I wrote Public and Private Confusion in 2006, before the credit crisis, before even Northern Rock was saved by the taxpayer. NuLabbour’s mania for privatising anything in sight was in full spate, mostly, because the Tories had privatized all of the great state industries, through contracting out public services piecemeal and the greatly expanded use of private money in public projects to build things such as new schools and hospitals using the Public Private Partnerships (PPP) and the Private Finance Initiative (PFI). Public spending was still burgeoning , although anyone who looked closely at the still continuing fool’s paradise which was Gordon Brown’s boom could see that NuLabour’s public spending was seriously out of control as they looked at the deficits Labour had been running since 2002 – http://livinginamadhouse.wordpress.com/2011/10/02/labour-re-writes-the-past-their-economic-management/ . But the British public did not know the half of it when it came to the government debt being built up, because the frighteningly large PPP and PFI obligations were still largely hidden as they were mostly off the government books Enron-style.
The latest quantification of PFI liabilities alone is £300 billion (http://www.guardian.co.uk/politics/2012/jul/05/pfi-cost-300bn) and that could well be an under estimate because of many of the contracts have renegotiation clauses at certain points and the PFI contractors, or those who have bought PFI contracts as they are sold on by the original supplier, hold the taxpayer over a barrel because the state no longer has the capacity to either undertake the work itself. Even where a re-negotiation clause does not exist or does exist but the point is years away, it is a common PFI practice for contractors to threaten to walk away from a contract unless their terms are improved. There are also the costs arising where contractors do walk away from a contract and the state has to step in or pay another contractor even more inflated prices for the work.
The most troubling result of PFI costs is hospital trusts unable to fund themselves adequately because of the ludicrous amounts they have to pay for PFI work (http://www.dailymail.co.uk/debate/article-2165011/PFI-Cancel-contracts-MPs-signed-dock.html), but there is another major problem: the inability of PFI contractors to undertake work efficiently or, as we have seen with the G4S fiasco and their inability to provide security for the Olympics. So lax were their recruitment methods their chief executive could not say if all those recruited could speak English fluently or even at all (http://www.telegraph.co.uk/sport/olympics/news/9399841/Olympics-I-dont-know-if-guards-speak-English-says-G4S-chief.html).
Despite a change of government, PFI contracts are still being signed in large numbers by the Coalition (http://www.hm-treasury.gov.uk/press_22_11.htm). More and more public core services which the vast majority of Britons would think naturally belong in public hands such as police support and large scale security operations are being taken from the public sector and given to private contractors. In addition, strategic assets such as the Government’s stake in stake in nuclear power giant Urenco continue to be sold off (http://www.telegraph.co.uk/finance/newsbysector/energy/8817089/Taxpayers-3bn-windfall-as-Urenco-nears-10bn-sale.html). In short, nothing but nothing, including even the armed forces, can be considered safe from the mania for turning public service into private business. The situation is substantially worse now than it was in 2006 in terms of the PFI debt being run up, the privatisation of essential public services by stealth (especially the NHS) and the intention to sell off what remains of substantial public assets, most notably the Royal Mail, in the medium term.
The purpose of Public and Private Confusion was and is to examine what needs to remain in public hands, what should be brought back into public hands, how public service might be improved and the effects of privatisation in all its guises.
Robert Henderson 23 July 2012
Public and Private Confusion
(And, yes, there is an alternative)
Robert Henderson 2006
2. What are governments for?
3. Why do we need public provision?
4. Public provision is a good deal
5. The moral value of general provision
6. Why should those who can pay for themselves pay for others?
7. What things should be public?
8. What should be provided directly by the state?
9. What should be provided indirectly by the state?
10. The railways – a classic public service
12. Public and private efficiency
13. What do we mean by efficiency?
14. Private enterprise providing public service
15. Public service inefficiencies and politicians
16. Other public service inefficiencies
17. What should public service workers be paid?
18. The right to strike
19. The ability of private companies to manage public services
20. Private money in public projects – “Buy now, pay later”
21. The London Underground – PPP in action
23. The morality of privatisation
24. Our general experience of privatisation to date
25. Private money in public service = a democratic deficit
26. When private becomes public by default
27. Corruption in public service
28. The behaviour of private companies
30. Does the market produce greater choice generally?
31. How government takes on obligations
32. Making personal private provision – the problems of investing
33. Supporting old age
34. The housing crisis
35. Social housing
36. Education ?
38. The Post Office and Royal Mail
39. How do we pay for better public services?
40. Does social provision corrupt?
41. Why is public provision being repudiated?
42. The nation state – the only vehicle for democracy
43. The future of public provision
I was provoked into writing Public and Private Confusion both by the Blair Government’s manic dismantling of directly provided public services and increasing signs that political support for public services however provided is waning.
Those with a public voice who oppose such developments all too often wail and gnash their teeth and say how unfair and immoral it is but fail to provide detailed arguments against those who have swallowed the propaganda of private is always best. They lament privatisation and the increasing introduction of private money and
companies into public services, yet defend their position solely by moral exhortation and displays of emotion, as though to merely be on the side of direct public provision, any public provision, is argument enough.
How did we reach this state of affairs? The four decades after 1945 seemed to have made substantial public provision part of the national furniture. Even the Thatcher years did not seriously suggest that it would be generally undermined. The privatisation of the nationalised industries were one thing for Thatcher; services such
as the NHS and the Post Office quite another. Her government was driven by the batty idea of introducing entirely inappropriate private enterprise practices such as the NHS “internal market” into public service, but there was through her long period in office no reason to fear that fundamental services like the NHS and Post Office would be privatised. Indeed, Thatcher said that the privatisation of the Post Office would be “a privatisation too far.”
The consequence was that the supporters of public provision became smug. They assumed that the core elements of public provision were inviolate and consequently not in need of defending. Most damagingly, at the political level they failed to prevent both the Labour and Tory Parties from being firmly captured by those determined to introduce the supposed panacea of the disciplines of the market into public life. By the time Blair came to power in 1997 the supporters of direct public provision in politics and the media found themselves marginalised.
Since 1997 it has become increasingly clear that direct public provision is viewed by those in control of the major political parties as a bad thing in itself and that the only way forward is to subcontract private companies to do the work the state was previously doing. This is a consequence of several things: the failure of greatly increased public spending since 1997 to improve public services; the increasing demands of the EU to reduce direct state funding; and the seemingly religious belief in globalism displayed by Blair himself. (I expand on these issues in section 41).
To facilitate the move from direct public to subcontracted public provision, the public is being fed a continuous diet of bad news about the directly provided public services by the mainstream media, the majority of which is all too willing to climb on the “public service bad, private enterprise good” bandwagon. (The mainstream media has overwhelmingly bought into the free-market propaganda – ask yourself, when did you last read a newspaper article or watch a TV programme which concluded that “free markets” and “free trade” are undesirable because of their adverse consequences for substantial parts of the populations of the First World, whose natural employments are lost and whose lives are made generally insecure).
Because of its natural importance and central place in the hearts of the electorate, the NHS is the biggest and most gory source of “shock horror” stories. Every horror story about the NHS is paraded on the front pages, while the frequent errors made by private medicine rate barely a mention. The fact that any organisation as gigantic as the NHS – it employs the better part of a million people – will inevitably be the source of regular errors is barely mentioned and almost no attempt is made to place the level of failure in that context. Not only that, many of the “scandals” are less than scandals when they are looked at in detail.
There is also an increasing loud and ever more unguarded attempt by politicians and sections of the media to suggest that the Welfare State is “too expensive” in its present form to survive and that people must make much more private provision for things such as pensions and healthcare.
Sadly, the direct public provision case is now largely going by default, which is enraging because it is very strong, both as a moral necessity for a civilised and free society and as a practical necessity to maintain the efficient functioning of a modern industrial state. That is case which I have attempted to supply.
2. What are governments for?
The traditional areas of government have been defence, foreign affairs, policing, the provision of justice, the execution of legal judgements including criminal sentences, the collection of taxes and the allocation of those taxes to the public enterprises mentioned above. But long before the rise of the modern industrialised state, the more organised and effective governments recognised that something beyond this minimalist role of government was desirable, not least because underlying any society is a fear of civil disorder (which might overthrow the status quo) and crime if there are too many have-nots (this was one of the primary reasons for Imperial Rome providing a daily dole of bread to its citizens.) England has had a legally enforceable national welfare system since 1601. In the sixteenth century, enclosure of mediaeval open fields and the dissolution of the monasteries drove many from the land and removed most of the informal welfare system which had long existed through the charitable works of monasteries. The consequence was the creation of a large number of “sturdy beggars” (a substantial rise in the population of England at the time was a considerable aggravating factor). This drove the Tudors to introduce various Acts which attempted to both restrict the movement of the poor and to provide for them. These efforts culminated in the 1597 and 1601 Poor Laws. These Acts, for the first time anywhere in the world, created legally enforceable provision for the poor for an entire nation (although it took half a century or more to get the Poor Law generally enforced).
Along with the fear of social disorder ran the natural feelings of pity and moral obligation, feelings bolstered by the custom of hospitality and of a religion which enjoined a duty of alms-giving to the poor. Such sentiments were gradually assimilated into public policy.
Of course, the national and political desire to provide for the poor and the unfortunate has been massively enlarged in the centuries since the Elizabethan Poor Law was passed. In Britain, we think that everyone in our society should have the necessities of life – food,shelter, warmth, clothing, preferably from their own efforts in part or whole, but where necessary from the taxpayer. The vast majority of Britons believe that these things are desirable, although there are differences of opinion over the extent and nature of the provision.
But most Britons – both at the political level and as a large majority of the population – also think that a good deal of other state provision should exist, not merely for the poor or unfortunate but for every citizen. We recognise that there are other things which the state should do beyond maintaining the integrity of the state and providing the basic means of subsistence. These are enterprises which are deemed to be both for the public good and in need of public action because private provision will not do them at all or only do them inadequately.
We expect the roads to be maintained by the state because that increases the efficiency of commerce and industry and enhances private life (most of the population probably think the same of railways.) We believe that no one should be left without medical treatment within the limits of what can be reasonably afforded. We think it necessary that the population should be educated to a certain level because that is essential for the individual’s chances in life and because a modern industrial society requires educated people. The more thoughtful see education as a civilising process which has general value for a society.
Equality before the law, or even justice itself, is a special case of social provision because it requires social provision for it to exist. Unless the state provides the means for each individual to have equal access to the law to remedy a wrong and to have equal access to professional legal assistance when they are a defendant in either a criminal or civil case, there is no equality before the law. All legal assistance must be free, because otherwise there is no equality for an individual will either not be able to afford the assistance or be deterred from seeking it because of the cost.
Law exists to provide a peaceful alternative to private action to right hurts and no defendant has a choice of whether they are defendant. Those two facts should be remembered by those who balk at the idea of universal legal aid. Sadly, legal aid in Britain, although still generous compared with many countries, is inadequate and is being reduced.
All social provision, from the supplying of basic needs such as food and shelter to education, has a further role. In a reputed democracy, each person is supposed to be an autonomous human being capable of both existing and of making decisions about who shall govern and what shall be done. A person constantly wracked with the uncertainty of poverty and the fear of ill-health or insecure employment will have little time to devote to anything other than surviving. A person denied a formal education will probably be illiterate and have a poorly developed intellect. To possess such disadvantages in our world is effectively to be excluded both from the more comfortable and influential parts of society and, consequently, from politics. And such disadvantage follows down the generations, with the children of the poor taking on the privations of the parents.
If we are to have a meaningful democracy, or more exactly a representative system (elective oligarchy) which allows the masses to exercise meaningful democratic control over the elite through their votes, every member of the electorate has, ideally, to be in a condition whereby they both have the time to consider matters beyond the everyday and the education to understand matters of public policy. The ideal is of course unobtainable, but many more will be brought closer to such a condition if supported and encouraged by public provision than if left solely to the vagaries of private provision. It is worth noting that historically elites have generally been opposed to expanding the intellectual world and material standing of the masses. There is a good if immoral reason for this: the poorer and less educated a population, the easier it is for the elite to control it.
3. Why do we need public provision?
Why do we need public provision? Why cannot we live in the type of world envisaged by extreme libertarians, who imagine that everything could be supplied through private arrangements and charity? The short answer is that private provision never provides universality of provision or anything approaching it. We know this because all the experience of history shows no case where private provision has met the general need.
Most societies at most times have had no state provision for welfare. In those societies private charity has invariably fallen not merely short but far short of meeting need. Periodic famine, illiteracy, untreated illness and poverty have been the all too common lot of the masses throughout history. Unless a society is willing to allow people to starve, suffer and remain uneducated – and no politician in a modern western country would openly espouse such an idea – the only answer is state provision to assist those who cannot afford to pay or who are unable to find charity. Consequently, it is pointless asking the question could private charity and individual effort provide a better general service in the provision of this or that vital service than public enterprise because private charity and individual enterprise will and can never provide comprehensive provision.
The extreme ideologues who advocate private action as the only legitimate means of providing social goods invariably fail to meaningfully acknowledge the elephant in the room, namely, what happens to those who are unable to buy what they need or who cannot obtain charity? When pressed they claim that the abolition of tax, or at least its reduction to the low levels needed to maintain a minimalist state, would allow charity to rise to a sufficient level to meet all demands for social provision. The fact that this has never happened in the entire history of the world does not concern them. Like Marxists who still claim that communism only requires the right circumstances to be realised, the supporters of private provision remain convinced that their utopia is just waiting to be realised if only society was ordered by their rules (It is worth noting that a utopian libertarian society could only exist if all other political ideas were suppressed).
What can we say to these vaulting optimists who appear to be oblivious to the facts of human psychology and sociology? These extreme disciples of the free market, civil society and private charity should remember that even the Messiah of laissez faire economics, Adam Smith, allowed that there were things of purely economic concern which could not be left to private provision because it was inadequate, for example the maintenance of the roads. Smith also recognised that there was more to life than economic relationships and that the social consequences of economic decisions sometimes mean that unfettered economic arrangements are unacceptable, for example, in the provision of war materials which have a strategic value as well as an economic one. In more modern times, one of the creators of neo-liberalism, F. A. Hayek, acknowledged the need for public support of the needy, for example, “We shall again take for granted the availability of a system of public relief which provides a minimum for all instances of proved need, so that no member of the community need be in want of food or shelter” (The Constitution of Liberty Routledge pp 300-301).
It is difficult going on impossible to envisage a time when the poor (relatively speaking) will not be with us. In the most benign social circumstances, there will always be substantial numbers who through illness, injury, age, bad luck or general incapacity will need and deserve taxpayer provision. To take but one example of a widespread and unalterable disadvantage: approximately 10% of the population of Britain have IQs of 80 or less. An IQ of 80 is the point at which most psychologists consider an individual begins to struggle to live an independent life in an advanced modern state such as Britain. Because of the way IQ is distributed – more or less as a Bell Curve – most of that 10% will always be drawn from the poorer sections of society (attempts to boost IQ with enhanced environments, for example Headstart in the USA, have persistently failed to do so by more than a few points and often the gain is not permanent. The implication is that IQ is to a large extent genetically determined). The low IQ poor will be likely to need substantial social provision because their families and friends will not have the resources commonly available to the low IQ individuals within better-off families. If substantial public provision is not available to them, the likely outcome will be increased anti-social behaviour from those unable to cope or earn a living capable of supporting them. The moral to be drawn is that any society should, simply as a matter of prudence let alone morality, provide a viable life for all of its people, not merely the fortunate or able.
There is a further consideration: the responsibility of governments for the general conditions in which people live. For example, the position of low IQ individuals in poor families is considerably worse now than it used to be. British Governments over the past 25 years have changed, primarily through a commitment to free markets and free trade and increasingly uncontrolled immigration, have removed many of the circumstances which previously gave Britons with a low IQ the chance of living an adult life largely independent of the state.
Manual jobs, especially in heavy industry, long-established working-class communities, cheap housing and a tight labour market have all been greatly diminished or have vanished altogether.
Mass immigration, especially from the new EU members, is especially disadvantageous for the low IQ, low skill Briton. The immigrants, even the well-qualified, are happy to take the low paid unskilled jobs which would be suitable for those Britons with low IQs. They do this because the money they can earn in Britain doing a menial job is considerably more than the average wage in their own countries. For example, £3,000 a year in Poland is a good professional salary. A Pole earning even the minimum wage in Britain can often save that in a year because his money will probably not be taxed and he will be living either in squats or in very overcrowded conditions which cost him little. (Give native Britons the chance to save the equivalent of a doctor’s salary in Britain by working in a menial job in a foreign country and watch them flock there.)
The consequence for the low IQ, low skilled Briton is not only competition for the sort of jobs he or she has traditionally filled but reduced wages and even exclusion from part of the British job market altogether, because certain types of job become effectively reserved for immigrants of a particular ethnicity – this is particularly the case where foreign gangmasters operate for they commonly employ only people of their own ethnicity.
Of course, the effects of the actions of governments go far beyond the low IQ individuals in a population. To take another example which affects most, if governments engineer, as has happened in Britain, a decline in the state education system through demands that the same formal school exams must be sat by all pupils or that 50% of school-leavers should go onto higher education, then the politicians who introduce the policies take upon themselves the responsibility for any inability of the ill-educated to lead productive and socially useful lives. (A fully discussion of the problems with education can be found at section 36).
4. Public provision is a good deal
The essentials of life are food, water, clothing, shelter, healthcare and a livable income in times when a person cannot work through want of a job, disability, illness or old age. Most people most of the time can afford to pay for shelter, food, water, heating and clothing from their private resources. Most could not afford the rest of the essentials and very few indeed could survive long term unemployment without state aid.
It is important to realise what small incomes the majority of Britons have. Take these figures from the Government’s Regional Household Income Comparison 2004:
“Inner London had the highest disposable household income (after tax) per head of population (£16,500) in 2004. The area continued the trend of previous years and in 2004 was 29 per cent above the UK average of £12,800. This was lower than in earlier years. In 2000 it was 36 per cent higher than the UK average. Tees Valley and Durham in the North East had the lowest household income per head at £10,800. This was 16 per cent below the UK average in 2004.” (http://www.statistics.gov.uk).
The uncomfortable truth is that even the average disposable British household income is insufficient to comfortably bring up a couple of children, pay an average mortgage and make substantial pension contributions. Worse, much of the population has less than average household incomes, many very substantially less. But even those with household incomes substantially above the average – many of whom support the idea of private provision for those “who can afford it” – would find themselves deeply embarrassed if they did have to meet the cost of everything they now receive from the state.
To take a concrete example, that of a middle class husband and wife with two children with a net annual household income of £40,000. At present they can, if they choose, educate their children free at state schools. The entire family can be treated under the NHS. Until they are sixteen, the children will not even pay prescription charges. If their children go to university, as they probably will being middle class, much of the cost of the education will still be met out of taxes (tuition fees even at their new levels do not come near to meeting the full cost of a university education). If either parent falls ill or is injured, the taxpayer will provide basic support. The same applies in the case of unemployment. If any member of the family isunfortunate enough to be the subject of a criminal assault, the Criminal Injuries Board will compensate them. The family will receive child benefit which is not a means tested benefit.
Just imagine what it would cost to either provide such services by buying them directly or through insurance if one could find an insurer willing to issue cover.
A decent private day school education would be at least £12,000 for two children and could well be a good deal more. A university education would cost tens of thousands of pounds. Private health insurance for a family to cover everything covered by the NHS cannot be obtained, but even the best that could be purchased – and it will provide a much inferior cover to that of the NHS – would cost several thousand pounds a year and will not cover existing conditions either at all or for several years – those who doubt this should check out the BUPA website and see what even their most expensive plan does not cover (you will get a very nasty shock). Drugs, including prescription drugs, will have to be purchased at their full cost. If the family has a member with a chronic condition requiring regular treatment or a condition requiring expensive one-off treatment, they will soon find their private insurance will not cover the treatment or will do so for only a restricted period. Mental health problems and long term nursing care are rarely if ever adequately covered by private insurance. Where private insurance will not pay, the family will be left with bills which at best will severely constrain their lives and at worst bankrupt them. (The most common cause of personal bankruptcy in the United States is medical bills.)
Private insurance for sick pay and unemployment pay is both very expensive and strictly limited in the time it is paid – a year is normally the longest period covered. The same applies to mortgage insurance cover. There would be no child benefit or criminal injuries compensation available without public provision.
If the cost of providing for the family is restricted to just the items discussed above the family would be hamstrung by the bills even if no major disaster such as a serious operation hit them. A mortgage to purchase even a modest house in most areas would be out of the question. University education would become a very big gamble for the children.
If a major disaster did hit the family, they would not be able to cope for an extended period because any private insurance they could purchase would soon run out.
The family I have described is by normal standards comfortably off. It might be able to struggle along provided it did not hit a catastrophe which robbed the household of its breadwinner(s) or an emergency such as a serious medical condition which swallowed up vast amounts of money, but it would not be a materially comfortable or psychologically secure family. Most families (and individuals) have considerably less income than this fictional family and a substantial minority live on an income well below the average, while half the British adult population have no meaningful savings or occupational pensions. The large majority of the population would be utterly unable to provide for themselves in times of hardship such as sickness, old age and enforced unemployment.
Those who claim that all the poor in Britain are only relatively poor should reflect on this stark statistic: the latest Inland Revenue figures for marketable wealth distribution ( 2002) show the top 1 per cent own 23% of national wealth and the bottom fifty per cent of the population have a staggeringly small 6% (Office of National Statistics (ONS) website – published 2004).
In short, the majority of the British population live as they have always lived: from one pay packet to the next. They do not have the resources to withstand the withdrawal of state provision and are very vulnerable to the competition of immigrants and offshoring, which either destroy their employment or reduce their pay.
What applies to what might be termed social provision applies to all other public charges – such as defence, policing and the justice system. Most individuals do not have to bear the full cost of these because they pay far less tax, direct and indirect, than is needed to finance a per capita share of total public expenditure. A quick calculation will demonstrate this. The projected public expenditure for 2006/7 is £488 billion. There are approximately 45 million adults in Britain. £488 billion divided equally between them runs out at nearly £11,000 per adult head.
The future is even bleaker because of the absurd cost of housing, the rising cost of a university education and the likely high cost of energy and water supplies. There are even suggestions in current price movements that cheap food may be a thing of the past and the price of manufactured goods from China and its Asian cohorts is also showing signs of inflation as their populations’ wages and living standards rise and they consume more of what they make.
