The Pin Factory Blog

As another massive, glossy 'corporate responsibility annual report' from a FTSE 100 company thuds onto my desk, I am reminded of the words of Milton Friedman in Capitalism and Freedom:

"Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine. If businessmen do have a social responsibility other than making maximum profits for stockholders, how are they to know what it is? Can self-selected private individuals decide what the social interest is? can they decide how great a burden they are justified in placing on themselves or their stockholders to serve that social interest?"

Perhaps it is time we thought about asking families to pick up more of the strain.

Imagine a world where the government provided us with our cars. It would purchase a set number of them from private producers and some rationing board, lets call it the National Institute for Car Exboblification, or NICE, for short, would be established to allocate them. NICE wouldn’t necessarily allocate them to those who want them the most, but by some arbitrary principle.

Imagine, now, that a brilliant new hatchback is produced; superior in every way to the currently provided hatchback. However, NICE decides not to supply this hatchback. ‘It’s too expensive’, the rationing body decries! ‘It may well be superior in every way, but you’ll just have to make do with the old model.’

Clearly, this method of allocating cars is a nonsense. Why, then, do we apply it to the allocation of far more fundamental goods?

As readers of this blog are no doubt aware, a real life NICE determines which drugs are and are not made available on the NHS. A remote, unaccountable board of technocrats takes decisions that massively alter the lives of the individuals and families that they affect; such as that made yesterday to not provide Avastin: a new bowel cancer drug that could effectively treat 6,500 people a year.

In the allocation of drugs, as in the allocation of cars, the market does a better job than a rationing body. Removing rationing enables people to make better-informed choices. The medicines that one receives wouldn’t be determined ad hoc by NICE, but by an informed choice made in advance after a full consultation of health insurance options and their prices. One could object here that the poorest might struggle to purchase a decent plan. Yet is this really worse than the current system, where NICE denies them access to treatments in the first place? Also, there is no reason why, in a freer system, the government couldn’t step in to help the poorest purchase plans that meet a pre-defined standard.

It’s time to abolish NICE and wean our healthcare system off the wartime rationing mentality that has dogged it since its inception.

Lots of people liked my Times article on Switzerland's canton system as the model for localism in the UK, and many have been asking me if other parts of the Swiss system would be good for other countries to follow too. I can think of one right away: Switzerland's healthcare system.

It's many years since I looked at this in detail, but Switzerland's healthcare system is fundamentally a compulsory insurance system – like the compulsory insurance system we have in the UK for our car insurance. You have to insure yourself or your family for a basic package of healthcare services. The premiums are the genuine price for that insurance, and are not related to income. You can shave off some of the cost of those premiums by taking a higher excess – meaning that if you do need treatment, you will pay more out of your own pocket. A typical policy might cost a family £2,000-£3,000 a year, but if you can't afford that, the state steps in by paying the premium for you. There is also a state-funded disability benefits programme.

The insurers are competitive, but they are not allowed to make profits on these basic healthcare package policies. However, most people also buy voluntary top-up policies, on which the insurers can make a profit. These provide services that are not covered in the basic package – things like dentistry, the use of a private room in hospital, eyeglasses, newer medicines, or alternative medicines. There is a mixture of publicly run and privately run hospitals to choose from, but you can also join an HMO-style managed care system, which actually provides your care, rather than having insurance that enables you to shop around between different providers.

Many commentators think that the Swiss system is the world's best. The care is as good as any in America but because there is much more competition and much less regulation, the cost is significantly less – though, like everywhere, premiums have increased considerably over the past decade or two. But the bottom line is that the system is very popular with the Swiss population, who consider it both good and fair, and seem to have no desire to change it very much.

A health system that the public are happy with? Now that would indeed be a good model for us all.

Whilst the Department of Transport is grappling with meeting its public expenditure cuts, (memo – scale back the Crossrail investment programme), there is still unfinished business on the railways.

First, commuter fares need to be addressed – most are price-regulated. The recent rise in inflation will push up commuter fares and the Treasury may demand a further increase – up to 10% in total for hard-pressed commuters?

To offset higher commuter fares, greater efforts should be made to generate efficiencies on the system, especially at Network Rail.

