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.