The effect of everyone “paying their way” just for things such as education and healthcare would have a severely depressive effect on already dangerously low Western breeding rates as people had fewer children because of the increased costs falling on the individual.
5. The moral value of general provision
If public provision is necessary should it be available to all? Why should it not be granted only to those who through a means test show that they cannot support themselves from their own resources? The answer is threefold: personal dignity, practicality and the engendering of social cohesion.
Anyone who has had the misfortune to claim means tested benefits or who has assisted someone to claim will know what a frustrating and degrading experience it can be. The rules relating to claiming are Byzantine in their complexity and a simple error on a form (which can run to 20 pages or more) can result in benefit being withheld or delayed. But even when the forms are correctly completed and the criteria for the benefit are met, the delivery of the benefit is frequently seriously delayed because the volume of claims and their complexity simply overwhelms the administrative capacity of the public servants dealing with them.
If all public provision was means-tested, including NHS treatment and education, the administrative cost would be massive and the efficiency of the delivery of the provision greatly reduced. The additional administrative costs would have to be set against any saving gained by denying provision to people.
General provision also underpins social provision. Where all are eligible, all feel that they have a stake in the Welfare State. That improves social cohesion. Exclude the better off and the odds are that eventually political circumstances will arise which allow those with the power to reduce or even destroy utterly public provision. At best, if social provision is seen as only for the poor, it will gain a stigma and the quality of the provision will be of little or no account to those who do not benefit from it.
The provision of public services gives everyone rich or poor the assurance that if the worst comes to the worst they will not be utterly without the means to live. That is the bottom line of having the privilege of being a British citizen.
Apart from simply making life more pleasant and secure, a socially cohesive society has considerable cost benefits, because it will experience less anti-social behaviour. That translates into fewer police, fewer trials, fewer people in prison and, indeed, fewer laws to moderate social behaviour to administer – regrettably many laws are passed in response to moral panics.
6. Why should those able to pay for themselves pay for others?
The most obvious reason for not allowing anyone to opt-out from that part of taxation which is devoted to public provision is that no one can be absolutely certain that they will not meet some calamity in the future which will leave them unable to pay. The experience of medical care in the USA shows how easy it is even for the rich to find their wealth shrinking to a point where they cannot get all the treatment they need – the Superman actor, Christopher Reeve, one of the highest paid Hollywood actors, found his resources exhausted within a few years of suffering the injury which paralysed him.
But there is a more subtle reason. The wealthier members of society should always remember that they owe their privileged position to the restraint of the have-nots and the power structures of society which are overwhelmingly weighted in favour of the haves. Individual effort and talent do of course play a significant role
in the lives of everyone, but it is also true that most people’s lives are to a large degree determined by the circumstances of their birth. If you are born into a wealthy family, the odds are you will live the life of the wealthy throughout your life. A person born into poverty will probably remain at the bottom end of the social spectrum. The same applies in varying degrees to those born between the top and bottom of the social pile.
No one needs academic studies to prove the truth and potency of inherited advantage. All people require is the evidence of their own experience. Let any man examine the lives of all those he knows and he will find that most will occupy a similar social position to their parents.
A simple way of understanding how much inherited social position determines lives is to consider crime. Proportionately, the working-class commit crime much more often than the middle classes (and even within the working class the frequency of offending rises with the degree of poverty). That cannot be because the working class are innately less able, intelligent or self-controlled, because we know that many of the middle class are also dim, incompetent and socially inept, yet they rarely end up with a criminal record.
The only plausible explanation for the greater criminality of the working class can be their different material and social circumstances. These are much more precarious than those of the better off. They lack money and the social network which eases access to better jobs, while the opportunities to intellectually develop that are commonly open to the middle class are denied them. Give every person the means to live a middle class life and crime would drop dramatically simply because the press of material necessity would not be there and because the alienation of the poor through being poor would have been removed.
The better-off also need to admit to themselves that there is no moral basis for inherited wealth. The person who inherits money and possessions has by definition done nothing to earn it. The person who earned the wealth, if it has been gained through moral means – and often wealth, particularly great wealth, has not been so gained - has a moral right to it, but no one else. The same applies to non-material advantages such as social connections.
There are, of course, those who attempt to treat inherited wealth as a moral matter. They claim that a person has the right through the consequence of ownership to pass on what he or she has to whoever they choose. That, of course, begs the question of how the wealth was obtained. But let us assume it was achieved entirely morally and by the direct efforts of the person – the best possible case for the supporters of inherited wealth. Even in that instance the effect of the transfer of wealth to others is to create a situation which is manifestly unfair, namely, the establishment of privilege for someone who has done nothing to earn it. Taken at the level of a society, that rapidly results in a permanent class privilege for the haves and their descendants. The fact that the development of hierarchies is an inevitable consequence of human society is neither here nor there when considering whether the consequences of a hierarchy is moral. Clearly the deliberate disadvantaging of some to the advantage of others is not a moral act, any more than enslaving a man is (the group now living who have by far the greatest moral claim to reparations are not the descendants of slaves but the descendants of the poor).
The American philosopher John Rawls in his book A theory of justice resurrected the idea of the social contract which was much in favour in the 17th and 18th centuries. He posed, in so many words, the question “Suppose a group of people were to form a society from scratch, what society would they favour if each person knew nothing about the other people and had no idea where they personally would fit, socially and economically, into the society?” He concluded that the only rational choice would be one in which people had equality because no rational man would chose an inferior position for himself and no agreement would ever be reached which created an unequal society, whether in terms of social status, rights and duties or material circumstances.
Note that Rawls did not rule out a man or woman choosing an unequal state – some might do so thinking it would be worth the gamble to have a chance of gaining one of the favoured positions in an unequal society – he merely thought that it would not be a rational or normal decision.
Although Rawls’ hypothetical state (“The Original Position”) was not realistic, his thought experiment does demonstrate that what we have now as a result of the organic development of society is not what many, if any, would risk for themselves if they had the choice Rawls’ offered them.
Why not take away all inherited wealth? All of historical experience shows that such a cure is worse than the disease. Where the state controls (at least in theory) the totality of people’s lives, such as in the Soviet Union, the consequence is privilege and abuse not by the possession of money but by the wielding of state power. There
is also something peculiarly degrading about the idea that everything a person does is to be ordered and permitted by the state. A degree of private wealth is a bulwark against state power. The trick is to ensure that wealth does not become too concentrated in the hands of the few, producing an uncaring and oppressive plutocracy.
As for the wealth which individuals create for themselves, to tax to produce material equality would plausibly have a deleterious effect on society generally. If a person is not to benefit from their own legitimate enterprise, why should they bother to make any extra effort or take risks? The obvious answer is they have no incentive to do so. However, that is to take to nakedly a material view of humanity. Even in circumstances where what someone did had no effect on their income, people would vary considerably in their willingness to work regardless of the material outcome because personalities differ and there are rewards other than material ones such as the approval of others and celebrity. Nonetheless, it is reasonable to assume from the experience of communist societies that the overall effect would be to substantially reduce the individual will to work and take risk.
Of course, absolute material equality is improbable in any society, but the disincentive effect applies incrementally as the personal tax burden grows. Once tax reaches a certain level people either work less or become dishonest and evade the tax. That applies not only to the obvious case of the entrepreneur but to jobs generally, for people will be generally disinclined to take the more demanding jobs if the material rewards they offer are not significantly better than those for unskilled and easy employment.
It is also true that Man being a social animal will always form hierarchies because social animals necessarily organise themselves in that way (if they did not, sociality would never arise because the members of a species would be in constant antagonism to one another and could never reach the point of sociality). Even if all material advantage was removed there would still be the advantages and disadvantages of genetic inheritance, the differing qualities of individual parents and pure accidental circumstances, such as the work available at a particular time and place, to create a socially layered society with patterns of dominance and dependence.
But that does not mean that societies should simply be allowed to develop without any state intervention to ameliorate socially determined disadvantage. Without social provision of necessities the poor are left to live hopeless lives which struggle from day-to-day, while untaxed or very lightly taxed wealth of the most successful results in a plutocracy within a few generations.
Plutocracy at best produces wider private charity – which is always inadequate – and at worst an uncaring attitude towards the masses which sees nothing wrong in allowing them to starve if that is a consequence of the economic circumstances of the society and times or even simply God’s will. Plutocracy is in fact one of the most oppressive forms of society and one of the most difficult to end because it cunningly presents itself as being the society of individual opportunity (“the Ritz is open to all”) and is not nakedly oppressive in the same way that, say, Nazi Germany or Stalin’s Russia was oppressive. Consequently, there is no obvious focus for discontent, no single hate figure and it has a much greater enduring power than an overt dictatorship.
What a society can safely do to narrow the differences in life chances at birth is to act to ensure that all have access to education, healthcare and the means to live in a decent manner. That is the minimum. A society can go further with the greatest public resources being directed at those in the poorest circumstances, for example, more money for schools in “sink” areas. It would even be possible to devise a scheme for those who inherit little or nothing by way of money or possessions to receive a payment from the state to remove to a degree the disadvantage of inheriting nothing.
7. How should public service should be determined?
It is easy in principle to decide whether something should be left to private or public enterprise. Simply ask five questions:
(1) Is the service or product generally considered to be a necessity?
(2) Will profit compromise safety?
(3) Is the service obviously inappropriate to be left in private
hands, for example policing or defence?
(4) Can the service be provided by private enterprise without subsidy?
(5) Can free enterprise be reasonably expected to deliver the necessity universally?
If the answer to any of (1)(2)(3) is YES or the answer to either (4) or (5) NO, then it should in principle be provided either directly or indirectly by the state.
8. What should be provided directly by the state?
Certain things should be reserved to the state as a matter of absolute principle. They are defence, foreign policy, policing, justice, the implementation of judicial sentences and decisions and the administration of welfare. They should be reserved absolutely because either they involve the use of force or the threat of force, punishment or the distribution of taxpayers’ money in areas such as unemployment benefit.
For reasons which I shall shortly examine, the state should also directly control any essential service which is a natural monopoly. What counts as a natural monopoly? Railways and utilities such as water and energy are examples They are natural monopolies because it is simply not practical to have competing lines running to the same destinations or competing utility pipes and cables supplying the same area.
It is possible, as has happened in some of the British privatisations, to allow different companies to compete to supply services such as trains, energy and water, but that is at best an insufficient or incomplete competition and at worst a wholly bogus one because the actual lines of supply – the railway track and the pipes or cables – still have to be maintained and owned by some organisation, private or public. That means the infrastructure has to be either owned publicly or, if owned by a private company, the company must be rigorously controlled by the state, as is the case with the British telephone landline infrastructure which is owned by the privatised British Telecom.
British government interference with natural monopolies since privatisation has gone far beyond controlling the infrastructure. In the case of the railways, a considerable public subsidy has been paid and continues to be paid to the private operators. In every monopoly industry a regulator has been appointed to control both prices and, in theory at least, to force companies to do things such as provide a certain level of investment in new equipment and to be conscientious when it comes to maintenance and operation of the infrastructure. To pretend that these monopoly industries are private companies working in a free market is patently absurd. They are effectively public services contracted out to private contractors.
A few services only work as monopolies, the classic example being the universal letter post, that is, letters delivered to any part of a territory for the same price. This only works if it is a monopoly because if there is competition from private companies or municipal postal services they will take sufficient of the profitable trade in the towns and cities to make it impossible for the universal supplier, in this country the Royal Mail, to subsidise the loss making deliveries to parts of the country outside the main urban centres. No private company would ever provide universal coverage unless they had a monopoly.
Why should the state directly control essential monopolies? Firstly, because there is no opportunity for meaningful competition and consequently the state must step in to prevent abuse of the monopoly position. To do that, as we have seen, it has to interfere very strongly with the running of the monopolies. In practice, it can only efficiently do this if it directly controls the monopoly.
If the state subcontracts an essential monopoly to private business or allows private business to buy a monopoly two general problems arise. The first difficulty is that a private business may at any point fail as a business or simply refuse to continue with a contract if it is not making money for the business. If that happens the state is over a barrel because it does not have the resources to immediately take over the enterprise, nor is it probable that another private company would be able or willing to step in at a moment’s notice – the worst outcome would be the cessation of a vital industry. Nor, if a company failed, is it obvious how a Government would prevent its assets being sold by a liquidator. In principle when Railtrack failed – the company which after privatisation had the responsibility for maintaining the infrastructure of the British rail network – the shareholders owned the assets (the railway infrastructure including much highly profitable land) and the creditors had a legitimate charge on them.
Clearly no government could allow the railway or vital industries such as water, gas and electricity simply to go under, either at the national or regional level. Hence, any government will, when shove comes to push, have to pay through the nose (your taxpaying nose in fact) to maintain the threatened industry, whether that be through enhancing a contract to make it more profitable, granting more profitable contracts to a new private contractor or through the payment of outright subsidies. A government is in a similar bind if a company is doing a bad job: they cannot simply sack them because who is to take their place?
Natural monopolies also raise other problems if they are in private hands. There is insufficient public control over areas such as maintenance and strategic planning. Good British examples can be found in the privatised water and energy industries. In the case of water the privatised companies have failed to invest adequately to stop the considerable loss of water from cracked pipes. Nor has a single major reservoir been built in England since privatisation. These investment failures have occurred despite the water companies consistently making healthy profits. The Water Regulator huffs and puffs but achieves little because the water companies know he can do little. Indeed, he has to date not even fully used the powers he has despite issuing many warnings to the water companies. And the Government? Well, they could pass a new law giving them direct powers over the water industry but what then? If a water company simply refuses to do what is needed where does the Government go? Nowhere fast is the answer.
With energy it is the strategic planning which is emasculated. Successive British governments have allowed Britain to sleepwalk into a position where the country went rapidly from being self-sufficient in energy to becoming a net importer. This was entirely predictable as it was known long before it happened that North Sea oil and gas was going to decline substantially from the beginning of the century. Despite this no meaningful strategic planning has taken place since privatisation with governments until very recently childishly claiming that it was not for them to interfere in the actual provision of energy now the industry is privately owned (the Blair Government has just woken up to the strategic danger of being dependent on foreign supplies but even now -2006 – no definite decision has been made on future British energy policy). The upshot of this lack of planning has been rapidly rising energy prices since 2005.
If water and the energy utilities had remained in public ownership, the fact that politicians had ultimate responsibility for them would have ensured that maintenance and strategic planning was not neglected because no politician or government could afford to be blamed for a water crisis or soaring power prices. Government could also subsidise prices, something it cannot do now even if it chose to because of EU competition rules. . The same principle applies to most of the privatised industries – take away the political responsibility and the profit motive rules.
Certain things are simply too important to be left to private efforts. Natural monopolies such as the railways, water and gas are literally essential to the survival of an advanced state such as Britain. Because of that stark fact alone they need to be treated as something much more than a commodity which can be simply left to the market. They should to be seen for what they are, strategic assets, and placed firmly under national control.
There is a further general reason why essential monopolies should be in public hands – the need for general provision. Left to private enterprise, even with an unfettered monopoly only the profitable parts of an industry would be supplied. Roads and railways would only be maintained if the traffic warranted it. Gas, electricity, water and telecommunications would only be supplied where sufficient profit could be made. The problem is we do not want roads and railways only over profitable routes, or the utilities such as gas and water supplied only to urban areas. We want them over the entire country. Only public provision can truly satisfy that need. Of course, private companies can have a duty to provide a general provision placed on the them but what if none is willing to take it or they take on the responsibility but then fail to meet it? The government then has to decide to either subsidise the company directly or to loosen the contract conditions to which the company has agreed.
The final type of enterprise which the state should always take in hand are those which experience tells us are beyond the resources of private business. Private enterprise can never be trusted to handle Tunnel. Margaret Thatcher insisted that no British public money would be involved and that private enterprise would bear the entire cost. It soon became clear that this was a nonsense. The Tunnel itself was completed but the companies which built it were not so much bankrupt as on another planet called Debt. And this was despite the very serious amounts of money pumped into the enterprise by the French Government, both directly and indirectly. The situation was rescued, if one can dignify what happened with the word, by the banks and other creditors rescheduling debts so far into the future that they all but vanished and the French Government surreptitiously pushing in more money via the French banks. To this day, the Channel Tunnel is the whitest of white private enterprise elephants, with the latest ” debt restructuring” always just around the corner.
Direct provision also has a further benefit. While assets are publicly owned and employees directly paid by the state, it is politically much more difficult to reduce or abolish that part of public provision. If the provision is supplied by a private company their contract can simply not be renewed or cancelled. If the provision is directly supplied, the government has the ticklish problem of having to take responsibility for the redundancies, something which greatly raises the profile of the removal of the provision.
The best example of the dangers of losing direct provision is the gradual privatisation by stealth of the NHS. To suddenly privatise the entire NHS would be impossible, but salami slice it over ten or fifteen years by continually increasing the private sector involvement and the position is completely different. Then the politician can use excuses such as “So much of it is in private hands now that the rest might as well be,” “We can’t have such a comprehensive service because private companies can’t provide it” and “Costs have risen so much that we have to cut this or that”. The whole system will be such a confused mess of public and private that the public will not know what to think. Also, the privatisation by stealth may have surreptitiously changed the way the public view the NHS so they see it no longer as a national institution but merely as a provider of medical care through disparate means. That in itself would reduce the moral outrage needed for any successful public protest.
9. What should be provided indirectly by the state?
Just because something is a necessity does not mean that the state must or should provide it directly. In fact, the less direct provision the better, because in a free society government should only touch that which it needs to touch. For example, whereas there are not many possible suppliers of air traffic control systems or railways, there are many possible suppliers of food. Government may safely leave food distribution to the private supplier and provide assistance where it is needed through payments to those in need. It should be noted that it is not the market or private enterprise which provides the general provision in cases such as food but the giving of taxpayers’ money to those who need it which provides the general provision.
Service is really the crucial criterion. Governments should become directly involved in industrial work very rarely – the exceptions are defence suppliers, utilities such as water, gas and electricity because of their status as natural monopolies and their immense importance. No nationalised industry making or extracting anything has ever been an economic success. Governments running manufacturers, farming or the extractive industries such as coal mining are neither necessary nor desirable, because private enterprise will always do the job adequately and more efficiently provided the economic circumstances are right,that is, vital industries are protected through tariffs, quotas or subsidies to the extent necessary to make them profitable.
But such vital industries are the Government’s business because they have both a strategic and a social and economic value. Consequently, governments do have is a responsibility to ensure that they are maintained.
Any country which cannot feed itself, produce all essential manufactured products and services, is not self-sufficient in energy and does not have substantial reserves of essential raw products such as iron ore, is constrained in what it may do both nationally and internationally and the greater the reliance of imports, the greater the constraint. Of course any advanced industrial state will not be completely self-sufficient, but it is possible for a country to have a large degree of self-sufficiency in the essentials especially food. With modern crop yields and modern animal husbandry, Britain could feed itself at a pinch if her market for food was protected to allow reasonable profits to be made by farmers using not merely the best or most convenient land, but the more marginal land as well.
Where a country is severely dependent on imports, as is the case with Britain, they are utterly at the mercy of international blackmail and events. Even the most powerful state in the world, the USA, is much restricted because of its reliance on imported oil. Such constraints have the most serious of consequences. Would George Bush have invaded Iraq if the USA was not reliant on Middle East oil? I doubt it.
The free trade dream of buying where a product can be produced cheapest is based on the absurd premise that never again will international circumstances arise which will place any country at risk of war or blockade. There is also the question of what happens when raw materials run short and the scarce materials either remain in the countries of origin or go to the richest and most powerful countries with the rest left to go hang. Free trade is not merely a fantasy but a dangerous one in the long term.
There is also the economic and social case for protection. Cheap imports from countries which have labour costs many times below those of the mature industrial states, goods made cheap by state subsidies and plain old-fashioned “dumping” means that no company in the West is able to compete with the imports. The effect of allowing such imports is twofold: either the workers in the importing countries must take lower wages or, more probably, watch the obliteration of the domestic industry.
The same thing happens where mass immigration is permitted. If the immigration did not occur the wages for the type of jobs which immigrants take would be higher. That in turn would lessen or end the shortages of native workers willing to do them. For most jobs all that is needed to solve a shortage of labour is a wage sufficiently competitive with other employments to attract enough applicants. A good example in Britain are nurses: a shortage of native applicants a few years ago has been turned into a surplus now by a substantially increase in their pay.
The loss of jobs and suppression of wages through cheap imports, outsourcing, or large scale immigration has considerable social and economic effects. Those who lose their jobs either remain unemployed or take jobs which pay much less, are less secure and have lesser benefits. Those who remain in their jobs but whose pay is suppressed suffer similar difficulties. Both groups find their spending power is reduced. They pay less tax. If they are unemployed the Treasury is a net loser. New immigrants compete for scarce public goods such as free healthcare, education and social housing. Most particularly they compete most directly with the poorer native members of society who have most need of such social supports.
Poor pay, insecurity, unemployment and competition from mass immigration all place a severe strain on the social cohesion of a country.
Neither the Left or Right need recoil in horror at the idea of a judicious protectionism and a strong immigration policy. The Labour Party has been strongly protectionist throughout most of its history. The Tory Party was protectionist before the repeal of the Corn Laws in 1846 and protectionist again between 1931 and the advent of Margaret Thatcher. For most of their history both parties have been in practice opposed to mass immigration.
10. The railways – a classic public service
The railways in Britain are not simply a private enterprise. They are a necessity to maintain general economic activity. Take away the railways and a substantial part of those employed in London could not continue to work there because the roads will not take the extra traffic. The same applies, to a lesser degree, to other large cities and towns.
The railways also fulfill an important social functions in providing transport to those without cars, by reducing car use generally and moving much heavy goods traffic from the roads. Finally, railways have a strategic value in times of war or blockade.
Without massive public subsidy the railways could not be maintained. No national railway system in the First World operates without taxpayers’ subsidy. Parts of systems may be profitable but not the entire system. It is not that our railways would simply shrink if left entirely to private enterprise, most of the system would not run
at all. Commuter traffic is running at near capacity in the South East of England and fares are already so high generally that the massive price hike needed to meet the full cost of rail travel would result in a vicious circle of decreased traffic and decreased revenue.