Since the unnecessary demise of Railtrack in 2001, Network Rail has at least carried out most of its investment programme – and especially the West Coast Main Line upgrade project that virtually ran out of control. But its net debt has now soared to £23 billion, as cash flows rapidly out of the business.

However, the many shortcomings of Network Rail, especially its high cost base and its byzantine governance structure, are becoming apparent. There have also been several unsavoury – and unsubstantiated - media reports about senior Network Rail staff excesses which Chairman, Rick Haythornthwaite, needs to address urgently.

Furthermore, Network Rail’s corporate structure, which is reminiscent of a water company in the 1970s, needs to be overhauled. Quite simply, the quaint ‘member’ system is not in keeping with 2010 management practices.

The railway franchise arrangements – a legacy of the botched railways privatisation of the 1990s - need to be reformed. The franchises should be larger, longer and less prescriptive - but very punitive if a franchisee fails to meet accepted standards without genuine excuses.

Labour is urging the government not to scrap ASBOs, asserting them as crucial in keeping crime down, and in preventing communities being left “helpless”. Home Secretary Theresa May said that punishment methods need to move on from the ASBO, and be “rehabilitative and restorative” as opposed to criminalising; the coalition wants to spur a more “common sense” approach to policing.

In the past, ASBOs have been given out for actions ranging from the absolutely bizarre to the mind-bogglingly ridiculous. From a 60-year-old dressed in school uniforms, to flocks of sheep being used to intimidate, the ASBO has been used to quell some of the country’s most eccentric individuals.

The 1998 Crime and Disorder Act, which brought in Tony Blair’s “ASBO”, included a list of over twenty instances of anti-social behaviour, including drinking alcohol on the streets, begging, noise coming from alarms, malicious communication, and inappropriate use of fireworks.

Nobody’s denying that certain individuals, or groups, can cause a nuisance, upset and even make life a misery for others. But since their introduction, many have felt the ASBOs, in addition to landing almost four and a half thousand people in custody without trial, often directly breaches the freedoms of self-expression and identity. It is for Parliament, and Parliament alone, to determine what activity is criminal. Under the ASBO regime, a court determines that certain activities (which can be almost anything) is criminal. Criminal law should be the same for everybody, but ASBOs make it a criminal offence for one person to engage in certain activities but not for another person to engage in the same activity. The burden of proof, in imposing an ASBO (i.e. whether behaviour is anti-social) is the civil test of “balance of probabilities”, not the criminal test of “beyond all reasonable doubt”. Behaviour is “anti-social” if it causes “harassment, alarm or distress” to the victim. Worse still, “harassment, alarm or distress” has been said to mean whatever the victim thinks it means.

Human Rights lawyer Alex Gask wrote that the term “anti-social behaviour” covers and extraordinary large and ambiguous area, whilst the contents of ASBOs themselves are equally equivocal. Furthermore, the fair treatment of those accused, and the presumption of innocence are often overlooked. There are more profound social questions as to whether ASBOs are an appropriate way to deal with serious social problems, especially when they are applied to those aged 10 to 17.

And how effective are they anyway? Another “quick fix” solution, and a solution which, in itself, is at best good intentions gone seriously awry, and at worst a persistently botched job. May’s emphasis on community intervention, “people who are closer to the problem have to be driving the solution”, may seem optimistic, but it has to be better than the criminalisation of non-criminal behaviour.

Though my colleagues at the Adam Smith Institute regard me as the 'down' man, always seeing the difficulties presented by any new idea, underneath I'm really an optimist. I really believe that the free market will triumph, despite everything that our system of government conspires to do to shackle it. The free market is an entirely natural system, like evolution itself, which grows and adapts whatever adversity it faces. You can concrete over a path but still, before long, the grass pokes through. So do markets.

And I'm optimistic that Britain will sort out its tax and benefits system, and adopt a flat tax on incomes and a negative income tax to relieve poverty. Looking at the first tentative proposals of the coalition government in general and of the welfare and pensions secretary Iain Duncan Smith in particular, I think we can see the first green blades of common sense breaking through here too.

