Truly lousy analysis of profits in children's homes

Another year and another repeat:

The biggest private providers of children’s homes in England made profits of more than £300m last year, as concern mounts over the conditions some children are being placed in and the spiralling costs for councils.

Gosh, what horrors, the capitalists are making out like bandits. And now to make the same criticism the last time they told us this. This is not just to pick nits, this is a lousy analysis, entirely scabrous even.

For the report manages the remarkable feat of detailing the vast profits being made and also worries about the financial condition of the companies, whether they make enough to keep going as a valid concern. Which is, we admit, really a very wild piece of contortionism.

As we’ve said before:

It’s a report from Revolution Consulting which looks at the operating profits, not net profits, of the care home providers. That is, it looks at the excess of revenue over cost before accounting for mortgages, interest upon them, depreciation or maintenance of buildings and so on. You know, things that are a considerable portion of costs concerning anything with the word “home” in it. By using Ebitda as the measure it, in effect, looks only at the current account, not the capital. Which is, as a measure of profitability, absurd.

As this year’s version of the report says:

Some financial analyses go further in also looking to eliminate rental costs of property, but this study has not taken that further step. Several providers report sizeable operating lease costs, often in relation to rental of property used by the provider. These costs raise the possibility that and profit or loss on renting property to the operating business is not included in the reporting we have accessed.

They’re not including property costs.

Or even, they’re not including the costs of buying property via debt (ie, a mortgage or the like) when estimating profitability but are looking at debt levels when measuring going concern basis. Which is, as we say, a contortion too far.

The aims here are, obviously enough, to a) complain about the capitalists and b) insist that the bureaucracy should have more power over the sector. Which is why such effort has to be made to scratch that itch.

But then this is how government is done these days, isn’t it? A rickety construction of figures in order to sway opinion and logic and reality be damned.

There are things we’d like to know about the private, capitalist provision of children’s homes. Is this method better, cheaper or more responsive than council provision of the same thing? If it is then we should use it, if it isn’t then we should not. But note what this current reports says about such matters - nothing. It’s performative number crunching intended to persuade, nothing else.

But as we say, that’s how government is done these days.

But why wouldn't we cut the cost of bananas?

A very strange insistence here:

UK accused of plan to further cut cost of bananas at expense of poorest African producers

UK refusing to commit to EU pledge to stop cutting tariffs on big producers despite bananas being as cheap today as three decades ago

Are we sending gunboats to take the bananas cheaply or something? Not that we have any gunboats and we’d not do so if we did. But what’s the complaint here?

The government has now been accused of pursuing an irresponsible post-Brexit policy that could reduce the price of bananas further in the shops – but at the cost of the livelihoods of thousands of workers on small plantations in some of Africa’s poorest countries.

The British market is already dominated by the so-called “dollar banana” producers of Latin America who are able to sell cheaply having benefited from rolled-over EU-negotiated free trade deals that have cut the import taxes, or tariffs, on the fruit.

The EU, however, promised in 2019 not to cut tariffs imposed on the big producers any further in recognition of the impact on the smaller African competitors. The UK’s exit has freed it from that pledge to the world’s poorest.

According to Afruibana, the Pan-African association of banana producers and exporters, all the indications are that the result will be betrayal, with the UK government ditching the EU promise to protect them.

So, we have tariffs against banana imports. Presumably preferential ones too. Such tariffs make bananas more expensive in Britain - that’s what tariffs do. That’s what tariffs are, they’re a tax upon consumers. Logic would suggest that a British government, with the interests of Britons at heart, would not have a tax upon bananas. So, cutting those tariffs seems like an excellent idea. Britons will be better off.

The complaint then is that those African producers will be worse off. To which one response is and? Whose government is this after all?

Another, and a more subtle one, is that if people in Africa are growing high cost bananas then they’re trapped in a low value occupation. What is actually desired is that they move into a high value occupation. Maybe growing date palms, or oil palm, or maize. Or possibly flooding into the factories which is what made this country rich. Or, well, something, anything, else than adding very little value by growing high cost and thus low value added bananas.

But the insistence here is that by deliberately fiddling the terms of trade we should continue to trap those Africans in their poverty. Keep them on those high cost banana plantations where they earn little - because the value add is low.

So, actually, the policy being demanded here is that we trap Africans in poverty by making bananas more expensive for Britons. We tend to think that fails on both counts.

It’s also possible to be very much more basic about this. Don’t have a trade policy, don’t have tariffs. Simply leave free trade be in its totality. If we then also want to help poor Black Africans then let us then go and help poor Black Africans.

