Category: Politics

Politics in the UK, with a Liberal Democrat (LibDem) slant

Aug 24 2011

The British sport of bashing the bankers

It’s very popular these days to blame the “bankers” for the recession, and indeed “bash the bankers”. No doubt some of this enthusiasm is down to the fact that “bankers” sounds a bit like “wankers”, and many gain a simple pleasure from this recognition.

Finance (or banking) meant that I could afford to buy a house costing £50,000 with a salary of only £25,000 (this was some time ago!), and investment means that companies wishing to grow can do so without having to painstakingly build up cash reserves by trading. Dealing in these investments is what will help pay for my retirement through my pensions – this is true for both my Universities Superannuation Scheme and my company pension. Insurance helps us to cope with financial shocks we could not otherwise bear, the premiums for this insurance are often invested so reducing the amount of the premiums.

Banking is a mild confidence trick, it generates extra cash on the basis of anticipated future income. The crash happened because banks lent to people who, it turns out, couldn’t realistically be expected to provide that future income. On realising this the banks found they had promised the provision of rather more money than they had access to and flapped around trying to call that money in. More specifically, in the US, banks were giving mortgages to people who didn’t have jobs but who could “afford” a mortgage because “of course” the value of the properties was always going to increase and so the interest on the mortgage would be covered by the rising house value. This scheme worked because these dodgy mortgages were bundled up together and then traded. The bundling reduces the risk, as long as there is no systematic shock that effects all of the mortgages in the bundle.

The bank bailout was not a cash gift in the sense that you might give me £50 for my birthday, it was money to give the banks confidence to keep lending out money which many of us need to live in the manner to which we have become accustomed. In a way the current lending targets for banks are perverse: we’re in the position we are in now because the banks lent more generously than was wise – now we’re encouraging them to lend more than they would otherwise wish.

The bank hardest hit by the crash in the UK was Northern Rock, not a bank engaging in particularly aggressive or exotic trading, rather one that gave the opportunity of owning a house to rather more people than it was strictly wise to do so. In retrospect you could see the seeds of this over-lending 10 years ago, when I was offered a mortgage 4x joint salary, or when you saw all those programs featuring people in their twenties who had £20,000 and above on credit card bills built up on purchases they didn’t need and couldn’t afford.

This isn’t to say the financial sector is without faults: they have a habit of selling products to people who don’t need them (like that mortgage protection plan you sold me Cheltenham and Gloucester), they invent financial abstractions which no-one has a hope in hell of understanding and, because they preside over large money flows, they are able to pay themselves very nicely by extracting a small charge from those vast flows whilst many people are not doing so well.

For me this is personal: my brother has worked in the IT departments of several investment banks, currently the town where I live is facing the possibility of 3,500 job loses because the Bank of America may be closing its credit card handling centre. I don’t want the 3,500 or the one to lose their jobs.

It’s easy for politicians to piggy-back on this enthusiasm for banker bashing but we should be aware that many of the things we take for granted are built with the support of the financial industry.

Aug 18 2011

University is not the universe

Today is A-level results day in England and Wales – A-levels are your passport to university and seem to be seen as the be all and end all of the school education system. Today we are provided with the annual entertainment of noting that this story is usually illustrated in the press with attractive young ladies (often jumping), and the rather shocking news that this is driven as much by certain schools* as it is by journalists. Tomorrow we can expect stories on how A levels are getting easier.

This does detract from the key point of the day: which is to mark the achievement of academically inclined students who have been working industriously for the last couple of years whilst they battle with the horrors of being a teenager. Well done to you all!

Over the past 20 years or so it seems our entire focus has been on getting people to university to do degrees and build the knowledge economy. But are we right to place so much emphasis on attending university? Is this a piece of cargo-cult science whereby we have observed in the past that people who go to university are often more “successful” than those that don’t and assume that the “going to university” bit is the key to success – therefore if we can get more people to go to university they, and the country, will be more successful?

Amongst the great battle over tuition fees, those that do not attend university, who missed out on this often middle-class rite of passage were entirely ignored. We don’t celebrate people who go off to learn how to be plumbers, electricians, carpenters and so forth. We don’t celebrate the people who I work with, who joined the company out of school and have done university degrees part-time. We don’t celebrate the now increasing numbers going off to do apprenticeships. These are all people, equally valuable to society, whose jobs simply don’t require a degree to do their jobs.

*article by Chris Cook at the FT, available by free registration

 

Jul 29 2011

Still love the NHS?

In todays news: reports that some NHS trusts were setting “minimum waiting times” which were “too long” for elective surgery. The reason being that if you wait long enough people will drop off your waiting list, either by going private or dying. That there even exist minimum waiting times set by the trusts should be a cause for concern, let alone how long they are.

For me this is personal: last year I had minor elective surgery – I started off in the NHS but then decided to use my private medical insurance. I wasn’t going to die of my condition, the worst-case was an emergency circumcision; however I was in discomfort, a bit of worry and occasional pain, and as time progressed things were getting worse.

