Before the election there was much Conservative party talk of a policy which was finally announced in government last October as a Bonfire of the Quangos (Quasi-Autonomous Non-Governmental Organisations), aimed at abolishing 192 Quangos to save money (£1 billion was the target) and reduce the associated bureaucracy.
However, a report by the Commons Public Administration Committee issued in January 2011 has concluded that it could take over 10 years to make significant savings due to existing contractual commitments and rental leases. The Conservative Chairman of the Committee, Bernard Jenkin, views it also as a wasted opportunity to help build the Big Society (See Categories/Chairman?s Blog/Big Society in the right hand index column). He thinks that the responsibilities of an additional 118 Quangos which have been merged mostly into existing government departments, would have been better transferred instead to e.g. charities or mutual organisations, which would in turn have provided much more clearly identified public bodies for stakeholders and civil society to engage with.
Responding to criticisms of conflicting guidelines and ,therefore, inconsistent application Francis Maude, the Cabinet Minister, said the Quango overhaul was not a top-down exercise driven by the centre but a decentralised process led by departments with the overall aim being to increase accountability for State activities. Given the all-pervading influence of the Civil Service within these departments, it is perhaps not surprising that the Head of the Civil Service, Sir Gus O?Donnell, when giving evidence to the Committee was not able to give any estimate of how much will finally be saved, even when given the opportunity for more time to estimate this figure!
Archive for the ‘Chairman »s blog’ Category
Quangos Bonfire
mardi, février 8th, 2011Squeezed Middle
lundi, janvier 24th, 2011One of the first sound-bite attempts of Ed. Milliband, as the newly elected Labour party leader, focussed on the Squeezed Middle of the British electorate for his future national election prospects, although he lost some credibility when questioned due to not being able to more precisely define what he meant by this part of the population. Indeed, the squeezed middle according to Mr Milliband seemed to include anyone neither very rich nor very poor i.e. just about everybody else or perhaps the 75% in the middle who also contribute around the same proportion of total income tax taken by the government. It is interesting then that Reuters today (24 January, 2011) issued a report on Life in Europe »s Squeezed Middle.
In summary, even as Europe has begun to grow again, the global financial crisis which has adversely impacted tens of millions over the last three years is still influencing people and households to watch their budgets, save more and avoid over-extending. The plans and hopes of a generation are seen as having been scaled back and, even if the general economic situation improves, will affect the continent of Europe for years to come. Examples of the experiences so far of austerity affecting relatively affluent people are described for Spain, Germany, Greece, Romania and Britain. In Spain, working Spaniards are facing the fact that they will not be as rich as their parents. Germany is booming again but the experience of being forced to work shorter hours to keep more people employed has left many workers scarred. In Greece, there is a growing wave of emigration. For those Romanians who managed to avoid getting into too much debt from the wide availability of cheap credit, when Romania was the fastest growing economy in the EU two years ago, there are hopes for a better year ahead.
Addressing Britain, the example from the squeezed middle is a young mother with two children and currently unemployed but, thanks to the British policy of mixing affordable social housing with high-end real estate, receiving a subsidy from an independent, not-for-profit housing association to live with her family in one of the most expensive areas of London, next to Westminster Abbey and Big Ben. She, her partner and two children are currently insulated from the impact of the cap on housing benefit introduced by the government as part of the £81 billion public spending cuts. However, their monthly rent of £600 is only a third of what they could be charged on the private market if they were forced to move. That said their annual income of £32,000, just above the national average, comes largely from her partner who works for the London police but is concerned about the security of his job, given the 300,000 public sector positions expected to disappear with government budget cuts, including thousands in the police force. Even if he keeps his job, he will find his pay frozen for the next two years and be paying more into his pension fund. This squeezed middle family is, therefore, already cutting back on unnecessary expenditure before they start feeling the effects of the government cuts.
Considering the examples taken by the Reuters reporters, the squeezed middle covers a rather broad spectrum of which one imagines Conservative party strategists are already well aware. It also seems apparent that although the Office of National Statistics is attributing to the bad weather the unexpected 0.5% contraction in UK GDP for the last 3 months of 2010, the economy currently appears to be stagnating with the squeezed middle concerned about the future and, therefore, cutting back and spending less, offsetting somewhat e.g. the 1% or so growth in manufacturing.
