Are the LEPrechauns spending our money wisely?
A leprechaun is the Irish for a small body not entirely engaged with our world, rather like, as will become clear, a Local Enterprise Partnership (LEP). 39 (now 38) LEPs were created in 2011, linked to local government, to devolve the simulation of economic growth across England. So far, they have spent about £7.6bn, but much more is in the pipeline, including the previous UK contribution to the EU for local enterprise support. The Ministry of Housing, Communities & Local Government (MHCLG) is responsible for supervision and funding.
The National Audit Office reviewed LEPs in May 2019 and was less than complimentary (para.13): “the Department [i.e. MHCLG] has made no effort to evaluate the value for money of nearly £12 billion in public funding, nor does it have robust plans to do so. The Department needs a grip on how effectively these funds are used. It needs to act if it wants to have any hope of learning the lessons of what works locally for future interventions in local growth, including the new UK Shared Prosperity Fund.” This will replace the €16.4bn. the UK received annually from the EU split equally across three funds: regional, agricultural and social, i.e. not enterprise. The government intends to use these funds to “reduce inequalities between communities”. Consultation is, or was, due during 2020.
Whitehall introduced no less than 54 local investment schemes between 1978 and 2016. The LEP Network Operations Plan 2017-2018 gives no indication of costs, objectives or achievements. The “plan” is simply that LEPs should communicate with one another. The “Local Growth Fund” has been the subject of continual tinkering since inception in 2013. And “Growth Hubs” which “are different to LEPs in that they are focused on the tangible delivery of business support within each region. Growth Hubs provide face-to-face professional advice to businesses and signpost them to the best resources from both the public and private sector within the area.”
In fact Growth Hubs are LEP subsidiaries and provide both advice and money. The Hertfordshire Growth Hub aims to be the best in the country. In 2018/19 it provided £570K to over 200 businesses, £300K being from the EU and £270K from the MHCLG. Advice is free from eight full time professionals, a consultancy firm and the local university but there is no indication of the cost of the Hub nor value for money. It is linked with the local chamber of commerce.
The question is whether LEPs contribute, on net, to the economy. Their title indicates that to be the intention: “Enterprise is another word for a for-profit business or company, but it is most often associated with entrepreneurial ventures.” The quarterly performance figures LEPs report to MHCLG, however, are only loosely connected with that word (NAO 2.26): “financial spend; jobs created; number of apprenticeships created; number of new homes completed; and flood risk prevention.” Job creation is most definitely not a measure of economic growth, particularly for a country seeking increased productivity.
42% of Growth Fund (LEP) expenditure goes on transport projects, 20% on “skills” (presumably apprenticeships), 17% on “economic development”, 9% on site development (mostly housing) and 12% on (unexplained) “other” (NAO Table 11). Economic development includes “broadband infrastructure, regeneration and business support”. In short, very little goes on enterprise.
Important as they are, housing, flood defence and infrastructure are public expenditure, i.e. matters for national and local government. Government should not pretend to be stimulating private enterprise when the money is really going on public projects. To confuse matters further, local government does spend on economic development alongside LEPs though this declined from £1bn. in 2010/11 to about £400M in 2012/3 and thereafter.
The LEP Network sees the future as creating vague “strategies”. The New Anglia LEP strategy, for example, notes three regional strengths (clean energy, agri-food and ICT digital creative), and the developments taking place in those sectors, but says not a word about actions to be taken, expected outcomes or the contribution the LEP will make. The local pictures are pretty enough but this is motherhood.
LEPs and the other local quangos are a maze of good intentions leading to muddle and confusion. Early stage entrepreneurs simply do not have the time to explore the myriad schemes available, still less go through all the application processes. There should be one simple and long-lasting scheme. What should be done? Let us start with some positives. Devolving economic stimulus from Whitehall to local is good and allows, as now happens, funds to be weighted towards the regions that need them most, notably the north. Some SMEs and start-ups need both money and advice, others one or the other.
Recommendations:
Growth Hubs should be retained but limited to face-to-face advice under the direction of local chambers of commerce which understand business better than local government. Advice should remain free to clients but costs, effectiveness and efficiency should be monitored professionally and performance compared across all Hubs in England.
Apart from those needed by Hubs, LEPs should be closed with public expenditure responsibilities being returned to local government, private sector advice to Hubs and private sector funding to a focused non-quango scheme. The Dragons’ Den provides a possible model. The taxpayer should have more faith in the judgment of a private investor keen to put his or her own money into a project than that of a small body of people not needed in the office. One possibility is the business angel top up scheme but just one simple scheme should be adopted. As with Hubs, the very little administration would best be conducted by the local chamber of commerce.
