone, although it's not entirely clear whether they are in the right places or of the right sort - certainly many of them will be part of the flat glut. If these were all forced onto the private rented market somehow, then that would result in a 20% increase in the availability of homes, which would have to reduce market rates a lot. Bringing them back doesn't need to involve expensive administrative effort from councils, but could be done through the taxation system. Just keep raising the council tax on vacant properties until the total number decreases to an acceptable level. Simples. Or this could be addressed through the planning system. I mean, they have planning permission as dwellings, after all, not as home-shaped art installations. Surely leaving something empty for a long time is a change of use?

tl;dr Housing benefit increases are the result of the inequitable distribution of capital.

LIBOR and the bailout

In my previous post I asked some obvious questions about the LIBOR scandal, which are beginning to be picked up on. From going through the news archives for October 2008, I've now got some answers. So, here's a narrative :-

In September 2008, things had got quite bad already, with banks being unwilling to lend to each other - which is to say LIBOR was too high. We now know that this figure was an underestimate, disguising the magnitude of unhealthiness.

The UK government announced a massive rescue plan on Wednesday October 8, 2008, including central banking interest rate cuts from the Bank of England, the ECB and the Fed. The main aim of this co-ordinated measure was to reduce LIBOR.

It did not immediately work. By the end of the week it instead went up. Of course, they had been lying about it before, and they were lying about it now. Maybe the true rate had decreased, it's just that they had to lie less about it.

It not having lowered spooked the central banks, so the next Monday they (this time the BoE, the ECB and the Swiss National Bank), announced unlimited emergency loans. The same day the government agreed to pump capital into RBS, Lloyds and HBOS. This second intervention did have the effect of making the rates drop. Meanwhile, Barclays was able to decline government money and get new money from Qatar. This was seen as the end of the immediate crisis.

We of course know now that this key element - LIBOR - that policymakers were so worried about, and was sold to us as the justification for these massive bailouts, was rotten to the core because the bankers had been lying to each other and to us. Make no mistake: this was not using a back-channel to manipulate arbitrage to get slightly better margins in risky deals. This was the deliberate manipulation of state policy by massive lying, for financial gain.

We're never going to know what would have happened otherwise. Two things are certain: The problems in the financial industry would have been fully revealed, and therefore central banks' actions would have been different. Would the central banks have made Wednesday's offer bigger? Would they have gone straight to Monday's offer? Would they have just said "actually, no, you're not too big to fail", and made good on those deposit guarantees? Would Barclays' new investors have done so if Barclays had not been lying about LIBOR?

A banking sector that had completely failed and was mostly in state hands would have been a very different thing to what we got. Perhaps the idea of publicly-traded retail banks would be utterly discredited and we'd be talking of mutualising the entire sector by now? They just narrowly avoided an utter rout, and this is how - by scamming us.

Sunday, 1 July 2012

Railways: a history and a future

Nationalisation is not a word you hear very often these days, but it might just get in to Labour's 2015 manifesto, at least with regards to the railways. (actual report is here) How did the system end up in this state, and is there any hope for the future?

Let's go back in time to the 19th century. Railways were initially built by private companies and run as independent businesses. Even then, though, there was some level of state involvement, as land acquisition was hard, and the railways relied on private Acts of Parliament to compulsorily purchase the land. Without these Private Acts there could have been no long-distance railways. These companies were run as for-profit concerns, but there was a "railway bubble", and lots of money was wasted building routes that could never be economic, or duplicated other routes. People lost their savings.

Step forward half a century, and you have the railway industry just before the first world war, which you'd think of as the peak. However, many railway companies were losing money. After the war the railways were Grouped - which is to say that Parliament amalgamated them into four large companies (the Great Western, the London, Midland and Scottish, the London and North Eastern, and Southern).

By the 1940s, it was clear that that motor vehicles were leading to a paradigm shift in transport. In 1948, the four companies were suffering badly (arguably due to the war), and were nationalised as British Railways, by Clement Atlee's socialist Labour government. The railways continued to lose money into the 1950s. The Modernisation Plan of 1955 made some important changes (such as the withdrawal of steam), but made several miscalls, in particular seeing a future in wagonload freight.

