The engineers are entirely correct here about climate change
Sure and there’s a particular individual who keeps claiming the invention of this idea but it’s still a useful one. Worstall’s Fallacy - To measure what needs to be done without accounting for what is already done. If we were to measure income inequality purely by market incomes then we would be indulging in idiocy - what matters, if anything does, is how much inequality is there after the things we do to reduce inequality? Thus we measure post-tax and post-benefits inequality, not that of market incomes.
Of course, when we come to wealth inequality we do indulge in idiocy because that is measured pre-tax and pre-welfare state terms but there we are.
Another example is this from the engineers:
Extinction Rebellion are ‘destructive’ and ‘unsupportive’ of technologies that already exist to tackle global warming, the Royal Academy of Engineering (RAEng) has warned.
Ahead of a new report, calling for the rapid scaling up of Britain’s engineering biology sector, experts said that scientists and engineers were on the brink of solving many of the major problems linked to climate change and environmental pollution.
But they said many protesters were simply unaware of how much was already being done to tackle global issues, such as the development of specialist materials to clean up the oceans, green fuels, bugs being engineered to churn out biodegradable plastics, meat alternatives and even environmentally friendly hair dye.
There’s more to it than just this, much more. In the original projections of how much we should worry about all of this there were versions which assumed that we didn’t make solar panels cheap, didn’t work out how to build windmills, continued to use coal in vast quantities and so on and on. We have in fact changed those things, meaning that those more extreme projects (to taste, A1FI from the older set of models, RCP 8.5 from the newer) simply are not going to happen. They’re not part of our possible collective future.
Yet the shrieks of horror from the likes of Extinction Rebellion are based upon the idea that not only will those impossibilities happen they are the only possible collective future. They are committing Worstall’s Fallacy - measuring what needs to be done without accounting for what has already been done.
For example, just recently the International Energy Authority announced that the world was only installing 60% of the renewables generation capacity needed to bypass that 1.5 degrees warming target. No, leave aside whether that’s a sensible target, whether renewables will meet it and all that. Just think about that statement.
We have done nothing to deal with climate change? Or we’ve done 60% of it and there’s only 40% to go? And public policy should be based upon which answer?
The early dawn of helicopter money
In 1969, Milton Friedman coined the phrase "helicopter money" to dramatize extra money being pumped into an economy as if dropped from helicopters. Some economists have since suggested that this could boost demand in a severe downturn to lift the economy, though others point to the inflation that would result.
It was almost given a trial in one of the most bizarre Nazi plans of World War II, entrusted to SS Major Bernhard Krüger, who was born on November 27th, 1904, and whose name was used as the codename for the plan, Operation Bernhard. The idea was to produce large quantities of fake British banknotes and drop them from aircraft all over Britain. It was reckoned that the British people, suffering from war privation and rationing, would spend the money instead of turning it over to the authorities. The result, reasoned the Germans, would be financial chaos, inflation, and the collapse of Britain's economy and its ability to continue to fight the war.
Krüger toured the concentration camps to collect the slave labour he was ordered to use, choosing Jews with the skills he was looking for, those with expertise in engraving and printing. His unit was set up near Berlin at Sachsenhausen camp, with printing presses capable of producing 65,000 fake notes a month. It is reckoned that notes to the value of hundreds of millions of pounds were produced, equivalent to about £7 billion in today's values. They were fake, but they were of superb quality and virtually indistinguishable from the genuine ones.
Hitler personally approved the plan, though Goebbels thought it “grotesque,” pointing out that Britain could retaliate in like manner. Operation Bernhard was not carried out as planned because by the time it was ready, Germany no longer had enough aircraft, or ones capable of penetrating Britain’s defences.
Instead of abandoning it, Himmler took it over and used it for money-laundering to fund intelligence operations. He called on the services of Friedrich Schwend, a gangster dealing in currency fraud and smuggling, to run the network. Schwend used the fake currency to buy gold, diamonds and art works that were resold for genuine currency. From his headquarters in Merano in Italy, he spread the fake British banknotes across Europe.
The forgery business ended in 1945 as the Allies advanced across Germany and Sachsenhausen was shut down. Crates of the fake notes were dumped by the SS into Lake Toplitz in Austria, from where some were recovered by divers in 1959, but the bulk lay undisturbed until the year 2000, when a submersible brought up several boxes of the counterfeit notes. At Merano in Italy, a 1967 examination of the church organ to check its age revealed £5 million fake notes that Schwend had stuffed there.