These recommendations, if adopted, should be piloted and revised before being rolled out nationally.
Measuring the costs of regulation
We’re entirely willing to believe that the net result of regulation is positive. Well, of some regulation at least, just as we’d be likely to insist that the net result of some other regulation is negative. However, the thing we would insist upon is that it’s the net price which is the important thing. That is, that regulation does have a cost as well as a benefit and it’s the balance between the two that is the justification.
This particular example is about fentanyl but the point stands more generally:
Wuhan’s lockdown represented a profitable “business opportunity” opportunity for others, say analysts. “Criminal enterprises shift and adapt much quicker than legitimate business or governments,” said Adrian Cheek, a British cyber-threat intelligence analyst and former police investigator who tracks online drugs trafficking. “Lockdown has been an opportunity for many.”
The cost there of regulation is that slowness in shift and adaptation. Which really is a cost, given that the world changes all the time and a slowness in adapting to such change is a price that is paid for the regulatory structure.
To move to a less controversial example than opiates. Recently the entire commercial feeding structure of the country closed down. Office canteens, restaurants, caffs providing the Full English, shut overnight. That significant portion of the nation’s consumption of calories had to be provided through the retail path of supermarkets. All things considered that switch was done blindingly well.
Yet there were costs here, costs which prevented it being done even better. The packaging for that commercial distribution network - more specifically, the food labels upon it - meant that it could not be simply shifted over to the retail channel. Supermarkets were, for a time at least, bereft of baked beans while catering packs of exactly the same product could not be sold in their place.
Food labels might even be a net plus to society but that does not mean they are costless. The same is true of any and every regulation which is why we need to be so suspicious of the imposition of more of them.
The Waitrose vs Lidl divide
Apparently there is now a divide in the Tory Party, one characterised by an adherence to the Waitrose, or Lidl, principles. We think this an excellent manner of describing the rift and one reason we do so is that it makes the answer so obvious:
There’s a new divide in the Conservative party: Waitrose or Lidl? But it’s not about which supermarket you shop at. It’s how you view a potential trade deal with the US.
As talks get under way across the pond, the cabinet is split between those who wish to prioritise British farmers and those who want their constituents to benefit from cheaper produce on the supermarket shelf.
This isn’t a rehash of remain v leave. Instead it’s about which part of the Tory voter coalition gets priority treatment: traditionally Tory rural constituencies or the post-industrial, “red wall” seats that the party won for the first time last December.
For those not entirely up with the details of the British class divide Waitrose is somewhere along the spectrum to Whole Foods in an organic, cruelty free and nicely fashionable sense, Lidl toward Dollar General and the pile it high and cheap form of retailing.
Or, as it is being used here, Waitrose is nice and kind to producers - in that fashionable sense - at cost to consumers, Lidl prioritises the interests of consumers. And that is the central question over the subject under discussion. Free trade puts the consumer first and protectionism pampers the producer by making everything more expensive to buy, consume or eat.
Now that we’ve got it laid out this way the answer is, as we say, obvious. For we have the example before us of the British retail scene - both Waitrose and Lidl thrive and survive. Those willing to hand over the money to boost their ethical concerns get to do so and do do so in their millions. Those who don’t don’t and also don’t in their millions. The only people unhappy with this outcome are those who would impose their own preferences on others but given that they’re anti-liberty we, as liberals, can ignore their desires.
That is, the solution to this dilemma over free trade is that there is no dilemma. For free trade allows both groups to do as they wish and not free trade does not. Therefore free trade it is then.
Establishment economics turns out to be wrong. Again
When one of the leader writers for The Times gives us his considered views on matters economic we can - and should - assume that this is the establishment talking to us. This is what those who, in general, run the country actually believe. That it’s wrong is somewhat disconcerting although it does aid in explaining why we’ve such problems with the way the place is run.
So it is with Oliver Kamm and his views on the minimum wage:
Finally, minimum wage legislation in Britain, where the price of labour has a floor, is widely regarded as a success, as labour markets are far from perfectly competitive. Big employers have a degree of market influence that enables them to pay wages below the equilibrium price. They can afford to pay higher wages without increasing unemployment.
This is the monopsony argument. And, if it were true, it’s a reasonable argument in favour of a minimum wage. It is widely believed, in that establishment, that it is true. But it ain’t. We have good evidence that it ain’t too:
The first rule of economics, of course, says that if you raise the price of something, you’ll reduce demand. And this means shorter hours and job losses for some of the low paid.
The Low Pay Commission pretends this won’t happen. Its chairman Adair Turner says: “Our analysis suggests that previous upratings [to the minimum wage] have largely been absorbed without adverse effects.”