Bankers, Bonuses & Competition
mercredi, janvier 19th, 2011Despite the financial downturn and the continuing public furore, JPMorgan last week announced it was paying its investment bankers some £6 billion in pay and bonuses for 2009. Citigroup, Morgan Stanley & Goldman Sachs will issue their results and bonus plans this week, the latter investment bank expected to announce a pay and bonus pool of around £8.5 billion. The results of British banks will be announced in February, the total associated bonus pool estimated at some £7 billion. Even state-owned Royal Bank of Scotland (RBS) is anticipated to pay its investment banking staff bonuses totalling £1 billion.
Excluding the state, the major shareholders in British banks are institutions such as large insurance groups or fund managers (e.g. on behalf of major pension funds), with those holding the biggest stakes including Legal & General, Axa, Fidelity, Standard Life, Scottish Widows, M&G (of Prudential), Aviva and Schroders. Together they hold around 15% of Barclays, 11% of HSBC, and 7% of Lloyds. These institutions are not necessarily content with the level of bonuses being paid out by the banks because they are also aware that these banks are still rebuilding their capital bases. However, they find themselves at the same time trapped by the demands of a market in which the banks have to pay big bonuses or lose staff to their competitors. Institutions are, therefore, looking to the politicians to find a long term solution to what could be considered a structural issue possibly requiring an overhaul of the banking industry, including the key aspect of competition.
The problem for the politicians, however, is that they cannot risk driving the wealth-creating financial sector offshore, its importance to the UK economy having increased as the proportion contributed by manufacturing has progressively decreased before and during the last 13 years of Labour government. Indeed the banks will pay an estimated £20 billion in tax this year. The Prime Minister has, therefore, called for an end to verbal attacks on the banks and blaming them for all the ills of the economy; the bonus tax demanded by his Liberal Democrat partners in government has also not been taken any further at present. Behind the scenes, the on-going negotiations (code-named Project Merlin) between the government and the banks continue to focus on increased lending to small businesses & restrictions on bonuses, in return.
In fact, bank bonus payments on average are expected to be 20% to 30% down on the year before, although this is said to be mainly due to the trading profits of the big investment banks having collapsed last year. The bankers are also seemingly feeling secure enough to suggest that the period of remorse and apology (e.g. of waiving of bonuses and giving to charity) now needs to end, as evidenced by the performance of Bob Diamond, the new Chief Executive of Barclays, before the Commons Treasury Committee. In addition, new regulations in the UK now mean that over 50% of a bonus must be paid in shares and deferred for 3-5 years, half of the other 50% in cash also deferred but linked to performance targets and the remaining cash then falling into the 50% tax band for top earners, with many bankers now given large increases in basic salary to compensate. This reflects the real world within which, however, the public perception also remains strong that bankers still earn significantly more than other professions, despite the taxpayer having contributed hundreds of billions of pounds to rescue the financial system and large numbers of public sector workers continue to lose their jobs, in what also seems a very unfair world.
Of course, if a major bank or open trading nation such as the UK chose to go against the global market, each would be likely to suffer financially and this then points to the need for a global agreement on financial market regulation. In the absence of this, some in the media point out that the banks make large profits mainly due to seriously overcharging corporate clients, companies which are in turn owned by the same big shareholders. Not all of these profits are returned as dividends to these shareholders, a large part being siphoned off to pay bonuses. There are also apparently, suspiciously similar charges for financial services such as underwriting of share issues, while the number of major players in the market has been reduced by banking failures during the financial crisis. Perhaps the Independent Commission on Banking which is looking into how to improve competition in the financial services industry will ultimately feel the need for a full-scale Competition Commission inquiry, as real competition would be expected to squeeze profits and the associated pay & bonuses. It would also be expected to reduce the level of bonuses paid out to (as admitted by at least one senior banker) quite mediocre talent, who surround the stars that really bring in enormous amounts of business and may well indeed deserve their extraordinary remuneration.