Schwend fled to South America after the war and was involved with Klaus Barbie and Josef Mengele. In 1976 he was extradited from Peru to Germany to face trial for wartime crimes. Found guilty, he received a two-year suspended sentence and was deported back to Peru. Krüger was initially detained by the British but released in 1948 without facing charges. He returned to Germany and later faced trial in a denazification court. Former inmates under his charge at Sachsenhausen provided statements that resulted in his acquittal. He died in 1989, aged 84.
Some of the fake money had crept into circulation in Britain, and was so good that it alarmed the Bank of England, and led them to issue a new design. We never, therefore, had an advance test of the effect of helicopter money. Who knows? It might have caused a wartime consumer boom in the UK economy as people rushed to spend their airborne wealth. But since goods were in short supply because of the U-boat menace, the inflation would have reached Venezuela levels, perhaps even Zimbabwe. It never happened.
Young people and immigrants will be hit hardest by Labour's rent controls
‘In many cases rent controls appears to be the most efficient technique presently known to destroy a city – except for bombing,’ socialist economist Assar Lindbeck declared in 1972.
Labour’s Manifesto released last week commits to cap rent increases to inflation, while giving cities power to cap rents even further.
Rent controls transfer the mechanism for setting rent prices from the market to the state. They result in lower rents for those who currently have a rental apartment and are happy to stay in them. But for everyone else it makes them worse off. It drives up shortages that, depending on the exact policy, results in longer waiting lists or much higher prices for those entering the market. It is the property equivalent of pulling up the drawbridge when you get in. Corbyn might profess to be for the many, but this is a policy that is only ever for a privileged few.
Rent control fails everywhere it is tried. . Take Sweden, in Stockholm the council has had a policy of rent controls for decades. It takes an average of a decade, and up to 30 years, to get to the top of the waiting lists for apartments. This prevents young people and immigrants from being able to find a home. It also greatly restricts those who want to find a bigger place as they start a family. It’s worth noting too that Stockholm capped rent controls above the level of inflation, Labour doesn’t want to do even that and is planning to go further to lock controls to inflation. This will mean more people locked out of moving to our great cities, it will mean even more shortage, and even more substandard accommodation.
Most private renters’ gripes come down to issues with accomodation: a broken fridge that has taken too long to get fixed, a damp wall, or a boiler on the blink. Well, rent control doesn’t fix this — it makes it worse. Because property developers realise that they cannot get a sufficient reward for building new properties due to restrictions on rents, new home building collapses and investment in properties already in the market dries up. This makes the shortages even worse while the quality goes down.
It’s not just in Sweden of course — equally self-promotingly progressive San Francisco also has rent controls. A study by Stanford University found that between 1994 and 2010 those who were already living in rent-controlled properties had benefited from lower rents by about $2.9 billion between them. This however had been at the identical expense of an additional $2.9 billion to those who came to the city later who experienced higher rent because of a shortage of available housing. Rent controls added up to a transfer of benefit from young people and immigrants to those who are already tenants.
Tinkering with the price of rent does not identify the real underlying problem behind the housing crisis: the fact that there are too few homes. Heavy restrictions on building new homes have stifled building by both the state and the private sector. Council procedures as well as national planning legislation currently results in housing that inefficiently uses space. It also takes years to obtain permission for large developments. With our politicised and democratised planning system we’ve ended up making property an asset class with a few winners at the expense of everyone else. We should not replicate that shortage in rentals too.
The Conservatives have gone some way to help deal with this by easing restrictions on building extensions. Current Conservative housing minister Rob Jenrick has proposed some good reforms. such as allowing owners of detached homes to build two extra storeys without planning permission which could then allow the property to be split into flats.
However, both parties need to realise that current planning procedures are not fit for purpose in order to bring about more homebuilding. If not, then no level of tinkering will prevent shortages, high prices and long waiting lists that come with that — and the last thing Britain needs is the explosive economic impact of rent controls.
Money where mouth is - in praise of Ben Lovett of Mumford & Sons
We’ll not praise the music of Mumford & Sons as, being the crusty and decidedly non-hip that we are we’ve little knowledge of it. Praising Ben Lovett’s contribution or not to it is entirely beyond us. However, we do wish to praise Mr. Lovett himself, for he’s putting his money where his mouth is.
