Edinburgh's Millenium Dome

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Visitors to Glasgow taking a taxi should be carefully about commenting on local football matters. But, in Edinburgh, the great no-no for taxi drivers is the shambolic tram project that began in earnest in 2009.

So far, it has cost c£440 million, it has defiled the world-renowned Princes Street and is years away from becoming fully operational – even along a much truncated route. Like several notorious and highly ambitious projects - the East African groundnuts scheme, Concorde and the Millennium Dome come to mind - things seem to have gone from bad to worse.

Long before Edinburgh’s tram project was given the go-ahead, there were serious doubts as to whether it was really needed. After all, a high-quality bus service currently plies the route between the airport and Waverly Railway Station. Relations between Transport Initiatives Edinburgh (Tie) and the infrastructure contractor, Bilfinger Berger and Siemens (BBS) have often been fraught. But, having got so far – at such massive cost - what does Edinburgh City Council do now?

On May 11th, it confirmed that various works will be undertaken over the next eight months to deal with the most urgent road repairs. Beyond that, it is doubtful whether – and when – Edinburgh’s tram system will be completed. Furthermore, the obvious route – the airport via Princes Street down to Ocean Terminal/Newhaven – seems likely to be curtailed.

And, of course, considerable additional funds will be needed. To date, some 80% of the £545 million projected cost has already been spent – and the project is nowhere near being 80% completed. No doubt, more than one party should shoulder the blame for this fiasco. Surely, though, 160 years after the completion of the legendary Isambard Kingdom Brunel’s pioneering Great Western Railway, we should be capable of laying a few miles of tramway and supporting equipment without all the grief that the Edinburgh project has thus far encountered.

NHS ironies

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The top two BBC Radio 4 news bulletins on Thursday morning were ironically indicative of the problems of the NHS.

The first was a report by the Care Quality Commission (CQC) that elderly patients in many English hospitals weren’t fed or watered properly nor treated with dignity. This was immediately followed by British Medical Association (BMA) report demanding the government’s proposed reforms for the NHS to be scrapped.

No surprise that the BBC didn’t link the two – that reform is urgently needed to deal with problems like care for the elderly - and no surprise that the ultimate in vested interests – the doctors of the NHS – are fighting this tooth and nail. The reports of the CQC and the BMA both suggest enhancing top-down control of health care with not the slightest hint that the NHS structure itself is the problem.

Start with the BMA’s own recommendations, especially these three:

• Change the primary role of Monitor (the economic regulator) to one of protecting and promoting high quality, comprehensive, integrated services, not promoting competition. (Translation: we have nothing to learn from anyone else.)

• The Secretary of State’s powers over the NHS Commissioning Board on appointments, further regulations and its mandate should be subject to explicit safeguards and transparency requirements to avoid unnecessary political interference. (Translation: We will not be accountable to the taxpayers of this nation.)

• Explicitly protect the independence of directors of public health as professionals treating a population by bringing together all public health staff under a single NHS agency. (Translation: The NHS isn’t monolithic enough.)

Meanwhile, the CQC, which, to be fair, only carries out orders, sends shivers down the spines of NHS bureaucrats with this warning from its chair, Jo Williams: “I will be writing to the Chair of every hospital where this inspection programme has identified poor care to ask what they plan to do to address these issues. The key elements that every hospital must have in place are a compassionate staff culture which is driven by strong leadership and supported by good systems.”

Expect to see frenetic hospital staff the instant that missive pops through the letterbox.

Health care is, indeed, a challenge to all policymakers but the UK’s aversion to decentralization and competition is mere proof of Nigel Lawson’s lament that the NHS is “the closest thing the English have to a religion.” And that religion’s priesthood is becoming more fundamentalist and intolerant as it fails to deliver heaven on earth.

In any listing of people’s most pressing needs, food, clothing and shelter come on top and all are extremely well provided by a huge diversity of competing private suppliers, driven by the profit motive.

But the Ayatollahs of the NHS will have none of it. Only 4% of acute-care beds in Britain are provided by private companies. In Germany, it’s 32%, more than are provided by the state with the rest provided by charities. (Now there’s a Big Society!) In that former victim of Stalinist control, Slovakia, two fifths of hospital provision is delivered by private operators. If you want decent services, set the NHS free!