The cost of maintaining Britain’s railways is simply beyond the private sector. Profit can be made on some intercity routes but that is about it. Even with the massive subsidies given to private companies since privatisation – ironically substantially larger than the pre-privatisation subsidies in real terms – private companies have signally failed to invest adequately. Indeed, the companies have radically reduced staffing levels – which may well have contributed to some crashes – and have constantly failed to meet their timetables.
The farce of the company with responsibility for railway maintenance immediately after privatisation in Britain, Railtrack, is a cautionary tale in itself. It created a completely different culture from that under the nationalised railways. Instead of employing most of the labour directly, they engaged subcontractors to do most of the work. The army of skilled workers built up by the original private companies and inherited by the nationalised British Rail was dispersed in reckless fashion and, inevitably, control over standards of maintenance became much diluted as it always does with subcontracting.
To put the cherry on the Railtrack story, the financial resources of the company, even with public subsidies, proved hopelessly inadequate. In 2002 the plug was pulled and it went into administration to eventually re-emerge restructured as a not-for-profit company Network Rail. But before the administration was done and dusted, the taxpayer had to cough up a great deal of money to compensate shareholders because the government was faced with legal action by the shareholders alleging maladministration, an action which looked as though it might not only succeed but in the process wash some very dirty government linen in public over exactly why and how Railtrack went into administration.
There is a further consideration with public services – safety. It may be that the public will have greater confidence in, for example, a state run railway simply because it is state run. The public’s confidence might be completely unfounded but that would not matter: theconfidence itself is a valuable thing.
The experience of all privatisation has been to make money by enforcing massive job cuts. Of course there was overmanning during the nationalised industry days. The trouble is that the cuts made since privatisation have often gone beyond improving efficiency. They went to the limits of safety, and probably past it, in pursuit of profit. Maintenance staff were reduced and consequently maintenance was reduced. The facts which have emerged since the Watford train crash in 2000 shows beyond doubt that many of the people involved in rail track maintenance are inexperienced at best and completely raw at worst.
When the state does not take direct responsibility for a service which has inherent safety consideration, the danger is that governments will respond to any safety fears by imposing ever more onerous obligations on the private suppliers of the service. The private companies are also susceptible to being overly cautious after an accident has happened or a possible danger becomes the subject of public comment.
Train crashes in Britain have been thankfully rare under both nationalised and privatised regimes, but when they happened under the nationalised industry the government was able to keep the show on the road because the public had confidence that safety was not being compromised simply to save money. Since privatisation crashes have been met with absurd caution by both the bodies responsible for the infrastructure and the Government, with the national rail network being reduced to a farce after cracks in some rails were found after the Watford crash mentioned above. For the better part of a year, rail travel became a misery as hundreds of emergency speed restrictions were introduced and rails were tested for cracks and a massive programme of ail replacement was begun. The consequence was horrendous delays and vast numbers of cancelled trains. The effects are arguably still being felt in 2006.
Perhaps the classic industry to which the safety consideration applies is the production of nuclear energy. Despite this this Government is saying that if a new generation of nuclear power stations is built it must be with private money and run by private companies. A clear case of ideology – private is best – driving common sense out of the window. (It should be added that Labour said the same when in office.)
Foreign ownership further complicates matters. When a massive explosion devastated a fuel storage and refinery complex in Hemel Hempstead in 2006 and further parts of the complex were thought to be in danger of exploding, it was impossible to get the necessary information quickly because the company which owned the complex was French and no one with sufficient authority could be immediately contacted.
12. Public and private efficiency
Having worked both as a civil servant and for private companies, large and small, I always raise a wry smile when the advocates of private enterprise claim, with a look of religious certainty in their eyes and the ringing voice of the true believer, that private enterprise is by definition much more efficient than public endeavour. In fact, private enterprise can be every bit as wasteful and often far more reckless than public service.
Take a couple of blatant examples of crass incompetence by private enterprise from the past ten years. The directors of a major defence and electronics company Marconi managed in a few short years to reduce the company from one with several billion pounds in cash reserves and astock-exchange value of some £30 billion to a company with billions of pounds worth of debt and shares which were effectively worthless after the creditor banks took ownership of what remained of thecompany.
How did Marconi management accomplish this stupendous feat? They decided that their highly successful core business of defence equipment was just too boring and “not now” for words and sold off most of this highly profitable business. They then ploughed into telecommunications, a business in which they had little experience, which was “utterly now” and “obviously” on the brink of a mobile phones bonanza. There they caught not so much a very bad cold butcommercial double pneumonia.
The second example is the assurance company Equitable Life. In the 1980s and early 1990s this firm offered financial products with an attractive guaranteed return. Unsurprisingly, they proved very popular. Come the time to meet these obligations Equitable found they could not do so. They tried to renege on the guaranteed return promise but, after several years of legal battles, the House of Lords decided against them. At that point they were arguably insolvent. Instead of going into administration, they began a series of actions which made a mockery of that for which they supposedly stood – assurance.
For fear of trading fraudulently or even whilst insolent – any new business might well have been considered fraudulent because of the possibility of a failure to meet existing obligations – they closed their books to new business. Then by stages – the torment for the policy holders was extended – they reduced payouts to those who had not had the guaranteed return and by stages considerably raised the penalty for clients taking their money out of the Equitable. Their customers were left with the ghastly choice of losing a large slice of what was already a reduced pot of money or taking a much lower income. Most choose the latter course. Equitable said in so many words take what we offer or be fined (or even worse, drive us into liquidation and lose most or even all of what is left). Those unlucky enough to be coming up to retirement during this time were left with pensions and lump sum payments much less than they reasonably anticipated when they took out the policy and substantially below the level which could be blamed on the general stock market fall. All of this was of course quite legal, but the shareholders who did not have the guaranteed return could have had no inkling of what might happen to their policies when they took them out.
I do not claim that public service is wondrously efficient and economical. Rather, I say that private business, at least at the larger end, is much the same. In fact, any big organisation displays the same characteristics of bureaucracy, a lack of imagination, organisational inertia and less than optimum manning. Marks and Spencer, until the late 1990s one of the reputedly best run of British firms, suddenly fell prey to just these traits and has only just got back on the rails.
But large organisations also have their advantages. They are capable of providing a wide range of services. They can provide those services over a large area. They have a degree of “slack” which allows emergencies to be dealt with and bottlenecks due to variable demand to be managed when they arise. Such “slack” is very important in industries such as gas and electricity and services such as the railways. As we shall see when I turn to the experience of privatisation, the slack in many of the privatised industries has either vanished altogether or been reduced to dangerous levels.
13. What do we mean by efficiency?
There is also the question of what we mean by efficiency. Private business ultimately judges that by profit. But is profit a good indicator of efficiency generally? More particularly, does it have any place in public service?
Many a company does well for a period because it strikes lucky with a product and then plummets when the good luck runs out. Or a company may have a good profits run simply because there is a general boom in the economy and it is easy to make profits.
Then there are businesses where it is virtually impossible not to make large and regular profits, for example, the clearing banks, because the goods or services they are supplying are too essential for people not to purchase them and the number of competing companies is small, either because a few companies have been able to destroy the competition or because the cost of getting in the business is too great for new competitors to emerge. The problem of greatly reduced competition through expansion of an existing company rather than takeover of other companies is a growing one, a problem exemplified by the relentless march of Tesco in Britain – in practice British anti-monopoly law only deals with takeovers – the only thing which halts Tesco is planning permission. Once a company has a really large share of a market efficiency becomes less of a pressing problem because customers in an area dominated by the likes of Tesco often have little choice but to use the dominant company because it has destroyed local competitors.
It can also be very difficult to find out from the published accounts the true state of a company, vide Enron and WorldCom. Even where outright fraud is not practised there is still a great deal of scope for accountants to engage in “creative accounting” and massage accounts to inflate the profit in a given year. As directors are commonly paid a large part of their remuneration in the form of shares which they canpurchase at a later date at a discounted price (share options), companies have every incentive to inflate the share price in the year when the share option can be exercised.
But even if it is allowed that profit is a good yardstick of efficiency for most enterprises, a highly debatable proposition, it does not follow that it is a good yardstick for all enterprises. The provision of universal public services is by its nature not susceptible to the notion of profit because the unprofitable work must be undertaken as well as the profitable, for example the Post Office delivers letters to hideously costly rural addresses as well as to highly profitable city haunts for the same price (that service incidentally subsidises all private business in the UK because they can deliver anywhere for the same price).
If profit is not the yardstick what should be? I suggest that the real tests for public service competence should be (1) is the service being delivered to all who need it? and (2) is the cost reasonable in comparison with equivalent operations in other countries? By these tests, the NHS, for example, still compares well with the health care in other advanced countries, providing both a universal service for the vast majority of treatments and operations and doing so at a significantly cheaper cost than most, despite the great amounts of extra money pumped into it since May 1997.
14. Private enterprise providing public service
What is rarely if ever taken into account when complaints about the inefficiency of public bodies are considered is how efficient private enterprise will be or is when it is offered the opportunity to provide a public service. Take the Post Office as an example. For a century and a half it has turned a profit and ensured a level of universal service well nigh unique in the world. It has done this because it is a state monopoly.
No private company would ever provide a universal one-price service without massive public subsidy and the halfway house of part private part public merely weakens the public provider. The government first loosened the rules governing private delivery of parcel, then bulk letter mail went to full competition and in 2006 private companies moved into the delivery of letters over a certain weight. That competition alone will cripple the universal post. The Post Office has already been forced to drop the second delivery as a general service and will now provide it only for a fee, whilst the last time for collection has become earlier and earlier in the day and the single free delivery later and later.
As a second example take the BBC. Suppose the licence fee was abolished or reduced and the BBC had to introduce private finance on a large or an entire scale. The inevitable result of that would be the BBC increasingly turning from its public service role, not immediately but in time, towards commercial programming. The dismal example of how commercial terrestrial television “meets” the public serviceobligations written into their prospectuses when they bid for licences shows you what the BBC would rapidly become (the obligations/promisesmade when gaining licences are substantially ignored once the licences are granted).
There is nothing wrong with employing private businesses to perform specific functions such as road building because that does not produce a conflict between public service and profit. A road is simply a road,which will be used regardless of who built it. Once it is built,there is no ongoing direct service to the public beyond whatever maintenance is required and the maintenance of roads is completely different from the maintenance of railways, because the use of roads is free in all but a few instances and the safety issue is nothing like so important for a car can be driven on a potholed road while a train cannot be run on a faulty piece of track. Where conflict arises between the provision of a general service and the profit motive is in cases such as the NHS where the delivery of the service is directly to the public.
Private business is poor at providing services where there is no direct link between the provision of the service and the payment for it. If a service is provided to a person and they pay the provider, private enterprise will generally do a decent job if the customer has a reasonable choice of provider. Where a private business provides a service on the basis of a contract signed with a contractor, that is, it is a sub-contractor, the relationship between the customer and the provider becomes nebulous. It is true that the sub-contractor may have a contract cancelled or not have a contract renewed if too many complaints are received by the contractor, but often enough the contractor will wear any number of complaints provided profits remain healthy.
15. Public service inefficiencies and politicians
We can all recount bureaucratic horror stories and in truth there are a host of them. What most people never ask is why they exist. The answer is very often found in the irresponsible behaviour of politicians. They pass too many laws, introduce laws or other measures not requiring legislation which are administrative nightmares and demand action such as the meeting of “targets” which are simply beyond meeting.
A fine example of the “too many laws” syndrome is tax law. No living human being is a master of British tax law in its entirety or anything approaching its entirety. There is an excellent reason for this, it is beyond the capacity of any person to encompass so vast and complex and ever changing labyrinth of legislation. When the public deals with the best trained and most experienced Inland Revenue inspectors or employs the highest-powered tax consultant in private practice, they will still be dealing with people only competent to advise in particular areas of tax law. Worse, the law is frequently less than lucid because of the poor drafting of Acts of Parliament or of the statutory instruments which give administrative power to enforce Acts.Consequently, tax law is frequently open to plausible differences of interpretation. The upshot is that the Inland Revenue can often appear incompetent or unreasonable, despite the best efforts of its staff, simply because politicians have created an impossible situation.
The same applies to Customs and Excise (now amalgamated with the Inland Revenue).
To the complexity and opaqueness of most laws and regulations can be added the fact that most of the administration of such laws and regulations is not undertaken by highly educated, highly trained, highly intelligent people, but by the rank and file who find the complexity and opaqueness far more difficult to cope with than the highly educated, highly trained, highly intelligent few.
It is rare to encounter a politician who considers the administrative implications of laws before they are passed. Many laws on the statute books are largely dead letters because if they were enforced generally the effects on policing, the justice system and prisons would be dire. Imagine the numbers of prosecutions if the police religiously enforced the law on wearing seat belts for example. The magistrates courts would grind to a dead halt. Our present prison overcrowding is to a substantial degree the consequence of ever more laws with severer prison penalties being passed blithely by Parliament and the practice of Home Secretaries, both Tory and Labour, encouraging courts to be more severe in their sentencing. Either policy would be administratively defensible, whether one agreed with the principle or not, if governments ensured that the additional prison places were made available before the laws were passed or the instructions to courts on sentencing policy were issued by the Lord Chancellor’s Office. This has not been done. Extra provision is either inadequate or non-existent.
The prison population has also been significantly boosted by other government decisions. The first was the “care in the community” which closed most long-term accommodation for psychiatric patients and the seriously mentally deficient. Many of the people who fall into those categories unsurprisingly now end up in prison. The second was allowing massive immigration in the past ten years which has driven the foreign component of our prison population up to over ten per cent. To these causes could be added the government sponsored destruction of many of the jobs available to the lower IQ and poorly educated members of the population and the inadequacies of the state education system (see section 37). .
A classic of “unjoined up” Government thinking was the Community Charge known more popularly as the Poll Tax. To produce the required tax, around 90% of the adults living in Britain had to pay the tax. To anyone who understood the general problem of the tax collection, this was a non-starter. It would have been a non-starter had the system generally been seen as fair simply because people will understandably avoid tax wherever they can and tracking people to their private addresses is the devil’s own job, both in terms of identifying the addresses and in having the manpower to chase up non-payers.
The fact that the tax was seen as generally unfair provided its opponents with a ready made propaganda tool. Apart from the obvious difficulty of justifying a new tax not obviously linked to ability to pay, many suffered genuine hardship because people on very small incomes were suddenly asked to pay two or more times what they had previously paid under the domestic Rates system, which the Poll Tax replaced. Opposition politicians and parties quite naturally did everything they could to oppose the tax and soon magistrates’ courts were overwhelmed by hordes of non-payers and the receipts from the tax fell well short of what was anticipated. The coup de grace was given by a violent protest in Trafalgar Square.
A current administrative nonsense is the recent introduction of AS Level exams. For our purposes forget about whether not these are a good idea. It may seem obvious that if you introduce additional new general exams for schoolchildren you will need many more examiners. Not to our politicians. The upshot is that there is a crisis in ourpublic examination system because of overstretched examiners.
Then there are the laws which have unintended consequences. There is a beauty currently wrecking havoc throughout the land. In his 2002 budget, Gordon Brown announced changes to allow sports clubs to claim rate relief by becoming charities. The consequence has been that local authorities in many places have withdrawn or reduced the discretionary rate relief they were allowing sports clubs unless those clubs become charities. But becoming a charity is a complicated and expensive business and most sports clubs cannot afford it. To take one example of additional cost and complication. Charity law does not allow charities to sell alcohol. Most sports clubs gain a good deal of their income from bar receipts. To maintain the ability to keep a bar, the club would have to set up as a charity and then run a separate limited company for the bar takings.
Governments in the past twenty years have introduced two new forms of interference which are destructive of public efficiency. The first results from the mistaken belief that private enterprise methods can be generally applied to public services. The second is “league tables” and “targets”.
Private business practices, that is commercial practices rather than merely questions of efficiency common to both private and public organisations such as the utilisation of staff, are completely inappropriate in public service. Take the introduction of the “internal market” to the NHS and its effects on hospitals. This was a scheme introduced by the Thatcher Government with the idea of making the NHS more accountable and cost-efficient. Before it was introduced Governments decided how much was to be spent on health in a given year and, broadly speaking, the money was spread evenly throughout the country. NHS hospitals were given a budget and left to operate within it. Accounting for the expenditure was to use a favourite civil service term “broad brush”. This system worked because hospitals knew where they were at the start of a year and had the further advantage of seeming fair – everyone, NHS staff and the public, could see that each part of the country got more or less the same provision. GPs referred patients to their nearest hospital as a matter of course – which naturally set a fairly constant level of demand for a hospital – and administrative costs were low.
The “internal market” and subsequent reforms changed all that by making money follow the patient – which meant a hospital did not know exactly how much money it had to spend – and consequently required very detailed monitoring of expenditure. Worse, it also created competition between hospitals. The result is a massively bloated NHS bureaucracy which is both very expensive and a major cause of poor morale amongst medical staff, who object both to the added paperwork and procedures and the constant administrative supervision of their activities.
Similar “value-for-money” accounting schemes have been introduced elsewhere into public enterprises with similar dire results. The experience of these suggests strongly that when dealing with public service it is best to decide what is desired and what the taxpayer can afford to pay and then pay it. That does not mean money should be given out without regard to how it is spent. Rather, it means that costs should be determined by rational criteria before funding is decided upon and then the organisations should be trusted to spend the money provided they deliver what they are supposed to deliver. Provided the costing is realistic, the taxpayer can be sure that the money is being spent reasonably efficiently and no-corruptly. Gross inefficiency or corruption on any scale would show up through funding shortfalls within the budgetary year of the public institution concerned. Funding based on proper estimated costing is in effect a pre-audit which achieves essentially the same result as an audit but does so at the other end of the financial process. If a degree of inefficiency or corruption is not identified by this process, the loss both in terms of money and misapplied man power will be far less than the cost of an inflated bureaucracy and the demoralisation of public servants which arises from close scrutiny of expenditure.
Realistic costing requires that funding within an organisation is broadly similar for equivalent parts of the organisation. For example, in present circumstances any NHS hospital outside London of a similar size and range of medical treatment should cost broadly the same to run because national wages are paid in all places but London where a “weighting allowance” tops up the national salary.
League tables are an idea which has a superficial attraction. What could be more reasonable than to know which are the best local schools through their exam results being publicly available so parents can compare schools? A great deal. The effect of league tables has been to lead to a substantial rise in exclusions from schools, increased de facto selection of pupils and the restriction of the exams children may take. Faced with parental and state judgement of their performance, schools have understandably been unwilling to have children in their schools who will perform badly in exams. Inferior exam results at a school equals fewer and less able children applying which equals fewer pupils which equals less state funding. Nor, of course, are private schools immune from the pressures, for the lower their position in the “league table” the more difficulty they have in attracting pupils, especially the brightest.
The consequence of league tables in schools is that education is distorted. Children are denied the opportunity to take exams if it is thought they will do badly. 16-year-olds who do less than well in their GCSEs are denied an opportunity to take A levels at their school. Children who are seen as academically unable or disruptive are excluded from the better schools and effectively left to rot either in a state of permanent truancy or in schools which are essentially doing no more than child minding. More profoundly, the concentration on passing exams, including the National Curriculum tests, has not only narrowed the academic curriculum as schools “teach to the test”, but has led to the exclusion of non-academic activities such as sport and music. The broader idea of education has been largely lost.
Of course, unfairness and ineffective education existed prior to the “league tables”. The point is that the position has been made ineffably worse by the “league tables.”
The “league table” distortion which has arisen in schools will be and, indeed, is mirrored elsewhere because the same general pressures apply. Hospitals seek to avoid operating on high risk patients, councils want to divest themselves of “tricky” work such as running council houses and school examination boards and universities inflate exam marks to both attract students and to guard against a growing tendency for students to demand good exam results because “they have paid for them”.
The first cousin of league tables is “targets”. Government targets are of course not new. In the immediate post war years Governments delighted in announcing that so many hundreds of new houses would be built. What is new is that “targets” have become so prevalent that they seriously effect public policy. Targets to reduce street crime force the police to divert resources regardless of whether it is the greatest priority. Targets to reduce hospital waiting lists force hospitals to manipulate their waiting lists and concentrate on non-urgent treatment at the expense of more serious conditions.Targets to expel failed asylum seekers lead to the reclassification of asylum seekers. And so on for any number of public agencies.
On the privatised industry side, targets set by the various regulators are largely cosmetic and are inexorably downgraded when their honest application would severely damage or even ruin a company.
Of course, most targets, whether for public or privatized organisations are not actually met even with the strenuous massaging of figures. They are then swept aside as being of no consequence. The result is a growing public scepticism about any government plans or promises which they increasingly treat as Russians treated “five-year plans” and “potato harvest figures” in the Soviet Union. This is decidedly unhealthy because if the electorate cannot trust any promise made by a politician what is the point of elections?
16. Other public service inefficiencies
It would be idle to pretend that public service does not have substantial shortcomings which have nothing to do with political decisions. These are an over-extended a command chain, the cult of the generalist and the too ready movement of staff.
The modern British Civil Service was founded in the nineteenth century with a tripartite division based on Plato’s Republic. (This is not asbizarre as it sounds because most of those in public life then had a classical education). The Administrative Grades were the philosopher kings who planned and directed, the Executive Grades were the mechanics who put into operation and administered the plans of the Administrative Grades and to the Clerical Grades were left the task of being the metaphorical hewers of wood and drawers of water.
This consequence of this structure was that chains of command and responsibility became ridiculously extended. In modern times there have been 13 mainstream Civil Service grades (and others peculiar to particular departments and offices). In addition, the distinction between the Administrative/Executive/Clerical general grade functions produces an artificial separation. Many jobs cannot be neatly fitted within one of Administrative/Executive/Clerical, yet the Civil Service attempts to do so. The result is that instead of having one person doing a job in the most efficient manner, the job is arbitrarily divided between different grades.
In recent years attempts have been made to reduce the numbers of grades, but without great effect. They need to be reduced to six or seven. That would put them broadly in line with large private corporations.
When the Administrative/Executive/Clerical division was devised the idea was that the Administrative Grade would be staffed by generalists who could apply themselves to any task without needing any particular expertise. Rather the Admin Grade Civil Servant would be of high intellect which he would apply to analysing any problem and producing solutions to the problem. There is of course a place for such people, but it is very limited. The trouble is that the Civil Service still largely operates on the idea that the Admin Grades should be generalists. Worse, the idea has spread to the other grades to a considerable degree. The consequence is that Civil Service jobs tend to be allocated by grade rather than the relevant experience of a civil servant. The position is aggravated by the fact that people are often placed in positions novel to them without adequate training. Much greater attention needs to be paid to both the suitability of people for posts and to the provision of training.