And finally, who really benefits from the preferential tariffs? Well, it’s the capitalists in Africa who own the banana plantations, isn’t it? And why do we want to benefit them at the cost of cheap fruit (yes, we know, it’s an herb) for Britons?

DESNZ Con-fusion

The Department for Energy Security and Net Zero (DESNZ) is enthusiastic about wasting taxpayers’ money. It allowed, and arguably caused, consumer energy prices to fly out of control by tying the wholesale price of windfarm electricity to Russian gas with which it should have had no connection. It failed to supervise the National Grid infrastructure so we may have blackouts this winter. So much for “security”. No decision has been made on any nuclear electricity generator since Hinkley Point C nine years ago which is now running three years late (operational 2026 maybe) and 50% over budget (so far). Not being in the business of learning from experience, DESNZ is keen to build its twin at Sizewell.

Britain needs over 20 times The Sizewell capacity that if it is to reach net zero by 2050 and its costs will be about 5 times higher than the small modular reactors (SMRs) now available.

If that catalogue of failure is not bad enough, DESNZ is hastening slowly down the SMR path, whereas it is now about to spend £650M on fusion reactors. That was announced a year after telling us that there was no guarantee fusion would work – not on a commercial scale that is. Con-Fusion will cost taxpayers £650M, two thirds the cost of one of the SMRs we badly need.

“Nuclear fusion was ‘discovered’ in the 1920s and the subsequent years of research focused on developing fusion for nuclear weapons. In 1958, when the United States’s war research on fusion was declassified, it sent Russia, UK, Europe, Japan and the US on a race to develop fusion reactions for energy provision.”

One of the questions is the availability of fuel. On 16th October 2023, DESNZ said “Fuel abundance: the fuels used in fusion reactions are effectively inexhaustible. Deuterium is readily extracted from seawater, and tritium is produced using lithium.” Just over a year earlier, Science magazine claimed “A shortage of tritium fuel may leave fusion energy with an empty tank.”

No one thinks fusion can make any contribution to net zero 2050. When Graham Springer MP asked, at the May 2023 Science and Technology Select Committee, “would it not make sense to put some of the money going towards fusion into more small modular nuclear reactors?” Dame Sue Ion agreed 3 or 4 SMRs should come first (they aren’t) and argued fusion was a relatively small amount for the basic science by comparison. That is what fusion enthusiasts have been saying for 100 years.

The truth of the matter is that they want to keep up with their opposite numbers in other countries which is the exact opposite of DESNZ policy on SMRs. Con-Fusion?

The fault, dear readers, is not in our bankers, but in ourselves, that we are lazy

Anyone who’s been reading the more hysterical parts of the press this past year or two will have seen those shrieks that the banks aren’t raising deposit rates as fast as they are loan rates. At which point there’s the screaming that government must do something and even some bureaucrats stepping into that breach to something do.

This is, of course, the wrong way to go about things in a market economy. For the very feature, point even, of a market economy is that we adults not only have agency we also have the freedom and liberty to pick and choose. It is that very deployment of our agency in our picking and choosing - those things we can do as a result of the freedom and liberty that multiple suppliers offers us - which then keeps the capitalists in line. They can’t rip us off too badly because we’ll go elsewhere.

This does rather mean that we do have to be adult and deploy our agency. But then we are and we do, right?

From NatWest’s latest results announcement:

Bank net interest margin (NIM) of 2.94% was 19 basis points lower than Q2 2023 with the reduction largely due to changes in deposit mix as customers shifted balances from non-interest bearing current accounts to interest bearing savings accounts, particularly term, as well as the continued impact on mortgage margins as the higher margin Covid-era book rolls off and is replaced at lower margins. Bank NIM was 3.11% for the year to date.

We are - or enough of us are - moving our money from low interest accounts to higher. Which is eating into the margins, profits, being made by the bank. Good, this is as it should be.

Now, it is possible for us to insist that actually, government should be doing all of this for us. Several of us here have lived in a variety of countries where that is the deal. Believe us, those places are worse.

That very liberty of choice is what constrains the capitalists. If we’re too lazy to exercise our adult agency then we’ll not constrain them, will we - and if we do then they will be so constrained.

We even have the joy of not having to exercise said choices and those that do will do better than those that don’t. Great system, isn’t it? All under our, not their, control.

The aim of all economic advance is to destroy jobs

A worrying part of the current plans and suggestions over AI:

They raise the prospect of a levy on businesses that profit from replacing workers with robots amid fears widespread automation could trigger spiralling unemployment.

This would be phantabulously silly. For the entire aim and point of all and any economic advance is to destroy jobs. Therefore taxing people who do what we desire - kill jobs by automating a task - would be to be taxing the very thing we want to be happening.