He identifies what he considers to be a problem in our current society. There is a lack of middle sized gig-spaces in which the up and coming - or possibly the established yet declining - can perform to adoring crowds. Therefore:
The UK’s music industry risks falling behind its European competitors unless action is taken to support smaller venues and nurture the talent developing at grassroots level, according to Ben Lovett of Mumford & Sons.
Lovett, who is opening a new mid-sized venue in King’s Cross, central London, next February, said there were too few spaces where bands could develop, and that could lead to a slowdown in British talent compared to other European nations.
We have absolutely no idea whether his analysis is correct or not. Our point is that nor does anyone else. Most certainly not any group of cultural commissars nor anyone old enough to have been elected to office of any sort. The only people who do know are those who will be - might be perhaps - willing to shell out and buy a ticket to go to this new space.
That’s how society discovers what people actually want, people try it and see. That’s also the glory of this capitalist and free market system, that anyone gets to try near anything so as to try it and see.
Yes, there are certain desires expressed for changes in venue taxation and so on. But the thing to praise Mr. Lovett for is that he’s putting his own money, time and reputation in this trying it and seeing. Excellent, the very best of British to him too.
The other costs of nationalisation
The railways. Water. Gas. And now broadband. Labour’s plans for nationalising key parts of the British economy take pride of place in the party’s manifesto, and have naturally attracted intense scrutiny. But most responses have focused on headline costs of nationalisation, rather than the effects nationalisation would have on productivity, service quality, and public finances in the long-run.
The Conservatives have claimed that Labour’s spending programme (of which nationalisation would be a major part) would cost £1.2 trillion, piecing together various estimates made by think tanks and industry groups. Unsurprisingly, this calculation has come under attack from Labour, and the argument over these figures will likely continue up to Election Day. And going further, Labour has rejected the premise of costing nationalisation in this way: “taking companies into public ownership is fiscally neutral by international accounting standards when bonds are exchanged for shares”.
Either way, these arguments have distracted attention from the other problems that have to be taken into account when weighing up the costs and benefits of nationalisation. These include knowing:
The scale of the investment that the newly-nationalised industries will need;
How far efficiency will be devalued as a management objective in these industries;
How disruptive nationalisation will be for staff and labour productivity;
How nationalisation might damage the broader trade and investment climate at home and abroad.
1. The scale of investment needed
For each sector facing nationalisation, there is an investment pipeline needed to maintain or improve its assets. Many of the headline figures cited in the debate around the cost of nationalisation have only taken into account the immediate cost of compensating shareholders and what various different compensation formulae might call for.
Labour has committed to a £250 billion Green Transformation Fund over the next decade to tackle the climate emergency and support investment in physical infrastructure. But it is unclear how this maps onto to the investment needs of each newly-nationalised industry — and whether it captures their needs in their entirety. When the costs of maintenance or improvement have been considered at a more granular, industry-specific level, basic errors have been made. In the case of Openreach, the figures had to be corrected before the manifesto costings were published.
Nor is it clear where the funding for this investment will come from. If the industries are run well, with efficiency and productivity prioritised, and without the need to provide dividends or immediate returns to shareholders, then the industries may be able to fund part or even all of their own investment needs going forwards. Going by the track record of previous nationalisations, this is a brave assumption. The need to find new, non-taxpayer-funded sources for such investments was one of the main reasons why these industries were privatised in the first place.
2. Efficiency as a management objective
Why might it be difficult for the newly-nationalised industries to fund their own investment needs? In part this is because of the multiple, sometimes contradictory objectives that the Labour movement and its allies have in advocating nationalisation, many of which will be pursued at the expense of efficiency.
In water, for instance, the Labour Party has committed itself in the manifesto and elsewhere to ending outsourcing, increasing staffing levels, improving pensions, investing in infrastructure (including that needed to mitigate climate change and flooding), and reducing bills.
It is unclear how all this can be achieved without heroic assumptions around the impact of removing shareholder dividends, reducing senior leadership remuneration, and achieving operational efficiencies. Or without an implicit assumption around an increase in central government subsidy to the newly-nationalised sector.
Not every priority is of course achieved in contemporary examples of public ownership. Consider the Parisian water system. Following municipalisation an initial cut in water bills and spike in hiring was also accompanied by an anaemic rate of investment (something like 20 euros per inhabitant per year — a third of the French average).
