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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Is government helping exports?

Written by Tim Ambler | Friday 11 April 2014

Is the UK Trade and Investment (UKTI), is a net hindrance or help to exporters?  UKTI can surely point to successes but could its expenditure of over £400M p.a. (up 70% since this government took office) be better spent? 

The 2013 research into UKTI commissioned by Daniel Kawczynski MP is important, valuable and deserves more attention. It provides insights into the strengths and weaknesses of UKTI as it now is. UKTI can point to successes but overall the emerging picture is one of excessive bureaucracy and ineffective communications. The reports recommendations are sensible but they are not radical enough. 

UKTI should become a separate stand-alone agency, integrated with Chambers of Commerce, and its HQ should be cut from 500 to 50.

The UK [potential] exporters and receivers of inward investment should be put in charge.  They should be asked what help, and especially contacts, they want, as distinct from being told how to do their business.  These should be communicated directly to overseas posts.

Overseas UKTI staff are bogged down in paperwork. OMIS and other statistical reports and surveys should be scrapped. Successful exporting and inward investment are a matter of personal contacts, not sitting at computers especially as, in this www age, [potential] exporters have access to the same on-line data.

Measuring UKTI performance by the number of contacts allegedly made, and/or number of exporters, should also be scrapped. The quality of the contacts, i.e. the additional exports arising, matters; the quantity of contacts, which may be no more than unreturned phone calls, does not.  The ineffectiveness of communications within UKTI and with [potential] exporters and overseas FCO posts is probably the biggest complaint by the private sector and within the lowere echelons of UKTI.  The only metric that matters is how much trade has been added, whether directly or indirectly.

UKTI is not delivering the exports we need.  The UK’s share of exports is declining whilst the cost of UKTI soars. It requires drastic overhaul.  The Kawczynski report is important and valuable. It provides insights into the strengths and weaknesses of UKTI as it now is and suggests useful improvements but more drastic change is needed.

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The annuities market

Written by Tim Ambler | Saturday 15 February 2014

The Financial Confusion Authority (FCA) has just spent a year, and a massive amount of our money, discovering that some annuities are better value for money than others. Fancy that!  Some brands of corn flakes are better value than others too.  Some brands of corn flakes are more trustworthy than others and the same applies to annuity providers.  Consumers consider it good use of their money to pay a premium for security.  And who is the FCA to tell them that they shouldn’t?  According to the FCA, differing annuity payments means the market is “disorderly”.

They now intend to spend a further year considering what to do about it, i.e. interfere further in the market and thereby raise the total costs for all buyers of annuities.  Yes, of course financial markets need regulation, as do all markets, but the excessively detailed interventions we have witnessed since Gordon Brown gave us the Financial Standards Authority have eroded the very value for money these regulators were set up to achieve.

Regulators were created to bring about fair, competitive markets and then step away leaving choice to consumers.  Of course this means that the necessary information should be provided, be it the weight of a packet of potatoes or the amount of the annual annuity. The consumer is not helped by information being excessive or over-complex.  The regulator should be able to specify the key facts to be provided by annuity sellers in two days, not 12 months.

The primary mission of any organisation is to survive and, better, to grow.  The FCA is no exception.  The reality, as has been shown before (“I dreamed a dream of the FCA” 29 April 2013 and other ASI blogs and publications) is that the FCA is unnecessary.  The little it achieves could be handled by the Financial Ombudsman Service and Office of Fair Trading.

They key lesson from these two years of FCA self-promotion is that it is struggling to justify its existence.

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Institutionalised abuse of whistleblowers

Written by Tim Ambler | Tuesday 22 October 2013

A few weeks back I wrote about the criteria used by the Care Quality Commission (CQC) for inspecting dentists and their complete irrelevance to patient experience and assessing tooth maintenance.  The CQC inspectors do not see what matters and if they do see evil, they do not correct it.  Three brass monkeys preside over the CQC boardroom table: Speak no evil, hear no evil and CQC.

The Orchid View Care Centre is the latest example. According to this week’s reports Orchid View was opened in 2009 and by 2010, when the CQC first inspected, abuse was already rampant.  The CQC did find fault in 2011 but then took no steps to deal with the malefactors before the Care Centre closed four months later.  19 residents died in these two years and the coroner attributed five of the deaths to neglect.