The frequent placing of unsuitable and untrained people in posts produces a “culture of incompetence”, whereby those in positions of authority are reluctant to criticise their subordinates. This reluctance stems from (1) the fact that they are not often insecure in their own ability and knowledge and (2) because they know that their subordinates are often in posts for which they are unsuited or untrained.
The other great structural bugbear is the all too frequent movement of staff (anyone who has had regular dealings with public bodies will recognise the frustration of dealing with a new person every time they write or phone and the immense amounts of time and effort wasted.) Most Civil Service work is administrative. Continuity is a boon when it comes to administration. Where staff are working to implement very detailed regulations, as is the norm in the Civil Service, continuity becomes vital.
Regular movement of staff, human nature being what it is, is also a device to avoid responsibility. Once a public servant has moved to another position his successor can simply say “nothing to do with me guv. Now, let’s start from scratch”. It is also rare for a civil servant to be meaningfully disciplined once they have moved jobs.
Civil servants know this and it affects their behaviour for the worse while in a job because they know that if they make a horlicks of it, they will simply be moved elsewhere or even promoted to resolve an embarrassing situation. This reinforces the “culture of incompetence” . Keeping people in post for a reasonable length of time and holding them to account for error after they move would concentrate the minds of civil servants wonderfully.
In varying degrees, the defects of the Civil Service are found in public service generally.
Any large organisation requires periodic shaking. Small businesses rarely need it because they are always subject to the pressures of the market in a way that a large company is not. A large company has greater reserves both of capital and credit than a small concern and can weather economic storms more easily. The consequence is the gradual accretion of inefficiencies and costs. What applies to big business does so with greater force to government departments, which have even less external pressure on them to be efficient. However, the shaking should always be within the context of a public service ethos not a private business one.
17. What should public service workers be paid?
“Tube drivers, who now earn £31,300 for a 36-hour week, along with six weeks’ holiday a year, a final-salary pension and free travel for their families….The Tube drivers’ salary is almost twice as much as a nurse or an ambulance worker gets for working longer hours on more complex jobs. It is half as much again as a bus driver, who works 50 hours a week, a firefighter, who works a 42-hour week, or a police officer, who works a 40-hour week – each of them doing very stressful work for the payment they get.” ( The Evening Standard commenting on a prospective tube strike 02.10.02).
Driving an underground train on a partially automated system cannot realistically be considered as more skilled, dangerous and stressful than that of a firefighter. Most people would say the Tube driver had the easier job by far. But is the firefighter’s job more stressful than that of a bus driver who has day in day out to deal not merely with London traffic but in many cases has to take fares as well? And what of a nurse or ambulance crews? Is the emotional distress they suffer more of a burden than the fear a firefighter may feel when goinginto a fire? Going outside public service jobs, a trawlerman’s job is considerably more dangerous than that of a firefighter’s and the ordinary crew member will not earn as much as an Underground driver. In short, comparability is a minefield.
All our experience shows that “fair” job evaluation never works because no one engaged in the employment evaluated can ever objectively agree on their place in the job hierarchy. Hence, even where deals are struck, dissatisfaction soon breaks out again about “comparability”. As for the public, the pay and conditions arrangements of public service workers are generally so opaque that most people can make neither head nor tail of them. The result is an unstable situation which satisfies no one for long and leads to the general public having an unrealistic conception of what public employees earn, both by underestimating and overestimating pay.
Even in a society where there is a strong natural commitment to public provision, as was the case in the quarter century after WW2, the public servant has a vested interest in working to retain public confidence. Unless the taxpayers generally continue to think that the money being spent is worthwhile, there will come a time when a government will be elected, as happened in 1979, which will substantially reduce government expenditure and the opportunities for public service. Worse, circumstances can arise as they have done now, where not only the government but also the main opposition party are hostile to direct public provision. Therefore, it is especially important at the present time for public servants to persuade the public that they are both necessary and giving value for money. The best way of doing this is to arrive at a pay structure which is both simple for the public to understand and constructed in such a way to ensure that pay and conditions are adjusted automatically by reference to an objective standard to keep them in line with wages and conditions in private business.
What is needed are criteria based on broad similarities, which the general public can understand and support. Most jobs are much the same in terms of the general demands they make on people – stress, responsibility, intellectual effort and special knowledge or skill. Moreover, those jobs which demand more than the norm also fall into readily identifiable categories. (Anyone who doubts this should try an experiment. Produce a list of twelve disparate jobs of the same general status – all non-management or all management and so on – and which have no emotional plus or minus against them in the public mind – exclude nurses, estate agents etc. Then get people to assess their worth in terms of wages. Most people will judge the value of the jobs to be similar).
Public service jobs are even more readily categorised than the totality of occupations in a society because the range of work in public service is much more limited. In a way the civil service already recognises this because the standard civil service grades cover an immense variety of job titles. The civil service division of grades into administrative/executive/clerical provide a starting point for the broad criteria mentioned above. These could then be augmented with categories based on danger, stress, responsibility etc. If recruitment becomes a problem in a particular area, the problem can be solved byraising pay through re-grading.
The second problem with public pay is keeping it up to a realistic level. Previous attempts a pay formulae have not been linked to the average male wage and that has been the primary cause of their failure. It has meant that periodically public sector workers have fallen behind private sector workers as governments run into financial trouble.
What is required for all public service jobs is a formula which uses the average male worker’s earnings as a baseline, with the various public service grades being a percentage of the average male worker’s earnings – the percentage could be less or more than 100% depending on the grade of the job. Such a system would mean regular upgrading of pay and avoid the demands for very large percentage increases when pay falls behind.
Should pension entitlements, holiday entitlements and security of employment be taken into account when calculating public sector pay? Only to the extent that they differ from the arrangements of large private corporations. Historically large private companies have offered non-salary benefits very similar to that enjoyed by public servants. That is changing, in particular final salary pensions are rapidly becoming extinct in private business, and any grading of public service jobs should reflect any difference which arises between public and private in the future. However, care must be taken to avoid a situation where public servants cease seeing public service as a secure career. Most of what Government does benefits from having career employees because continuity is a great deal in administrative work, which forms the great bulk of public service employment.
The third major problem is national pay. This is perhaps the most sacred of cows of public service workers and unions, but there is no logic or fairness in such arrangements. If everyone in the NHS receives the same pay for the same job regardless of where they are living, there is in reality no national pay because of the considerable regional differences in cost of living. There are parts of the UK where, for example, teachers earn below substantially below the local average and others where they earn well above the local average. Hence, we have regional pay but quite perniciously the lowest pay is paid in the highest cost areas. The consequence is that there are often staff shortages in the higher cost of living areas and the quality of staff employed in such areas may be below the standard required simply because no one else can be recruited at the pay levels. The answer is to introduce regional RPIs (Retail Price Indices) – which would include housing costs – and vary wages according to those.
Regional RPIs would solve much of the present difficulty for public service workers in high cost areas. It would not be politically possible to reduce the pay of existing employees, but it could be held static in the lowest cost areas and differential increases given in other areas until regional pay was established. For example, suppose area A is the cheapest area and area Z is the most expensive. Area A gets no increase until its pay level reaches that which matches its Regional RPI, while Area Z immediately gets an increase which raises its pay level to that required by its Regional RPI. Ditto for all areas between A and Z. If their pay is beyond that required by their regional RPI, it remains pegged until pay and cost of living equalise: if below their Regional RPI, they get a rise to match it. As time goes on, the higher pay of the higher cost areas will be balanced by the lower pay of the lower cost areas. There would be no massive extra ongoing expenditure as eventually the lower and higher pay levels would broadly cancel each other out. However, there would be an initial cost because no one will have their pay immediately reduced while some will have it increased substantially. [RH 2012: although I am still in favour of regional pay, this is something which should be accomplished in good economic times not the times we have now. That is because some areas are much more dependent on public sector jobs than others, something which affects the economy of the area generally. Even though the reduction in money would be gradual under my scheme it might still in present circumstances be the straw which breaks the camel’s back in areas struggling to move out of recession.]
Much of the problem of regional cost variations could be obviated if the cost of housing was substantially reduced. Government can take the lead by making more housing available in the areas in which it is scarce – see section for detailed suggestions. In particular, a ready supply of housing both to let and buy at reasonable prices would largely overcome the problem of the young who have yet to buy. A middle-aged person who brought their home 20 years before requires far less to live comfortably than someone trying to buy their first property. The latter have near insuperable problems in many places.For example, in inner London, an income of £50,000 would not be enough to buy the most basic family home because a three bedroom property would be in excess of £300,000 in even the cheapest areas.
The cost of any re-grading could also be offset by reducing the numbers of public servants in some areas. This would naturally meet with resistance from public servants, but if it is done without compulsory redundancies – and it could be – the objection to it is not strong. Staff can be redeployed to other posts and new recruitment to the remaining departments reduced to accommodate them. Attention has to be paid to the age structure of a workforce – no large organisation wantsto find itself in the position of having a sizeable proportion of its staff retiring at the same time – but with an employer as large and diverse as the Government, this should not be an insuperable problem.
Why not simply have wages set by what the market will bear in any particular place? If there is a shortage of nurses in London why not pay them £30,000 if that is what it takes, but only £10,000 if that is a competitive wage in, say, Cornwall? That begs the question of the quality of the recruits you attract and their long term retention. You may get enough recruits at the low rate but they may be of poor quality. There is also the question of motivation once employed. Poor motivation equals less efficient working. Pay should be high enough to avoid those two evils. If higher wages produce greater motivation and ability in the staff employed, the number of staff could be reduced.
The great advantage of adopting a system of broad definitions – tying pay to the average full time wage and Regional RPIs – is that it would be both stable and largely self adjusting. Problems could arise where recruitment becomes an issue. Then, as mentioned above, re-grading might have to occur to raise pay in a particular area of work or region.
All the Public Service Unions and many public servants will instinctively reject what I have suggested because such things as national pay scales and the preservation of jobs are part of the emotional scenery in public service. But public servants do not have a right to determine how many people will be employed by the Government and they should always remember that a public servant must have a necessary and useful function to maintain public support.
What public servants do have is a right to a decent living wage for what they do and to reasonable working conditions which includes the assured opportunity for a career and staffing adequate to carry out the tasks Government sets them. If they start from those two premises they have a much greater chance of achieving their ends than they have in merely maintaining the status quo.
Above all, it should never be forgotten by the public servant that the taxpayer is the paymaster for all government spending. A statement of the blindingly obvious perhaps, but one which tends to be glossed over by governments who speak as though they are spending their own money when they talk of “an extra £3 billion for the NHS” or “£200 million to take crime off the streets”. Public money is not unlimited nor is the level of public spending without consequences for the general economic health of the country.
Most public servants know that there are pluses and minuses in public service and that moving to private employment has its disadvantages as well as being very difficult in areas where private businesses are not thick on the ground. There is also the example of public sector employees who have had their jobs privatised. They have frequently found that their new conditions of work are inferior to those they enjoyed when in public service. Public servants also know in their heart of hearts that security of employment is still considerably greater in public service than in private business. Consequently, the government has a strong card to play if they choose to play it, namely, continued security of employment in return for the radical changes described above.
18. The right to strike
Some public service workers do not have the right to strike – the police and the armed forces. Is it unreasonable to deny them this right? I think most people – myself amongst them – would say no. They would see that the right to strike has to be balanced against the public good of having the streets policed and soldiers,sailors and airmen who will be unquestionably available to provide national defence and to attend to national emergencies.
If we decide as a society that the police and servicemen cannot strike, there is no reason in principle why the removal of the right to strike cannot be more widely extended for we have already decided it is not an absolute right. The question is how far to extend the denial of the right.
There is a case for a general ban on striking by public service workers because they are funded by the taxpayer and ultimately responsible to the taxpayer or at least the electorate. But before any such ban could be reasonably considered the general pay and employment conditions must be made fair and secure in the manner described in the previous section – their pay and conditions would have to be such that the majority of the population would think them reasonable. That would leave the problem of union action over unfair dismissal or other disciplinary action, but it is difficult for a union to argue that there is not adequate recourse through Employment Tribunals or, if the union wishes to fund a case brought by one of their members, through the courts.
If a general ban is thought too severe, there is good reason to ban strikes in those organisations which provide services which are both vital and immediately necessary. It would be difficult to argue that all-out strikes by NHS staff or firemen would cause less public damage and chaos than strikes by the police or servicemen.
Because of privatisation there are also private companies whose employees in principle need to be banned from striking, particularly the utilities such as gas, water and electricity. That raises another objection to the placing of utilities in private hands: it makes action such as ruling strikes illegal for certain workers very difficult, even impossible in practice. The utilities being private companies, governments cannot control their wages and conditions of employment as they can those of public bodies. Or rather, they could do so, but then they would be taking so much of the control of a fundamental part of a private business out of its management’s hands (this would be in addition to the areas already covered by the various utility regulators) that two questions would arise: (1) could any private company operate under such constraints? and (2) if a company has to be so constrained by government, what is the point of it being a private company? The answer to (1) is probably no and to ((2) no point.
19. The ability of private companies to manage public services
Take the case of the NHS. It is the largest employer in Europe, employing not far short of a million people. No private company has any experience of managing an organisation anything like that size. In fact, very few private companies have any experience of managing a workforce of even 20,000. A fair number of Government departments and agencies are considerably larger than the 20,000 employee business. On the grounds of size alone the transfer of large scale public service activities to private sector control is problematic because the private sector simply does not have that many people with experience of running such large concerns.
An even more fundamental difficulty is the fact that much public service work is specific to public service. The administration of complex legislation and rules present an employee with a far higher learning curve (for even rank and file staff) than would be found in the vast majority of similar level private sector posts. To this is added the need to keep up with the ever more frequent changes created by government to the law (this is partly driven by the innumerable EU directives). Consequently it is not a simple matter to substitute private sector workers for public sector workers because the private sector workers have to be trained from scratch.
Of course, when public sector work is shifted to the private sector public sector staff often move to the private employer. But private companies are profit driven and when moving into public sector work almost always seek to maximise profits by severely cutting staff. This both reduces the number of experienced staff and frequently demoralizes those who remain because they have an ever increasing burden. This in turn leads to many of the experienced staff leaving and the expertise available to the employer to continually diminish.
20. Private money in public projects – “Buy now, pay later”
The introduction of private money into public projects, whether under the title of the Public Private Partnership or its successor the Private Finance Initiative, is a fraud on the public. As Hire Purchase used to be advertised in my youth, it is “Buy now, pay later”. Private companies put up the money for, say, a hospital, build it and then lease it back to the NHS.. The taxpayer then pays through the nose for twenty or thirty years as the lease is serviced. For example, Tory health spokesman Andrew Lansley has just elicited the truth from the Government about the cost of the new hospitals built under PFI. For hospitals worth £8 billion the taxpayer will pay the private sector companies responsible for them a total of £53 billion over thirty years, a return on capital of 540% (Daily Telegraph 27 10 2006).
The honest way for Governments to finance projects is to raise taxes or increase the national debt. Then the public can see clearly what is being done and judge the cost. With PFI and its ilk, the cost does not appear as government spending immediately. It is “Enron accounting”, the removal of expenditure from the balance sheet for the present but not the future. The expenditure only appears gradually as the debt is met by charging the government for the services provided or alternatively by charging the customer directly. For example, if toll roads are built and/or maintained by private capital, the contractors could charge the motorist directly to recoup their costs.
But the deceit goes beyond the hidden deferral of expenditure. Much of the detail of the contracts made with private companies is not being made available to the public on the spurious grounds of “commercial confidentiality”. Even the Government has had to admit that the cost of PPP and PFI projects will be considerably more than if they were undertaken directly by the Government using taxpayers’ money. The deputy Prime Minister, John Prescott, made such an admission in his speech to the 2002 Labour Party Conference. What we cannot be sure of, because of the lack of public openness in revealing the contracts, is how much more expensive PFI and its ilk will be. What we can be sure of is that the difference is likely to be considerable.
The Government’s justification for paying over the odds is that it allows things to be provided quickly rather than having to wait for the money for direct public funding to become available. As more public money will have to be found in the future to fund PFI projects set in train now, the consequence will be much less money for public provision when the PFI bills come in. Therefore, at best, future generations will be paying more in tax for less in public services. The real justification for PFI is of course that it allows a government to claim credit for what is provided now in the knowledge that when the bills come in the people making the decisions cannot be held responsible.
Many of the contracts being granted to private companies are for periods of 15, 20 even 30 years. The life of a politician in government is short on average, either because of election defeats or sacking by the PM of the day. Five continuous years as a cabinet minister is good going. In the vast majority of cases the politicians who made the decision to go ahead with PFI will be out of office not merely long before the final bills are paid but in all probability by the next Parliament after a contract is signed. Once out of office, they can ignore any problem which arises and the sad truth of the matter is that nothing can be done to make them take responsibility for their decisions as things stand. At worst, all that will happen is the electorate in a constituency throwing them out at the next election, which for an ex-minister is no great loss. It should be added that it rarely happens that an individual MP is thrown out by the electorate for his or her personal failings because the power of party label is too great.
Why are private finance schemes so much more expensive? They have to make a profit of course but there are other reasons. The private concerns financing the projects have to borrow money at a higher rate of interest than the Government can, perhaps 1-2% more. That is because the risk is greater for the lender . The borrower has to make a profit on the borrowed money so he must charge more than he is paying for the money to finance the scheme. That is the obvious extra cost. But there are many hidden additional costs.
Most problematic is the fact that private business will not accept all risks. For example, the company bidding for the Tube maintenance contract will not accept the financial risk of tunnels under the Thames being flooded. The consequence of this is that contracts exclude the really high risks. The Government has to cover them. So it ends up with both the major risk and paying more for the construction work.
The actual position is even worse than that. Private companies may accept risks and obligations in their contracts which they simply cannot meet. The Government is then forced to step in. Thus the Government in practice underwrites the whole business, either officially or unofficially.
Much of what is happening is a halfway house to public disengagement. Hospitals can be granted “Foundation Status”. This allows them to raise whatever money they can on the private market on terms they decide upon with the lenders. That in turn implies that they may l have to start charging for services if Britain’s economic circumstances alter seriously for the worse – thus reducing tax revenue – or a government’s attitude to the NHS changes. . The difference between an unambiguously privatised NHS and what is likely to occur some years down the line is very narrow. And, of course, the closer the situation gets to full privatisation, the more probable will become full privatisation, because the financial structures required for it will exist and the moral argument against it will have largely eroded by the failure to stoutly defend the principle of public service.
21. The London Underground – PPP in action
Christian Wolmar’s book “Down the Tube – the battle for London’s Underground” points the way to the shape of public/private things to come. It is a truly depressing future.
Ignoring the shambles which are our privatised railways, the Labour Government has forced a PPP on the London nderground, one of the largest Metro systems in the world and a transport conduit absolutely necessary to London’s functioning, carrying as it does millions of people a day. They have added insult to injury by retaining the running of the trains in public hands while putting the maintenance of the infrastructure – track, stations, signalling etc – in the hands of private companies. The fact that it is the maintenance of the infrastructure which has caused the most serious of the problems in the privatised overground railways has simply been ignored.
This PPP has just about every flaw that one could imagine. The contract is very long – 30 years. Even if everything goes to plan, the cost to the public is unknown. Right from the start the taxpayer will be paying a subsidy to the private consortium of œ1 billion a year, despite assurances originally that no subsidies would be paid. Worse, even the Government admits that it does know what level of subsidy will be required throughout the 30 years of the contract. Nor can it give any figure of cost to the taxpayer if the PPP fails, that I, the private companies either liquidate or walk away.
“Walk away?” do you say? But surely the companies have accepted the risk and are legally liable for any failure to meet performance targetsor for any catastrophic events such as flooding of the tunnels under the Thames? Actually, no. Their liability for cost overruns is capped, more or less, at £50 million for each quarter of the 30 year deal and they have written into the contracts a disclaimer for events such as flooding. If the private companies really run into trouble, the taxpayer takes over responsibility for 95% of the loans taken out by the private companies.
Then there is their profitability. The private companies have a “guaranteed” rate of return on capital of almost 20%, a return twice that considered to be a good commercial profit.
On top of all that cost and potential risk to the taxpayer, there will be a truly daunting administrative burden. The contracts to set up the PPP run to some two million words. Responsibility is diffuse and the criteria for assessing the performance of the private companies opaque. The PPP will require a large additional bureaucracy just to oversee the workings of the contracts and the inevitable disputes between the private companies and the public body as to interpretation of the contracts will be a bonanza for the lawyers.
We already have a great deal of evidence of the effects of private enterprise on public services. The results generally have been less than sparkling. Remember the Criminal Records Bureau fiasco of September 2002 when schools were prevented from opening for the new term because those working in the schools had not been vetted for criminal convictions in time? Or how about the Individual Learning Accounts scheme which resulted in a loss of at least tens of millions of pounds in the past few years? If you are a resident of the London Borough of Lambeth you may recall housing benefit being so badly run by a private company that it was rapidly returned to the control of the council. Or how about the maladroit administration of the London Congestion charge which makes London drivers’ lives a misery? All these are examples of a private company taking over the administration of public matters and making a pig’s ear of things.
More worryingly, they were all the responsibility of a firm called Capita. I say worryingly, because Capita, far from being shut out from other public contracts, is positively cornering the market for such business. In addition to the contracts mentioned above, Capita collects the BBC’s licence fee. It also runs the written part of the Diving Test in parts of the country. The “Connexions” card being promoted to schoolchildren by the Government, a Trojan Horse for a general ID card, is run by Capita, who also supply management software to 23,000 UK schools. Capita even have the contract to run the pension scheme of the Inland Revenue.
Had Capita proven itself to be a model of competence, such a concentration of work in one company would be disturbing for it suggests at best that the competition for these contracts is extremely limited. It would be interesting to know who else tendered and what the tendering process was. But even if these details were made public, the old cry of “commercial confidentiality” would almost certainly prevent any meaningful public examination of the merits of the various tenders.
