Innovative subsidies

Tweet Time and time again, the UK government has reiterated one key message on nuclear energy.  It has pledged repeatedly that new stations will be allowed only “provided they receive no public subsidy”.

The reality is rather different; ministers and civil servants are beavering away in the background, finding ever more creative ways of paying subsidies in disguised form.

The most obvious way in which there will clearly be a massive subsidy to any new nuclear power stations is that the government, or rather the taxpayer, is effectively underwriting the cost of future decommissioning.  They don’t admit that of course, but it’s completely inevitable.  Unless the costs are known in advance (which they’re not) and paid for up front (which the government can’t insist on, not least because they’re unquantifiable), then no private company will ever be able to commit to pay those costs after the useful life of those stations has come to an end.

How could it?  The income stream will have ended; the profits will all have been taken.  The capitalist model of enterprise simply isn’t suitable for a scenario where there are unquantifiable but large costs to be paid for decades after the end of profitable operation.  So, whatever they say now, if new nuclear power plants are built, “we” will be paying the costs.

The second most obvious way of providing disguised subsidies is through price-fixing.  New nuclear power stations will be built only if the government is prepared to guarantee the price which will be paid for all the electricity produced.  For a Conservative government in particular, this is a massive intervention in the operation of a free market – and again, it is we who will be paying the subsidy.

Vince Cable has this week come up with another way of disguising a subsidy as something else.  He launched a new “skills strategy” to provide the specialist training which the companies involved would otherwise have to pay for themselves.

Best of all, in this particular initiative, is that it’s described as part of a strategy to “support successful sectors”.  If they are that “successful”, why do they need government support?

And that is part of a much wider problem, which appears in one form or another on an almost daily basis.  Leaders in business sector after business sector – the same people who are often arguing that the government should cut welfare spending faster so as to reduce taxes on them – are calling for government to spend money in ways which will benefit their businesses.

Whether it’s training, infrastructure, or whatever, these “successful” businesses are all seeking to externalise as much as they can of their own costs, whilst maximising their own profits and rewards.

It might be argued that “that’s what capitalists do” – and that would be an entirely fair point.  It would also explain why pro-capitalist politicians, in all parties, are so quick to support such calls for spending to benefit business.  But why do the rest of us fall for it?

Capitalism is supposed to be about risk and reward; but increasingly the capitalists take the rewards without taking any risks – they externalise those to us.  That is effectively what the builders of new nuclear power stations will be doing – taking maximum rewards whilst sharing their risks amongst the rest of us.  And it happens because they, either directly or through their political friends, have the power - and we don’t.

What's the aim?

Tweet According to the treasurers of our universities, Welsh Government policy on student fees is diverting “their” money to English universities.  They don’t quite say it, but the implication is that it would be “better” (for them at least) if students were charged full fees rather than having their fees paid wherever they choose to study.

The opposition parties were quick to jump on the bandwagon.  Any stick with which to beat the government will apparently do.  They were more than a little short on positive alternatives though.

The question that struck me was about what we are trying to achieve with the money we spend on higher education.  There are at least two - very different - choices:

• providing the very best higher education for our young people.  If that is our aim then paying their fees wherever they study – which is effectively current Welsh government policy – is probably the best way of doing it; or
• making our universities as good as we can – in which case, funding the universities directly and keeping all the higher education spend in Wales would be the better approach.

In an ideal world, the two might, in effect, look very similar.  If our institutions were the very best – and they are certainly striving to be that – then the best education for young people would be that provided by our own universities.  There are some complications though:

• Universities in Wales have expanded way beyond what is necessary to meet the “home” demand.  Even if we assume that there will be some transfers in and some transfers out, the imbalance between those transfers means that to sustain their current size – let alone support ambitious expansion plans – our universities need to attract a significant net inflow of students to Wales.  To what extent do we want to use our higher education spending to fund the education of “foreign” students?
• Wales is a small country, and it is unlikely that our universities will ever be able to even provide for every possible academic discipline, let alone be the best in all of those.  Do we want to limit the choices of young people to what is available in Wales, or do we want to facilitate learning wherever they go?
• Many of those who go elsewhere to study choose never to return (although by the same token, many of those to come to Wales to study choose to settle and stay here).  Leaving aside any considerations about the desirability or otherwise of the population exchanges involved here, to what extent do we wish to pay for the education of our young people, even if “we” don’t see the return on that investment?

None of these are easy questions, and politicians reducing them to simplistic sloganeering aren’t really shedding a lot of light, nor do they seem to be offering much clarity of direction.