As well as the residents and patients, the whistleblowers in care homes and NHS facilities also suffer from institutional abuse. That needs urgent attention too.  Andrea Sutcliffe, CQC Chief inspector of adult social care, was interviewed on the Today programme on Saturday about the Orchid View case. She was asked if she thought it unfair that the whistleblower, Lisa Martin, not only had to endure all the stresses of whistleblowing and its workplace consequences but had been unable to find a job in the three years since.  Sutcliffe agreed that it was unfair.

She was asked what should be done about that. After a pause which seemed to indicate that she had never previously considered the matter, she replied that a change of culture was required.  Unfortunately the interviewer failed to press the point.  What change? How could it be achieved? What is the CQC doing about it?

Every whistleblower in care homes and the NHS suffers the same abuse from the CQC and the other institutions involved: obstruction and putting on the frighteners to ensure nothing gets out and then, when it does, platitudes followed by a complete absence of practical help.

Lawyers and the compensation culture are part of the problem.  Managers are not allowed to admit fault, malpractice or negligence in case victims and their families sue. Funding shortage contributes to care failures in the first place and paying compensation further reduces available funding. When the facts do finally become public, not via the CQC which has its own tracks to cover, platitudes are followed by a complete lack of support. Abandoning whistleblowers to their own fate is as much an abuse as failing to tend the elderly.

Yet the CQC needs whistleblowers and should be motivating and supporting them.

Every whistleblower, whether in a care home or hospital seems to suffer the same fate: The anguish of being disloyal to workmates and employers, legal obstruction followed by joblessness.  After all, who would want to employ a troublemaker?  So who would want to be a whistleblower?

This has a simple solution.  Apart from those few cases where the whistleblower is crying wolf, the whistleblower should always be offered a job by CQC as an inspector.  Who else is better qualified for the job?  And if the CQC needs to sack some of its current dozy inspectors to make room for whistleblowers, so much the better.

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Will EU red tape really be cut?

Written by Tim Ambler | Friday 18 October 2013

On 16th October, the Government published the report commissioned from six UK business leaders on reducing EU business regulation.  This impressive document makes 31 recommendations under five headings: Reducing barriers on Competitiveness, Starting a company and employing people, Expanding a business, Trading across EU borders and, finally, Innovation.

Overall this is a step forward and the authors should be congratulated on a major contribution.  In particular, the authors are right to call for small and young businesses to be taken out of regulation altogether. Unfortunately, the report also has three serious failings.

First, it is not well informed on methods to curb further regulation.  Their main recommendation is a set of motherhood criteria for testing proposed regulations, i.e. the “COMPETE Principles”.  “COMPETE” is an acronym of the seven criteria. The last government tried several variations of this approach but none of them worked.  Bureaucrats are good at paying lip service to these things.  The second COMPETE Principle is “One-in-one-out”. The current government has a one-in-two-out policy whose effectiveness is not reported by the Regulatory Policy Committee (RPC) in its annual report, nor, to my knowledge, elsewhere. The demise of regulations have not caused dancing in the streets.  The only curb with some effect on the quality, if not the number, of regulations is the establishment of the RPC itself which can, and does, reject proposed new regulations which do not appear to be good for the country.  Although the COMPETE Principles are somewhat tougher than we have seen before, the moral is that people can block new regulation; motherhood criteria cannot.

The EU has, in theory, the equivalent of the RPC but it has gone native.  An independent team assessing proposed regulation needs to be given teeth and to report to a Commissioner determined to curb new, and remove redundant, regulation.  Audited and published impact assessments need clearly to show that (a) the regulatory goals are essential, (b) there is no less burdensome means of achieving those goals and (c) that social and environmental benefits clearly outweigh the costs to business,

Second, the authors pay no attention to those social and environmental reasons used by the EU to justify much of its business and economic regulation.  Business people may think that too much weight is given to these wider issues.  After all, who pays for all this?  But to win regulatory arguments in Brussels one has to show that the damage to business outweighs any social or environmental benefits.  One cannot win a case on financial costs alone when the judge and jury are as much, if not more, concerned with wider issues.

Third, the authors fail to understand the consequences of the single market they demand. A single market is defined by a single set of regulations.  Therefore we must have EU business regulation but we do not need UK business regulation on top of that.  In 2012, Whitehall approved 533 new UK business regulations, far far more than Brussels.  And this was by a government committed, supposedly, to reducing the flow.  Even the Blair government did not produce so many.  Business should consider EU and UK regulation together as it is the combination that creates much of the problem.