It is in this context that we come to Mr. Beeching, who was tasked by Harold Macmillan's government with cutting the losses in an industry which was by now assumed to be on a permanent decline. He found the lines that were most unprofitable when considered on their own, and closed them. In doing so, the network effect was broken. No more was the railway a way of getting from point-to-point anywhere in the country, and faced with the choice of driving to their nearest railhead and taking the train, or just driving to their destination, many people just chose the latter - especially given the investment in motorways. But eventually, a strange thing happened - this decline levelled out. This was a combination of roads now becoming congested, and initiatives like the InterCity 125, which made long journeys massively faster by rail.

British Rail continued ascendant in the 1980s, with an internal reorganisation ("Sectorisation"), electrification of lines, the introduction of new standardised trains for suburban operation, and an increase in passenger numbers while its subsidy remained level. Government even saw the benefit of urban railways in regeneration, with improvements to Merseyrail, the North London Line, and the creation of the DLR.

And then John Major came. Now, privatisation was fairly fashionable in the 1980s, but Thatcher left the railways well alone. I'm old enough to remember the bitter fighting over the privatisation, and I remember a particular concern being the structure the industry would have.

To replace British Railways - which is ostensibly being privatised because it is a limbering bureaucratic monstrosity - it was instead split into 1 infrastructure owner, 3 rolling stock companies (ROSCOs), and 25 train operating companies (TOCs), along with various other players, all of whom had complex contractual arrangements with each other, which had to be synthesised out of thin air rather than evolving out of best practice or informed negotiation. The reason for there being so many train companies is "competition". Now, it's easy to mock this and many have, as most journeys are monopolies - but they are not supposed to be competing with each other for passengers. They are supposed to be competing against each other for franchises. Every few years, they bid for control over a set of routes, and the DfT picks the option that conforms to a minimum standard of service while producing the best return for the exchequer. This is all very well unless the winning bid was so overoptimistic in their predictions they can't deliver and end up giving the keys back early. This has happened twice on the ECML now, which led to the formation of East Coast (run by the ironically named arms-length Directly Operated Railways).

It was promised that private money would be able to provide new investment, but in fact the ongoing replacement of old stock with shiny new trains was halted for two years. The infrastructure owner, Railtrack, was floated in spring 1996, which raised £1.9 billion pounds. The stock price rose by 300% over the next two years (and though there was an economy recovery and rise in the FTSE 100 during this period, it was nothing comparable), apparently because it starved tracks of needed maintenance money in order to issue large dividends, safe in the knowledge that the government would bail it out.

We know how that one ended: it didn't. But while the infrastructure has been brought under effective state control as Network Rail, the costs still suffer from years of "railway inflation" (or, as Modern Railways puts it, "boiling frog syndrome"), at well in excess of RPI. The government explained this in 2006 as the result of contractors being able to negotiate better prices. Each big project is divided into different contracts, each bit competing against each other to get the contractors. A proper monopsony would have better buying power, and it is for that reason, and others that Network Rail took maintenance in-house. But even after years of paying over the odds, it's difficult politically to force skilled workers within a sector to take a pay cut (especially if they are working overtime and odd hours in order that you can get the work done out of working hours, so that you don't have to pay compensation to other bits of the industry.)

But, we have, for all its faults, a dynamic new railway network today, don't we? So privatisation must have succeeded, in the end? We see modern trains appearing on our railway lines, new railway stations open, sometimes even old lines reopening, smartcard ticketing, the transformation of the old Silverlink suburban network in London. And passenger numbers are booming!

Except that the state has been the source of every single one of these innovations - TOCs only run new services when they are included in their bid, the DfT has to underwrite the trains because the rolling stock companies are afraid to, local governments have paid for the station reopenings and new lines, and Oyster and the London Overground were driven by TfL and Ken Livingstone. Passengers are only using the railways in greater numbers because the alternatives are also awful. Schemes to improve public transport are sometimes avoided because they would be too popular - witness the lack of a Central line station at Shoreditch High Street. TOCs who are the main companies that interact with passengers and therefore would be the people who can see the potential for the future, were all massively undercapitalised - all the assets are owned by Network Rail or the rolling stock owning companies, who were quite happy sweating the assets rather than borrowing to produce future returns.

You might be able to fix that by twiddling around with the structure, but an attempt to integrate TOCs and the infrastructure would have to deal with the problem of "joint running" - where two TOCs share lines. Longer franchises have been mooted, but even 20 years isn't close to the length of a new train's expected lifetime.