Hong Kong is losing its lustre

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Here in Hong Kong, I'm concerned at the way it's going. Every time I come here, it seems to get more 'welfarist'. Once the most deregulated, free-market place in the world, now it's got the minimum wage, and people are talking about a universal (government run) pension system. As elections loom, and the transition to full enfranchisement advances, politicians are keener and keener to promise bread and circuses. And one thing leads to another: the minimum wage is one thing, but when it comes with new regulations on maximum working hours and minimum holiday entitlements, it suddenly starts to get a lot more expensive than was originally advertised. Inflation is noticeable in Hong Kong, and a large part of it is due to the minimum wage effect. Apartment owners are already complaining at the effect it is having on their management charges.

It would be less worrying if all this were coming from China, as observers expected it might at the time of the handover in 1997. But some of the politicians in Hong Kong seem to be redder than those in Beijing. True, there was something of a movement to shift the place leftwards because everyone wanted to get on the right side of the new bosses. But Beijing these days does not seem too bothered about how Hong Kong runs itself; it is the Hong Kong politicians themselves that are leading things.

Hong Kong still features high, or top, of those indexed of economic freedom, with an enviably low ratio of government expenditure to GDP in the twenties. Well yes, if you exclude things like the Jockey Club, which is a sort of institutional welfare system, or the public monopolies and the revenues that they generate, and other things that are really government but don't appear on the books. It seems almost certain that mainland China's government expenditure is, proportionately, quite a bit less. And, of course, it is half that of the home of liberalism, the UK. Makes you wonder who the communists are, really.

Tax simplification means a flat tax

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One of the more laudable attempts of the government to reduce bureaucracy is a drive towards tax simplification. Two highlights are the abolition of complicated reliefs (though the Taxpayers’ Alliance quickly observed that the benefit was undone by other meddling in the Budget); and the possible merger of National Insurance Contributions with Income Tax. This last one could be a red herring though – the government has only announced a consultation and many seriously doubt whether any Government would ever want to flag up the fact that the basic rate of tax is not 20p but 31p.

The big prize in the lottery is a flat tax. It both simplifies tax and raises revenue. The Coalition Agreement neither mentions, nor excludes it. But it does mention a drive towards more competitive, simpler and fairer taxes: a flat tax ticks all these boxes.

A flat tax would:

1. Increase revenue as the black economy will disappear; tax exiles will repatriate their fortunes; and instead of paying for expensive advisers the rich will simply pay the tax;
2. Increase the revenue as the economy will grow (as was the case when Thatcher and Reagan cut taxes);
3. Maintain a zero rate for those who are less well off by putting the threshold from which tax becomes payable at a high enough level;
4. Do away with a large chunk of the HM Revenue’s expensive administration

It’s win-win. It is not a handout to the rich: in countries where a flat tax rate was introduced the wealthiest people in society ended up paying a larger percentage of the total tax take.

The Government has the choice. By doing not very much, it can conserve the socialist dogmas of yesteryear. Or it can reform. Radically and irreversibly. I guess it takes guts and ambition to go down as leaders rather than followers.

Think piece: The folly of the public benefit test

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The "public benefit test" is a misguided attempt to force consolidation in the independent education market, argues James Croft.

This week the long running dispute between the Independent Schools Council (ISC) and the Charity Commission moves towards a conclusion in the courts. While Robert Pearce’s comments on Friday will come as a disappointment to association members hoping for clarity on the question of how schools may meet the new public benefit requirement, I can’t help but think that the issue has become little more than a distracting side-show.

The government has already made it quite clear that the Chair of the Commission must desist or be relieved her responsibilities; a future resumption of her unsuccessful attempts to force consolidation in the sector was always unlikely. In so far as the foray was the brainchild of Labour policymakers, the announcement on Friday that the Commission’s programme of assessments ‘is at an end’ and that irrespective of the outcome of the case ‘the commission intends to review the guidance in the light of its experience of its use’ comes as no surprise either: while politically useful in pacifying interests on the left of the party, this aspect of Labour’s policy excursion into the charitable sector has been far from successful in policy terms. [Continue reading]

The folly of the public benefit test

This week the long running dispute between the Independent Schools Council (ISC) and the Charity Commission moves towards a conclusion in the courts. While Robert Pearce’s comments on Friday will come as a disappointment to association members hoping for clarity on the question of how schools may meet the new public benefit requirement, I can’t help but think that the issue has become little more than a distracting side-show.