I find myself torn – I want us to invest in the best education we can for our young people; I want them to stay in (or return to) Wales and help us build the nation we can become.  And I want a world where people are free to go where they wish to follow their dreams and aspirations.  My problem is that I’m not sure we can do all of those things at the same time.

And my problem with the political reactions highlighted in the BBC report is that it left me unclear as to which – if any – of those objectives either the government or the opposition is actually trying to achieve.

More than a Nuisance

Tweet One of the disadvantages of working from home on a regular and extended basis is actually being at home more of the time when the scammers phone. It's not that they restrict themselves to office hours; more that being able to answer the phone over a longer period means that you get more of them.

Most of us are familiar enough with the men with Asian accents and highly improbably English sounding names from the "Technical Support Department of the Windows Operating System", who know nothing about IT that isn't in their script. They’re good for a wind-up and a laugh if you have a bit of time to waste, although they can get very bad-tempered and abusive if you keep them talking too long.

The ones that are most likely these days however are the ones claiming that “our records show” that "you are owed" a sum of money. Or even the newer one that claims that I will lose out on a number of thousands of pounds unless I act now because of "government legislation changes". They're not even real humans at the other end of the line, just computers playing recorded messages. And don't even get me started on double glazing or loft insulation calls from "your government grant adviser".

For those even less compos than me, it can be more than a nuisance of course; it can cost them dearly as well. The nuisance alone is a real issue, as the Consumers' Association have identified today; but the way in which vulnerable people can be persuaded to part with their money is an even more important issue.

TPS and the Information Commissioner's Office are a complete waste of time – all I’ve ever had from them is form letters telling me that the calls will stop within four weeks. But they never do, even if the number being reported is the same one that you’re already reported several times previously.

Any party or politician who wants to stop this nuisance would be doing us all (and me in particular!) a huge favour. They have to do a proper job though.

Alun Cairns earned himself a headline or two with his call for a code of conduct for companies with-holding their number; but his call did make me wonder whether he really understands the nature and extent of the problem as it currently exists. His concerns seemed dated.

Whilst it's certainly true that some companies operating in this game do withhold their telephone numbers, many no longer even bother to do that. They know that we can easily block withheld numbers; and they know that modern phones can block specific numbers, so they simply change the number regularly or use a range of different numbers.

(There’s some interesting psychology there, though. Why would they believe that somebody who has gone to the trouble of blocking their call on one number would be desperately keen to speak to them if they call from another?)

And they know that TPS and ICO are toothless tigers, not likely to cause them any bother. Anyway it’s difficult to complain about them when they won’t even tell you the name of their company if you do get to speak to a human. (And I know - I've tried it).

No – if Alun Cairns (or any other politician) wants to stop this widespread and persistent nuisance (I reckon to get 5 to 10 calls per week), they have to do better than a code of practice on withheld numbers. It surely can't be that difficult for the police and telecoms operators to trace the people behind these scams and mount a few more prosecutions. The Telecoms companies don’t help much either – they’re happy to sell the lines and the calls to what are little short of criminal gangs, effectively acting with the complicity of the regulatory authorities.

Criminalising calls which breach the TPS guidelines, prosecuting the perpetrators – that might be a good start, not just in preventing nuisance, but in protecting the vulnerable and the gullible. It would certainly be better than doing as some have done in the past, namely feting the people behind these calls as "successful entrepreneurs".

Flying off on a tangent

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Last week the idea of a new airport in south-east Wales popped up again, as it does – in one form or another – every few years.  And, as is invariably the case, the coverage focused on the practical aspects and consequences, rather than on the underlying principles and assumptions.

From a UK-wide perspective, building a new airport to the west of London somewhere around the Newport-Bristol-Cardiff area makes a great deal of sense, if you believe that:

• continued globalisation is either a good thing, or else simply inevitable
• demand for air transport will continue to grow
• demand for air transport can and should be satisfied
• we will find a way of dealing with the environmental consequences of an approach to aviation policy which simply sets out to satisfy every demand

I didn’t see much attention given to any of that last week; it was all about GDP and jobs – the usual approach of those who talk green, but act rather differently when they have to make choices.

The coverage – presumably because it started in Wales – also assumed that such an airport should be on the Welsh side of the estuary.  But hold on just a minute there – why should that be?  Clearly any airport on such a scale is well beyond Welsh needs, and has to serve a wider area. Indeed, as I said above, it makes sense only when viewed as a UK-wide project.  And from a UK perspective, it is far from being obvious that the best site is on this side of the estuary rather than on the other.