Attack on Aspiration?
mercredi, décembre 29th, 2010Bagehot writing in The Economist magazine of the 18th of December, finds it a shocking failure for a Conservative-led government that, in too many families, its plans for increased tuition fees are seen as an attack on aspiration. The government is said to have been too much on the defensive in the tuition fees debate and should have turned the argument around more and better presented its case that e.g. students will also be more empowered to shop around for the best value for their degree courses. This approach could then link increased tuition fees together with more decentralisation and power to local government, a volunteer-based Big Society and the more autonomous Free Schools, within a single, radical and Conservative concept aimed at limiting what should be expected from the State.
The opportunity is there to win such an argument if one considers the results of an opinion poll by ComRes, taken just after the first student protests in November. Although 70% of the public agreed that higher fees will deter poorer young people from applying to university, the same poll found that 64% of the public agreed that students should share the burden of public sector spending cuts.
Some Conservatives believe that higher tuition fees will empower students because the resulting higher, upfront loans, repayable only after the recipients are earning above a certain level, will in practice encourage students to seek out those courses seeming to offer the best value for money in getting a degree. Such competition for students will in turn force colleges to improve their teaching and offer innovations such as shorter, more intensive courses, courses more tailored to meet the needs of prospective employers, thereby making degrees more accessible not less.
As it is, the Independent School sector is already preparing itself for the impact of increased university tuition fees, which could force middle-income parents to think twice about private education in order to save for the university stage of education. There is concern about competition from top state and grammar schools when children could be withdrawn from private school e.g. at the 6th form stage to cut costs before a degree course. The Education secretary is also planning to allow high-achieving comprehensive and grammar schools to expand, which will in turn create more places for those who might otherwise have gone for private education. Although the independent sector is responding e.g. by freezing school fees for next year, there is concern that Independent Schools will instead become much more the domain of the elite, with middle-income parents hardest hit.
In the case of the poorest would-be university students, Professor Eric Thomas, Vice-Chancellor of Bristol University and the next president of Universities UK, thinks that students from families on the lowest incomes should not pay tuition fees, in order to allow university Vice-Chancellors to charge other students the maximum amount. Therefore, he plans to scrap fees for the poorest students in an effort to widen participation, arguing that applicants from disadvantaged backgrounds do not want to get into debt. Indeed there is evidence from Ivy League universities in the US that the most effective way of increasing social mobility is to excuse those in most need from paying for their own tuition. In the case of Bristol University, the Vice-Chancellor proposes not only waiving tuition fees completely for the poorest students but also covering the cost of maintenance for such students. Professor Thomas also thought it apparent that as higher education was expanded in the past, it would not be possible for the taxpayer to carry all the cost, therefore making it inevitable that fees would have to increase.
The Higher Education White Paper is expected to set out rules governing universities that choose to charge fees above £6000 per year; there will have to be proof that the additional income is being used to increase numbers of students from low-income families.
Green Energy Reforms
mardi, décembre 21st, 2010Increased penalties for pollution and generous subsidies for off-shore wind and nuclear power, were included in a set of reforms announced by the government last week, to launch an estimated £200 billion, low-carbon upgrade of the electricity generating industry. Mechanisms proposed include:
? A feed-in tariff
? Guaranteed payment per megawatt for higher-cost technologies (such as off-shore wind & nuclear power), in addition to the wholesale price paid.
? A defined, minimum carbon price for European Union pollution permits.
? Extra payments to power companies for new gas-fired power plants required as back-up during windless periods.
? New emission standards with increased penalties for fossil-fuel generators.
Although these reforms, if passed into law, should speed up the phasing out of coal-fired power and favour nuclear and off-shore power generation, the consumer it seems will have to pay much higher electricity bills which, according to Ofgem the regulator, could increase from the average of £1,100 today up to £2,000 per household by 2020. This is a consequence of the government having signed up to binding international targets for reducing carbon emissions. To achieve these targets, 30% of electricity generated in the UK will have to come from low-carbon sources (currently at only 7%) by 2020.