Capita is far from being the only company rewarded with new contracts despite clear evidence of incompetence . The people who brought you the Railtrack maintenance fiasco, Jarvis, have just been awarded the contract to build a new surgical and heart care unit for an NHS hospital in London, the Whittington at Archway.
There are two possible reasons why poor performance does not disqualify a company from future contracts. The first is structural. Many of the contracts being offered are of a size and complexity to reduce the number of realistic bidders to at best a few and at worst one. Thus the idea that private input into public business will ever generally equal greater efficiency is doomed. All that has been created is a form of public/private monopoly.
The other possible reason for continued contract winning regardless of performance is corruption. That is not to suggest that corruption has occurred to date, merely that the possibility exists. It deserves a section to itself (see section 27) .
A company bidding for public contracts may well quote a price which is simply too low to maintain performance. They may deliberately bid too low. Having gained the contract, the company confronts the Government with a claim that they can only make a profit (or even break even) unless they reduce the service from that for which they have contracted or receive more favourable payment terms. The government is then left with a decision: can they afford to drop the contractor? Is there another contractor which could take over? The answer to both questions is almost certainly no.
23. The morality of privatisation
Does a British government have the right to sell off industries and property owned by the state? In Britain the answer legally is yes. Barring restrictions agreed to in treaties, most particularly the Treaty of Rome and its successor treaties, a British government may legally do what it wishes. It may also repudiate existing treaty obligations. Parliament may in principle pass any law it wishes. That demonstrates the danger of having a political system without any constitutional bars to government action.
But if privatisation is legal, it does not follow that it is morally justified. These are enterprises and property which were either developed from scratch by government or were taken over by the state, often from municipal undertakings which were public developments in themselves. In each case taxpayers’ money was used to either start or acquire them. For Britons who bought shares privatisation was a form of taxation. They paid money for that which the state already held on their behalf. Non-British taxpayers purchased that which was not morally the State’s to sell. But the deceit went beyond this. By selling that which was held in common for the British, they robbed those Britons who did not purchase shares and the future generations who would have no stake in that which was sold before they were born.
Privatisation could perhaps have been morally justified if every British citizen had been issued free shares in each privatized industry, which they could then have held or sold as they chose. The Government would not then have had the proceeds, of course, but it should be remembered that the prime reason given by Margaret Thatcher for privatisation was that it would modernise great British industries through the invigorating blast of free enterprise. Ostensibly at least the raising of money for the government was not the prime motivation.
The money received from privatisation has simply vanished into general government expenditure. Had the money been earmarked for particular projects dear to the public’s heart, such as new hospitals and schools or placed in a separate fund to help pay the state pension in the years when it is anticipated that those working will substantially decline in relation to those who are retired, at least the public would have something concrete and identifiable to set against the loss of public assets. As it is the public as a whole has nothing.
It is of course impossible to prove whether taxes would have been higher or that government expenditure would have been lower if there had been no privatisation proceeds, but it is a fair bet that extra money in government coffers has simply meant additional government expenditure without a proper regard to whether the expenditure was warranted. That is the common experience of governments and public money.
The money obtained through privatisation should not be viewed as pure gain in terms of government expenditure. Privatisation has caused agreat deal of what private business euphemistically call “downsizing”. The resultant unemployment costs – unemployment pay and other benefits – have to be set against the privatisation receipts. In addition, a large proportion of those who have gained alternative employment have found themselves earning a good deal less than they did previously. That equals less tax paid.
24. Our general experience of privatisation to date
The prime problems with privatisation are (1) the provision declines,(2) the taxpayer has to pick up the bill when things go seriously wrong and (3) privatised industries are often left in a situation of naturally restricted competition.
The best example of what happens when the state simply opens up amarket to private interests is probably bus deregulation. This happenedin the mid-eighties. The consequence has been predictable and devastating, with the countryside being virtually denuded of buses and even the big cities apart from London – where a massive public subsidy has continued – have experienced a decline in services as bus operators concentrate on only the most profitable routes. In addition, on the profitable routes, there are so many competing buses that the buses themselves can become a cause of congestion themselves – Manchester is a good example of this phenomenon.
The railways are the most disturbing example of cost to the taxpayer after privatisation. Not only has the taxpayer paid larger subsidies to the rail companies since privatisation than were paid to nationalised British Rail, and absurdity in itself, several billions of taxpayers money have been required to rescue the company responsible for maintaining the track and associated equipment, Railtrack, after it became insolvent and was put into administration. (The company has now been reborn as a strange hybrid creature, anon-profit making company called Network Rail.)
Another example is the immediate difficulty suffered by the National Air Traffic service (NATs) after partial privatisation in 2002. The new company had barely started trading before the Government had to extend a £30 million loan to it.
As for competition, the government appointed regulators are supposed to remove the natural abuses of restricted competition by controlling prices. Whether it is possible for even a genuinely disinterested person to determine objectively what a reasonable or efficient price for a product or service is in such circumstances is dubious, because what constitutes legitimate profit, the right level of investment or the desirable level of service to be offered are ultimately matters of opinion.
But these problems of definition are in practice redundant, because regulators are subject to pressures from politicians, the public, the industry they regulate and business in general. The result is that pricing frequently bears little relationship to any considered view of what is necessary, but is variously a response to what the government wants, a reaction to higher than anticipated profits being made by the regulated industry or threats from the private companies of dire consequences if prices are not raised.
What are the unambiguous successes of privatisation? Telephones, perhaps, most older people would probably say as they remember the absurdly long wait for a new line and the complete lack of choice of phone in the days of the nationalised British Telecom. Beyond telephones, it is difficult to see any privatisation in which the balance of advantage has been clearly in the country’s or the individual’s favour. The railways have been an unmitigated disaster, basic industries such as coal and steel have either collapsed or effectively been exported – with a massive loss of jobs inducing structural employment in places. The gas and electricity companies produced cheap power for a while but that was largely the result of Britain’s because of North Sea gas. When that self-sufficiency began to wane energy prices rose dramatically. In the case of water, prices have risen substantially since privatisation while shortages have grown and customers are now facing the prospect of compulsory water metering – some areas already have it. Investment has been inadequate – for example, no new reservoir has been built to serve the water starved SE of England since the privatisation of the nationalised water utility – and service, especially on the maintenance side, is widely perceived to have declined because of the dramatic cuts in the workforce.
Even in the case of telecommunications the picture is blurred. Nationalised British Telecom might have been a something of a disaster on the marketing and customer front, but it did ensure that coverage with landlines was near universal in Britain, something which would have been impossible had their provision been left to the market – how many private companies would have laid and maintained lines to small villages or even small, isolated towns? So when BT was privatised it started with the immense advantage of a near universal infrastructure which existed because of public provision.
But the rise of the mobile phone has made any proper comparison between the pre and post privatised situation virtually impossible. Even if BT had never been privatised and the landline phone market had remained a monopoly, they would still have had to face private competition from mobiles. In other words, privatisation in that case largely pre-empted what would have happened naturally.
25. Private money in public service = a democratic deficit
The employment of private companies to carry out public tasks necessarily involves heavyweight contracts between the companies and the Government. These invariably carry a large compensation provision in the event of a government or a lesser political authority such as a Borough council deciding that it does not wish to honour a contract to its end. If they did not carry such compensation provision no private company would accept the contract.
The practical effect of such contracts is to create a democratic deficit. Because the compensation to be paid is very substantial, politicians are understandably reluctant to cancel contracts. Consequently, it becomes very difficult for a party to change a policy if it involves the cancellation of a contract. A first rate example is the introduction of the Congestion Charge in London by the Mayor of London , Ken Livingston. In the next mayoral election his principal rival, the Tory Steve Norris, promised to abolish the charge. It is dubious whether he could have done so if he had won because, according to Livingstone, £80 million in compensation would have had to be paid to Capita.
If an enterprise is run directly by public servants, it is in principle much easier to change policy because there are no contracts which require compensation if they are cancelled.
26. When private becomes public by default
Any really large private company by virtue of its size takes on aspects of the public. It does this because it becomes too important to be ignored by Government. If Barclays Bank was in danger of going bust no British Government could allow it to liquidate because of the effect on general confidence, both national and international, in the British economy. To confidence may be added cases where very large job losses would result from a liquidation or a vital domestic industry would be severely damaged by a company’s failure.
The implications of this for government are clear: they cannot simply stand back and ignore the behaviour of large private companies. That means governments should recognise that they may need to act to protect domestic industries – even in rare cases taking them over – and, where there is a strategic interest such as arises with a major domestic defence supplier, to place legal restrictions on what the company can do, for example by requiring export licences for weapons.
27. Corruption in Public Service
In modern times the British Civil Service has been remarkably free from corruption (local government is a different matter), a fact made all the more surprising because of the truly colossal amount of money it disposes of each year – government spending for the financial year 2006/7 will be around £500 billion. There are two reasons for this. The first is the hard-won tradition of public service which in which the Civil Service as an apolitical institution and as such serves no political ideology or party but provides politicians of all stamps with disinterested advice and executes their policies. This tradition has been underpinned by the lifelong working careers which public servants, especially senior ones, have commonly had. Of course, that was merely the ideal and, as with any human institution, the reality fell some way short of the ideal. Nonetheless, such sentiments and conventions have affected the behaviour of public servants for the better, especially in the area of honesty.
The second reason for a lack of corruption has been the direct provision of most the services provided by central government. This has meant that the number of large central government contracts offered to private business has been small in relation to the money spent on the direct provision of public service in all its aspects. In such circumstances serious fraud becomes difficult going on impossible for most civil servants because they do not have access to large amounts of taxpayers’ money. (Where they do have access, for example in the Inland Revenue, in most instances there are strict accounting procedures which make the embezzlement of large amounts of cash extremely difficult). Moreover, where there are few government contracts, most civil servants are not in a position where someone would find it fruitful to bribe them because they have nothing to sell.
Unsurprisingly, where serious corruption amongst public servants employed by central government has occurred in the past, it has been overwhelmingly in those areas where large government contracts exist, most notably in Defence Procurement and building contracts. It is a reasonable assumption that the more public contracts offered to private companies, the greater the corruption will be simply because the opportunity for corruption increases.
The Thatcher and Major Governments began the attack on these two anti-corruption pillars of public service – the public service tradition and direct provision – by appointing people from outside the civil service to senior posts within the civil service, introducing private enterprise culture to public bodies (for example, the NHS “single market”), privatisation and by increasing the use of private finance and contractors in public services. But what they did pales before the Blair Government’s behaviour, which has done the same things but on a much greater scale. In particular Blair’s Government has shown a truly obsessive drive to replace direct public provision with private money and private firms. Literally nothing seems to be off limits, with public provision as disparate as the Prison Service and logistical support for the NHS being treated as suitable.
The Blair Government has also done two things the Thatcher and Major Governments did not do. First, it has radically altered the terms of employment of new civil servants, especially with regard to their retirement age and pensions, thus undermining the unspoken pact between government and civil servants that relatively poor pay was balanced by a relatively generous pension. Second, the Blair Government has classified “special advisers” that is political advisors, as civil servants, the most notable of whom is Blair’s erstwhile Press Spokesman, Alistair Campbell. These people have been given authority over career civil servants.
All this change is undermining the British public service culture. The appointment of special advisors as civil servants is destroying the apolitical nature of the civil service. The idea of a career civil servant is falling into disuse because no one can be sure what is next to be privatised or where a department may be moved to. The morale of civil servants is generally depressed. All of that translates into less commitment to the job, on average less time in a job and probably the employment of fewer able and trustworthy people as civil servants because the more able and trustworthy are now less willing to come into public service and standards have had to be lowered to recruit sufficient staff.
The weakening of the public service ethos and the probable lowering of the quality of the people employed is likely to have increased the number of civil servants willing to behave corruptly if the opportunity arises is increasing at the very time that the opportunities for corruption are multiplying because of the large number of private companies being given government contracts. Put those two circumstances together and it is odds on that civil service corruption has increased substantially.
What is applicable to national politicians and civil servants applies to other public servants, at both the national and local government level, and politicians below the national level.
In theory competitive tendering for public contracts should be a guard against corrupt practices. The problem is that in most instances the number of firms tendering will be small. Quite often there will be only two bidders. On occasion the process lapses into farce and only one firm will bid. This happened in the London borough of Camden where a £62.5 million contract for renovating an estate called Chalcots attracted only one bidder, a consortium going under the name of United House. The council’s housing director Neil Litherland claimed bizarrely that talking to just one bidder would lead to “better uses of [council] resources by reducing the negotiation and evaluation period” (Camden New Journal 12 12 2002).
There are good reasons why the number of bidders is often small. First, the size of the operations and their frequently unusual nature (often there is no comparable private sector work) means that there will only be a few private companies able to plausibly bid for a contract. Second, the bidding process is very expensive both in terms of money and time, especially management time. These two entirely rational and legitimate reasons for a paucity of bidders build great opportunities for corruption into the system of bidding. Where there are, say, only four companies capable of undertaking work in a particular area such as social housing, they can act as a cartel and effectively deal out public contracts amongst themselves by agreeing who will put in the highest bid for any contract.
Corruption is more than people receiving money in brown envelopes or material benefits in kind such as expensive holidays. It is also the granting of jobs years down the line, directorships for politicians and civil servants who have controlled the granting of Government contracts or who have used their influence to progress things such as planning applications.
The current rules regarding ministers and public servants taking posts in private industry are so lax as to be next to meaningless – they can take up posts after a year or two, regardless of how closely the private sector job is linked to their previous post. Moreover, the definition of which private industry posts are sensitive enough to demand even that slight obeisance to common decency is open to an elastic interpretation by those supposedly enforcing the rules if the secret view of politicians and senior public servants is that the rules are simply a public fig-leaf to cover their indecency. In effect, successive governments have legalised corruption and of course the more government contracts offered to private business the more opportunity there is for this type of “legalised” corruption.
Corruption can also be the giving of an honour or public service appointment in return for corrupt behaviour. For example, a contract could be granted to a private contractor corruptly through a conspiracy between the contractor, a cabinet minister and a senior public servant near retirement. The public servant corruptly facilitates the granting of the contract, retires and is rewarded with a quango sinecure. Again, the increase in contracts offers greater scope for such corruption.
That which is corrupting national politicians and the Civil Service is also evident in other public bodies, both national and local.
28. The behaviour of private companies
The blurring of lines between the public and the private arguably has a general effect for the worse on the behaviour of those in the public sphere, the bad practices of private enterprise being imported into the public sphere.
Private business is very prone to corrupt practices, from outright bribery to the formation of cartels and tricks such as industrial espionage, but the legal behaviour of private companies is frequently morally scandalous.
Directors of even the largest and ostensibly most publicly accountable companies commonly act in a manner which to most people’s minds is immoral. The executive directors have absurdly generous and long-term contracts which are so undemanding that no matter how badly a director performs, if they leave the board they can expect the outstanding period of the contract to be paid in full. In many cases they receive more than their contract entitlement to persuade them to resign and go quietly.
While on a board, they executive directors receive performance bonuses set at targets which are simple to achieve. They will probably have share options which, even if accounts are honest, are a one way bet for the director. If the shares rise above the discounted price of the option, the directors sell and pocket the profit. If the shares fall below the discounted price, they simply do not buy. It is of course easy enough to manipulate shares to boost their price at a particular time.
Why do directors get away with such behaviour? Simple: they can effectively control the company for their own purposes. In large public companies, directors’ remuneration is normally decided by a remuneration committee, which is normally composed of non-executive directors. Non-execs are supposed to act as a restraint and a check on executive directors. In practice they do not – try to find a case where a non-exec has blown the whistle on even criminal action within a large company. When it comes to directors’ remuneration, they know the score, produce the right executive director contracts or run the risk of being excluded from the lucrative non-exec gravy train.
The matter is complicated by the fact that many non-execs are executive directors with other companies where they have overly-generous contracts. What more natural than to think that because I earn this someone in another company should be similarly paid? Finally, especially in the largest companies, there is also a good deal of you-scratch-my-back-and-I’ll-scratch-yours. Executive directors of one company will expect to be non-execs of companies in which their non-execs have an interest.
Most of these practices cannot of course be imported directly into public service – inflated salaries, perks, bonuses paid on soft targets and generally overly favourable contracts are three which can and have been imported, for example, Johnston McNeil, the former head of the Rural Payments Agency, left his post after farm payments to English farmers were left in chaos early in 2006 but is still being paid his £114,000 salary in October 2006 (Daily Telegraph 18 10 2006). But the mentality rubs off on public servants (particularly the senior ones) who now deal with private business far more often that they use to and are urged by government to follow supposedly superior private enterprise practices. Sometimes the values are directly imported by the parachuting of people from outside of public service into senior public service positions. Where some part of public provision is subcontracted to a private contractor the ills of private business are imported wholesale.
Most people when faced with the word charity attached to an institution are inclined to be well disposed to the organisation regardless of what the charity is supposed to do or how efficiently it does it. If it is a popular area of work, such as medical research or the provision of services to disabled children, rationality goes out of the window. Hardly anyone questions how the money is spent or how much of it actually goes to the people the charity are supposedly helping. Nor do people distinguish between the sources of charitable income and many perhaps most are unaware that much of it is public money. This means that governments can support unpopular policies, such as those associated with political correctness, without the general public being aware that public money is being used to promote the policies.
The use of charities by politicians has other pernicious effects. It allows a government to evade responsibility even more effectively than the employment of private companies does because charities, especially popular ones, throw up a moral shield. As mentioned above people feel that money spent by a charity is a good in itself. That applies even when it is taxpayers’ money. A government can also make charitable donation part of their PR because they can gain kudos from the public by publicising their donations of taxpayers’ money to popular charities.
There is general objection to the use of charities as publicly funded providers. They have a moral and civic role. The whole point of a charity is that it is the product of the individual will, a conglomeration of the active decisions of those who choose to make a contribution. It is part of what academics like to call civil society, those institutions which men naturally form in a free society and which fall outside the ambit of the state. Lose or even seriously diminish those institutions and the state determines all, for there is nothing to oppose it or offer an alternative.
Making a charity simply or largely a client of government undermines the very idea of charity. There is every chance that if charities are seen as arms of government, private donations to them will begin to dry up. That in turn would have spending implications for the taxpayer, because although often inefficient, charities do fund a considerable amount of what would otherwise be described as public provision. The taxpayer would end up footing the bill for extra public provision. State funding also makes charities forget their original role and become dependent on the state funding.
Government already channels gigantic wads of public money to charities for the purposes of research and active provision of services. This fits in with the drive to subcontract public provision which is now officially supported by not only the Labour Party and Tories but half-heartedly by the LibDems. Whoever is in power for the foreseeable future, it is a fair bet that the relationship between charities and the Government will broaden and deepen. That will remove charities ever further from their original moral purpose.
Charities also epitomise the practical difficulties of mixing private and public. It is true that as non-profit making bodies they share some of the ethos of public service and the profit motive is absent. The problem is that charities, even large ones, are often very inefficient. The poorly run ones spend a great deal on administration. Many of the largest use professional fund raisers who take between 15-50% of what they collect from the public (the young men and women who increasingly infest our pavements on behalf of charities are paid employees of a professional fund raiser). They spend inordinate amounts on advertising. They hoard money rather than spend it. They manage their money poorly. They fail to modernise their service. Their accounts are inadequate.
Take the case of Scope, the charity previously known as the Spastics Society, which aids those with cerebral palsy. It is a mainstream charity of just the sort to attract public sympathy in large measure. The first thing to note is that it changed its name in 1994 from something everyone could immediately understand – the Spastics Society – to something which most people would not have a clue about. The charity had allowed itself to be seduced by the marketing sirens. It is difficult to imagine this confusion did not have some effect on fundraising.
In January 2006 Scope announced it was shutting 50 of its shops because it had a predicted £310 million deficit. (Daily Telegraph 13/01/2006). The Telegraph account went on to disclose that Scope’s last accounts showed that it was budgeting to spend £35.6 million more than it received in the financial year 2006/7, that there was a hole in its pension fund and that its buildings suffer widespread dilapidation through lack of investment. I think most people who think about it would be somewhat disturbed by the idea that a charity had a pension fund of any size and that a substantial part of their donations are going to fund it. Charities in the public mind are thought of as institutions where people offer their services either free or at a discounted rate. The idea that their paid employees are just like any other employee does not fit comfortably with the public’s idea of charity.
One of the directors of Scope Jan Hildreth (also a former director-general of the Institute of Directors summed up the mentality of his and many other charities: “Like many charities, the concern of the society has always been its activity and not its finances.”
Interestingly, Scope blamed part of its plight on ‘the Government for underfunding services it provides, such as residential and school places. “It wants our services, but it doesn’t want to pay for them,” the spokesman said. “This is a drain on our coffers.” ‘
The idea that charities will generally be more efficient than direct public provision is simply laughable. Not only do they suffer from the structural ills of public service they lack any proper public accountability. Charities are audited each year, but that audit is much less demanding than the audit required of large public companies. Moreover, their frequent failure to keep adequate records makes any audit of the use of public money very difficult. It would also be a very expensive job to monitor their spending of public money meaningfully.
As the Scope complaint quoted above suggests, governments may also see charities as a cheap means of public provision. Whether it is or not is another matter – personally I would doubt it because of the widespread incompetence in the charity world.
There is a further problem wih charities, namely what is a legitimate charity? Take our public schools. They are overwhelmingly charities. They also have in most cases a history of one hundred years or more. This means that the profit motive is absent and a quasi public-service (civil society) ethos has had time to evolve. Yet public schools – which get around £100 million tax relief – have always subsidised the education of the poorer middleclass children rather than the education of the truly poor. Why should they have status of a charity?
There are also many questionable cases where the charity exists to fund something which is essentially, even in principle, a private or sectional interest, for example the Royal Society for the Protection of Birds. Why should the taxpayer subsidise such institutions?
[RH in 2012 There are more than 200,000 charities in the UK. Does anyone honestly believe that there can possibly be that number of good causes? http://www.ncvo-vol.org.uk/networking-discussions/blogs/116/09/10/06/how-many-charities-are-there. Many disburse little of the money collected or, in quite a few cases nothing, to the causes they ostensibly support. Quite a few are set up by the wealthy who gain tax relief on donations to their charity and then use the money donated to finance their pet projects and/or draw substantial payments in the guise of expenses or pass on some material benefit to friends and relations by getting the charity to employ them].