Adjudicating between these different concerns (and the added matter of profitability and shareholder returns) currently occurs in the context of a structured dialogue between regulators and utilities. This has not always yielded the right balance. But there is, at least, a politically-independent, clearly-defined process for making such decisions and trade-offs — and one that ensures that maintenance and new investment do not fall too far down the priority list (storing up much greater costs for later).
It remains to be seen how these kinds of difficult trade-offs can be resolved and investment safeguarded under Labour’s nebulous “democratic public ownership” model. This model of ownership and management somehow is supposed to empower numerous stakeholders and special interests as decision-makers while ensuring that they cooperate rather than compete. And, at the same time, to make Whitehall step back from direct oversight and management, whilst also ensuring national targets and industrial strategy are followed.
3. Disruptions to people and productivity
Nationalisation would be disruptive for staff in the newly-nationalised industries. Moving into public ownership likely means that the performance management and incentive regimes for all staff would be upended.
For some staff, the experience of becoming state employees — with potential improvements in base rates of pay and pension offering — may be quite attractive. For others, any move to diminish performance as a component of salary and career progression might prove disheartening. As might the underlying loss of clarity over objectives and incentives, alongside the need to spend years adjusting to the change in systems, rather than simply getting on with the management of the organisation.
The nationalised industries thus will run the risk of losing some of their most dynamic and innovative staff to firms and sectors remaining in private hands (compare, for instance, the inability to retain managerial staff after the municipalisation of the Parisian water system). Attracting new talent may be just as difficult. Taken together, the newly-nationalised industries may face a serious decline in labour productivity as a consequence.
The impact on staff in the newly-nationalised sectors should not be the only consideration here. Designing the policies and processes required to move these sectors under state control, withstand any challenges, and put in place effective governance and controls on an ongoing basis will exert more pressure on an already-overburdened civil service. And all this at a time when government departments will also be expected to handle new negotiations with the EU27 on Brexit.
4. A cooler investment climate at home and abroad
A more complete cost-benefit analysis would also need to consider the broader impact to the investment climate within the UK, and the impact to the UK’s trade and foreign relations.
This would likely be limited in a scenario where the government used a relatively uncontroversial compensation formula — or simply took ownership through a gradual process of letting franchises lapse or buying shares on public markets.
However, the use of an ungenerous or contentious compensation formula could measurably decrease domestic and foreign investment in the UK, disrupting the ability of investors to realise or even calculate the value of any putative investments.
And then there is the nexus with Brexit. There is significant investment from companies within the EU27 in UK sectors that may be subject to nationalisation. Indeed, some of this comes from entities which are partially or predominantly owned by the governments of the member states themselves (e.g. Trenitalia).
These governments — on whom Labour is relying to negotiate a transition and future relationship more to its liking — will carefully consider how to protect their interests here. They may insist on including greater forward-looking protections for investors. Particularly troubling for those on the Labour left, the EU governments may not be content relying on investor protections in the ECHR, but may require inclusion of a robust Investor State Dispute Settlement or Investment Court System mechanism. Core parts of Labour’s interventionist economic programme would come under scrutiny from arbitrators (some of whom will be appointed by the EU) with the possibility of steep compensation or even reversal, and limited recourse. Coming to an agreement over this may prove a major roadblock in negotiations.
A fuller picture
A wide-ranging nationalisation programme would constitute a radical reshaping of the British economy. Much of the immediate attention around Labour’s manifesto has naturally focused on the breadth of its nationalisation proposals and continued disputes over the upfront costs of the programme. But there are other thorny issues to consider: before embarking on such an ambitious agenda, any government-in-waiting should consider the full costs and benefits of its proposals, and on whom these will fall.
This post first appeared on Fingleton Associate’s Medium page and is republished with permission.
In praise of VAT
As the Wall Street Journal puts it: VAT is “baked into the retail price”. VAT (also known as value added tax) is a method of taxation placed on consumer goods. Some goods and services in the UK are exempt from VAT such as lottery ticket sales, items from charity shops, babywear and children’s clothes and footwear. Although it is widely argued that VAT is actually a regressive tax that hurts the less well off, a more uniform system of VAT is actually more desirable for every group in society. It is easier to understand this model if we consider that VAT actually is more progressive over the lifecycle of a person, and through measuring by expenditure instead of income.