Critics respond that replacing all coal-fired plants by modern, gas-fired ones would achieve the same pollution reductions by 2020 at around 10% of the cost, with enough supplies of gas to meet demand for at least another 250 years from e.g. new shale gas discoveries, although this alternative approach would have to rely on viable carbon-capture technologies becoming available by then. The new localism bill giving councils greater powers to veto projects in their areas of responsibility and put before parliament last week by Eric Pickles, the local government secretary, could at the same time undermine key planning for regional, electricity generating and distribution infrastructure, by local councils vetoing the construction of unsightly and disrupting, on-shore wind farms.
Following a period of consultation, a decision by the government next March on a minimum carbon price and a white paper covering these proposed green energy reforms to be published in the spring of 2011, the above mechanisms could be in force by 2013.
Tuition Fees Increase
mardi, décembre 14th, 2010The violent student demonstrations in London last week protesting against the increase in university tuition fees, appeared to be aimed less at Labour which had commissioned the Lord Browne report on university funding or the Conservatives in the Coalition government which proposed the increases, than at the Liberal Democrats. The problem for the Liberal Democrats is that before the election they had not only promised the many young people who eventually voted for them, to oppose any increase in student fees, but also had even signed a pledge to do so, despite the opposition at the time of their leader Nick Clegg. On the positive side for them, Nick Clegg has shown himself to be a serious politician within the Coalition cabinet by voting for the successful Commons motion to increase tuition fees; however, with Simon Hughes their deputy leader having chosen to abstain and some 50% of their MPs voting against the increase, the Liberal Democrat party has now found itself essentially split three ways by its unfeasible pledge. The party, therefore, is currently rated at only 9% popularity in one opinion poll and, having lost the moral high ground somewhat, finds itself appearing to be no more trustworthy than Labour or the Conservatives, the harsh reality of their participation in a governing Coalition under severe budget constraints.
Despite the vote in favour of increasing tuition fees up to £9000 per year for the most sought after university places, taxpayers including many on relatively low incomes and with no chance of higher education, will still be subsidising these students. The demonstrators should remember, therefore, that to succeed they need not only a just cause but also public support, the latter likely to be at a rather low level after the uncontrolled behaviour of last week and the disruption to ordinary, working taxpayers in the Oxford Street area, blocked by students chanting about their rights and even aggressive towards the heir to the throne and his wife.
Nick Clegg having fielded a lot of the political pressure leading up to the vote, now is the time for the Prime Minister and his government to stand firm in the face of aggressive demonstrations against measures which, although we are told will still favour students from poorer backgrounds, need to be more convincingly communicated. For this segment of the future student population, increased funding for educational support and keeping tuition fees low address only part of the overall problem. Such students can find it difficult to succeed alone with no help or support or motivation from within the family, particularly those families with no previous experience or history of higher education. Schools also cannot do all the work although they can help to foster or not, ambition and aspiration in their pupils to offset somewhat the lack of support at home. There is an additional cultural aspect it seems with e.g. families with Asian origins much more successful in general at getting their children into top universities such as Oxbridge compared with their black or white working-class equivalents, with the secret here said to lie in sheer hard work and application, rather than funding or entitlement.
FIFA & the Prime Minister (PM)
lundi, décembre 6th, 2010One wonders what the Prime Minister (and indeed Prince William our future King) had in mind last week in Zurich when fronting the final presentation and last minute lobbying efforts towards FIFA, in an effort to secure hosting for England of the FIFA Football World Cup in 2018. Perhaps he was trying to emulate Tony Blair who, when Prime Minister, was his usual high profile self in the final successful attempt to snatch from the favourite Paris, hosting of the 2012 Olympic Games in London. It could be said that Prince William as Honorary President of the Football Association (FA) had no choice but to be there in what now seems in retrospect to have already been a lost cause (or already decided in the favour of the absent Russian Prime Minister), their efforts having more impact on the media (with David Beckham also up-front) than the key FIFA decision makers who remained unconvinced, despite making suitably polite noises of encouragement.