Just as a side note here, producing something with the use of less labour is known as “raising productivity”. It’s a major preoccupation of current politics that productivity growth in Britain is slow. Yet here we’ve got a suggestion for a tax on anyone trying to solve that problem. Go figure.

To come back to the main point - we not just desire but positively lust after jobs being destroyed.

Firstly, if we gain the output we desire with the use of less human labour then that means there’s more human leisure to go around at that same collective standard of living. The work/life balance gets better in the modern argot. This is again something that politics tries to engineer but here they are suggesting taxing it.

Going a little deeper we again lust after that job killing. Say that - just imagine - we had a system where 90% needed to work in the fields to feed 100% of the people. Then we invented some set of machinery that means that we only needed 2% to feed all. We could, as a ragbag word for all that technology, call it “the tractor”. This then gives us 88% of the population without a job.

Or, 88% of the population can do something else with their time instead of scraping in a muddy field. Ballet, write computer games, run libraries, staff the NHS even, horrors, run diversity training courses. The tractor has made us richer not as a result of the food that arrives. Rather, we’re richer by the value of the ballet, computer games, libraries, NHS and diversity courses we now also enjoy as well as the food.

That freed up human labour does something else. The next set of human labour - say an AI that produces endless pomposity about diversity - frees up the labour currently devoted to that task to do something else. Anything else - we’re still all richer as a result. For we will now have diversity classes and also that something else - we’re richer.

As to what else well, what does anyone want done? Is every human desire and want currently sated? No? Therefore there are still jobs to be done, aren’t there? It is only possible for there to be and end to this when all such human wants are sated - and what would be the problem with no jobs if we all already had everything?

Taxing this process, attempting to deliberately stop people increasing productivity, killing jobs, is as we say, phantabulously silly.

Perhaps what we really need is an increase in the productivity of economic education. Perhaps we should be ladling the based ideas onto those Rolls Royce minds with JCBs instead of shovels - or the teaspoons presumably responsible for this foolishness.

Taxing productivity increases by automation, my gluteal fundament.

Down with prisons

At a time when prisons are overcrowded and magistrates are being told to impose sentences other than prison terms, it might seem counterintuitive to propose demolishing a dozen of them, but there is merit in the idea.

Many of London’s prisons are antiquated, some dating back to the Victorian era. They are difficult to man, to clean and to service, and modern technology has made it easier for inmates to be supplied with smuggled drugs. The solution is to replace them with new purpose-built prisons. But how might this be afforded?

Many of the sites occupied by some of the London ones could be sold or leased for huge sums of money to have office blocks built on their sites for business, commercial and residential use. This money could be used to fund the building of new prisons in economically-deprived areas such as the North of England,

This would generate thousands of jobs in areas that need them. Firstly to construct them, and then to man, service and supply them. If handled judiciously, they could be financed by the sale of the London sites they will eventually replace.

Of course, government contracts being what they are, the costs could escalate, but then so might the land value of the sites freed up by their replacement.

This would be a big step to the ‘levelling up’ campaign we were promised. The talk is of sending civil servants, BBC personnel and Channel Four to the North, but we should send the prisoners with them.

So, how long does it take for the State to decay then?

We think this is an interesting little guide:

A private police force has prosecuted 300 shoplifters with a 100 per cent conviction rate after police officers failed to crack down on the thefts.

The company, headed by a former Scotland Yard detective chief inspector, has expanded to cover 19 retail and business districts in central and outer London, where retailers pay for the firm’s detectives to patrol their area, catch shoplifters and then prosecute them.

The firm, TM Eye, guarantees that its plain clothes officers will be on the scene within minutes of a phone or app alert of theft and apprehend the shoplifter. They are prepared to use “reasonable force” under section three of the Criminal Law Act but will only do so if a suspect is aggressive or violent.

Given that the Metropolitan Police were started in 1829 we take it that it takes about two centuries.

Note that this is for a good idea - Bobbies - to go bad. Bad ideas like HS2 actually die sooner even if not soon enough.

This happens to all organisations of course. It’s just that in the private sector we’ve the culling mechanism - bankruptcy. Something that doesn’t happen with the public sector. Which leads us to an interesting and counterintuitive conclusion. In that private sector we do not need to have strong and vicious management, for there’s that culling of failure built into the system. But as we’ve not that killing ground in the public sector then and therefore public sector management needs to be much more ruthless - akin to Genghis Khan. Which isn’t the way it works out now, is it, even as it not only should but needs to.

Exactly because the public sector is the public sector it requires much more ruthless management.

But why would we use less cheaper energy?