The government has already made it quite clear that the Chair of the Commission must desist or be relieved her responsibilities; a future resumption of her unsuccessful attempts to force consolidation in the sector was always unlikely. In so far as the foray was the brainchild of Labour policymakers, the announcement on Friday that the Commission’s programme of assessments ‘is at an end’ and that irrespective of the outcome of the case ‘the commission intends to review the guidance in the light of its experience of its use’ comes as no surprise either: while politically useful in pacifying interests on the left of the party, this aspect of Labour’s policy excursion into the charitable sector has been far from successful in policy terms.

The episode offers a classic example of a market intervention gone wrong. The idea behind the legislative ‘fudge’ that was the Charities Act 2006 was that by removing the presumption of public benefit from charities concerned with the provision of education (among others), but leaving it up to the regulator to determine, on the basis of case law, what such charities must do to justify their existence, the Commission would be able to leverage to greater effect the assets of the ‘third sector’ estate – in particular those held in trust by charities whose objectives are achieved, wholly or in part, by charging fees. Though at the time, the Commission appeared nonplussed – arguing that case law meant the presumption would, in practice, be preserved anyway – Labour strategists calculated that under more assertive leadership (enter Dame Suzi Leather), this mechanism could make charities work harder.

Little surprise then that when the guidance for fee-charging charities emerged in 2008 many of the sector’s best rehearsed arguments for the public benefit – as, for example, those focusing on its contributions to the greater social good, and on savings to the taxpayer – were dismissed out of hand. The guidance stressed that the benefit must be ‘identifiable’, provided to ‘a section of the public’ in such a way as not to be ‘unreasonably restricted’ by inability to pay fees, and that ‘any private benefits must be incidental’, rather than integral to, its core purpose. It also stated that any benefits must also be set against any ‘detriment’ or ‘harm’ caused by their activities, giving unjustified legitimacy to the view that the continued existence of private schools has a negative impact on social cohesion.

At the same time the guidance made the level of bursary provision the key test of charitable integrity. Though the Commission has argued against setting specific targets, maintaining that schools should be judged on a case-by-case basis (an approach apparently set to be upheld by the Courts this week), hypothetical case studies supplied in conjunction with the guidance suggest what has effectively become a benchmark of 11% of fee income as an acceptable level of bursary provision. In consideration of other acceptable initiatives, such as offering the use of facilities to the wider community and partnerships with local state schools, the Chair subsequently made clear that in her view increasing bursary provision offers the most straightforward route to satisfying the new requirement.

The effect was to put such charities in an impossible situation. To continue to provide schooling, they must comply with the Commissions demands: they do not have the option to relinquish their charitable status; assets that have been put into trust cannot simply be taken out again. Effectively therefore, the prospect was of a choice between compliance and closure. Satisfy the regulator’s arbitrary definition of ‘trust’ or be forced out of the market. The experience the two test case schools – Highfield Priory prep school in Fulwood, Lancashire, and St Anselm’s in Bakewell, Derbyshire – both of which failed the test in 2009, giving rise to the ISC’s action, illustrates the stresses involved in being put in this position only too well. The hundred or so similar schools seeking as a result (under the leadership of IAPS chief executive David Hansen’s) an alternative not-for-profit vehicle that will enable them legally to relinquish their charitable status in the courts provides an indication of the number of schools affected. The fact is that ordinarily schools simply cannot afford this level of bursary provision. The price hikes involved would ruin them.

As my recent paper on the potential of England’s proprietorial independent schools made clear, I don’t happen to think that the charitable trust model is necessarily the most effective or efficient out there, nor do I find the ISC’s arguments in favour of charitable status ultimately convincing. Most people assume that charities exist to help people who cannot help themselves and I can only think of one example of a public school with an endowment substantial enough to be able to function with absolute integrity in this way. Far more fundamentally than they are charities, schools are businesses, and it would serve us all to approach them as such.