Praiseworthy as it is, I fear this report will just gather dust in Brussels and Whitehall.

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Diamond cuts to the chase

Written by Tim Ambler | Monday 16 September 2013

The FT reports that Bob Diamond is giving his support to our long and oft expressed view that bank regulation should be global, not national or EU.  See for example “Saving the City”, March 2013.  Big banks now operate in a global market and a single market requires a single set of regulations.  Any more, or any fewer, in the major banking countries distorts competition.  A major bank failing in one country may well bring down others and at the very least have knock-on effects.  This is one of the most important lessons from 2008.

The EU is a particular worry as each member state seeks to impose handicaps on the others in order to enhance its own financial services industry.  Furthermore, Brussels seeks to take over all financial regulation from member states. These politicians fail to see that such shenanigans can only damage not just London but the EU financial services industry as a whole.

Basel III has its faults, not least in loading up capital requirements at the wrong time.  Higher capital requirements may have been a good idea pre-2008 but introducing them now inhibits the very lending to SMEs that is essential to growth.  Likewise moves to downsize banks or introduce new Chinese walls may be a good idea in due course but not just now.  Yes, of course we need to get away from banks, or any other financial institutions, being too big to fail but they are not about to do so.  Financial crashes come around every 50 years or so, so on that metric the next one is not due for 45 years.

Faulty or otherwise, Basel is the only global financial regulatory structure we have and we need to work with it and improve it. The fact that we do not have an imminent crisis makes this the ideal time to introduce the radical revolution we need.  The EU and national governments should turn over all financial market regulation to Basel. Who should monitor and supervise those global regulations is a more difficult problem but in the short term it will have to be by nation state, in the UK by the Bank of England.

But let us not get caught up in that.  First things first means that banking regulation needs to go global now.

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Does the Dental Regulator know the meaning of quality care?

Written by Tim Ambler | Monday 16 September 2013

My dental surgery presented me with a two page medical history questionnaire to complete before being allowed to see the dentist.  You know the form. As nothing had changed since the last one, I offered to sign and date a copy.  That was not an option because (a) their technology didn’t not permit extracts or copies (a likely tale) and (b) completing a new form was a legal requirement.  They meant it was a Care Quality Commission (CQC) requirement.  “May I see at least last year’s as a prompt?  At my age, memory is imperfect: I cannot remember my medications when the tablets are at home.”  “No.  You have to complete the form unaided.”

The Adam Smith Institute has long drawn attention to regulators failing because they descend into box-ticking.  The financial crash of 2008 was one example. The CQC is a new regulator but this descent is already apparent.  Ensuring primary care achieves and maintains high standards is clearly important and was given impetus by the Harold Shipman tragedy.  But that is my point: whilst Shipman was good at the paperwork and complying with regulations, he was also killing his patients.  The Mid Staffs Hospital is not a primary care unit but the issue is the same: they could have been ticking all the boxes and still killing their patients.

The CQC’s 2nd Annual Report sets out five criteria for establishing dental care quality:
(a) Do the dentists treat their patients with respect and discuss their proposed treatments?
(b) Do they fully assess patients’ needs and deliver the care and treatment they need?
(c) Do they protect patients from the risk of abuse and treat them in a clean surgery without risk of infection?
(d) Do they recruit staff effectively and conduct thorough checks on them?
(e) Are patients’ records up to date and kept safe and confidential?

Incidentally, there is nothing here banning the use of copies of prior records. Item (c), however, is responsible for the new ban on coffee in dental surgeries.  According to my dentist, the CQC claims that this could give rise to cross contamination with medications even though there is no evidence that such a thing has ever happened. Harold Shipman would have passed these five criteria with flying colours.  

Patients visit dentists to retain their teeth as long as possible and, when that fails, have false teeth fitted, all in as agreeable and painless a manner as possible.  We want our teeth to look good too. The word “teeth” does not even appear in the CQC criteria and nor does the patient experience. “Quality”, in this context, means that we have teeth that work, avoid pain and look good. It would not be difficult to develop scales for these quality indicators.  Adjusted tooth loss rates could be measured in a similar fashion to Professor Sir Brian Jarman’s adjusted mortality rates for hospitals. The CQC does interrogate some patients but their conclusions rely mostly on what they glean from dental surgeries.  This is the wrong balance: patient experience, and especially the pain endured, is only known by the patients themselves.  When the care quality of each surgery, relative to equivalent surgeries, is established, its patients should be informed.  The aggregate scores in the CQC annual reports, all around 90%, tell us nothing.