It is a widespread belief that allowing some goods and services to be completely exempt from this consumption tax actually helps the worse off. However, eliminating these exclusions would widen the VAT base which will in turn, provide a stable revenue base as it is based on consumption, therefore removing distortions and providing funds for redistribution.
In fact, a study by UCL, mirroring the Mirrlees’ Review on tax policy has shown that if VAT exemptions and zero-ratings were actually scrapped, the government will raise £24bn, which could then be utilised to increase what is given via means-tested benefits and tax credits, and still leaving a surplus to be invested elsewhere.
Some argue that this shift from income taxes to consumption taxes in effect imposes a windfall tax on “old capital”, thus purchasing power of people’s existing assets is reduced. This is actually efficient since the assets already exist, the revenue they provide doesn’t involve discouraging any new activity thus wouldn’t stagnate any growth. The tax is also theoretically neutral for producers, unless the good/service is exempt as they cannot be refunded for the VAT paid on their inputs, thus bearing the tax burden.
Lastly, to make sure that any taxation system is desirable, we should test it using the famous 4 canons of taxation by Adam Smith. These include: 1) canon of equality (meaning equality of justice, not equality of tax amount), 2) canon of certainty, 3) canon of convenience and 4) canon of economy. As the earnings received from removing VAT exemptions could be put back towards those who are least well off, the first canon can be fulfilled (as the tax and benefit system would be progressive overall). The second canon of certainty ensures that the taxpayer is aware of the tax, which is clear with VAT. The canon of convenience works as the VAT is built into the price of the good or service, thus cannot be avoided either. Lastly, to fulfill the canon of economy, broadening the VAT base creates a comparatively minor administrative burden.
Shradha Badiani is a research intern at the Adam Smith Institute.
Charles Forte and attention to detail
Charles Forte exemplified a typical 'Italian boy makes good' story. He was born on November 26th, 1908, in an Italian mountain village where his family had lived for centuries. He was the eldest of four children and remained, throughout his life, very proud of his family and his background. Seeking to climb out of poverty to a better life, his father went to Scotland in 1911, opened the Savoy café in Alloa, and sent for his family, including young Charles, three years later. Although he subsequently became a British citizen, Charles always described himself as Scottish Italian.
When he was 21, Charles entered the catering trade by managing the Venetian Lounge in Brighton for a cousin. He struck out independently by opening a milk bar in London's Regent Street, helped by his father, but proving even then his skill at researching a project and raising the finance for it. He soon expanded into the hotel and catering business.
When World War II broke out, he was interned as an Italian citizen, having applied for, but not yet completed, his British citizenship, but was released after three months. After the war he went from strength to strength with his company, now called Forte Holdings, and bought the Café Royal in 1954. He was very much a pioneer, opening the first catering facility at Heathrow Airport, and the first motorway service station.
Through mergers his company became Trust House Forte, a multi-billion-pound company, and included household names such as Little Chef, Happy Eater, Crest and Travelodge, as well as holding a stake in London's Savoy Hotel, and owning establishments in Paris and New York. Throughout his career he had to face snobbery from business leaders who regarded him as an upstart, and by rival hoteliers who disdained his mixed holdings of the classy and the popular. He had a meticulous attention to detail and made sure he knew every aspect of his different establishments. It was part of the reason for his success.
He was modest, despite his obvious talents. When knighted, at 5ft 4in he described himself as "the shortest knight of the year." He declined the offer of a peerage from the Labour Leader, Hugh Gaitskell, saying he could never vote with the Labour side of the House, but accepted one later from Conservative Prime Minister, Margaret Thatcher.
My colleague, Eamonn Butler, tells a revealing story about meeting Charles Forte and telling him that his uncle had once been one of his employees. "Frank Butler?" asked Forte, "He was my 11th employee. He retired to somewhere in Buckinghamshire, Milton Keynes, I think. How is he getting on?" He'd given Frank a gold lighter at his retirement dinner, and Frank was astonished to discover later that the leather pouch it came in alone cost £5 (£70 at today's values).
Charles Forte was an immigrant without wealth or high birth, yet he made good because of his character and talent. It speaks well of Britain that he succeeded. The hope and determination must be that the country can make it even easier for people with similarly humble backgrounds to prosper themselves and, like Charles Forte, create jobs for tens of thousands in the process of doing so. Our tax and incentives system must be geared to encourage, not discourage, those who aspire to follow in such footsteps.