30. Does market competition produce greater choice generally?
One of the prime arguments for introducing business practices, private money and private business into public provision is that it improves choice. British citizens, increasingly referred to as consumers or customers rather than patients, passengers or any other appellation which emphasises the public nature of the provision, supposedly want choices of schools for their children and to go to the “best” hospital or to enjoy the “superior” service coming from private companies with public provision contracts such as those running the railways or utilities such as water or gas.
Take the case of the privatised railways. Before privatisation all a passenger had to do was buy a ticket and get on a train. The only thing the passenger had to consider was whether there was a time or date restriction on the ticket. Now, the passenger has to not merely worry about time and date, but whether he or she is getting on a train run by a particular company – how many people have been on an intercity train when the ticket inspector has got into a dispute with someone who has bought a ticket for the train’s destination but it is the wrong ticket for that particular train? The customer is also besieged by a bewildering array of pricing, far more than was on offer when the railway was state owned.
I doubt whether the average passenger welcomes either the multiplicity of carriers or ticket prices. A person can have too much choice. Human beings want some but not a vast amount, which merely becomes confusing. If you want to travel somewhere you do not want it to be a demanding exercise in both finding out what the cheapest fare is and ensuring that the terms of the ticket are not inadvertently breached.
Does market competition produce greater choice even in a “free market”? There is a good argument to say it does not. The natural tendency of a free market is to produce reduced competition. Governments of all colours in countries which have a large free enterprise component to their economy recognise this by maintaining anti-monopoly legislation. (What are called free market economies are in fact state regulated economies and regulated in the most fundamental way, that is, the prevention of increase of market share beyond a certain point).
But anti-monopoly legislation only prevents the worst anti-competitive excesses. There is still very wide scope for anti-competitive forces, especially in capital intensive and technologically advanced industries – think Microsoft and operating systems or airliners in a market of two or three suppliers.
But the process is a general one. Even enterprises which are not innately capital intensive are affected. Retailing is a good example. A hundred years ago department stores were still in their infancy. Supermarkets and shopping Malls unknown. The vast majority of purchases were made from small, privately owned shops or from open air markets. Most of the shops specialised in a narrow trade.
Today we have far fewer shops and markets. Supermarkets and Shopping Malls abound. The chain stores of at most a few dozen companies become ever more pervasive. There are many fewer specialist shops. The private retailer is assaulted from all sides by the large multiple-store retailers and increasingly succumbs as the public is seduced by the immediate temptations of price and convenience without regard to the social long-term consequences of what they do. The =privately owned shop does not even have to be in the immediate vicinity of a giant chain store to suffer. It merely has to be within reasonable driving distance of the chain store. The consequence is that the poorer areas of larger towns and cities and country villages and small towns are denuded of their shops. The choice of the poorer residents of such places is tremendously reduced. The wealthier do not of coursecare about this because it has no direct effect on them. They have the wherewithal to either live in areas well serviced by stores and services or can afford to drive to the large supermarkets or have goods delivered from far afield. Such developments fall within the remit of government. It is not for Government to operate supermarkets but it is within their remit to prevent commercial behaviour which is anti-social.
What constitutes choice anyway? Is it, for example, having more shops offering a smaller range of products or fewer shops offering a greater range of product? In practice fewer shops will mean reduced variety of product as well as service. But what of all the choice in giant supermarkets you say? Do they not have a much greater range of product? Surely they provide more choice. They may provide a greater range in one place but that is all.
The advent of industrial-style agri-farming, the bringing in of increased amounts of imported food from around the world and introduction of new manufactured foods may give the impression of greater choice, but is an illusion. The number of varieties of staple fruits and vegetables has been massively reduced, as have the various breeds of farm animals.
Of course, the providers of anything which sells can always say “If people didn’t want it they wouldn’t buy it”. But that begs the question of what alternatives are available. If only three types of washing powder were available doubtless they would sell massively more than any one brand does now. That does not mean they are more popular merely that people have to have such a product and were forced to buy one of the three brands available. Such restriction of choice is increasingly commonplace.
31. How Government gratuitously takes on obligations
Governments regularly make rods for their own backs. Social policy is an area more prone to this sickness than most.
When a government urges the electorate to take action it places itself under both a moral and democratic obligation. It may even in certain circumstances place itself under a legal obligation when a government sponsored supervisor such as those supervising the financial services industry, fail to act to prevent the mis-selling of pensions.
Since the 1980s British governments have pressed people to buy houses, take out private pensions, pay for private healthcare and insure themselves against unemployment. The consequences have been at various times, negative equity in houses and widespread repossessions, pension scandals ranging from the Maxwellian hand-in-till to an attempt to renege on the conditions of policies by the Equitable Life and ever more expensive private health care and unemployment insurance. The consequence has been that time and again the taxpayer has had to come to the rescue either by paying compensation in cases such as Barlow Clowes or through increased benefits paid to those who have lost their saving or investments. In those cases where the Government has forced private companies to compensate people directly, such as the various mis-selling scandals in the pension industry, the result has been higher premiums for all and frequently reduced pensions, annuities and endowment payments for many.
The sensible course for a government is to allow people to make private choices completely unhindered by state propaganda. That way they do not incur any moral obligation if things go wrong. It also ensures that the electorate does not automatically blame the government when investments turn sticky.
Of course, the state does have to regulate those who offer private insurance, mortgage and pension schemes to prevent outright criminality, such as that which occurred in the Robert Maxwell Mirror Pensions Fund scandal. This regulation should consist of (1) laws laying out what can and cannot be done, (2) very strict auditing rules
for such businesses and funds, (3) laws placing responsibility firmly on the shoulders of those who administer the businesses and funds and (4) the efficient enforcement of such laws – those responsible for the businesses and funds must believe that there will be no walking away from a mess if money goes missing or reckless mismanagement occurs.
What, no regulators for financial institutions? Well, experience shows that having a regulator to licence such businesses is pointless at best – think of BCCI and Barlow Clowes – and may even help fraud and gross mismanagement by giving a spurious respectability and solidity to the firms they licence. Moreover, the rules which regulators operate by are frequently bent as circumstances dictate, for example, the solvency rules by which Assurance companies operate have been relaxed several times in the past ten years simply because, with the fall of the stockmarket, many of the largest companies would probably have gone under if the original rules had been enforced.
32. Making personal private provision – the problems of investing
To expect the vast majority of human beings to be expert enough in financial matters to make wise private investment decisions is absurd, as absurd as expecting every man to be his own lawyer. Therefore, all but a few of us will turn to supposedly expert advisors for advice. The problem with such people is twofold: they often have a vested uniters in selling or promoting a particular product and even when they do not, they are frequently bad judges of the financial future. (If investing was easy and certain for the so-called experts, all financial institutions would be permanently hugely successful).
When someone sells you a private pension plan or insurance, he does not do it out of the goodness of his heart. He does it because he earns a commission or fee from it. As the pensions mis-selling scandal of the Thatcher years showed, that incentive drives many, probably most, financial service consultants to sell the product most beneficial to their income rather than to the customer.
The customer can also get misled if he takes reputedly independent advice, whether this be from a self-described independent financial adviser or out of the financial pages of newspapers and magazines or investment newsletters. The advice given may be anything but independent. Unbeknown to the client, an advisor may get a commission for recommending an investment and media share tipsters often have no scruples about recommending shares which they know to be poor performers, either because of direct inducements from the companies or because they work for a company which gets business from the share tipped. Share tipsters can also make a profit by “ramping up” a price in shares they hold by recommending it or depress a share by criticising it and then buying at the depressed price.
Those recommending shares or financial products are in a wonderful position: they can tip to their heart’s content without taking any responsibility for their tips. No tipster has a consistent record of predicting successful investments. Quite a few have utterly dismal records over years. Indeed, so poor is their general performance that one might ask whether it is any worse than randomly selecting investments. It may even be worse. As Woody Allen once remarked, “A stockbroker is someone who invests your money until it is gone”.
The Daily Telegraph put the matter of share tipping to a sort of test in 2001. It employed a professional tipster, an astrologer and a four year old child to notionally invest £5000 in the stock market. The professional tipster applied his supposed expertise. The astrologer selected her shares using her star charts. The four year old child chose by repeatedly tossing (at the same time) a number of pieces of paper in the air with the names of shares written on them. At each toss she caught one. After a year all the investments had lost money, but the four-year-old-child lost least, followed by the astrologer with the supposed financial expert bringing up the rear quite some way behind.
A rational examination of the actual performance of tipsters and advisors could only lead to the conclusion that predicting the future economy is a mug’s game. Why would an expert do worse than a four-year-old child and an astrologer? Well, it could have been a fluke, but an unlikely one as both the child and the astrologer did better. More probably the financial advisor’s knowledge is a positive hindrance. A parallel is with the football pools. Many people have a very considerable knowledge of the form and general state of professional football clubs. Yet these people do not appear to be any better at predicting results than the punter who knows nothing about football and does the pools by putting a pin in the matches or has fixed numbers.
The truth is that no one can guarantee investment for a secure future or even come anywhere near to it. All calls for private provision replacing public in whole or part should be placed in that context.
33. Supporting old age
The most problematic of all public provision is what to do about the old. The value of actuarial calculations – the statistical analysis of risk based on instances of the risk occurring – made sense for pension calculations when life spans from generation to generation were fairly stable. Because of our ever increasing ability to cure and prevent disease and to provide a more materially certain livelihood for the majority, life expectancy in the future is no longer easily predicted. Even if the wilder extremes of SF are avoided, it is reasonable to assume a significant rise in life expectancy in the next forty years. The rise does not have to be dramatic to make a nonsense of pension provision made today – even a five year rise in the average would have dramatic consequences for pension planning.
A substantial rise in the average lifespan does not necessarily imply some major scientific breakthrough to slow or even reverse ageing. All that would be required is for scientific advances to reduce the diseases which kill many before they reach the average age of death. In other words, more people survive to the ages which are now the average lifespans. It is quite conceivable that within the next 40 years simply reducing early death could extend the average lifespan by ten years.
More dramatically, it is conceivable that science may extend human lifespans substantially beyond their current limits. Work on animals such as mice have resulted in greatly extended lifespans simply by restricting food intake from early in life. If human lifespans are extended greatly all pension bets are off. In such circumstances no meaningful actuarial prediction for pensions could be made for the odds would be that further, unforeseeable increases in life span would occur continuously after the initial scientific breakthrough was made. The fact that such scientific advances are possible in itself makes current pension planning hideously uncertain.
What should we do as a society to plan for the future lives of the old? Let us assume that average lifespans are extended simply through the diminution of early death rather than from any radical scientific discovery, what then? If the average lifespan of Britons rises to, say, 90, over the next 40 years, an obvious move would be to delay retirement. But that raises a problem. Most people could probably work to 70, but beyond that the incidence of severe but non-fatal disease rises steeply. Keeping people alive longer does not at present equal keeping them fitter. More 70+ year-olds means more people suffering from various forms of dementia, crippling diseases such as arthritis and people simply too physically weak to undertake work which could provide an income to support them. Hence, extending the retirement age, for both state and private pensions, is only a partial answer unless science advances enough to massively reduce the infirmities of old age.
It is also true that many people are struggling to cope with their job long before the current age of retirement. People in manual jobs cannot be expected to work to 70 and those in heavy manual jobs or those in jobs which require physical strength and fitness such as grassroots policing, are probably past useful employment by the age of 50, certainly by 55. In principle they can retrain to lighter work, but in practice this is very difficult. People who have spent their lives working with their hands in a workshop or in the open air often do not take easily to working in an office or shop. Moreover, the pay they will get from such “second career” jobs is likely to be low, which is both a disincentive to work and may leave the person unable to support themselves fully.
But even if a person can adapt to new ways or has been throughout their lives in the type of employment which can be carried on into old age, the odds are that they will struggle to remain in employment as they reach late middle age. Employers are prejudiced against the older worker for various reasons. Part of that reason is financial – the cost of employing them is high compared with a youngster – but it is also in large part to do with the adaptability and energy of the young compared with the old. In a time of ever increasng technological change the natural resistance to change and learning becomes ever more of a handicap than it was in the past. Government can pass whatever age-discrimination laws it wants but employers will still find ways to employ who they want to employ without falling foul of the law (short of a law which insists that a percentage of people in an organization had to be in various age categories).
However much as we may like to believe – and I write as a budding wrinkly myself – that experience compensates for youthful enthusiasm, the truth is that all of us become much less receptive to new ideas as we get older, energy falls, physical strength fails, our memory diminishes and concentration becomes harder. Consequently, employers have good cause for employing younger people in most jobs. Of course experience does count and in some jobs can be valuable well into old age, but in most jobs it does not count for much after the age of 60. Even in “people” related employment, which the older person is supposedly better equipped to handle, experience may be a positive disadvantage. For example, suppose an employer wants to employ someone serving the public. It may well be that the average customer for the business prefers to be served by someone young and employing the old would be the kiss of death for the business.
The position of the older worker is being further undermined at present by the high levels of immigration, both official and unofficial. Most of this immigration is of the young, much of it young males. These young workers will tend to take much of the work which would otherwise be available for the old.
Even in the most benign likely circumstances – an extension of the average lifespan by five or ten years through the deduction of early death, it is clear that many people will require support for a very long period of retirement or reduced employment. Some of that may well come from private pensions and savings. But clearly for a very large part of the population adequate private resources guaranteed to support someone for 30 odd years will be beyond their grasp. Hence, state provision sufficient to allow people to live in old age is a must.
If great scientific advances are made which greatly extend life we shall simply have to start planning again from scratch. Obviously if average lifespan was increased to, say, 150, the whole perspective of a life would have to change. There are any number of exciting or disturbing possibilities. For example, it might be that only the newly conceived or newborn children could have their lives increased by a new treatment. We would then be in a position where that generation and succeeding generations had the increased lie span while anyone born before the treatment became available lived to an average age of 90.
The other great concern about pensions is demographic. The population is ageing and the British birthrate is substantially below (around 1.7 children per woman) the replacement level (roughly 2.1 children per woman). The doomsday scenario is insufficient working people to pay the pensions of the old in the future. If we were talking about a demographic change which was going to take place overnight I would be worried. However, we are not. Rather, the demographic effects will be worked out over thirty or forty years. Past experience suggests that society will evolve to make the necessary arrangements. We cannot foresee what the birthrate will be in five years let alone twenty or thirty.
However, we should not put all of our eggs in basket. It would be wise now for the Government to begin a state pension fund into which one per cent of GDP (currently around £11 billion) was put each year. This fund would not be touched for 20 years at least and would be used to ease any future pension problem arising from a tax shortfall due to a smaller working population.
The currently fashionable solution for the future pension bottleneck – importing large numbers of young immigrants – would be no answer in the long term. The young people who arrived in this generation would eventually grow old and would need people of working age to support them which would mean more immigration which would mean more old people to support in the next generation and so on ad infinitum, a literal absurdity because any territory has a limit to the number of people it can support. In other words, confronting the problem of a demographic imbalance would merely be delayed for a generation or two by immigration.
34. The housing crisis
Because it is one of the essentials of life, government clearly has a moral responsibility to ensure, directly or indirectly, that there is sufficient housing. It also acquires responsibility because it interferes considerably with the housing market, often with the effect that new building is discouraged, for example, by overly strict planning laws.
The government sets the rules for building new homes, renovating old ones and adapting non-residential buildings for residential use. The provision of taxpayers’ money for social housing is dependent on government. The rules by which social housing is allocated are the government’s rules. Planning permission is in the gift of politicians. The terms on which property may be rented and leased are set by them.
Then there are the measures which indirectly the housing market. To a very significant degree the government still controls the economy by the use of taxation, the indirect setting of interest rates through Bank Rate (the targets for the so-called independent Bank of England to meet – at present merely the inflation rate – are set by the Chancellor), the obligations placed on employers, subsidies to industries such as farming, the size of the public sector and the acceptance or otherwise of free trade obligations. All of these things feed through into the housing market by increasing or diminishing the amount of money in the public’s pockets and their confidence or otherwise in the future. Governments also determine the level of net immigration into a country – when it is running at the level Britain is currently experiencing substantially affects the demand for housing. In short, the cost and availability of housing is to a considerable degree determined by government policy.
The ongoing and seemingly inexorable rise in British property prices is rapidly making many parts of the country a desert for first time buyers (according to a Halifax survey the average house price has risen from £62,453 in the first quarter of £1996 to £179,425 in the third quarter of 2006, a rise of 187% – Daily Telegraph 28 10 2006) ). A combination of very low interest rates, lax lending rules by mortgage providers (some are lending up to 5 times salary), the introduction of easy to obtain “buy-to-let” mortgages, rising wages for substantial parts of the population, the continuing right-to-buy policy (RTB – the right of tenants to buy their council or other social housing properties at a discount) for those in social housing and a great diminishment in the building of new housing, both public and private, has led to a shortage of housing which can be bought by someone on average earnings in a majority of counties. In some areas of the country, most notably in the SE of England, prices have been further substantially inflated by the massive and ongoing immigration into Britain, most of which ends up in the South East.
The position in the rental sector mirrors that of home ownership. Social housing is in desperately short supply in those areas with higher property prices, particularly London, while reasonably priced private rental property is effectively non-existent. Every London Council has a waiting list of thousands for social housing.
The provision of housing, whether rented or purchased, that most people can afford is necessary for the simplest of practical reasons: every community, no matter how wealthy, requires large numbers of people who are not well paid. They must of necessity live fairly close to their jobs because, apart from considerations such as travelling time, those on small wages will not be able to afford the fares if they have to travel a long way. That means there must be reasonably priced homes for them to buy or rent not too far from their work.
There is also the moral and political case. There will always be housing segregation of people by price, but there is a big difference between not being able to afford to live in the most expensive parts of a town or city and not being able to live there at all. That is the point which is being rapidly approached for people on even above average incomes in a surprising number of English counties. In such circumstances free movement – one of the defining practices of a free society – becomes practically a dead letter. It is also very socially divisive, which is poison to the democratic process.
What can and should a government do to ease the problem in those areas where houses are in dangerously short supply? The first and most obvious move would be to stop mass immigration and restrict social housing to British citizens. Whether that could be done either legally or in practice if it could be done legally, while Britain remains within the EU is extremely dubious. However, other things could be done.
A Labour government of old (indeed, a Tory government of the fifties and sixties) would have turned to fiscal and practical measures to relieve the problem. They would have put controls on the amount of money mortgage providers can lend, used compulsory purchase to acquire land in the property hotspots and engaged in an extensive programme of council house building. Instead, we have the Blair government tortuously twisting and turning within the limits of the free market ideology with ill-thought plans to provide an inadequate number of “affordable homes” in the South East, without any mechanism to ensure that they remain available to the people they are supposed to cater for, that is, the likes of teachers and nurses. But even if the scheme for these “key workers” was successful, it would not address the general problem of house prices being out of the reach for the large majority of people working in the South East and it cannot be morally sustainable to say that only those with vital functions should be subsidised, a subsidy which would in effect subsidise those wealthy enough to live in the area who can afford to buy or rent a property at market rates because the services they received would only exist because of the public subsidy of “key workers” homes.
In areas with a shortage of housing, the Government should begin a massive programme of social house building with truly affordable rents, It should use compulsory purchase to acquire land being hoarded by private builders. If a builder has not built on land within a given period, it should become available for public housing or for another private builder who is willing to build on it. The Government should limit the amount of money a mortgage lender may advance to a level whereby a borrower can continue to pay if interest rates rise considerably. It should relax the planning controls for private developments. It should give priority in social housing to those local to the area and to workers with scarce and needed skills.
The question of RTB is a difficult one. I do not criticise anyone for exercising RTB because once such a scheme is in operation, for an individual not to exercise RTB is to place themselves at a massive disadvantage. It is also a fact that in a council tenant in a large block of flats may have a very real fear that if they do not buy, at some point in the future control of the block in which they live may be transferred to a less sympathetic and politically responsible landlord such as a housing association or a private developer, and they as a tenant would have absolutely no control over the landlord.
In areas where there is substantially more social housing than can be let, it makes sense to sell them and give purchasing priority to their tenants to maintain a community. But the selling off of council houses is self-defeating in areas where demand exceeds supply, which is now much of the country after twenty years of RTB and much diminished building of homes both publicly and privately owned. If council properties were sold at their full price it would be damaging enough, but the discount given pours oil onto the flames.
The Blair Government has (since January 2003) restricted the value of the RTB in areas of high demand such as London by reducing the maximum discount available to tenants. Such reductions are arguably open to legal challenge by existing tenants with a RTB. The RTB is a form of property in the same way that an option-to-buy can be considered a property. The question is whether the Government is entitled to arbitrarily reduce the value of the property. It has not been tested in the courts to date.
Similar considerations would arise if the RTB was simply abolished. The Government could certainly remove the RTB from future tenants, but if they were to try to remove the right from those who already have it, they could leave themselves open to legal challenge on the grounds that they were being dispossessed of property. If the courts upheld such a challenge, the Government would then be left with a choice of depriving only new tenants of the RTB or compensating those from whom they take an existing RTB. In the first case, this would greatly distort the effect of abolishing RTB – its full effect might not be felt for 40 years – or would result in a truly horrendous bill for the taxpayer as all those with the RTB would have to be compensated, not merely those who were actively seeking to exercise the right.
The desperation of the Blair Government is epitomised by their announcement on 6 January 2003 that it was considering taking to itself the power to compulsorily seize empty residential properties and let them. It is still kicking this idea around. This would probably be illegal because of the protection provided for private property under the Human Rights Act. Even if it is not, it is highly questionable whether property owned by private individuals should be compulsorily taken by the state in such an arbitrary manner. It is true that compulsory purchase has existed for many years, but this is different. It appears that the Government is thinking not of purchasing the properties for letting, but merely taking them for an unspecified period and letting them.
But even if these properties were to be compulsorily purchased before letting, it would go against the normal principle of compulsory purchase, namely that it should only be used where it is impossible to achieve a clearly defined general public good such as a new road or railway line which cannot otherwise be achieved. That is not the case with housing. To be a meaningful public exercise the forced seizures would have to be very substantial and thus not exceptional, and the increase of housing could be achieved by other means such as I have described previously.
35. Council housing
Nowhere is the hostility to direct provision seen more clearly than in the provision of council (municipal and state funded) housing. This type of housing was created to provide secure tenancies for decent accommodation at a rent the poorer members of society could afford. In the years after 1945 both Labour and Tory governments were committed to building a great number of such properties and ironically in view of their later Thatcherite policy it was a Tory Housing Minister, Harold Macmillan, who boasted in the mid 1950s that the Tory Government intended to build 300,000 council houses and flats in a year.