So the idea that the NHS was waiting for me to drop off their waiting list pisses me off somewhat. If they’d said at the earliest possible instance “please piss off”, I would have done so immediately. Of course they didn’t tell me to piss off because had it become public they would have suffered from some opprobrium.

My private medical insurer had me treated within a month from first presentation, the only reason it wasn’t quicker was that my surgeon was going on holiday for two weeks and I decided not to make the time before he went – it could have been under two weeks. The NHS would have taken 4 months – I know this because through an administrative error I received an appointment for my operation on the NHS as I returned to work.

The behaviour of the trusts in this instance is entirely rational, as is that of my private hospital. The trusts have been paid already, if I don’t have an operation then they’re “quids in”. My private hospital, on the other hand, wants me to have an operation, because they won’t get paid until I have it. This is actually the problem with fully private medical systems: for people that can afford treatment it is in the interests of the provider to provide as much medical treatment as the patient can pay for.

The problem with the NHS is that it is a highly cost effective system directed at providing universal second-rate care. It will remain so because anyone proposing a change radical enough to make it better will be assailed by people who “Love the NHS” and want to “Save the NHS”. Notice here they don’t care about your treatment, they care about the service provider.

Don’t love the NHS, it is a public corporate entity, it can’t love you back. Only people can love you.

Jul 23 2011

Book review: “The Orange Book: Reclaiming Liberalism”

Orange_BookI suspect most people will see me as an "Orange Book" Liberal Democrat, so I thought I should read the eponymous "The Orange Book: Reclaiming Liberalism" edited by Paul Marshall and David Laws.

The Orange Book was first published in 2004, when Charles Kennedy was leader of the Liberal Democrats. He contributes a foreword which is fully supportive of the Liberal inheritance but a little guarded on the policies proposed. The book was written at a time when Labour had been in government for 7 years, the start of the Iraq War was one year past and the economic outlook was fair.

The contributors include Nick Clegg (an MEP at the time), Vince Cable, David Laws, Ed Davey, Chris Huhne, Susan Kramer, Mark Oaten, Steve Webb, Jo Holland and Paul Marshall. The essays cover Liberalism, localism, Europe, global governance, economics and social justice, the environment, the health service, crime, family policy and pension reform.

The value of the essay over a news presentation of policy is that the proposals are preceded with some sort of background indicating how they were motivated; as a consequence I found The Orange Book rather more interesting reading than I was expecting.

The book starts with an essay by David Laws on the Liberal inheritance; decomposing it into the personal (to do with individual freedoms), political (devolution and Europe), economic (free trade and controlling state as well as private monopolies), social liberalism (welfare and health by consumer power). Along with Paul Marshall in the introduction he has some harsh words for socialism.

Ed Davey’s piece on localism and Nick Clegg’s on Europe fit well together: envisaging respectively dissociation of power from Westminster to local councils and Europe. I commented after the election that an accommodation with the Tories over Europe was not as surprising as many people had thought; the seeds of this can be seen in Nick Clegg’s chapter where he advocates abolition of the Common Agricultural Policy and repatriation of the powers that led to the social chapter and much of the regional support mechanism leaving behind only those components that provide inter-country benefits and support for regions whose governments could not provide support themselves. Somewhat less comfortable an idea for Tories will be more foreign and immigration and asylum policy being handled at the European level. Clegg also provides a catchy headline to keep the EU in proportion: it has a budget of 1% of European GDP and a civil service the size of Birmingham City Council.

Ed Davey’s piece on localism (devolving power to local councils) is well-established Liberal Democrat policy, and looks to more control by local democratic institutions rather than central government. A benefit of this approach is that services can be crafted to local needs rather than a central blueprint, furthermore it allows for more experimentation at smaller scale as to how to best deliver services. To enable this shift there needs to be improvement in the accountability of local councils, with the ending of local one-party states through fairer votes.

For reasons I can’t quite fathom the chapters on global governance, liberal economics and social justice, and the environment passed me by without making a great deal of impact.

Mark Oaten’s headline of Tough Liberalism regarding crime seems a little out of place since the emphasis of his piece is on education within the prison system and seeing the process of release of prisoners into the community at the end of their sentences as a “settlement” not “re-settlement” since many prisoners have never had settled lives to return to.

David Laws’ second chapter is on the health service: it outlines the flaws of the NHS, what the goals should be for the health service and proposes a solution. He sees a scheme of simply boosting funding through the current mechanism as being a short-term solution – easily susceptible to future unravelling. Perhaps it will be a surprise to many that he sees one of the problems with the NHS that its cost control is too effective, referencing the phenomenally high bed occupancy rate which leads to longer waiting times. His proposal is for a National Health Insurance Scheme with the NHS as one potential supplier of care with providers only able to offer non-clinical services as top-up to the national insurance specified clinical services. This scheme is based on those found in other European countries.