The connection between cannabis and hardcore pornography
Clare Foges tells us several things about the idea of legal cannabis. For example, that smoking the modern stuff causes psychosis. This is not quite how it works, no. In any society there are those whose mental balance crumbles under the strain. Who and why might vary given the society but there’s been no society ever without the incidence. One of the known things about people who feel their mental control slipping away being that they self-medicate.
What they use to do so depends on what drugs are generally available in that society. But it’s the worry about becoming a nutter that leads to the drugs, not the other way around. Or at least, that’s the general experience, even if not that for each and every individual.
But there’s a much deeper mistake in Ms. Foges analysis:
Unlike its hardcore cousins heroin and cocaine, cannabis is widely perceived as gentle and soft, the Horlicks of drugs. This may have been true of weed smoked in the Seventies and Eighties, when the drug contained very low doses of THC (the psychoactive compound that delivers the high) but the cannabis (or skunk) of today is anything but gentle. To associate the oregano smoked decades ago with this hugely potent stuff is like bracketing a naughty seaside postcard with online pornography.
Assume that this is true for a moment. Do consenting adults have the right to produce, star in, watch, otherwise consume, online pornography? Yes, yes they do, as the viewing figures of the sites that provide it show.
Therefore consenting adults not just should have but justly have the right to consume even modern cannabis. On the grounds that any damage is to their own morals, their own life, things which are not our business to interfere with nor impose our own ideas upon those of others.
OK, so pot is porn. As with the bawdiness so with the blunt. Obviously, for we are all liberals around here, aren’t we?
Alfred Nobel gave us armaments and achievement prizes
On November 25th, 1867, Alfred Nobel filed a patent for a new type of explosive he called 'dynamite.' Nobel was a Swedish businessman, but also a chemist, an engineer and an inventor. He held 355 different patents, with the first, filed in England in 1857, being for a gas meter. His first Swedish one, in 1863, was for "ways to prepare gunpowder." He'd acquired an early interest in explosives from his father, and pioneered many innovations in that field. He invented a detonator in 1863, and two years later designed the blasting cap.
He met Ascanio Sobrero, the inventor of nitroglycerin, and became interested in discovering ways to make it safe. It was so unstable and unpredictable that Sobrero himself was opposed to its use. Heat or pressure could make it explode, so Nobel wanted something that made it stable enough to be safely stored and transported. That would make it commercially viable if it could be done.
He found that nitroglycerin could be blended into an absorbent, inert substance such as diatomaceous earth, a soft, siliceous sedimentary rock easily crumbled into a fine whitish powder. This made it safe to handle and more convenient to use. He called it 'dynamite' and patented it in 1867. It was rapidly taken up in the mining industry, and used extensively in building transport links, including tunnels.
Nobel tried combining nitroglycerin with nitrocellulose compounds, and finally achieved a transparent, jelly-like substance more powerful than dynamite. He patented it as 'gelignite.' It was more stable, easily transported, and could be shaped to fit in the holes made in drilling and mining. It became the standard technology used in mining, and made Nobel even richer than his previous inventions had made him.
In 1888 Nobel was the subject of one of those curious accidents of history that can change world events. His brother Ludvig died in France. Mistakenly thinking it was Alfred Nobel, rather than Ludvig, who had died, several newspapers ran obituaries of Alfred instead. They included a French one headlined, "The merchant of death is dead," and which went on to say, "Dr Alfred Nobel, who became rich by finding ways to kill more people faster than ever before, died yesterday."
Nobel was appalled to think that this was how he might be remembered, and resolved to improve his standing in the world by doing something more positive and worthwhile. He decided to bequeath his considerable fortune to fund an institution that would award prizes for excellent achievements in scientific fields, literature and peace. This established the Nobel Prizes. Six of them are awarded each year, one in each of the following categories: literature, physics, chemistry, peace, economics, and physiology and medicine. The economics prize, established in 1968, is actually called "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel," but it is administered by the Nobel Committee and regarded as a Nobel Prize, with its winners called Nobel laureates.
These are regarded as the highest honours in their field, except perhaps for the Peace Prize, somewhat devalued by recent politically motivated awards to Al Gore, Barack Obama and the European Union. But the others are highly respected and honour the memory of Alfred Nobel in ways that he would have wished, as a philanthropist and benefactor instead of a weapons dealer. He gained one other honour he would have liked. The synthetic element nobelium was named after him.