The rot for council housing set in under Margaret Thatcher. Many council properties (unsurprisingly disproportionately the more desirable ones) were transferred to private hands through Right To Buy (RTB). Most of the money from these sales was not used to build new council properties because central government forbad councils from doing so.
RTB had two consequences. It reduced the social housing stock and complicated the ownership and running of council properties. Councils were left with a housing stock which was gradually honeycombed with the private purchases of freeholds and leaseholds. This meant that a council had to establish a new relationship with their new leaseholders – a particularly fraught business in large blocks of flats where disputes over service charges, ground rents and external repair charges have been legion – which increased the costs of managing the properties.
More importantly RTB blurred the relationship, both legally and in the public’s mind, between what was public and what was private. There is a good deal of difference between saying here is a public asset and here is a part public part private asset. To move the entire housing stock of a council out of council control when it is just council housing is politically difficult because it is seen simply as the transfer of a public asset. That was particularly true in the 1980s when the public at large still had imprinted in them the idea that the state owning public goods for the public good was natural. But let that housing stock be sold off to private buyers bit by bit until, say, a quarter is privately owned, and the public no longer sees the council housing stock simply as a public asset. Indeed, with RTB much of the public sees possession of a council house as not a social good but something akin to a lottery win because of the substantial discount it brings – RTB has created a great deal of envy from those who have not been able to get a property. (This envy is misplaced in the majority of cases because, as many tenants who have bought properties in less desirable locations – especially on large council estates and in large blocks of flats – have found to their cost, the charges made by councils for service charges, grounds rents and most particularly external repairs – these are capped only for the first few years after purchase – are extortionate and the properties often next to impossible to sell at a reasonable price or even at all).
This blurring of the relationship between councils and council housing and the change in public attitude towards council housing has fitted neatly into the strategy of all governments since 1979 which has been to diminish the direct control of council housing by councils. The primary tactic used apart from RTB and a diminution of state funding for low rent housing, has been the transfer of government funding of most new build social housing from councils to Housing Associations which are non-profit self managing corporations. These, unlike council housing, are not subject to any degree of democratic control.
There has also been a push by governments to get existing council housing transferred to Housing Associations. This is somewhat tricky because tenants have by law to vote for such a transfer. To get round this awkward and annoying piece of democracy the Blair Government has been attempting transfer control of council housing stock into Arms Length Management Organisations (ALMOs). These are limited companies (limited by guarantee not by shares). The council housing stock is still owned by the council but the management of the housing stock is transferred to the ALMO board which is bound by company law. Thus the relationship between tenant and the council is completely changed because (1) local councillors no longer have any responsible for the management of the housing stock and (2) the ALMO board, being bound by company law, have to operate according to that law not a political agenda. Again, democratic control is broken.
A third tactic is to allow PFI companies into the management of part of a council’s housing stock. This again ties the hands of politicians because the contract with company means the council cannot act of its own volition.
The experience of tenants in Housing Associations and ALMOs has been mixed but there have been too many instances where rents and service charges have been raised to levels higher than those in directly owned council properties and where management of the property has left much to be desired. Worst, some Housing Associations and ALMOs have got into financial trouble. The only ways out of such a mess, after rents have been raised as high as they can, is for either a council to rescue the properties by taking them into direct control or for the properties to be placed in the hands of a private company, either through some form of PFI or outright sale of the property. The private option is the one almost all councils go for in such circumstances.
Whatever tactic is used – ALMOs, transfer to a Housing Association or PFI – it is always sold to tenants by councils insisting that remaining in direct council control is effectively a non-starter because central government money for renovations will not be available if that happens.
But even where council housing stock remains within council control there are an ongoing problems. The “affordable” rents plan of the Blair government will raise rents to considerably over the next ten years. In addition, council are increasingly seeking to charge additionally for services such security, cleaning and caretaking.
Service charges have the advantage for politicians of allowing them to say they have kept rents down to a lower level whilst effectively raising the rents. In addition, there are probably fewer legal restrictions attached to levying and raising service charges than there are attached to raising rents.
Council housing was never intended to make a profit for central Government or even local councils. It was social provision for the poor. This appears to have been lost sight of by Government, viz: “Your average council home generates roughly £2,500 a year in rent, £1,000 of this goes on management costs, £500 for repairs, leaving £1,000 being siphoned off by Government. Why can’t councils keep this sum?”. (Labour MP Austin Mitchell “Defend council housing” Camden New Journal 30 Jan 2003).
If nothing is done to prevent the privatisation/commercialisation of council housing, I sincerely wonder how long it will be before the poor are unable to afford council housing in London.
Education is a first rate example of how quasi-commercialism can corrupt. It was a pincer movement from the bottom and the top, from schools to universities.
Prior to the end of the 1980s our universities had been funded for decades by the University Grants Committee (UGC) which was made up academics. The UGC received an annual sum of money allocated by the Government to higher education. The UGC then allocated this to the universities. This was not a perfect system because the academics tended to favour the older universities over the older regardless of performance. However, broadly speaking it worked and most importantly there was no pressure on universities to tout for students regardless of quality. This in turn meant that academic standards were maintained. Indeed, the newer universities were very sparing in their granting of degrees because they wished to build their academic reputation.
The Thatcher Government changed all that. They first cut in real terms the funding of given to the UGC, then abolished the UGC in 1987 to be replaced by the University Funding Council (UTC) which was manned not by academics but businessmen. The money was then primarily attached to the individual – a second criterion based on the quality of research was also introduced but it was the numbers of students which brought in the large majority of the money. This forced universities to actively compete for students. This might not have mattered too much if the numbers of students had remained static but it did not because the Thatcher Government began the push towards dramatically expanding student numbers without a corresponding increase in funding. This meant that spending per student was reduced and universities had to get as many students as they could to maintain income. That alone caused universities to drop their standards, both in terms of who they accepted and the class of degrees they awarded, because universities with a reputation for high entry standards and strict marking of degrees risked being shunned for those with a reputation for being laxer. To take on stark statistic: in 1970 less than 40% of degreesawarded by British universities were firsts and upper seconds: the figure for these classes of degree awarded in 2006 is over 60%.
The massive increase in student numbers from the late 1980s meant that the average quality of student was lowered. This is not a subjective judgement. IQ is distributed within the British population approximately as follows: IQ below 90 25%, IQ 90-110 50%, IQ Above 110 25%. In 1970 less than 10% of school-leavers went to university. They could all comfortably come from those in the 111+ range (they will not have done but most would). Raise the numbers to the current level of around 40% and as a simply matter of arithmetic, many must have IQs of less than 111 and because a significant part of those with above average IQs will not go to university, there must be significant numbers now going to university with IQs below of 100. The difficulty of degree courses had to be lowered to cater for the lass able.
Because the increase in student numbers has not been met by a proportionate increase in state funding, staff-student ratios have increased, teaching time for each student reduced, both in terms of direct instruction and the time available to staff for marking.
To these attacks on university standards were added eventually the toxic effects of the poison injected into the opposite end of the education system. “Progressive, child-centred education” really gained a hold in the 1960s. Anti-competitive and ideologically driven, the grammar schools were first almost destroyed, ironically rescuing the public schools which were on their financial knees by the mid-sixties because of the drain of middleclass pupils to free grammar schools, and teaching methods gradually corrupted so that children were not challenged over errors and all opinions (at least the politically correct ones) became equally “valid”.
The progressive ideal was greatly furthered by the introduction in the 1980s of a single school-leaving exam (the GCSE) to replace the CSE and O Level’. Had assessment remained entirely by final (synoptic) exams, The introduction of the GCSE would still have been mistaken because no examination can meaningfully assess the broad range of ability displayed by those who sit it – there has been a tacit recognition of this by the inclusion of questions and course tasks of different difficulty within a GCSE subject and candidates can choose to do the hard or the easy and this is reflected in their grades. The exam consequently says nothing about the standard of the candidate as such because the mark tells you nothing about the difficulty of the tasks attempted: for example someone taking just the harder questions in an exam could score the same mark as someone attempting only the easy questions.
Mistaken as the exam was in principle, it was further damaged by the inclusion of substantial amounts of coursework – cue plagiarism and third party out-of-school help – and coaching by teachers, licit and llicit (the licit includes teachers being able to take an initial piece of coursework by pupils and making suggestions for its re-writing) and the use of modular exams (exams which tested only part of the course) which can be retaken several times during a course.
The school examination system has been further contaminated by the various examination boards becoming nakedly commercial bodies who compete greedily for candidates. The result is similar to that experienced by universities: standards have been dropped to attract business. The old practice of setting percentages for those gaining a grade and for those passing was dropped allowing any number of people to gain any grade. Freed of this constraint grades have inexorably risen year after year for both GCSEs and the university entrance A Levels. So bad has the inflation become that A* grades had to be introduced because A grades were so plentiful that they allowed no distinction to be made between the better candidates. Predictably, theA* grade has now met the same fate as the simple A.
Finally, because so many more pupils were taking GCSE than O Level, the standard of the exam had to be reduced for the same reason that the standard of the degree was reduced: the number of less able students taking the courses increased dramatically. The dire failure of GCSE has begun to be acknowledged by even the Blair Government with first the Education Secretary Alan Johnson announcing that coursework would be reduced in some subjects and abolished in a few such as maths (the Times 6 10 2006) and then a junior education minister Lord Adonis announcing that consideration was being given to allowing state schools to substitute the International GCSE (IGCSE) for the GCSE (Daily Telegraph 25 10 2006). The IGSCE is an exam closer to the old O Level and is taken by pupils outside Britain and increasingly by private schools in Britain.
The upshot of all this is a decline in academic standards generally. The decline of GCSE standards meant A Level pupils began their A Level courses less well prepared than they had been previously which meant A-Levels had to be reduced in difficulty which meant that those arriving at university were less well prepared and the degree courses had to be made easier.
A further pernicious consequence of the gigantic expansion of university numbers is the abolition of student grants and the imposition of tuition fee to fund the much greater numbers. . This is not only discouraging students from poorer homes – there is now a lower percentage of workingclass students in the British university population than there was in the 1960s (although many more because of the increase in student numbers) – and leaving most students with considerable debts, but also creating a mentality amongst students, politicians, educationalists and indeed the general public, that education is only a tool to obtain a better job, that it has no general value.
The irony is that even at the economic level this mentality is at odds with reality. Successive governments have claimed that the lifetime earnings of a graduate are on average £450,000 greater than that of a non-graduate. This may have been true of graduates before the great expansion in student numbers but it is not now. The £450,000 has been revised to £150,000, a pretty small sum divided by the 40 years of the average working life. Of course that figure, even if it is true, hides a multitude of difference, with some degrees being next to worthless either because of the subject or the class of degree obtained.
The NHS was founded on the principle that all treatment should be free at the point of use regardless of income. The amazing thing is that 58 years after its foundation the principle is essentially intact. We have prescription charges and charges for dentistry and the work of opticians. However, even these charges for the poor, old age pensioners and children are either considerably mitigated or waived completely. For the vast majority of illnesses and injuries NHS treatment is available and no one who is entitled to and receives it need fear that they will be bankrupted by the cost of the treatment and care or that at some point the NHS will say no more treatment because it is too expensive. There are increasing disputes over the funding of expensive treatment, especially drugs, but these affect only a tiny minority of patients. The sole major NHS blot is dentistry where it is difficult to find dentists who take NHS patients in many parts of the country.
But the NHS ethos is under severe attack. The introduction of the “single market” by Margaret Thatcher and then the Blair government’s version of “money following the patient”, league tables of medical outcomes at hospitals and schemes such as hospital trusts being granted “foundation status” (which allows them greater freedom of action) are seriously damaging the idea of a national health service, the stress being on “national”. Hospital trusts are now competing with each other for both patients and the “right” type of patients, the “right” type being those most likely to be easily treatable and to have a good response to treatment.
“Money following the patient” has also resulted in a significant number of hospital trusts running into financial trouble and different areas of the country offering varying levels of treatment, the “post-code lottery”. The variation has been amplified by devolution which allows the devolved assemblies, especially the Scottish, to allocate money independently of Westminster. This has resulted in some treatments being offered in Scotland and Wales but not in England, for example drugs such as Aricept, Reminyl and Exelon which are used to treat Altzeimers are being denied to early stage Altzeimers sufferers while it is available to such people in Scotland and Wales (Daily Telegraph 18 10 2006).
Then there are the targets for waiting times which distort clinical judgements because hospitals begin to treat the conditions which reduce government targeted waiting lists rather than the conditions which clinical judgement would suggest should be given priority. Waiting list targets also result in hospitals fudging figures by devices such as putting people on waiting lists on lists euphemistically called something else, or moving people in Accident and Emergency out of A and E when they have exceeded the target waiting time and putting them onto trolleys in corridors to wait for treatment, which device allows the person to be classified as having been dealt with in A and E within the target time. So desperate has the Blair Government been to reduce waiting lists that it has even adopted a policy of exporting patients to continental hospitals where their treatment will be paid for by the NHS. (This policy could lead to far more NHS patients being referred abroad with the taxpayer paying than the Government anticipated because challenges are being made in the British courts to refusals by individual British health authorities to fund particular foreign treatment.)
In the past twenty years the NHS has almost certainly been subject to more politically initiated upheaval than any other taxpayer funded body, with both Tory and Labour governments forcing major change after major change on the NHS. The introduction of policies such as “the single market” and foundation status” for hospitals have caused profound administrative changes, with people having to re-apply for their jobs over and over again as each new regime is introduced and a general sense of impermanence and staff insecurity has been created. This sense of uncertainty and insecurity extends to new medical staff such as doctors, nurses and physiotherapists. Some years ago the Blair Government correctly identified the underproduction of such people in Britain and quite correctly acted to increase their numbers, both by providing training places and by significantly increasing NHS pay scales. This has had the effect of producing large numbers of these previously scarce medical staff from Britain. All well and good. But supply is only one half of the equation. The Government neglected the demand side and the upshot is that in 2006 there are large numbers of expensively trained medical staff unable to find work within the NHS.
The reasons they cannot find work are four. First, large numbers of foreign medical staff have been recruited and they are still in position. Second, Britain’s membership of the EU means that any medically qualified person from any EU state can compete with the British for jobs within the NHS (large numbers from outside the EU are also competing for the jobs because of Britain’s generally lax job entry requirements for non-EU foreigners coming to the UK). Third, the shortage of money in many hospital trusts and the demand by the Government that each trust balances its books, means that trusts are cutting staff, for example, the Epsom and St Helier Hospital Trust which serves 650,000 people in Surrey and South London, are looking to lose 25% of their staff by early 2008 (Metro 24 10 2006). Fourth, insufficient numbers of particular types of posts have been created, for example, training posts in hospitals for junior doctors.
The general utility of the NHS for patients has been reduced and will, if government plans go through, be much further reduced by a policy of “consolidating” hospital care by closing smaller hospitals and concentrating resources on a relatively small number of “super-hospitals.” Many smaller hospitals have already been much reduced – especially their A and E services – or even closed and many more cuts are in the pipeline. For example, the Daily Telegraph reported (17 10 2006) that 80 cottage hospitals in England were marked for closure. The rationale for such “consolidation” is that smaller hospitals cannot provide the same range of sophisticated treatments as a much larger hospital. This may be true but most treatments are of the simpler kind which can be dealt with in the smaller hospitals and any really difficult case sent to a specialist centre. The consequence of such a policy is that patients have to travel further and further for hospital treatment, often fifty miles or more. There is also some grounds for believing the closures are politically motivated because the Sunday Telegraph (22 10 2006) “surveyed 177 hospitals already affected or likely to be affected by cuts, [and] revealed that Conservative and Liberal Democrats seats are two and a half times more likely to be affected by cuts than Labour seats.”
A special case of hospital closures for “clinical reasons” are the military hospitals, all of which bar one have been closed and the one remaining is waiting decommissioning (Daily Telegraph 17 10 2006). This has meant troops returning injured from places such as Iraq and Afghanistan have been forced to use ordinary NHS hospitals. This has caused problems of morale, security and access to treatment – servicemen best recover psychologically when they are with their fellows, there is nothing to stop any anti-war radical attacking or abusing them in hospital and the treatment they need is not always immediately available, with servicemen having in some cases to join NHS waiting lists.
An unpleasant mentality is also distorting the notion that the NHS is a national health service. Increasingly, politicians, the media and medics are taking the line that treatment can be legitimately withheld from people wicked enough to disobey the official disapproval of smoking, drinking, getting fat and so forth. For example, Norfolk Primary Care Trust has decided that confirmed smokers are to be taken off waiting lists for “all non-urgent operations such as hip replacements….[because] Smokers have three times the complications as non-smokers”. (Metro 23 10 2006) I think anyone needing a hip replacement would dispute the operation’s definition as non-urgent. It is worth adding that the story mentions the Trust is “£50 million in the red” and an unkind soul might conclude that the withdrawal of treatment to smokers is connected to the debt. Nonetheless, the fact that smokers have been targeted speaks volumes for the ideologically driven mentality within the present day NHS. It is only activities which come within the ambit of official disapproval and moralising that are the subject of such withdrawal of treatment – it is noticeable that no politician or health trust has suggested that treatment for AIDs or HIV should be withheld because it is in most instances the consequence of the individual’s behaviour.
The moralising which bolsters the supposed clinical case for withdrawing treatment from certain groups runs along the lines that people are being selfish and irresponsible by smoking, drinking,getting fat etc. Wild claims are made for deaths supposedly due to such behaviour – any smoker who dies at a ripe old age is as likely as not to be classified as dying from a smoking related disease. All this supposedly self-inflicted illness is portrayed as being a massive burden on society and especially on the NHS. Most absurdly and dishonestly, smokers are claimed to be a drain on the taxpayer despite the fact that tobacco taxes greatly exceed any additional costs smokers might place on the NHS.
But do smokers, drinkers and the fat, who on average die younger than those who do not display such traits, actually impose extra costs on the taxpayer? Writing in the Sunday Telegraph (22 1 2006) the historian Niall Ferguson baldly and erroneously claimed those who smoked, drank and got fat are being antisocial because they “tend to expire slowly and expensively”. Most do not and whatever cost to the taxpayer arises from such people it pales into insignificance compared with those who live to a ripe old age. Not only do the latter draw pensions and benefits for far longer than the shorter lived smokers, drinkers and the fat, but the most costly of NHS patients are those who live to extreme old age for they frequently end up in hospitals or nursing homes for months and years. The most antisocial thing a person can do from the taxpayers’ point of view is live to an extreme old age.
The most fundamental threat to the NHS is the creeping privatization of the NHS which ranges from the logistical and administrative to the medical. Hospitals are being built under PFI and their maintenance placed in private hands. Hospital meals are provided by private contractors. Medical supplies to hospitals will soon be distributed by the German firm DHL. Most disturbingly, private medical firms, often American, are being granted massive contracts to take patients away from the NHS, a policy made all the more dangerous for the long-term security of the NHS because the treatments the private firms take are the simpler ones. The NHS are left with a reduced patient base for the simpler operations, which can result in the closure of NHS departments or even hospitals, and leaves the NHS with the more difficult and expensive cases to treat.
But even after the chaos wrought by governments over the past twenty years and the vast amounts of additional money pushed into the NHS to no great visible benefit by the Blair Government – the Health Secretary Patricia Hewitt recently made the astonishing admission that “For all the extra money, all the extra staff and all the extra patients treated, NHS productivity has remained almost unchanged” (Daily Telegraph 21 9 2006) – the NHS still represents magnificent value. Anyone who has ever had private medical insurance will know how incomplete the cover is. Common exemption clauses are a two year waiting period for existing complaints to be covered, a complete exclusion of psychiatric treatment and severe restrictions on aftercare, which is frequently excluded when active medical treatment ends.
Those who have had chronic and serious illness soon discover that the amount of private active treatment and aftercare they can obtain is considerably less than they imagined. Many begin courses of treatment which end before the utility of a treatment is exhausted. They then transfer to NHS care. Frequently operations are funded by their insurance but not the subsequent nursing which is undertaken by the NHS.
Those in Britain who laud the idea of private insurance as a substitute for taxpayer funded health service should examine the effects of such a system in the richest country in the world, the USA. Around 40% of the population have no health insurance. Even those with insurance find themselves left high and dry more often than not. Here are the words of a British journalist living in New York, Zoe Heller,from the Daily Telegraph London 6/5/2000:
“One of my best friends was short of cash one month and let her insurance lapse. That same month, she was diagnosed with breast cancer. Seven years later, she is still paying off the credit card debts. Another uninsured friend was rushed to hospital for emergency intestinal surgery. She will be paying her bill on an installment plan. She counts herself lucky that the hospital has a relatively liberal policy about treating uninsured patients…”
A recent study established that one in four of every American declaring bankruptcy in 1999 cited illness or injury as the main reason for his financial problems and that of that group, roughly half were insured. In other words, paying extortionate sums to the insurance companies doesn’t protect you from financial ruin if you happen to fall ill with something serious and expensive enough.
Even the rich in the US find healthcare beyond their means if the treatment is long and serious. The Superman actor, Christopher Reeve, one of the highest paid Hollywood actors, had exhausted his savings within two years of the terrible injury which left him paralysed. Private medicine will guarantee virtually any treatment – if you can afford to pay for it. That is the long and short of it. The NHS provides a remarkably wide range of healthcare free at the point of use. It mitigates strongly against “unfairness”.
The other great threat to the NHS is the media which is only too willing to feed the public with NHS “horror stories”. A good example occurred in the Sunday Telegraph recently. On 27 August 2006 their front page ran “Blunders by NHS kill thousands of patients a year”. Does anyone seriously imagine that any healthcare system in the advanced world does not suffer such casualties or that private medicine is generally more efficient or safer? Of course the NHS makes many mistakes and these add up to a sizeable bald global figure but when you are catering for a population of 60 million that is scarcely surprising.
The real question to ask is why is no public audit of the safety and efficiency of private medicine ever done? If it was it would make interesting reading because private medicine in Britain is notoriously prone to pushing any bungled private treatments back on the NHS without compensation. It also makes little investment in private sector facilities because it can rent NHS facilities for more complicated treatments, facilities which are purchased at well below any realistic cost. Private medicine also makes no contribution towards the cost of training medical staff. In short, private medicine in the UK lives off the back of the NHS and the taxpayer.