The chapter by Steve Webb and Jo Holland on family policy seems a little more interventionist than might be considered Liberal with an apparent enthusiasm for encouraging marriage rather than partnership. However, one welcome idea is to scrap a target for getting 70% of single parents into work. This attitude has always struck me as a bit jarring: that work is so important that the State will encourage you to work whilst paying someone else for the work of raising your children.

The book finishes with a chapter on pensions, a subject close to my heart at the moment. Liberals have been at the heart of pensions from their inception in the UK with Lloyd George and later in the Beveridge Report implemented by Labour in the post-war government. The problem with pensions is that since Beveridge, in the 1940s, things have changed a lot. The original pension scheme is pay-as-you-go: current payers of National Insurance pay for current claimants. No-one is contributing to their own state pension. At the time of its foundation in 1948 this scheme was relatively inexpensive (only £4billion per year in current terms), currently the state pension costs £40billion per year – due to a larger retired population relative to those working. For this reason the value of the state pension has fallen over the years since there is not the political will to lift current contributions to match the original commitment. Marshall proposes a compulsory funded pension to supplement the current system. The funding system at least forces the government to be explicit about their liabilities in pensions. Over the next 20 years or so the pensions problem will become more acute: currently the dependency ratio (the ratio of those in retirement to those in work) is 0.3 by 2030 it will be 0.4.

Regardless of whether you agree or disagree with the policies presented this is the type of policy discussion I expect to see taking place in my party. The "Orange Book" label feels more like an attempt to personalise a division between old-style Liberals and social democrats, and to cut off the Liberals from a Liberal past rather than any useful description of political thought. It also has the air of being more about Coalition with the Tories rather than any differences in policy.

Jul 06 2011

The Two Cultures

It feels that there are two cultures growing up in the world of work, that of the public and the private sectors. If you believe reports in the news, public sector workers have gold-plated pensions and vast salaries for which they do very little, and the private sector is filled with the venial moneygrabbers who can provide no service to the public, and are actively intent on harming them.

I worked in the almost-public university sector, and now in the private sector – albeit in a very large company. The similarities are quite striking: both are subjected to continual change as the result of the appointment of a new ruling clique, and often operate in Byzantine bureaucratic systems.

These days, in the private sector, my tenure is clearly not secure and never has been, despite continuing success the number of people employed in my company has decreased by over a half since 2000. I receive a bonus, or variable-pay, it is variable and it is not pensionable. 

Last week many public sector workers were on strike over their pensions.

Comparisons with private sector pensions miss the point: in the public sector 90% of full-time workers have a pension, in the private sector only 43% of the full-time workforce have a pension [source]. The glib answer to this is that we should attempt to improve the pensions of all workers. However, we should understand why pensions are not a given in the private sector.  

Consider the nature of the organisations involved: the UK government has been around for hundreds of years, and we can anticipate it will do so similarly for hundreds of years. It also has a good credit record, if we are owed money by the government there is a good chance that we’ll get because at any time the government has a sizeable tax base on which it can call. As employees of the government we can expect substantial job security. A pension plan based on 1/80ths of income accrued per year actually seems a plausible bet: you can still expect to serve a substantial fraction of that with one public employer. It’s not the same in the private sector.

For most companies 40 years is an unimaginable period of time, as it is for their employees. In 40 years many successful companies will have lived out their lives, only a few such as the one I belong to, last longer. In the recent past private pension funds have collapsed leaving their members with nothing. As a university lecturer I could quite reasonably look forward to being employed as a university lecturer for the rest of my working life. As an industrial research scientist my time horizon is about 5 years, and actually it is entirely plausible that we will all be called to a meeting tomorrow to discover that the site I work on is to be closed.

That’s the deal for big organisations, public and private but there is a third group: Have you tried to get a plumber, or similar skilled, self-employed worker recently? If you have you’ll have found that they’re remarkably available at the moment, that’s because they have no work and when they have no work they don’t get paid. The same is true for many small businesses and self-employed people. It’s not like my job, or any job in the public sector where there may be a pay freeze for for a few years. For these people recession and a drop in the GDP doesn’t just mean a pay freeze, it means a substantial drop in income – that’s what a drop in GDP is, it really means that a whole load of people are getting noticeably less than they did the previous year. The recent recession in the UK led to a drop in GDP of around 5%. The effects on me, in a big company, and those in the public sector are relatively small, so the impact on this other group are larger than the headline.

Meanwhile the company I work for is attempting changes to our pension scheme: a few years ago the final salary scheme was closed to new entrants, this year they have proposed to close the scheme for current members. The company’s stated policy is to go towards a defined contributions scheme, although that hasn’t happened yet. For people like me this means an expected loss in the value of their pension of around 20%. So, despite some misgivings as to the use to which they put their political fund (of which I will attempt to opt-out), I have joined the union.

Power to the people!