Nor can such an airport, any more than the existing one at Rhŵs, ever be a Welsh National  Airport in the sense of serving the whole of Wales.  Even in a wholly independent Wales, with the best conceivable north-south links, much of the north of Wales still be better served by using airports such as Liverpool, Manchester or Birmingham.

And why not?  There’s nothing fundamentally wrong with people in one country depending on an airport in another.  Geneva is in Switzerland; its airport is in France.  And the proponents of a Severnside airport are depending on the assumption that large areas of England will depend on, and choose to use, an airport in Wales; so large areas in north Wales continuing to depend on airports in England is not incongruous.

So, from a UK perspective, with a number of assumptions about future transport choices, Severnside airport may indeed make a great deal of sense, even if the most logical location is on the English side.

But does it make sense from a Welsh perspective, given a government commitment to putting sustainability at the heart of government decisions?  Does it make sense if one believes that globalisation will turn out to be a comparatively short term phenomenon, doomed in the long term by environmental and resource constraints?  Scarcely.

It owes more to a preoccupation with the ‘grands projets’ so beloved of many; and a belief that increasing wealth in one small corner of Wales is the solution to poor average GVA  per head.  It is yesterday’s thinking not tomorrow’s.

Home, School, and Attainment

Tweet It was in 1964 that “The Home and The School” by JWB Douglas was first published.  It wasn’t the first time that anyone had suggested a direct link between background and educational attainment, but it was, I believe, the first time that a thorough approach demonstrated the nature and extent of the link in such clear terms.

It was one of the books on my pre-university reading list, so it was in 1970 that I read it; and it’s been on my bookshelf ever since.  Over the four intervening decades, the pages have started to yellow somewhat, as one might expect.  I just wish, though, that I could say that the colour of the paper wasn’t the only thing that had changed over that period.

As Monday’s report in the Western Mail told us, however, there has been little real change in the half century since the research work for the book was done.  Background, family income, social class – these are still major determinants of educational attainment.  There are of course individual exceptions (the rule isn’t a cast iron one) who manage to achieve a higher level of educational attainment than the average for people in their circumstances; but the exceptions do not disprove the rule.

For half a century we have known and understood the problem; and for half a century we’ve had politicians promising to do “something” when in opposition, and failing to do anything when in government.  Oh – and criticising “the other lot” for failure, and expressing manufactured outrage whenever the issue floats through their attention span.

Even now, the reaction of politicians and others seems to have learned little from the failures of the past.  There’s still a stress on educational initiatives and that other buzzword “interventions”, as though continuing to do what has spectacularly failed over the past half-century is going to somehow achieve a different outcome in the future.

The fundamental problem is that all of these initiatives and interventions are aimed at alleviating the symptoms and mitigating the results; they’re not getting to grips with the disease.  If we know that social background (a euphemism in reality for inequality) is a major determinant of attainment, then why on earth do people continue to act as though improving attainment will somehow change social background?  It might move some fortunate individuals into a different demographic, but it doesn’t eliminate the differences between demographics.

Does that mean that we should not pursue those initiatives and interventions?  Of course not; there is little doubt that some individuals benefit from them.  And I don’t doubt either that the children of those individuals benefit from them by having a different social background when they go to school.  It’s inevitably true, however, that on any scale or table of this sort, anyone rising up it has to be balanced by somebody falling down it.  Moving individuals does nothing to shift the problem, it merely re-orders the individuals.

We should stop pretending that educational initiatives and interventions ever can or ever will bring about fundamental change.  Nor should we allow politicians to get away with claiming to be acting on the issue as a result; their pet schemes and initiatives may salve their consciences in the short term, but what we need is a programme of action for the long-term.

Without such a program, then in 50 years time the pages in my book will be even yellower.  Someone else will probably be writing a similar piece wondering why a century has passed with no real action

To put it in words of very few syllables: if the problem is inequality, the solution is to do with increasing equality.  Anything else is fiddling on the fringes.

PS: I was more than a little disappointed by the head of one of the trade unions (no relation) who said “social background still determines educational outcomes to a completely unacceptable degree.”  The question which went through my mind when I read that is “So what would be an acceptable degree?”  I don’t believe that any degree of pre-determination of academic attainment based on social class is ever acceptable.

The problem is incomes, not prices

Tweet Fuel poverty is a term with which we’ve all become increasingly familiar, but I’ve always had a nagging doubt about whether “poverty” is really the right word.  For those on low incomes, it’s accurate enough; but any definition based solely on the relationship between cost and income is always likely to include some for whom the term “poverty” is a misnomer.  After all, draughty old mansions can be expensive to heat as well.