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Led by Donkeys

Written by Tim Ambler | Tuesday 27 August 2013

By 2014, the Financial Ombudsman Service is expected to have grown its headcount 20 times since it was inaugurated 10 years ago with 200-300 people. The FOS is merely responding to the level of complaints and is not to blame. The chief executives of our financial institutions, notably the banks, are. Their leadership is reminiscent of that by our generals in WW1. It is a strange way to celebrate that centenary.

In 1914, Britain was a, maybe the, global military power although Germany, since Bismark, had developed superior land forces. Nevertheless, complacency was rife, Britain ruled the empire and the war would be over by Christmas. In the event it lasted four years and needed US intervention, principally because our generals refused to recognise, still less learn from, their mistakes.

Today the City is a, maybe the, leading global financial centre, although New York has developed strongly.The battlefield now is the financial services marketplace.

In any trade and industry, consumer complaints are an important performance measure. Most companies try to ensure that consumer experience is positive, complaints are few and those that do arise, are dealt with by the companies themselves.

In the year to March 2013, the FOS received over 2 million initial enquiries and complaints from consumers of which half a million turned into formal disputes, an increase of 92% on the previous year. Sixty-two per cent of those were with just four banking groups. On average, FOS found for the consumer on about 50% of occasions, and just 20% for building societies. For the four large banks, however, they found for the consumer 80% of the time.

Do these four CEOs even recognise, still less learn from, these mistakes? It would appear not.  The causes of the complaints may be some years back but that is not the point: it would be quicker, cheaper and better business to resolve today’s complaints internally today. Marketing academics have long established that consumers whose complaints are well handled become more loyal whereas those who do not receive satisfaction become more dissident.

Compare FOS with the Advertising Standards Authority, not a direct match of course, but relevant. According to the 2012 Report, across all consumer markets the ASA only received 32,000 complaints about 19,000 advertisements and promotions, 94% fewer than the FOS. Bear in mind that these are direct, not filtered by the brand companies dealing with any themselves.  Of these only 11.5% were decided in favour of the consumer, compared with 50% on financial marketing and 80% against the big four banks.

On three times (101,000) the occasions, the ASA was spending its time helping the advertisers and promoters prevent complaints. FOS has no wish to bash banks and would much rather be helping them to install best practice in dealing with complaints and, better still, helping banks screen their new offers to ensure they do not give rise to legitimate complaints in the first place.

Unfortunately, like WW1 generals, the four big bank CEOs seem reluctant to learn anything.

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Worse than nothing

Written by Tim Ambler | Monday 19 August 2013

Like many countries, the government offers advice to new and would-be exporters. If the advice is sub-standard, it may be worse than no advice at all.

The organisation charged with this function is called UK Trade & Investment (UKTI) and is a combination of civil servants from the Business (BIS) department, Foreign and Commonwealth Office and staff “volunteered” by their companies. It is about 2,500 strong, half overseas and half in the UK. UKTI’s Annual Report is a challenge to the reader as they are preoccupied with whether these are FCO or BIS staff and confused between the very distinct roles of helping export as and helping overseas investment in the UK.

Most of the overseas staff are locals who know little or nothing about the new and would-be UK exporters. Only about 10% of the total are actually engaged, on the ground, in advising UK exporters. They are far outnumbered by their colleagues drinking tea in Whitehall meetings.

Should we look at the quality rather than the quantity of advice?

Firstly there is no sign in the UKTI that they benchmark there advice against academic studies or the advice given by other countries. How do we know how the UK advice rates if we have no idea of the quality of our competitors’ advice? In fact the Australian advice, for one, is much better.

20 years ago Chris Styles, then working on his doctoral thesis and now Dean of the Australian Graduate School of Management, and I researched, for the then Department of Trade and Industry, what did and did not work for new exporters. The research conclusively showed that the government’s standard advice that one should choose the market through formal market research and then oneself draw up a marketing plan was comprehensively wrong. Numbers only reveal the state of play, not what a market could become, still less what it will become since that depends on what the exporter will do. Were Iceland, for example, to have no fridges, would that imply a potential demand for fridges or simply a dislike of, or no need for, fridges?