But legislation is not the way to get from A to B on this question. Labour’s approach was ultimately an attempt to force consolidation in the market; the irony is that left alone, this would have happened anyway and far more efficiently. Charitable mergers have been commonplace for some time now. The trend towards federation had begun well in advance of these developments and will doubtless continue long after the furore has died down – witness, for example, the rise of the GDST and of CfBT. Analysts estimate that a fifth of all independent schools will be in federation or alliance by 2020. Other schools, notably the Whispers School, Surrey, have taken the decision to liquidate their assets and expand their bursary provision to more competitive charitable schools.

This option has been successfully taken up by a number of charitable schools selling up to the Cognita schools group in recent years too. Schools acquired in this way to date include Cranbrook College, Ilford; Glensesk School, East Horsley; and Downside and West Dene (now Cumnor Girls), Croydon. With the Conservatives now committed to pursuing greater charitable efficiency by increasing competition in the market through academy expansion, the Charity Commission should put this sorry episode behind them and focus on developing and facilitating these and other means of rationalising independent school provision.

Adele joins the low-tax club

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There's a small club of musicians and actors who've protested against absurdly high tax rates. The classic is George Harrison's Beatles song, Taxman – "Should five percent appear too small /  Be thankful I don't take it all". (That wouldn't sound out of place in most debates about tax today, sadly.) And, of course, there's Michael Caine's explanation of the Laffer Curve – "I left for eight years when tax was put up to 82 per cent. The newspapers said: "Michael Caine's leaving: let him go, the stupid, overpaid, loudmouth idiot, who cares where he goes?" Well, you didn't get 82 per cent tax from me for eight years." 

The newest member of this elite club is Adele, whose (rather good) song "Rolling in the Deep" you've probably heard ad infinitum in Radio 2. She's not pulling any punches:

"I'm mortified to have to pay 50%. Trains are always late, most state schools are s*** and I've gotta give you, like, four million quid? Are you having a laugh? When I got my tax bill in from [my album] 19 I was ready to go and buy a gun and randomly open fire."

A bit extreme, but I can't blame her for being frustrated. The Guardian is a lot sniffier – how dare she resent paying half her earnings for inefficient state services!

Robert Nozick used the example of basketballer Wilt Chamberlain to show that even a society that began with equal wealth would quickly become quite unequal:

Suppose that among the members of this [equal] society is Wilt Chamberlain, and that he has as a condition of his contract with his team that he will play only if each person coming to see the game puts twenty-five cents into a special box at the gate of the sports arena, the contents of which will go to him. Suppose further that over the course of the season, one million fans decide to pay the twenty-five cents to watch him play. The result will be a new distribution, D2, in which Chamberlain now has $250,000, much more than anyone else.

Is it just to take half of Chamberlain's earnings in this example? Why should the state interfere in simple and just exchanges like this? Nobody could claim that Chamberlain doesn't deserve the money – people want to give it to him because they want to see him play. But, as with George Harrison and Adele, he'll end up much richer than any one person in the audience. There are lots of people out there who wonder why they have to cough up so much of the money they earn just to pay for late trains and bad schools. Welcome to the club, Adele.

A few words on super-injunctions

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Last week, the Daily Mail has a front-page headline that said, “Sir Fred’s affair: why we do have a right to know”. This is a sentiment that I’ve heard a lot when people are talking about super-injunctions. People have the right to know this, people have the right to know that, and so on.

But none of us have a right to know anything about any private individual. Our rights are just not the issue. The issue is about whether someone who knows something about someone else is free to say it. It’s all about the individual’s right to freedom of speech.

And I take a pretty hard line on this: the law should not be used to prohibit anyone from speaking the truth. Yes, there is a strong case for preventing the media reporting information about private individuals that has been obtained illegally. But beyond that, freedom of speech trumps other considerations.

Of course, I couldn’t care less which footballer has been sleeping with which z-list celebrity. And I’d much prefer to live in a society where other people didn’t care either. But my tastes don’t matter. Freedom of speech does. End of story.

Ultimately, Eamonn is right: if you live in the public eye, you shouldn’t do anything that you’re not prepared to see reported in the News of the World. It might not be fair. It might be a sign of cultural degradation. But that's the way it is. The lawyers don't get a say in the matter.