Can I give Mr Turner some advice? Try reading your own report matey.
In particular, appendix 3, which starts on page 213 of this pdf. It contains a survey of employers who were affected by the rise in the minimum wage in 2003. It shows that: 37 per cent of them cut staffing levels, whilst only 4 per cent raised them; 31 per cent cut basic hours worked whilst 3 per cent raised them; 28 per cent cut overtime hours; 81 per cent said their profits fell; and 63 per cent said they raised prices.
This, of course, is exactly what basic economics would predict. It corroborates this research, which shows that where the minimum wage bites hard – for example in care homes – it does reduce labour demand.
Which raises the question: how could anyone ever have thought otherwise?
The general view - among the people who matter, that establishment - about the minimum wage is that it does not harm employment prospects, that there is no cost to it. This general, establishment, view is wrong.
Which is, of course, why that minimum wage is driven ever higher as the people who make that decision have convinced themselves that there is no cost to doing so. There is a cost, it’s carried by ethnic minorities, the young, the untrained. But as none of them are part of the establishment perhaps that wouldn’t change the policy even if our rulers knew about it. It’s left to liberals like ourselves to point out the error.
Cher M. Barnier - that's not for you to decide Matey
Michel Barnier, the European Union’s chief negotiator on matters Brexit, has declared that Britain should not remain the wholesale financial market for Europe after that Brexit:
London should lose its status as a European centre for financial and legal services after Brexit, Michel Barnier has said.
This is a fundamental misunderstanding of why markets exist, who determines that they do and the role of politicians in where they are.
As you can see the statement is that an unelected bureaucrat should decide where people transact. Or, to give a slightly less objectionable reading, that those doing the ruling should decide upon who may transact where. Which isn’t in fact how these things do work.
Markets arise where the people doing the transacting desire them to be. The reason the wholesale financial markets are in London is some mixture of historical happenstance, clustering, the use of the Common Law as the basis of commercial practice, language and however many other things you want to point at. Rulers shouting that it shouldn’t be so won’t have much effect on that.
We’ve also tried this twice now - there have been two great episodes of economic globalisation, up to 1914 and up to today. In both Germany seemed to end up doing the heavy industry and London the financing. Two out of two isn’t a proof but it is indicative of it being more than just happenstance alone.
The important thing here being that where a financial - just as with any other - market is isn’t in fact something that’s decided by anyone, bureaucrat, politician or ruler. It’s something emergent from the decisions of millions and tens of million of people all doing their own thing. Demanding this and that doesn’t work, isn’t a decision for any individual to take.
Money alone won’t get us far with sorting out social care
Most contributions on the social care debate in Britain focus on how the sector needs more money. That is not wrong. The care of elderly people, and younger people with physical disabilities or mental health and learning difficulties, has long been regarded as the poor relation to the National Health Service.
But in our new report, Fixing Social Care, we argue that money alone won’t get us far, because the whole social care delivery system is broken. Spending more money is like pouring more fuel into an engine that has already seized up.
There are 400,000 people in residential homes—more than twice the number in hospital—and thousands more who get care services delivered to their own doors. Most homes are independent, though some of their clients are funded by the local authorities, who also maintain some residential homes of their own.
But most homes to which local authority clients are sent are outdated and substandard. Some are converted hotels, with narrow corridors, stairs and poky rooms without ensuite bathrooms. Meanwhile, the ageing population continues to grow. Plainly, a massive building programme is needed.
Likewise, the services that local authorities deliver to people’s homes are patchy and poor. Families often hire their own carers to fill the gaps. But few of those have any worthwhile qualifications or training.
People have talked about rolling social care into the National Health Service. That would create an unmanageably vast monopoly. We need exactly the opposite—new partnerships with the private sector and the public to rebuild our crumbling homes, make social care insurance affordable, and to create a sustainable system that actually works.
Read Dr Eamonn Butler and Paul Saper’s paper via the link below:
A strange little note on Nigerian health care financing
The Guardian tells us - with the usual shock! horror! - that only 5% of the Nigerian federal budget is allocated to health care:
Nigeria currently spends less than 5% of its federal budget on health.
Compare and contrast to where the British government spends some 8 or 9 % of everything - of GDP not just the budget - on the NHS. Which is to miss the meaning of a rather important word there, that “federal”.
The Nigerian system allocates functions to different levels of government. As we do of course, local authorities here don’t run the Army and do run social care, it’s the same idea even if the distribution is different. If this is to be believed then in that Nigerian system the federal government is responsible for teaching hospitals and teaching hospitals only. The rest of the health care system is handled at lower levels and, presumably, lower level budgets.
