Wales as victim

Tweet I’ll admit that I’ve been surprised at the extent to which, and the speed with which, the Labour Party in Wales have adopted the ‘Wales as victim’ narrative in response to the planned cuts by the UK government. It is, after all, precisely the sort of narrative for which they have spent years criticising Plaid Cymru.

At a political level, it certainly seems to have had the effect of wrong-footing many Plaid spokespersons; it sometimes looks to me that they end up sounding like copies of Labour rather than promoting a different message – and I’m convinced that only the Labour Party will gain from that.

The problem though is that Labour seem to have the zeal of the convert – they’ve picked up on the negative side of the message, with no attempt to promote the positive. Pointing out the ways in which Wales loses by being governed from London has always been a valid part of a nationalist message, but it has never been adequate in itself.

Unless accompanied by a positive message about the advantages of self-government, it just sounds like whingeing – and that’s exactly the accusation hurled at Plaid by Labour over many years. I’ve never thought it an entirely fair criticism – but that doesn’t mean it’s entirely unfair either. It has often been the case that it is easier to get coverage for a negative, critical story than for a positive one setting out an alternative view. That in turn means both that the coverage of Plaid’s views never properly reflected the output of opinions – and it also encourages more negativity.

‘Protecting Wales from the cuts’ is not something with which I can disagree, of course. But it needs to be more than what it sounds like at present – which is that the cuts should fall on someone else rather than on us; it’s a narrative which seems to be saying that cuts are fine as long as they don’t affect me. And that’s a narrative which seems to be increasingly common – it’s a self-interested reaction to the situation rather than a collective one.

Given that the effect of Labour’s spending plans would not have been that radically different, I can see their problem in trying to put an alternative across; it’s much easier just to ‘go negative’. Plaid have no such difficulty; the party’s manifesto for the last election set quite a different direction economically.

A self-governing Wales could take a different view on the rate at which the Welsh deficit should be repaid; it could vary (downwards) the rates of business taxation to aid the recovery; it could decide on a different mix of cuts and tax increases; it could decide to invest in a number of small scale renewable energy projects instead of the grand schemes favoured by London; it could decide to spend public money on sustainable developments instead of huge military projects.

Far from being, as some claim, damaging to the concept of Welsh independence, the current economic difficulties are a real opportunity to put the case for an alternative, more decentralised and local, approach to economics. And not just whinge.

More dishonest arguments

Tweet I’m not in the least unhappy to see the plans for the proposed massive barrage across the Severn estuary consigned to the bin, although I’m disappointed that the government seem to have thrown out the baby with the bathwater by rejecting all schemes for the estuary rather than just the one. It is, though, another example of taking major strategic decisions on the basis of over-simplistic, and not entirely honest, economic analysis rather than on environmental grounds.

They seem to be saying on the one hand that they reject the barrage because the public purse can’t afford it, whilst they give the go-ahead to nuclear energy because there would be no public subsidy. Supporting that which requires no subsidy over that which cannot be built without subsidy sounds superficially sensible, but it depends on the validity of the underlying statements.

I can’t think of anyone who seriously argues that new nuclear power stations can be built without subsidy of some sort from the public purse. There is debate about the form and size of that subsidy – and there are ways of making it less obvious – but that there will be a subsidy, and a very significant one is surely beyond doubt.

And I don’t particularly object to a subsidy. Getting our energy policy right, and achieving significant cuts in carbon emissions, is an important enough objective for me to believe that it is right that we should be prepared to use public funding if necessary to achieve it. The question needing debate is about which energy policy is the best one.

Effectively, the UK Government have nailed their energy colours firmly to the nuclear mast. Public funds will be committed to new nuclear power stations rather than to renewable sources of energy. It’s a highly significant decision on energy policy (although in my view the wrong one), and it’s dishonest to portray it as purely a cost-cutting move.

Paying for Broadband

Tweet Dylan Jones Evans returned to the subject of the Welsh Government’s roll-out of high speed broadband in Saturday’s Western Mail (I can’t find the article on the WM site, and, unusually for Dylan, it hasn’t appeared on his blog yet). His core theme – and I hope that I’m not misunderstanding him on this – isn’t so much about whether high speed broadband should be delivered or not, but about the cost of delivering it – and the other things which will not get funded as a result.

I have no doubt that the proposal to ensure that all parts of Wales have access to high-speed broadband will be a popular one with the population at large. And it has surprised me to discover the extent to which businesses which one wouldn’t think would be particularly dependent on high speed connectivity do actually feel that they are constrained by the lack of that connectivity. So the core proposal put forward by the government is certainly one which I’d support.