It is not in the job description of either the PM or Prince William to be commercially astute or masters of the art of successful lobbying and they appear ill-served and tarnished by those responsible for this bid. Certainly earlier allegations of corruption within the opaque decision-making process of FIFA carried by the Sunday Times and the BBC Panorama television programme, will not have helped but they do not explain why England only secured 2 votes out of 22 delegates and were, therefore, eliminated in the first round of votes cast. Rather it would appear that the England bid team had very few sources of effective influence and feedback on their relative chances of success due to the very limited representation by the FA within the FIFA organisation. FIFA had certainly acknowledged previously that the England bid was the safe option, given that all the stadiums were already built, matches would be well attended, football could save disaffected youths in our inner cities and the sale of the overall television rights would be guaranteed money spinners. However, other European bids were not that dissimilar (apart from that of Russia it appears) with Spain for example having not only bigger stadiums available but also better weather and food, when FIFA were looking for something more. It wasn?t then sufficient to have offered what is said by England to have been the best technical bid.
The final decision in favour of Russia, however it was arrived at, also has merit. This will be the first time that Russia, a major European power and football nation, will host the FIFA World Cup. Of course a significant number of new stadiums will have to be built as in South Africa for the last World Cup. However, these can be easily financed by the revenues from the major Russian oil and gas resources and will expand the influence of international football and open up a vast, remote continent to the outside world, still only some 20 years after the collapse of the old Soviet Union.
Having thrown his weight behind the England bid shortly after becoming Prime Minister, David Cameron had put himself into what now appears to have become a no-win situation. Whatever he might have been advised on the relative England chances of success, not to have gone would have left him open to the criticism that, in the final effort when top political support might have been critical to secure success, he was not there. However, in the harsh commercial world, the top politician (and/or royal) is normally only seen at the final signature stage of such high profile negotiations, to provide not only the important prestige and media interest in the event for the customer but also benefit to the politician, particularly when jobs back home will be created as a result of the business secured. Hence, Mr Putin the Russian Prime Minister arrived only after the final decision had been announced by FIFA in favour of Russia.
Slow Recovery (OBR)
mercredi, décembre 1st, 2010The Office for Budget Responsibility (OBR) formed in May, 2010 to provide an independent assessment of the public finances and the economy for each Budget & Pre-Budget Report, has increased its growth forecast for 2010 from 1.2% to 1.8% of GDP but cut its forecast for 2011 from 2.3% down to 2.1% and the estimate for 2012 down from 2.8% to 2.6%. The stronger growth in the middle of 2010 is attributed to temporary factors such as unsustainable activity in construction and companies rebuilding stocks. The recovery then would be the weakest for any downturn in the UK since World War II, taking a projected four (instead of the three of the two previous recessions) years overall.
On the more positive side, the OBR reduced its forecast of 490,000 job cuts in the public sector, down to an estimated 330,000 job losses with private sector job creation likely to offset these public sector losses over the next few years. The OBR also said that the Coalition government had a greater than 50% chance of achieving its deficit reduction goals. It added that it would be unprecedented in the post-war period for economic growth to not exceed 3% of GDP in a calendar year over the recovery phase of the economic cycle and warned of the considerable uncertainty around its main forecasts, particularly on levels of government spending and revenue. Overall, the deficit at 10.0% of GDP in 2010 is seen as falling to 1.9% in 2014-2015.
George Osborne the Chancellor in his own autumn report to the Commons, seized on the projected fall in public sector job losses as justifying his cuts to the Welfare Benefits System, which in turn had made more budget money available for other government departments to protect jobs. The Labour opposition, however, criticised the OBR for being too optimistic in its forecasts, although these would appear to be in line with the expectations of the financial markets. The pick-up in tax revenue from the increased growth in 2010 has still to come through and, in the key export markets of the Euro-zone, growth is continuing at the core.
That said, last week George Osborne put aside his much-advertised white paper on growth (with the associated prospects for job creation) and there remains the need for a narrative on economic recovery for those facing austerity. Otherwise, the view of the Institute for Fiscal Studies that the poorest are bearing more than their fair share of the cuts programme, will only add credibility to the accusation made by opposition Labour leader Ed. Milliband that the government is reducing economic policy to deficit reduction. The Social Market Foundation Think Tank also sees it as inevitable that the costs for the new Universal Credit System for Welfare Benefits, will end up as being much higher than many now expect and significantly outweighing the savings after 2014/15 when the system is fully up and running, with its associated universality and simplicity much less impressive than billed.