You know, like Denmark where it’s regional and communal (ie, of the commune) taxation that deals with health care, or Sweden, where it’s largely the county.
We are not, just to be clear, defending the Nigerian government, its practices nor its budget. Rather, we’re pointing out that foreign countries are like the past, they do things differently there. We cannot, let alone should not, understand what Johnny Foreigner is doing simply by referring to our own methods of achieving the same task or goal. This about Nigerian health care spend is only a trivial exemplar - the point stands and is of hugely wider application.
Time to scrap the scrappage idea
The idea of a car scrappage scheme isn’t a good one to start with. Offering some vast sum in subsidies to bring forward by some months the replacement of the car fleet simply doesn’t make sense in the first place. We have evidence of this from the last couple of times this was tried.
Bad ideas do have a life of their own, obviously, so it’s being suggested again:
A scrappage scheme offering motorists up to £6,000 to trade in old petrol or diesel cars for a new electric vehicle would do little to bolster British carmakers, experts have warned.
The plan, which is being considered by Prime Minister Boris Johnson as he seeks to rev up the automotive industry following a lockdown sales collapse and a run of redundancies, would do little to help the UK's biggest carmaker Jaguar Land Rover.
JLR's only all-electric car, the I-Pace, is built in Austria by contract manufacturer Magna, meaning pumping UK state funds into the proposal would do little to save British jobs.
It is possible to advance the argument that it is necessary to stimulate demand from British factories by dunning British taxpayers. We don’t agree but it’s possible to advance the case.
It’s also possible to advance the case - again we don’t agree - that it’s worth dunning the taxpayer for some vast sum in order to bring forward the replacement of the fossil fuel powered car fleet by one electric by some few months at some vague benefit to the climate. It’ll be a trivial benefit and the resources can be deployed to better effect but the case can be - for it is being - made.
What isn’t possible to is try to use both excuses - sorry, justifications. If the desire is to boost production of British factories then it cannot be for electric cars as we don’t make any. If it is to be about the environment then it can’t be about British production.
Which is a bit of a problem really as the climate change justification on its own is far too trivial to support the subsidy. Of course, we think the boosting British production argument is too trivial too but everyone will agree that £6,000 and up as a subsidy to foreign car buying - however green - is ridiculous.
Scrappage schemes are a bad idea in themselves but this one is a real stinker. Don’t do it.
Government's not good at complicated things
This is one of those little problems with the very idea of government. For one of the things we use it for is to deal with those problems that are too complex for us simpler souls to either understand or deal with individually.
Well, OK, but for government to be that solution it is necessary that government be good - or at least better than we are - or even effective at doing those complex things. This not being something greatly in evidence:
The Government’s flagship passenger quarantine scheme risked descending into chaos after even a Home Office spokesman admitted it was “very hard to imagine how it would work in practice”.
Almost all travellers arriving in the UK from Monday are being threatened with fines if they fail to fill in an online form at ports of entry and then decline to self isolate for two weeks.
But according to a leaked Home Office document seen by the Telegraph, there is no method for Border Force officials to ensure if details submitted are ‘genuine’ and fines for inaccurate entries will only be issued if they are ‘manifestly false’ such as claiming you are called ‘Mickey Mouse’ and reside at ‘Buckingham Palace’.
All rather plans of mice and men.
Much else that has been recently done - say, masks didn’t work, do work, shouldn’t be used or should be but by medics only, are now compulsory and so on. It’s the ability to outwit a damp paper bag that is in doubt here. Meaning that sure, we humans do face complex problems and we do have to deal with them as best we can. It’s just that government isn’t often the way to do so.
We know we've said this before but they're still not grasping the point of trade
This is not a point specific to the shadow environment secretary, nor even to the Opposition. Far too many across the political spectrum manage to get this point wrong.
Luke Pollard, the shadow environment secretary, said: “It is unacceptable for the government to allow our high food standards to be compromised and our farmers undercut in any future trade deals.
The entire point of trade is to undercut the domestic producers. Just as the point of having market entry to to enable people to undercut extant producers. That’s all entirely the point of the activity.
What we call “trade” just being the extension of markets across national borders.
Imagine, just imagine, that there were one monopoly producer of some desired item. We’d all agree that it would be a good idea if other people were allowed to come in and start producing that item. Even where we wouldn’t - there are cases - we’d still agree that the consumer would benefit from such competition. The producers might not like it, they might even be worse off as a result, but consumers would gain.
This idea of trade is simply extending the same logic to what can be produced by foreigners. And the results are the same too. Domestic producers might not be very happy about it but consumers will benefit.
That is, the very point of the process concerning trade in food is to undercut those farmers.