That doesn’t deal with Dylan’s points though, and they cannot and should not be dismissed as easily as that. The cost being talked about is enormous, and I share Dylan’s concern as to whether cheaper options are being properly examined, or whether the government isn’t being too easily led by the largest supplier into paying over the odds for the service.

(There’s an interesting parallel in today’s paper, with the story about Arriva Trains Wales increasing services in England, but telling the Assembly Government that it can only increase services in Wales if the Welsh Government provides a subsidy. I start to wonder whether some of the large companies aren’t seeing the Welsh Government as something of a ‘soft touch’ at times, which can enable them to extract money for things in which they should be investing themselves.)

The relationship looks far too cosy for me. I’m aware of other companies operating in South West Wales which claim that they can provide an alternative service at a fraction of the cost being quoted by BT, and I share Dylan’s concern about whether the alternatives are getting the consideration they deserve. I’ve argued before that I have a preference for increasing the universal service obligation rather than using taxpayers’ money to provide subsidies, although I accept that is currently outwith the powers of the Welsh Government.

The second point is about whether it is right to divert money from business support to pay for this piece of infrastructure. I’m less convinced about Dylan’s points on this aspect. In principle, a move away from providing direct grant aid to businesses to a greater emphasis on building infrastructure seems to me to be the right way to go. (Although I think Dylan has been very helpful in highlighting the fact that this change seems only to apply to indigenous companies, whilst inward investors can still qualify for grant. That strikes me as being curious, to say the least.)

One thing which does deserve a bit more consideration, though, is who is benefitting. Although being presented as infrastructure which will benefit jobs, it will also have a huge and very welcome benefit for domestic customers in rural Wales. There is surely some scope for arguing that the whole cost should not therefore be met from the economic development budget.

Update: Thanks to Anon, who is clearly mroe adept than I at finding things on Wales Online, here is the link to Dylan's piece.

More on the Browne stuff

Tweet Part of the justification used by Lord Browne for his proposals on student fees was that the average graduate can expect to earn over £100,000 more than the average non-graduate over his or her working lifetime. The argument is that this is a ‘private benefit’ accruing to those individuals as a result of their education, and that they should therefore contribute towards the cost.

I wonder. The closest to an explanation of his figure comes in footnote 11, which makes it clear that the figure is based on an analysis performed by the Department for Education and Skills in 2002.

The idea that graduates can, and do, earn more on average certainly passes the reasonableness test; but I’d like to know a bit more about the way in which the size of the ‘graduate earnings premium’ is calculated. In particular – how sensitive is it to change in the proportion of graduates in the population?

Any historical evidence is likely to be based on those who graduated when a much smaller proportion of young people went though university. The higher the numbers so doing, the more one would expect that premium to reduce; not least because an increasing number of graduates find themselves doing jobs which do not specifically require a degree.

There is no question that the proportion of young people with a degree has increased and it will, I hope, continue to do so; which means that I would expect that graduate income premium to reduce over time. And of course, since it’s future graduates who’ll be paying the increased amounts, it’s the future salary premium which is important, not the historical one.

It’s a ‘whole working life’ premium as well, and it’s a pre-tax figure. Assuming that the ‘average’ (and I understand that that word can cover for a multitude of variances here, but it’s a reasonable starting point) graduate will pay around 35% tax on that (somewhere between basic rate and higher rate, plus NI contributions), that makes the lifetime net benefit more like £65,000.

With student debt on graduation expected to reach £30,000+, and interest due at closer to commercial rates, the actual private benefit received by the ‘average’ graduate looks to be significantly eroded to me. And the repayments are ‘front-loaded’ – they are made in the early half of a person’s career when salaries are lower, rather than the later half when salaries are likely to be higher. That means that the proportion of the graduate salary premium being used to repay debt is higher than it looks taken over an earnings lifetime.

I doubt that many young people will decide whether to pursue their education on the basis of an economic calculation of this nature. It’s probably just as well.

Incidentally, the calculation of the £100,000+ is based very explicitly on a comparison with those who pass A levels but do not go on to graduate, because that group in turn do better financially than those less qualified than themselves. So if we are going to charge HE students for their education, what, exactly, is the underlying principle which does not also lead to charging sixth-formers?

The other coloured report

Tweet I referred to the Browne report yesterday, time to turn to the Green one.

Some of the examples of price differences across government departments are horrific, of course. And there can really be little excuse for the way in which some departments have been persuaded to part with our money. It’s hardly a good advertisement for some private sector companies either that they’re prepared to take advantage of the incompetence of their customers to charge excessive prices.