Another Whitehall Farce now running in NHS Theatres
One rarely sees a letter from a Cabinet Minister instructing a senior public servant to break the law. Matt Hancock’s letter of 22 November 2019 to Simon Stevens, Chief Executive of NHS England, appears to have done exactly that. In his 18 November letter, Stevens requested approval for “a commitment to make payments to certain clinical staff outside of the NHS pension schemes to restore the value of their pension benefits package, if they have elected to use the “Scheme Pays” facility to settle an annual allowance tax charge arising from of [sic] their pension saving in the NHS schemes in 2019/20.”
He and his Principal Accounting Officer needed written “Direction” from the Secretary of State because an employer paying its employees’ tax bills is evasion. Section 5.6.1 of HM Treasury’s rules for “Managing Public Money” state: “Public sector organisations should not engage in, or connive at, tax evasion, tax avoidance or tax planning. If a public sector organisation were to obtain financial advantage by moderating the tax paid by a contractor, supplier or other counterparty, it would usually mean that the Exchequer as a whole would be worse off – thus conflicting with the accounting officer’s duties (section 3.3). Thus artificial tax avoidance schemes should normally be rejected. It should be standard practice to consult HMRC about transactions involving non-standard approaches to tax before going ahead.” [1]
Although the matter was discussed with HM Treasury, there is no mention of discussion with HMRC, as Section 5.6.1 requires, nor of the tax treatment of the subsequent topping up of pension pots which would normally be regarded as additional (taxable) salary nor of the pension pot excesses that would result.
The problem goes back to 2015 when some bright spark in the Treasury, leaning somewhat to the left of Lenin, decided that NHS consultants were putting too much into their pension pots and should be penalised for so doing. They forgot to tell the consultants about the resulting 2016 tax change, so earlier this year, those who had worked overtime in 2016/7 were surprised by large tax bills. In many cases, effective tax rates exceeded 100%; in other words, consultants were having to pay the Treasury for the pleasure of doing overtime in surgical theatres and A&E departments.
The Department of Health and Social Care became aware of the problem at least by May 2019 but beyond soothing words and fruitless discussions with the Treasury, nothing was done. The Treasury, of course, is never wrong.
On 7 November, the Royal College of Surgeons published a “Survey on the NHS Pension Scheme”. Their key findings were “69% of consultant surgeons have reduced the amount of time they have spent working in the NHS as a direct result of changes to pension taxation rules. This coincides with a period of rising and record waiting lists for planned operations” and “68% of consultant surgeons are considering early retirement because of the new pension arrangements.” Personal contacts tell me that much the same applies in A&E which is heading for record long waiting times even with this week’s intervention by Messrs Hancock and Stevens.
There is nothing like an election to concentrate minds. The Conservative manifesto released on 24 November states “We also want to make sure that doctors spend as much time as possible treating patients, so we will address the ‘taper problem’ in doctors’ pensions, which causes many to turn down extra shifts for fear of high tax bills. Within our first 30 days, we will hold an urgent review, working with the British Medical Association and Academy of Medical Royal Colleges to solve the problem.” (p.10). But then Whitehall has been holding “urgent reviews” for six months without finding a legal solution.
Whitehall must sort this out before the end of the tax year as otherwise the illegitimacy will increase when the pension pots are topped up and there will be another two years of compensation due to NHS staff earning over £110,000 p.a. and doing overtime.
The truth is that this is just another Whitehall farce of many. Training places have been restricted for doctors for decades (short term thinking) so that the Conservatives now claim they will magic 12% more GPs by next year and 17% more appointments, a remarkable increase in productivity by any standards. Training place preference, also over decades, has been given, for ideological reasons, to those most likely to work part-time. Specialisation and big hospitals have been favoured over the much better value general practice. “A year's worth of GP care per patient costs less than two A&E visits, and we spend less on general practice than on hospital outpatients.” Surgeons complain that expensive theatres and kit lie idle because staff scheduling is incompetent.
The NHS has become a political football and a very expensive one at that. We need a cross party consensus on the structure and management of NHS England to run alongside the one the Conservatives now propose for Social Care. And we need it now.
[1] HM Treasury Managing public money, July 2013 with annexes revised as at September 2019, p.36.