Our tax system is fiendishly complicated. Civil servants like it that way, because it creates work for them. Whenever you try to tax people, they will find ways round it. And when your own money is at stake, it is worth buying in good accounting brains to protect it. So tax becomes a cat and mouse game with the Treasury: a new tax is introduced, people find ways to avoid it (quite legally), so the Treasury has to close off the loopholes with new rules. A few years of that, and the rule book gets pretty complicated. The standard tax guide for accountants now runs to about 11,000 pages across four volumes.

We should cut right through all this nonsense and have a flat tax – as we have said many times in our publications on the flat tax. Cut out all the deductions, the loopholes and the clawbacks, and have a low, standard rate of tax that applies to everyone. Then everyone knows what they and their fellow workers are expected to pay. No escape and (sadly for accountants and Revenue civil servants), no need for a lot of complicated measures to avoid tax or to make sure people pay it.

I am optimistic that similar simplicity might come to social benefits too. We have roughly 51 different social benefits. They are designed – well, that's too strong: they have grown up under pressure from various interest groups – to make sure that everybody's unique circumstances are catered for, and that nobody falls through any cracks in the system. A laudable aim, but a madly complicated result. We should scrap it all and have perhaps just two benefits – a long- term benefit for those who simply cannot earn for themselves, and a short-term benefit for those struck by temporary unemployment. Instead of a complicated raft of benefits, we should have a negative income tax. If you have a good income, more than enough to live on at a decent level, you should pay tax. If you don't have enough to live on, you should get cash – the negative bit of the tax.

After all, when you get a job, your employer pays a rate for the job. Employers don't ask you about your exact family and personal circumstances before setting your wage. It should be the same with the benefit system. That makes it simple to administer, and it encourages people to curb their costs instead of thinking about how to maximise what they can get from the authorities. True, some people in special circumstances will face hardship. But alleviating that is something that seems the proper role for the charitable sector. True, we need then to liberate the charitable sector, with things like US-style tax deductibility to encourage more philanthropic giving, so that charities can step in where the state falls short and real help is needed. But I am optimistic that we can do that, too.

Apologies for the unpleasant comments which appeared below on the article 'Catholic Care forced to close'. They should have been removed automatically yesterday when the commenter – Doris – was blacklisted. For some reason this didn't happen and, as a result, the comments stayed up long than they should have. They have now been removed manually. I suspect that our readers are, in general, not easily offended, so I doubt anyone was unduly peturbed by Doris's bigotry. Nevertheless, if you do spot these sorts of comments in future, please use the 'Flag' function in the comment section to draw them to our attention.

In Sunday’s Telegraph, David Willetts, the Minister responsible for universities, suggested that universities aren’t doing enough to accept bright pupils from poorer backgrounds. He contests that many such pupils’ educational backgrounds prevent them from meeting the demanding offers set by the top universities and recommends offering them reserved places at lower grades than required by their better-off counterparts to correct this discrepancy between potential and places. Yet this solution seeks to address a discrepancy that does not exist. Willetts assumes that universities do not already consider an applicant’s potential when offering her a place when, in fact, they do.

The vast majority of universities offer students places based on three pieces of evidence: AS grades, personal statements and teacher references. Whilst the first is admittedly concerned with a candidate’s attainment, the others offer scope for the display of her potential. Personal statements are used to demonstrate her extra-curricular successes, motivations and interests, whilst teacher references highlight the student’s pace of development and attitude to her work. A standard UCAS form contains a multitude of measures of potential, all of which are considered before a university makes an individual offer.

Further means of assessing potential are utilised by Oxbridge and the Russell Group universities, presumably the targets of such a quota (no-one hears about London Metropolitan’s failures to further social mobility). Not only do they require the completion of entrance exams with a more IQ-test feel than the standard A level for some courses (such as the LNAT and BMAT), they also tend to invite applicants to interview for places. These give admissions tutors an opportunity to examine how candidates think, by subjecting them to a line of questioning designed to reveal thought processes. Were a candidate with mediocre AS levels to truly dazzle at interview, the university would have few qualms offering her a place, complete with realistic grade-requirement suitable to her educational background. Indeed, I’ve met people to whom exactly this has happened.

Universities already take the applicants whom possess the most potential. They have both the means to identify them and the incentive to reduce offers in line with personal circumstances; allowing the best candidates in can only raise the university’s position in the league tables. Universities do not need government instruction to act in their own best interest, and recruit the best applicants thereby.