But some aspects of Green’s recommendations do give cause for concern.

The suggestion that there should be more central purchasing so as to achieve bulk discounts might well produce some savings in terms of public expenditure in the short term, but what is its overall economic effect? It is likely that government would be supplied by a smaller number of larger companies rather than a larger number of smaller ones, which would be less able to supply the quantities required. Guess where they’re likely to be located? And pressure on prices means corresponding pressure on costs, usually labour costs.

The suggestion that government should simply extract more credit from its suppliers by delaying payment is also something that would make smaller companies less willing to do business with government – and again increase pressures on costs.

Both are things which large companies do as routine, of course. And both are potentially damaging to the business prospects of their suppliers. I’m aware of one large company which routinely looks at the accounts of its suppliers and demands price reductions if they regard the overall profit margin as being too high. Note – not the profit margin on the business done specifically with that large customer, but for the supplier overall, effectively demanding that the profit made on dealings with other customers is shared with the largest single customer.

It’s like supermarkets and the price of milk - large buyers can distort the market in their favour – is that really what we want of government?

We need to take a more balanced and holistic view of government procurement than to simply assume that forcing prices down is always the best answer.

Are fees the only option?

Tweet Watching Lib Dems wriggling over the proposed increase in tuition fees ought to provoke at least a degree of schadenfreude, but the issue is really too serious to take any pleasure from.

The outraged noises from the Labour Party are scarcely credible either. They not only introduced tuition fees in the first place, they also appointed Lord Browne to conduct the ‘independent’ review, and we all know that when governments appoint someone to such a role, they invariably choose someone ‘independent’ enough to give them the answer that they want to hear.

The Tories, like Labour, have see-sawed on the issue; what they say seems to depend on when – and where – they are in government, and when in opposition.

And it’s scarcely a secret that I’ve been less than wholly impressed with the stance of some of my own party’s elected members on the issue either – the attempt by the Assembly Group at the annual conference last month to end the party’s outright opposition to charging students for higher education was far from being their finest hour.

There is a problem, though. Far too many politicians are simply presenting the problem as a ‘funding gap’ or claiming that free higher education is ‘unaffordable’ without really spelling out the options. The problem has arisen as a direct result of governments trying to make the opportunity of a higher education available to a larger number of our young people, whilst not providing sufficient additional resources to universities to pay for the increase in student numbers.

There are, in fact, three ways of closing the gap therefore – reducing student numbers, increasing the contribution from general taxation, and charging students ever higher fees (and whether they’re recovered through repayment of loans or some sort of graduate tax supplement is more about presentation than principle). There’s nothing necessary or inevitable about the third choice – unless and until politicians choose to rule out the other options. And that’s the nub of the problem.

Personally, I’m clear that I would not choose to reduce student numbers. Indeed, I’d choose to try and provide a higher education for all those young people who a) meet the entry criteria, and b) choose such a route (although I’d also like to see more ‘parity of esteem’ between what we currently divide into the higher and further education sectors, which might actually serve to reduce the demand). Increasing the overall level of educational attainment of our young people, and helping them to realise their full learning potential, is something which I see as being in the long term interests of society as a whole.

It means, though, that it has to be paid for. The reason we’re being told that tuition fees - and increasing ones at that – are inevitable is because so few politicians are prepared to talk openly about the choices we face in terms of taxation policy. There is an assumption that proposing higher taxes to pay for higher education is a vote-loser – based on the other assumption that we all vote in an essentially self-interested way.

There is, of course, good evidence to suggest that those assumptions are entirely valid. The great victory of modern free market thinking has been to demolish the more collectivist approach which led to the birth of the Labour Party, and it is pretty depressing that the Labour Party itself has done so much of the demolition work.

The alternative to fees is to put the argument for collective purchase and provision of higher education through a progressive system of taxation. The question is whether we want to make that argument or simply accept the current political paradigm. Short term self-interest or long term collective interest? On education, as on so much else, I opt for the latter.

Passport to where

Tweet The proposal to close the Newport Passport Office is a serious blow to jobs in that part of Wales. It would also, as a number of others have already pointed out, leave Wales without a passport office, and see all Welsh passport applications – including those submitted in Welsh – dealt with outside Wales.

An element of ‘special pleading’ on behalf of Wales is probably inevitable in a situation like this, but it leaves me a little uncomfortable. Not because I don’t think that Wales is, or should be, a special case, nor because I don’t want us to retain the passport office and the jobs going with it.