A couple of weeks ago, I heard the term “transport poverty” being used to describe a situation where people spend a large proportion of the disposable income on running their car.  Again, it may be accurate for some – but I’m sure that Rolls-Royces can cost a lot to run as well.

Last week, Peter Hain referred to “food poverty”.  Again, I don’t doubt that some people, particularly the poorest, spend a disproportionate amount of their disposable income on basic foodstuffs.  It would be stretching a point to suggest that better-off people with expensive tastes might also spend a high proportion of their income on food, but it’s at least theoretically possible.

There’s a common thread in all of these types of poverty, though; or rather there is a common thread in the way they are described.  They are invariably portrayed as being price problems – the price of fuel, the price of running a car, the price of food – with the politicians demanding action on prices in response.  But the problem isn’t really about prices at all; it’s about incomes.

Fuel prices in particular are on an inexorable upward trend.  There’ll be variations in both directions en route; but the overall direction over time is going only one way.  And as recent events have demonstrated, demands that food should be both cheap and wholesome are probably incompatible.

I want to lift people out of poverty – all types of poverty – as much as anyone else; I just don’t believe that attempting to control prices in a market economy is ever going to be an effective way of doing that.  The distribution of income between the richest and the poorest is excessive and the gap is becoming larger.  Accumulation of resources in fewer hands; redistribution from the have-nots to the haves - that’s the inevitable outcome of free market capitalism.

Correcting that, and giving people fair access to resources, involves redistributing income, not controlling prices.  I don’t hear many politicians even suggesting that; it’s far too easy to criticise others over prices.  But if we really want to tackle poverty, it has to involve redistribution of income and resources.  Anything else is just empty rhetoric.

There's more to bankers than bonuses

Tweet Bashing bankers is always good fun, and usually something which the victims richly deserve.  The EU proposals to cap their bonuses are hardly likely to prove anything other than popular with the majority of us.  The only surprising reaction to date has been the extent to which senior Conservative politicians have been willing to take the unpopular stance of opposing any cap on bonuses.

I can’t help feeling, though, that merely imposing a cap on bonuses is missing the point.  It’s not that I’m convinced by any of the arguments against a cap – far from it.  

The idea that they will take their banking elsewhere if they don’t get their own way sounds more like an argument in favour than an argument against.  And the suggestion that they are so uniquely talented and able that they need to be paid enormous rewards is surely a joke – these are the same people who thought that sub-prime loans were a jolly good idea, that credit default swaps were a good way out when it went wrong, and that gambling on derivatives with the money we put into our high street banks was perfectly acceptable.

No, none of that does anything to convince me.

Then we have the argument that the banks’ huge profits means that they pay a lot of tax, and we can’t afford to lose that money. That’s bringing us closer to my concern about whether a cap on bonuses is missing the point; because it’s not just the size of the bonuses which concerns me, it’s what they’re being paid for and how that profit is being made.  Capping bonuses doesn’t necessarily do anything to change that underlying activity.

Indeed; there’s a danger that the consequence might be quite the opposite.  If the total bonus available is less, does that mean that they’ll do less to earn it, or does it make them more determined than ever to earn the largest possible amount rather than settle for only half of what might be available?  Might it, in fact, incentivise them to take even more risks?

What few seem to be asking is where these massive profits on which we receive tax income actually come from.  Much of what the ‘investment’ bankers are doing bears as much relationship to the traditional meaning of ‘investment’ as does a fiver on the 3:30 at Newmarket.  It’s more to do with ‘taking a position’, to use their euphemism, on currency movements and ’trading’ in general.  It’s more like gambling than investment.  And if there’s one thing of which I’m certain when it comes to gambling it's that it doesn’t create any money; it merely recycles money.  Every profit is balanced by a loss somewhere else.

But, just like the lottery, the losses are usually spread in such a way as to be almost invisible.  Certainly, there’s an occasional ‘big loser’ to make up for the big winner; but generally speaking, as in most forms of gambling, there are a few big winners and a large number of small losers.  And the small losers from the banks’ casino approach to ‘investment’ are all of us.  That ‘profit’ is merely redistribution, from the many to the few.

It doesn’t even stop there though.  It’s clear that when they win, we lose; but it’s also become clear that when they get it wrong, they still win, and we still lose.  They’re gambling with our money, betting it against us, and doing it all with loaded dice.  And then they want us to be grateful that they give us some of our money back by paying as little tax as they can get away with on their profits and bonuses?  The amazing thing is that so many are falling for it.

The problem with banks isn’t that they’re paying bonuses; it’s what they’re paying them for.  And a cap on bonuses doesn’t even begin to scratch the surface of that issue.