Relationship with the importer proved to be the crucial thing: the better and stronger that relationship, the better was the performance.

This blog does not have space for all the detail. Suffice it to say that the DTI accepted all our findings both empirical and theoretical. Checking current UKTI advice, however, shows that they has reverted to the same old rubbish we disproved 20 years ago. It was wrong then, it is wrong now and British exporters are being misled. 

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The Fault, Dear Barclays, Lies in Yourselves

Written by Tim Ambler | Friday 31 May 2013

Over the last three years, the caseload of the Financial Ombudsman Service FOS) has soared. The fault lies not with building societies, or insurers, or financial advisers, but with the big banks.

Few complaints come in about Building Societies and those are mostly not supported by the Financial Ombudsman.  The Building Societies are good at dealing with their own complaints.

Not so with the big banks, which generate 74% of Ombudsman complaints, most of which are upheld.  Clearly the banks’ internal complaint procedures do not work.  And market forces do not work either because consumers think the banks are all the same so there is no point in switching.  Or most of them:  when frustrated by Barclays’ incompetence and failure to deal with complaints, I moved to First Direct and the sky is blue again.

No customer is more loyal than one whose complaint has been well handled.  I complained about my breakfast on British Airways once and got a personal letter from Colin Marshall, then the CEO. How can we get banks to satisfy their own customers like that?

Properly managed internal complaints systems would be better for consumers, better for FOS, better for the country at large and better for the banks themselves.   The banks cannot win public trust unless, like the building societies, they cut complaints to the FOS to a trickle and lose few FOS judgements.

What can FOS do about it?  If they charged the banks thumping fines for their poor complaints handling, FOS would be accused of bias, imposing fines just to raise revenue.  Handing the fines over to HM Treasury might mitigate that but maybe not enough.

The big banks are more of a club than a competitive market.  The FSA has to take the rap for that.  By trying to standardise everything, making entry difficult, disallowing failure and fining them all together in an effort to be fair, the regulator has done no service to the consumer.  The new Financial Conduct Authority talks competition but nobody has any idea of how that will be achieved. Maybe the FCA has no idea either.  The FOS could make a start by singling out and publishing the best and the worst performer of the month so that the odium can be targeted, not shared equally.

The FCA should be closed down immediately and these matters left to the FOS. That would deal with the boundary issues between them.  The suggestion that regulators look forward but the FOS looks back is nonsense: for ten years the regulators have lagged far behind the FOS – which at least has its ear to real customers in the real world.


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I dreamed a dream of the FCA

Written by Tim Ambler | Monday 29 April 2013

Last week, I dreamed of Financial Authorities that were good for Britain. Unlikely, I know, but in this fantasy The Financial Conduct Authority had given up on its mission to eviscerate the UK’s financial services and embarked on a crusade to make them stronger.  This Paulene conversion had begun with the Treasury’s brief to strengthen competition, particularly in the banking sector.  This was puzzling for them as they had previously been trying to standardise everything.  But competition is about choice and choice means allowing businesses to be different.

Albeit fewer than before the regulators started interfering, we still have four big banks but customers mostly do not transfer because they think they are all the same.

Economics is not just the dismal science; it is the dead science.  In the world of economics everything is standardised except the price.  The mortgage market is a bit like that.  Either firms match and therefore do not compete, or they compete, prices are driven down and they go bust.  The science of the living, however, i.e. biology tells us that firms compete through evolution.  They change and adapt and the ones that best adapt to the environment, i.e. the market, thrive.  They compete by better meeting customer needs, that allows premium pricing and that in turn prompts innovation and further growth.

Contrast that with the FCA view that premium pricing is wicked and should be stopped at once.  In almost every consumer market the brand leader is also premium priced.  That is not because consumers are stupid but because they want what they consider to be best.  They are the judges, not some arbitrary quango in Canary Wharf.

When the FCA woke up to the need to promote differences, not destroy them, they changed their working lives.  No longer did them spend them inventing new regulations to inflict on financial services, they began removing the ones we do not need.  That turned out to be almost all of them.  The FCA staff had never been so busy.

Fired up with enthusiasm, they took their crusade to Brussels.  “Either,” they said, “we need the regulations in which case the whole world does.  Or the rest of the world does not need these regulations, and therefore, nor do we.”  Joy broke out across the regulators’ offices and also those of the financial services sector.  And consumers were the happiest of all.

Then I woke up.

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