There is a danger, though, that ‘special pleading’ ends up sounding rather like ‘cut their jobs not ours’. And I’m not sure that an approach which starts to pit office against office is one which is in our own best long term interests.

I’m much more comfortable with an approach which asks why the cut is necessary at all. Are there really 300 people in the Passport service who are simply doing nothing? I find that hard to believe – so what’s the effect of cutting 300 jobs? Does it mean a reduced service - delays, backlogs?

One of the things which most concerns me about the programme of spending cuts is the extent to which it appears that most people are broadly supportive of cuts as long as they affect someone else. It’s a trap into which we should be wary of falling.

Pension reform is inevitable

Tweet The recommendation to end final salary pension schemes in the public sector can come as a surprise to no-one. If there is any element of surprise, it’s that it didn’t happen sooner; after all it was the previous government which presided over the closure of such schemes in large areas of the private sector. Indeed, it was a decision taken by Gordon Brown early on in his chancellorship which proved to be the final straw for so many schemes, and the public sector is no more immune to that decision than was the private sector.

Removing the tax exemptions from pension funds, and doing so suddenly with no transition period, raised billions of pounds in extra revenue for the then government. It also completely undermined the careful financial planning of pension fund managers. Coupled with diminishing returns, increasing longevity, and the reluctance of both employers and employees to pay more into their pension funds, something had to give.

That is not to say that I disagree fundamentally with Brown’s decision – in principle, he was simply ending a tax break which disproportionately benefited the better off. But it didn’t only benefit the better off, and, as ever, it is not the better off who will lose most in the end. His mistake, I feel, was in not giving notice and phasing the change in so that employers, employees, and pension fund managers had the time to make more gradual changes to ensure that schemes remained viable.

Reform is inevitable. It doesn’t have to be the simple abolition of defined benefit schemes, although I suspect that is the natural tendency of the present government. Higher contributions probably are inevitable, and there is room for debate about how much of that is paid by the employers and how much by the employees – and both sides need to recognise that proper funding of pensions is part of the total remuneration package of staff, and treat it as such. It’s not just some sort of ‘overhead’ which can be arbitrarily cut.

Even worse than the situation with funded pension schemes, of course, is the crazy situation of certain schemes – such as the police and fire service – where pensions are not separately funded, but paid for out of current revenue. This is madness, and the situation can only get worse. Putting it right by moving to a proper funded scheme will be costly, but the longer it’s left, the more costly it will get.

The cost of fairness

Tweet I’m not entirely sure what to make of the Government decision to cut child benefits for any household where one adult earns enough to pay tax at the higher rate.

From one perspective, it looks like a clever move – if I was going to pick a fight with the government over one of their “savage, slash and burn” cuts in public services, it wouldn’t be over giving cash benefits to the most well-off. On the other hand, it is directly hitting people who are likely to be Conservative supporters, and doing so in a way which many of them will see as being unfair since a household with a higher income split between two earners will continue to receive the benefit. That doesn’t look so clever at all.

It’s an attack on ‘universality’, of course; but a well-aimed one. And I wonder if the inherent unfairness (on the grounds, apparently, of administrative convenience and cost) of what the government have themselves referred to as ‘rough justice’ isn’t setting a precedent which they will apply elsewhere.

The high level sound bites about reforming and simplifying the tax and welfare system have obvious attractions. None of us want more bureaucracy and paperwork than is necessary. But fairness can involve complexity – to what extent do we really want to sacrifice fairness for cost reductions?

Big step backwards for the Tories

Tweet Today's story that the 'Culture' Secreatary has suggested that S4C could be run on the basis of a red button service providing a Welsh voiceover to English programmes is truly staggering.

I often come across people who argue thast language is 'merely' a means of communication, and it's not therefore terribly important whch language we use. They're almost invariably monoglots though, unable to express themselves in more than one language. From that perspective, it's easy to see how such a suggestion could be made.

However, Jeremy Hunt is, apparently, fluent in Japanese, and I would therefore have expected him to have a better grasp of the fact that switching between languages is more than simply using different words to say the same thing, to say nothing of the different social and cultural contexts which apply.

There's nothing wrong in principle with some dubbing of programmes from one language to another - and the source programmes don't have to be restricted to those originally produced in English - but the idea that a Welsh service can be just an English service with a voiceover shows an amazing lack of understanding.

After all the work that the Conservatives in Wales have done to try and present themselves as more 'Welsh' than they've traditionally been seen, this must be a huge setback to them, and will seriously damage their credibility on language issues.