So, given that the Overground is working, then why not expand that model? It's certainly a massively popular vote-winner in London, which is why even Boris Johnson wants to put as much of the London suburban network under TfL supervision as is practicable, and there's not even a doubt that Crossrail will be run like the Overground.

If we accept that some level of subsidy for the railways is an essential part of making this country work (as we do without question for the roads) then the question is how this money is best spent. Savings can be made by reducing the industry's internal bureaucracy (there are how many CEOs and directors all earning six-figure salaries?). Use the industry's true buying power by ordering large numbers of standard trains, which then can be deployed flexibly in accordance with changing demand rather than being tied to one TOC's pitch. Finish with this stop-start flow of orders, which adds to Derby's costs, and instead try to keep its order book full. And we can try to save money on the operational side of things by rolling out driver-only-operation everywhere (I'm sorry, but if it's safe on the tube, it's safe anywhere), while making guarantees that guards will still have jobs elsewhere in the railway.

With this money, let's displace journeys that would otherwise take place on the roads. This certainly involves lengthening trains and platforms, and perhaps reopening stations and lines to provide a more coherent railway network, and introducing suburban services where they have been withdrawn. Maybe that involves electrifying lines before we are forced to rush-electrify the entire network by peak oil 30 years from now. And perhaps we pick our battles, abandon the attempt to compete with air travel, and not build HS2, instead spending the sum on smaller projects with a greater collective impact.

Thursday, 28 June 2012

a good day to bury bad News

Rupert Murdoch must be gleeful at the Barclays/banking scandal erupting, just as the News Corporation board agrees plans to split its entertainment and publishing divisions. On any other day this would have been the biggest business news.

The Murdochs have 40% of votes in News, enough to control it unless independent shareholders were unusually rebellious. But they have been getting increasingly dissatisfied with the Murdoch regime - after News bought Elisabeth Murdoch's production company Shine for £400m - two pension funds sued News for "paying for nepotism".

This split has apparently been something desired by non-Murdoch owners for ages, but has gained new impetus with the hacking scandal and the toxification of the News brand. After the de-merger, the share price of News Entertainment (or Fox, as I suppose it will be called) will rise, while that of News Publishing will drop. The losses that the Times and other upmarket newspapers are making will be much harder to justify in the context of the smaller business. Rupert himself has sentimental reasons for keeping them going - they buy him a certain respectability that he craves - but he is getting old, and his children appear to have no such attachment to the print business. So this could be the beginning of the end for the Times.

But some foreign oligarch will want to buy it, no doubt. If Lebedev is willing to shovel money into the Independent, then there's bound to be someone who'll subsidise the far more prestigious Times. Until they get bored, or until they trash the reputation enough... and then what happens?

Another thing that might come out of this is the Sun's relationship with Sky. Readers of that fine newspaper - or of Private Eye - will be familiar with its practice of plugging Sky relentlessly at any opportunity. Will this continue under the split? I guess it'll decline. And will that have an effect on Sky? I guess so, otherwise they wouldn't be doing all the cross-promotion they do. This could be interesting, very interesting!

Wednesday, 27 June 2012

Barclays and LIBOR

So, today's big news is Barclays admitting to fiddling figures. The story is curiously limited. The number is question is LIBOR, which may ring a bell. It is the very number that everyone was terribly concerned about back in 2008!

Now, there's a story about how they were directly manipulating the market from 2005 onwards, which is very worrying, and has been the focus of most anger. Almost as a footnote, the BBC note

And between 2007 and 2009, during the height of the banking crisis, the staff put in artificially low figures, to avoid the suspicion that Barclays was under financial stress and thus having to borrow at noticeably higher rates than its competitors.

But what are the broader implications? Who did this harm specifically? During the financial crisis, Barclays managed to recapitalise without accepting significant state ownership - unlike RBS and Lloyds. Is it possible it avoided this simply because it was lying about the numbers?

On the other hand, perhaps, as suggested elsewhere, Barclays are simply the first to 'fess up and other banks were also in on it. Why then, collectively, did they do this? For how long have they been doing it? Was the sudden jump in LIBOR in 2008 that precipitated so much panic actually an unacknowledged adjustment to honest values? If so, wouldn't we have had much more warning if rates had started rising sooner?