Neither one thing nor the other

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The FT reports that Sir John Vickers, the chairman of the Independent Commission on Banking, has admitted to the Treasury select committee that the commission’s proposed reforms “might not prevent more failures or free the taxpayer from providing support to the sector.” He is absolutely right, and that’s why the commission’s proposals are somewhat deficient.

As I’ve written before, by far the most pressing task facing financial reformers is to reintroduce proper market discipline into the banking. Bank executives need to know, beyond any doubt, that they won’t be bailed out if they make bad business decisions. Bondholders – that is, people or institutions who lend money to banks – need to know that their investment isn’t risk free. Even savers and depositors need to realise that their money is only as safe as the bank holding it is sensible.

Such market discipline would do far more for financial stability than any amount of regulation and enlightened ‘supervision’ – with all the information and incentive problems that brings with it – ever could.

But some people say this is just pie-in-the-sky stuff. They argue that while – yes – a real free market in banking might work, that’s just not something we’re ever going to have. Democracy, they say, means that banks are always inevitably going to be bailed out. At the very least depositors (and probably bondholders too) are going to receive full or partial government protection. In other words, they say that you just can’t possibly eliminate the risk subsidy that government gives the banks, and which inclines the financial system towards instability.

I hope this isn’t the case, but if it is, it probably suggests a far more radical regulatory approach than the Independent Commission on Banking has considered. It might even point in the direction of ‘narrow’ or ‘limited purpose’ banking, which would involve imposing strict structural divisions in the finance industry, and require banks to hold dramatically higher levels of liquid reserves. Bank of England governor Mervyn King has nodded in this direction.

Of course, I’d much prefer the free market option, but the trouble with the Independent Commission on Banking’s proposals is – arguably – that they do neither one thing nor the other. They don’t eliminate moral hazard and risk subsidies or restore real market discipline to the financial sector. But they don’t offer a particularly strong regulatory response either. As such, the banking sector is liable to cause more problems in future.

Could Britain be next for a pension tax?

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Ireland has joined the increasing number of EU states that have begun seizing or taxing private pension funds to plug their budget deficits. Under the Irish plan, a 0.6% tax will be levied against private pensions for the next four years, in order to fund a stimulus package. Note that this will be a tax on the capital itself, not the gains.

The plan is, of course, ludicrous: classic "gombeen economics", in the words of the Irish Times's commentator (gombeen is an Irish word for a corrupt wheeler-dealer), that will only make Ireland's situation worse. And stimulus packages are a Keynesian folly. At best they do nothing, at worst they bankrupt countries and lead to lost decades of stagnation. And the principle of raiding people's savings, made on good faith, to pay for a government project is immoral in and of itself. But, however much we might sympathise, that is Ireland’s challenge. The real danger is that we might see the same kind of thing over here.

From next year private sector workers will be automatically enrolled into a pension fund. A tax similar to the Irish levy wouldn't yield the government a huge amount, but it would plug a hole in its finances. If the recovery that the government expects doesn’t come through, it isn’t hard to foresee a “temporary” levy on pension pots. Like the Irish levy, it might start small. But remember: the first income tax was just 2%, and was originally introduced to fund the Napoleonic Wars. Small, temporary taxes have habit of sticking around and growing.

Even a tiny pension confiscation would have a seismic impact: just as the Irish government’s levy has broken the good faith in which Irish pension holders invested their money, so would the faith that Britain’s system relies on. It may be coincidence that pension contributions are being made mandatory at the same time that this is happening abroad, but the inability to disengage from private pensions would free the government’s hands to raid these funds. Such a tax would be deceitful, deter investment, and undermine people's ability to provide for themselves in their old age – yet another step away from self-sufficiency, towards dependence on the state.

How likely is this to happen? Sadly, it may be inevitable. Hungary, Poland, France and other EU states have carried out straightforward pension seizures, and a levy might be presented as a “lucky escape”. Yeah, right. Some might say, optimistically, that a pension tax would be politically unfeasible in Britain. But if a strong recovery doesn’t take place (and so far, growth figures have undershot the government’s projections), and the government continues to buckle to special interest pressure, the pensions nest egg might be too tempting to resist.