A claim that confuses us. If we lard the world with renewables then we’ll all, in aggregate, use less energy. Well, that doesn’t confuse - if energy becomes more expensive then we’ll use less energy, yes. The confusion comes when we’re told that renewables will be cheaper and also that we’ll use less energy if it all comes from renewables. That’s not something that happens with our species.

But here we’ve the statement:

This is such an important and often overlooked point: A clean energy economy will use 40% less energy than a fossil fuel economy. As Hannah Ritchie writes in her newsletter this week, "Electrification is efficiency."

If we could just get someone at the back there to shout “Jevons!” for us?

But leave Jevons out of this because we’re not trying to be that sophisticated here. We might also insert that ritual mention of the Nordhaus work in lighting - as it has declined in price over the centuries the percentage of income spent upon it has stayed static - but again we don’t need to go that far into complexity.

We can just stay with really simple supply and demand. With us humans if something gets cheaper then we buy or use more of it. How much more depends upon the elasticity of demand with respect to price (which is what gives Jevons!) but stick with that very simple first order effect. Also, if something becomes more expensive we use less of it. This is true enough, often enough, that if we see falling demand for something then we can usefully opine that the price must have risen. In fact, if we assume that the price relative to alternatives has risen then we will be correct all the time.

OK. So, now we’re being told that humanity will use less energy if it’s all renewables. That jibes with - actually, flatly contradicts - the idea that energy will become cheaper when it’s all renewables. In fact, we’re on really safe ground if we insist that the only reason people will use less energy is if it becomes more expensive.

So, the assumption that the world will use less energy is that insistence that renewables are going to make energy more expensive. No, efficiency doesn’t change this. Even if we assume that there is greater efficiency that just means that we’ll all turn the thermostat up (or, for A/C, down). On the simple grounds that that’s what humans do in response to a change in prices.

Which is interesting, no? They’re not just indicating that maybe renewables aren’t cheap they’re flat out insisting they’re not.

If dengue is becoming endemic then why are we building mosquito farms?

A slightly worrying report:

Rising temperatures mean that nearly half the world’s population may now be at risk of dengue infection, new modelling forecasts.

Analysis from Airfinity, a science data analyst company, shows that the incidence of dengue has already increased by at least 30-fold over the past 50 years.

Half a million cases were reported to the WHO in 2000, rising to 5.2 million in 2019, with the true number of annual infections now estimated to be up to 96 million.

Once specific to small pockets of Asia, the disease is now considered endemic in more than 100 countries globally and its geographical reach is continuing to spread, according to the WHO.

If this is true then why is it that British government policy is to increase the number of swamps in hte country? The Somerset Levels are to be returned to that ague ridden swamp it was before drainage, beavers are being reintroduced to create swamps - even in the middle of London.

We all know how to limit the spread of mosquito bourne diseases, have fewer mosquitoes around. Do as is done in places like Singapore, make absolutely certain there’s no standing water for them to breed in. So why is it that government policy is to create swamps by the hundreds of square miles in this green and pleasant land?

Is it just that government is incompetent or is there really a plot to murder us all in our beds? And, umm, shouldn’t we find out?

Business rates and tax incidence

It is helpful to know the incidence of different taxes. We should identify the wallet or purse that it comes from because very often this is not the one that people think it is, or the one that the legislators intended it to fall upon.

For example, since corporations are not people, they don’t pay Corporation Tax. Its incidence is on the workers, who do not receive pay increases when the money goes in tax, on the shareholders, whose shares lower in value because the tax reduces profits, and on the customers, who pay higher prices as the firm increases them to make up for the money taken by the taxman. Numerous studies have shown that the biggest losers are the employees, with estimates showing that 60 percent of Corporation Tax is paid by them.

Most people think that they pay National Insurance and that there is an employer contribution. In reality the so-called employer contribution is a wage cost, and comes out of the wage pool that would otherwise be available for wage increases. Its incidence is on the employees.

Some people argue for business rates to be frozen or lowered, thinking this will help businesses, but in fact landlords are the beneficiaries when this is done because it allows them to put up the rents. Rents and business rates are inversely proportional. Rising rates make for lower or frozen rents, and rate decreases enable landlords to increase rents.

Knowing the incidence of the tax leads to a policy initiative that could direct help to businesses rather than landlords. Business rates could be frozen or reduced for 3 years, but only for businesses whose landlords agree to a rent freeze for 3 years. The rates would not be frozen or cut unless landlords signed up for this. The effect would be to direct the benefit to the businesses, and help them as they struggle with increased costs elsewhere.

At a time when the UK needs to boost growth by having its businesses prosper, this is a policy that could help them to do that.