This chart from Wikipedia shows the LIBOR rate in 2008. It spiked in September, at about the time that Lehman Brothers went kablooey, but had been curiously flat for the three months before then.

It seems strange to find articles like this, and this, with Barclays and others openly talking about the problems with LIBOR, but it does support the "informant" theory. According to that last one:

The BBA said last month [April 2008] that it would throw out any member found deliberately understating rates.

No prizes for guessing whether that's really going to happen.

Tuesday, 26 June 2012

political party funding

There are basically three political parties with MPs in England - the Conservatives, Labour and the Liberal Democrats. Though the parties have split and reconfigured somewhat (most recently a faction of the Labour party split off at the SDP before eventually merging with the Liberal party to form the Liberal Democrats), this troika has remained more or less the same for over a hundred years. They are the only parties ever to have been in government during this period.

This means that anyone wanting to make a career in national politics is faced with a choice between joining one of these parties, or standing outside. Sure, there have been a few independent MPs, and minor parties like the Greens and RESPECT have seats even today, but, as they say, the exception proves the rule.

This has been a fairly stable system for a couple of interlinked reasons. Firstly, electoral success breeds success, because of our voting system. You have to use your one vote carefully. If a voter was operating entirely in isolation - that they didn't know that the real choice in the constituency was between the Three Parties, then they might come to an entirely different conclusion about who to vote for on the basis of their manifesto. Voting for the least evil out of Conservative or Labour is tactical voting.

This sort of distortion would probably have a tendency to happen even without the second reason, which is that running an electorally successful political party takes money. Only so much can be done with volunteer work in terms of organisation, and there are billboards, leaflets, posters, transport and so on to pay for. It takes fairly big amounts of money - in total the three main parties spent nearly thirty million pounds at the last general election. Let's be crude here - the Tories spent £16,682,874, Labour spent £8,009,483 and the Lib Dems £4,787,595, so the going rate for an MP is £30,000 to £84,000. (It's interesting that the Conservatives seem to spend more money per MP than the others. Either they're ineffectively spending it, or they have a harder sell?). Notably, the only other political parties to pick up MPs in Great Britain - the SNP, Plaid, and the Greens also spent six figure numbers. The only party to have spent more than £50,000 but failed to get an MP was UKIP, who are geographically spread thinner than the others, but are Most Likely New Party To Get An MP In 2015 in this blog's view.

Political parties aren't really mass membership organisations in the UK in the same way they used to be - Labour and the Conservatives both have short of 200,000 members, way down from their historic peaks in the 1950s. So, that's forty to eighty quid each, just for the campaign - whereas most members will be "lurkers" who pay the membership fee and are not involved in the party structure. Those numbers are why political parties are so desperate for large donors. Fairly obviously, organisations with cash to spare seeking to influence the result of general elections are not going to bet on a fourth horse. They'll go for the parties where there's an actual chance they'll influence the result, rather than the ones that match their principles most closely. It would, after all, a violation of their duty to their shareholders to disperse funds on a whim. Individual people with fortunes are less picky - witness the Referendum Party. But, by definition, those with money to spare, whether corporate or personal, on such things must already be doing quite well. Those who the system is failing will have less to spend.

Now, any Americans reading this will be laughing at these sums of money. Election campaigns are much more expensive there, because of paid political advertisements on television. We don't have those here - we have party political/election broadcasts. Paid political ads are banned, and parties get free slots on the five public service television channels. It's a bit hard to calculate how much these slots are worth, because they don't act like adverts much, but it's clearly a lot. Significantly, the BBC broadcast them, and money can't buy that. This airtime is a hidden subsidy provided by the television stations to the big parties. Now, you might be wondering at this stage - who gets the broadcasts? Well, the big established parties, of course. They give one miserly broadcast to any party who has nominated candidates in 1/6th of the seats. In a discussion paper from December 2001, the Electoral Commission noted that

The effective raising of the threshold for small parties to qualify for PEBs, from 50 seats to one-sixth of contested seats, was made partly in order to deter organisations from fielding candidates so as to qualify for a PEB for their own publicity purposes rather than for genuine electoral purposes.
So, apparently PEBs do accrue significant publicity benefits other than for the current electoral campaign, enough to change the system to disbenefit parties who did that. But don't the big parties also do well from the ongoing publicity?

The current ITC Guidelines specifically say that account should be taken of "significant levels of previous electoral support, evidence of significant current support". In other words, if you have support already, you can use the free publicity provided by the TV stations to bolster your support! If you don't, you'll somehow have to get your support above that threshold before you get treated like a big player. If I made a board game like this people would say it was rubbish. So why is our political system set up like that?

Why do we have rules against outright bribery and buying of votes anyway? Is it because we find that particular act abhorrent in itself? Or is it that we think that in calls into question the fairness of elections if it is possible for wealth to be used to influence the result. I say, the latter. This is supported by electoral law, which bans "treating", as well as explicit vote-buying. Additionally, it is wrong for the state and the media to give certain political parties an in-built advantage in fundraising and publicity. Politicians lament the decline in turnout, and the decline of party activism, and wonder what they can do about it; while soliciting multi-millionaire donors. I think it's no surprise that this happens when it comes down to a battle as to who can spend the most money. Yes, they need the cash and that's a low-effort way of getting it, so I can't fault them individually necessarily.

But the system is broken, and they need to see the bigger picture, and admit that and make some severe structural reforms to it. State funding based on previous electoral success will undemocratically further lock in the big parties. A donation cap of £5,000, as supported by Labour, isn't even close. It should be set at an amount someone on an average wage could afford. It'll annoy their current donors, of course. But we need to do this to get the money out of politics and get people back on the doorsteps.

Thursday, 21 June 2012

Jersey's problem

Jimmy Carr is not the problem. Why does this always have to come down to personalities? Perhaps Jersey is the problem. Jersey has a strange constitutional relationship with the UK - it is another territory of the Queen, not part of the UK and not subject to Parliament's laws 1, and is not in the European Union, even. It gets the benefit of relying upon the UK's defence and foreign affairs networks 2. And there's an implicit guarantee of rule of law that the UK provides. It's used this pseudo-sovereignty to reduce taxes to attract corporations, to provide employment and revenue.

You'd, therefore, think that the States of Jersey were rolling in it from all the foreign companies having nameplates there, right? It turns out that it's a bit more complicated than that. Supposedly, the UK exchequer subsidises Man, which has therefore been able to put its corporation tax to nil. Consequently Jersey and Guernsey have had to put their taxes down to match, and their public finances are running at a deficit! I had assumed Jersey was actually getting some benefit out of this arrangement. But no, they're being screwed as well. They even had to introduce a new VAT-like tax in 2007 - at the height of the bubble, to cover the gap, and then had to raise it from 3% to 5%, while looking at cutting spending by several millions still.

Ultimately, it doesn't matter whether this is the result of subsidy from the UK to Man - either way, it's a dangerous game for Jersey to be in. The only reason they're competing against Man in terms of tax rates is to be the best English-speaking northwest European tax haven. It's not like you'd decide to put your business in either Man or Jersey on some other criteria and then pick the lower taxed one as a second factor. So presumably they must see some benefit in playing that game in the first place? A non-tax haven Jersey might be more like the Isle of Wight than the Isle of Dogs. It could be better off like that in the long run, but that would be a fairly revolutionary change, and the current state is probably a local maxima. If they raise corporate taxes slightly, then everyone goes to Man, and revenue declines.

In short, this is a classic race-to-the-bottom situation. There's a simple solution, though. Give it (and Guernsey and the Isle of Man) a choice: incorporation into the United Kingdom (presumably as additional home nations with devolution akin to Scotland's, or greater), or full independence. If you want to be part of our polity to the extent that you are, you have to pay our taxes. If you don't, that's cool, you can go off and become a Commonwealth Realm or republic or whatever you like. No business of ours. If you chose annexation, we'd hope to raise so much extra revenue as a result that we can afford to offer subsidy to you, for improvements in people's lives there, that you can't afford because of being trapped in this tax-haven rut. We'll even guarantee that subsidy if the revenues don't materialise. I see both options as better than the status quo for everyone, and there's also the extra bonus of addressing the undemocratic nature of the crown dependencies status.

  1. Parliament still claims the right to legislate for Jersey, but it would be pretty undemocratic considering there isn't an MP for Jersey
  2. which it does, in fairness, pay a contribution toward
  3. an earlier version of this said, rhetorically, "protected by our Navy". Of course, the last time this came into question, the Navy wasn't much use.