The Health Secretary should stop private medicine taking up scarce NHS resources. Even if private medical treatment using NHS resources was paid for in full, it does not follow that would be a good thing for the NHS because the money received may not adequately compensate for the loss of the NHS facility during the time it is in private use. This is particularly the case where complex treatments, especially surgery, are concerned because the number of NHS facilities able to offer the treatment will be very limited. It is worth mentioning that a sizeable proportion of private medical treatments in the UK, especially the more demanding cases such as those of serious heart disease, involve the treatment of foreigners. It is morally indefensible toallow NHS resources to be hired to be used on a foreigner rather than used to treat a British citizen on the NHS. Where there is genuine spare capacity in the NHS, private medical providers should be charged a realistic price for it. In cases where private medical treatment goes wrong, the private medical provider should pay for the remedial NHS treatment.
The NHS consultants would doubtless froth and whine about reduced private work opportunities and it might be necessary to give their NHS pay a very large boost. But there are not that many of them and the cost would not be vast in the context of total NHS spending.
Apart from making private medicine pay its way, the NHS ideally needs to (1) not only stop further privatisation but to take back into its direct control that which has already been lost; (2) ensure that enough medical staff of all sorts are trained in this country and NHS posts reserved for them; (3) end the practice of money following patients; (4) fund NHS healthcare on the basis of an area’s population and demographic distribution; (5) retain and where necessary build new local hospitals; (6) restrict treatment to the hospital within a health authority area; (7) lay down a national schedule of treatments which must be offered throughout the NHS and (8) restrict NHS treatment other than emergency treatment to British citizens.
No 8 is necessary because a great part of the problem for the NHS in areas such as London is that it is being overwhelmed by the large number of foreigners who one way or the other either have a right to NHS treatment or who obtain it because NHS staff are unwilling to check whether some is entitled to NHS treatment. Of course, there are supposedly reciprocal arrangements for Britons to obtain health treatment abroad but the balance of advantage is all against Britain because the range and quality of provision in many of the countries which provide supposedly reciprocal treatment is inferior to that of the NHS. There are also potentially vastly more foreigners eligible for NHS treatment than Britons eligible for treatment abroad, for example, 400million non-British EU state citizens.
That is the ideal. How much of it could be achieved as things stand is debatable because our EU membership and other treaties severely restrict control over both our borders and what any British government may do. For example, while we remain in the EU we cannot stop any person legally resident in the EU from coming here (apart from special cases of crime or terrorism) and either working for the NHS or claiming NHS treatment.
The NHS goes to the heart of what should be public and what should be private. The prime distinction is between service and profit. Public provision is the provision of necessary services to everyone, which private provision never has nor can supply: private provision is simply the provision of services to those who can pay. This seems to have been lost sight of by successive governments.
Let the NHS become anything other than what it is, a national health service free at the point of use and you will never get it back. It was created in the extraordinary circumstances of the immediate post-war national solidarity when both the electors and the politicians were determined that Lloyd George’s boast of creating “A land fit for heroes” should not be mocked twice.
It is vital that the NHS survives because even with present life expectancies, there are going to be an awful lot of people who will need intensive medical support in their extreme old age. The cost of that will almost certainly exhaust the resources of even those who have made seemingly substantial private provision for their old age.
The NHS has many faults, but for most of the population, it is a better and more complete supplier of medicine than private medicine will ever be or could be.
38. The Post Office and Royal Mail
The treatment of the linked organisations of the Post Office and the Royal Mail epitomises the current state of public provision. The Post Office network has long been a source of social glue throughout Britain. It has provided not merely postal but a wide variety of public and quasi-public services acting as a conduit for such things as the payment of state benefits, applications for state issued licences, the payment of bills and the easy transfer of money. Recent governments have taken a significant amount of that work away from post office by such policies as encouraging the payment of benefits though bank accounts and the removal from post offices of applications for TV licences, which has made them less viable as self financing enterprises.
It might seem inevitable or efficient that benefit payments (including the state pension) should be made through bank accounts, but that ignores two things. First, it takes no account of the general utility of post offices, which utility could be judged to mean that the retention of benefit payments through the post office was justified because it helped maintain the post office network. Second, even today many people either do not have bank accounts or do not wish to have their benefits paid through a bank. The Daily Telegraph (25 10 2006) reported that two million pensioners rely on Post Office Card Accounts to draw their pensions and All Pay, one of the businesses which deal with Post Office over the counter bill payments, has stated that “Even though lots of people have some form of bank accounts, there are all sorts of reasons why people want to pay in cash….If post offices close, millions of people will be under served.”(Daily telegraph 21 10 2006).
Governments have been steadily closing main and sub post offices for the past twenty years but the pace of closure is increasing. The Blair Government is currently making noises which suggest that the current £150 million annual taxpayer subsidy may be curtailed or even dropped altogether. This would result in very large numbers of sub post offices and quite a few main post offices being closed. This would have a considerable effect on many local communities, particularly those in rural areas where often they are an essential part of a village because they will combine the function of sub-post office with that of village shop. Let the post office go and the shop will go. There is also a modern problem, namely, the increasing lack of outlets in rural areas and the poorer parts of towns and cities where someone can withdraw their money. Banks are rapidly deserting both, especially rural parts, and often the only place left where someone can withdraw cash is the local post office.
The fact that British governments over past fifteen years ago have been so casual in their maintenance of the post office network simply reflects the general political mentality of the modern British political elite which no longer sees politics as making pragmatic policies for the entire country but of dancing to an ideology (neo-liberalism) which reduces life to nothing more than economic relationships. This mentality means that the modern British politician does not ask when confronting an issue such as the maintenance of the post office network “what social benefit does this bring?” but “is it profitable.” The fact that we currently have a Labour government which has relatively little support in rural areas suggests that party politics may also play its part in ignoring the interests of the rural population.
This causal ignoring of the interests of some sections of the population can be seem more generally in the failure of Government to take into account the difficulties of those who through a lack of money, knowledge or intellect do not have access to the internet. This lack is increasingly making day-to-day living highly inconvenient as more and more organisations either insist on dealing with people through the internet or make it very difficult to do otherwise. Millions of people are in this position yet the government often seems oblivious to the fact that so many have not joined the digital age, a classic example being the decision to end the analogue TV signal in a few years. The idea that millions of OAPs will be able to negotiate the change from analogue to digital comfortably is fanciful (there is also the likelihood that substantial numbers of people will not be able to get digital TV when the switch is made because even the engineers estimate that 2% of the country will not be able to receive the signal).
The Blair Government’s attitude towards the Royal Mail displays the profit-is-all mentality as well. They have not had the nerve to go for outright privatisation, but this may well come in the next few years – the Royal Mail chairman Alan Leighton, is currently lobbying for Royal Mail workers to be given a 20% share of the business. (Daily telegraph 14 10 2006). If the scheme goes through it would presumably make it much less likely that Royal Mail employees would resist outright privatisation as that would improve the market for their shares.
The hand of the EU is also to be found in Royal Mail. As mentioned before, the EU competition rules have forced Royal Mail to compete with private companies for much of their business and adopt inconvenient practices such as having to measure letters because Royal Mail can no longer do what it has done for a century and half, deliver letters under a certain weight no matter what their size.
39. Can we afford better public services?
The GDP of the UK is approximately £1.1 trillion (note trillion not billion – a trillion is a thousand thousand million). In the financial year 2006/7 the British government will spend approximately £500 billion. The size of the economy and the British budget alone suggests that there is considerable scope for economies and changed priorities.
There are immediate substantial savings which could be made. The Treasury per capita funding of the Scots, Welsh and Northern Irish is approximately £1,400 pa per head greater than the per capita funding of the English. If the Celts’ funding was reduced to the English level – note to not below the English level – that would save £14 billion.
Foreign Aid is scheduled to rise to above £6 billion pa in the next few years. After 40 years or so since decolonisation it is reasonable to ask why the British taxpayer is still funding supposedly independent states.
Britain’s present contribution to the EU is around £12 billion. About two thirds returns to Britain leaving a deficit of £4 billion. However, much of the £8 billion is only spent because we are within the EU, for example the agricultural support payments. It is not unreasonable to assume that at least half of the £8 billion would not need to be spent if we were not in the EU. Leaving the EU could plausibly represent a saving of £8 billion. Thus, those three areas alone – the over-funding of the Celtic Fringe, foreign Aid and the EU – could produce a saving of around £28 billion.
What departmental reductions could reasonably be made? Some departments are frankly difficult to justify at all in terms of any useful activity, for example, Trade and Industry, while others have large swathes of administration which exist only because of every modern government’s mania for trying to regulate everything, for example, the Department of the Environment. Such departments could be much reduced or lost altogether if a government was brave enough to make a bonfire of unnecessary regulations. It is also true that even in those public organisations which do a thoroughly necessary job, there is often genuine overmanning, ie, overmanning beyond that required to cope with all likely circumstances, to be found. For example, the heavylayers of bureaucracy inflicted on the NHS by “reforms” over the past twenty years could be substantially reduced if the “front end”financial controls advocated in section ? were introduced.
At the level of strategic decisions money could often be better spent. Take defence and large computer projects. Our armed forces are being shaped not to defend Britain but to engage in action abroad. A good example of this is the ordering of two giant aircraft carriers at a cost (with planes) estimated to be £13 billion, not far short of our present annual defence budget. Such carriers are also hideously expensive to run and require large numbers of ships to defend and supply them. They are also vulnerable to missile attack. By ordering them the whole defence budget has been distorted. Moreover, they have absolutely no military value in defending the UK for any defending aircraft can be launched from land. If our defence forces were restricted to the defence of the UK, our present defence spending would be sufficient at worst and at best might prove more than was necessary and could be cut.
Large scale government computer projects have been an unmitigated disaster, from passports to the ongoing farce that is the NHS computer system which is intended to link every GPs’ records with every hospital. Any large computer system changes the structure of how an organisation works. It means that the people have to work to the machines’ limitations rather than doing the job as best they can.
This means that vast amounts of resources of both money and manpower have to be devoted to training staff, maintaining the system and coping with thesystem when it fails. That alone should raise a question in any organisation as to whether any particular computerisation is wise or necessary. When an organisation is as large as the average government body, the questions looms very large indeed because the costs of such systems and their failures are vast.
Take the case of the NHS system mentioned above. The estimated upfront costs of this ran into several billions initially. That cost has already multiplied a few times and doubtless will continue rising. It is quite possible that if the system is ever completed more than £10 billion will have been spent – and that takes no account of the hidden costs of restructuring the organisation to accommodate the system. Even if it was a success the question has to be asked was it money well spent? Does it really add much to the smooth running of the NHS for hospital staff to be able to access GPs records immediately or GPs to be able to access hospital records? I would suggest it does not. If hospitals or GPs need such information they can get it rapidly by using email. Would not the œ10 billion or more have been better spent keeping wards and hospitals open?
The other problem with large-scale government computer systems is that they do not work properly or even at all. There is every indication from IT experts that this NHS system will not work as a national system and that all the taxpayer will get for his or her money are some remnants of the system which will work within limited areas such as a single hospital trust.
There is also a role for one-off hypothecated taxes, that is, taxes earmarked for a definite purpose. Suppose £10 billion extra is needed to build and renovate hospitals. A government could impose a new tax to be collected once only to raise that amount. Most taxpayers would support such a tax if it was going to a cause of which they approved. It would also avoid the bane of the taxpayer that once a tax is imposed it normally remains indefinitely. As such a tax would be a one-off, it would not suffer the usual objections to hypothecated taxes, such as the fact that the amount raised could not be guaranteed to correspond with the amount needed for the designated purpose or that people would only support hypothecated taxes for popular causes if all taxes were hypothecated.
Finally, there a great deal of money to be saved by removing all the politically correct trappings from within public service. To give an idea of the scale of that expenditure consider the case of the Metropolitan Police. Last year they spent on “equality and diversity training” £187 million, one sixth of the force’s budget (London Evening Standard 27 10 2006). Apart from the money spent, there is also the loss of efficiency and morale created by the habit public servants have had to develop of constantly watching what they say and do.
40. Does social provision corrupt?
One of the favourite arguments against social provision is that it corrupts the receiver by making them dependent and ultimately damages society by significantly reducing initiative and making people selfish. The facts do not bear this out as a general proposition – there will always be some free riders in a welfare state. Today we have a society in which the self-help gospel is constantly preached, people work longer and longer hours and most mothers work at least part time. This has produced a society in which the birthrate has dropped well below replacement rate. During the period when state provision was most heartily endorsed as part of the national furniture (1945-1979) the birthrate was above replacement rate. The ability and willingness tobreed is surely the ultimate indicator of the health of a society.
But that is not to say all social provision is benign. It is one thing for a society to provide those things which most cannot be reasonably be expected to provide for themselves, but quite another to build dependency into the system. That is what has happened in Britain where more than half the population now draw some sort of public monetary support. Some of those benefits are part of the legitimate armoury of social provision, for example, child benefit, unemployment benefit, sickness benefit and old age pensions. Others are not.
The most pernicious of the current benefits is Working Families Tax Credit, which can be drawn by families with a household income of over £50,000. This is a scheme in a long line of similar ones dating back to the old Poor Law of 1601. It is the granting of state money to those in work. The best known Poor Law example was the Speenhamland System of the 18th century which allowed outdoor relief to those (primarily agricultural labourers) whose wages fell below a certain level. The result was predictable. Where the scheme operated employers dropped the wages they paid to the level where the Parish (which administered the Poor Law) made up the wages through outdoor relief to those whose wages were lowered.
The Speenhamland System was a subsidy to employers. So is the Working Families Tax Credit. All it results in is employers paying lower wages. That is not because they are all evil grasping men or women. Lower wages are forced on all employers because there will always be a substantial number of employers who will take advantage of opportunity offered by any government subsidy to lower their wages. That means all employers must do so to compete.
Apart from the fact that it siphons off large amounts of taxpayers money, Working Families Tax Credit is a pernicious form of subsidy because it makes employers who employ many low wage workers dependent on its continuance, which obviously cannot be guaranteed. Either a future British Government may decide to abolish it of their own free will or tax harmonisation within the EU may force them to do so.
If it is abolished, such companies will be left stranded because they will have to pay higher wages. Moreover, the subsidy they are receiving now will cause them to be less efficient than they would have been without it. On the other side of the employment coin, families receiving the benefit will also be left high and dry if it ends, for they will have altered their lives according to the income they have received.
This type of structural dependency has evil effects beyond the economic because it can distort the democratic process. If sufficient people become dependent on a benefit such as tax credits they may make it next to impossible for any party wishing to be elected to propose its abolition because to have such a policy will drive anyone in receipt of the benefit to another party which supports its continuance.
41. The future of public provision
The present outlook for public provision is dismal going on hopeless. The Blair Government, having aimlessly thrown vast amounts of extra money at direct
public services such as the NHS to no good effect, is attempting to cover its political blushes by funding much future public provision through private finance and private corporate involvement.
The policy is being introduced into every conceivable part of our public service from the running of prisons to the administration of NHS hospitals. This provokes remarkably little political debate despite the fact that it not only radically changes the relationship between the public and the service they are paying for, but has already proved to be more expensive than direct provision in many instances. Despite the ever more dismaying experience of railway privatisation, Blair’s Government in its second term permitted the part-privatisation of the Air Traffic Control system and careered on in mindless fashion with plans to part privatise the London Tube system and to introduce private finance into a multiplicity of public enterprises from roads to social housing. On the supply side of the public service coin, Labour increasingly stands aside from providing any new direct public provision, no matter how obvious the need in areas such as housing.
Despite David Cameron’s “Tories aren’t complete bastards, honest!” propaganda campaign, the Conservative Opposition are still immobilized in the morass of Thatcherism. Look behind Cameron’s “right on” language and it is clear that the party still instinctively feels the welfare state is bloated and views the direct state provision of goods or services as a recipe for waste and incompetence ay best and as ideologically unsound at worst. The Tory Party continues to advocate private provision wherever they dare and private finance in public projects for virtually everything else in those areas where they do not have the courage to go the whole hog and say that the individual should be left to fend for themselves. The distance between NuTory soft words and policy was nicely encapsulated by Cameron’s portrayal of himself at the 2006 Tory Party Conference as “the defender of the NHS”, while remaining quite content to allow ever more private business involvement in the NHS.
There is a further fly in the direct provision ointment. EU Competition rules are forcing Britain to destroy or greatly reduce in effectiveness some aspects of public provision, for example valuable and justified public monopolies such as Royal Mail (dying the death of a thousand competitive cuts – see section 38) and the 192 directory enquiries system (abolished).
The EU is also threatening public provision through attempts to restrict public spending, for example, Reuters reports (12 10 2006) that the European Commission (EC) is attempting to reduce public spending throughout the EU to prepare for the “pensions crisis” which is supposed to engulf the EU over the next half century.
The EC claims that unless something is done, public debt within the EU will treble to 200 per cent of GDP by 2050. This is reckless scaremongering because no one can meaningfully predict demographic trends that far into the future, let alone the immense economic changes that will happen over such a period. Sadly, that fact will have little bearing on whether the EC will be successful in their quest to cut public spending because that will be a political decision not a rational one. As cuts in public spending would fit neatly with the present “public service bad, private business good” ideology adopted by so many governments within the EU, there is a fair chance the EC will be at least partially successful.
If the EC is successful, any cuts in public spending would in theory bear heaviest on members of the Euro (and thus not Britain) because Euro members are legally committed to keeping their deficits within limits (pause for hollow laugh). However, past experience suggests that whether Britain is a member of the Euro or not, she will find the same rules imposed on her by EU hook or by EU crook to ensure “equality” throughout the EU. (It is worth noting that Britain is already morally committed to keeping within the Euro public spending deficit limits).
Mass immigration is also undermining public provision. It does this in two ways. First, immigrants compete for the social provision Britain offers because the British system allows many millions of foreigners who have not contributed anything to enjoy the full benefits of the considerable public provision available to a British citizen. Any person granted the right to reside permanently in Britain qualifies. That includes some 400 million EU nationals and anyone else legally resident within the EU. British citizens have reciprocal rights in other EU countries but these rights merely require each EU member state to grant the same social provision rights to Britons as they do their own citizens. The social provision in many of the EU states is, as a package, considerably inferior to that offered in Britain. It is also true that far more foreign EU nationals settle in Britain than Britons settle in the rest of the EU – Britain is particularly vulnerable to such immigration because English is the second language of choice for so many foreign EU nationals and the Blair Government, unlike almost all other EU states, made no attempt to stop immigrants from the EU new entrant states such as Polnd.
To the EU population legally entitled to settle may be added those granted asylum, the dependent foreign relatives of British citizens in Britain who are granted the right to join their relatives in Britain, the spouses of those who marry British citizens and those allowed to remain on compassionate grounds, foreign students from outside the EU and those granted work permits.
Finally, many of those who are here illegally manage to obtain access to British social provision by fraud. There is also the problem of “health tourism”, whereby foreigners come to Britain simply to obtain free treatment on the NHS – they are frequently successful because the NHS in practice rarely checks a patient’s immigration status.
All of this puts a tremendous extra burden on the British taxpayer and causes widespread resentment amongst the native population who naturally think that they should not be paying for foreigners or having to compete for the social provision which exists. The poorer members of society are particularly affected because they are the ones who most need social provision, especially in the areas of housing and healthcare – the poorer the area the more need for social housing and often the medical services available locally are meagre compared with more prosperous neighbourhoods. The success of the BNP in Dagenham at the local elections in May 2006 was due in part to the issue of social housing being perceived to be being swallowed up by recent immigrants.
The second way immigration weakens social provision is more subtle. If it is perceived by the native population that large amounts of money are being spent on foreigners, many, particularly those who are less in need of social provision, will begin to question its value at all. This is important because for social provision to be maintained in the long term it requires a general social acceptance. If the better off start to feel they should be paying less for that which they do not use (the better off actually get a very good deal out of the taxpayer – see section 4) there is the danger that necessary social provision will be significantly lessened.
What applies to first generation immigrants also applies to members of ethnic minorities who are born in a country. There are sufficient academic studies (for example, Welfare, Ethnicity and Altruism ed. Frank Salter) of how ethnicity affects the willingness to pay for public provision to tell a clear story: people generally are more willing to support public provision where the provision goes to their own ethnic group.
The public, which is generally in favour of the Welfare State and other public provision such as education, stands helpless, trapped by a stagnant political system which offers them no choice. The ordinary working man is alarmed and resentful to see whole swathes of British industry vanishing as his political leaders tell him this is “inevitable” as employers look abroad for cheap labour. He is nervous when he hears constant calls to introduce private money into public services. Yet he finds that whatever he thinks it does not matter because neither the Labour or the Conservative parties offers him a conduit for his political wishes for both parties disagree with him. Nor can he gain access to the media to express his dissatisfaction or engage in debate. In short, the ordinary elector is practically disenfranchised.
42. Why is the repudiation of public provision happening?
It is easy to see why the Tories are supporting private initiatives over public, but what about Labour? Why are they so determined to go against all their tradition? The answer lies in a mixture of ideological change, expediency and international treaties.
The Labour Party is engaged in an ideological war. New Labour believes it transformed itself into an electable entity in the 1990s by repudiating the Party’s past. Whether that is true is irrelevant for our purposes. (My own view, for what it is worth, is that the Tory Party simply came to the end of the political road and Blair came in by default). What matters is that the received opinion amongst those who control the party today is that the Blairite “re-modelling” was the cause of Labour returning to power.
Blair’s government has increased public spending considerably. The problem is that it has been done shamefacedly and without any clear sense of direction or commitment that neither those in the public services nor the public have any clear idea of what the Government wants or how it will achieve it. Money has been flung at public services and individuals haphazardly, in the manner of a man making a religious or charitable offering, the giving being the important act.
At the same time as direct public spending has increased, the Government has crashed on with introducing ever more private money and private business activity into public service. Those in the public service do not know whether they are coming or going and the public just see more and more money being spent apparently to no good purpose. The consequence is both a blurring of the lines between public and private and a general feeling, whether justified or not, amongst the public that the future is horribly uncertain for public provision, a feeling made more poignant by the absence of any meaningful political opposition to what is happening. The danger is that much public provision could fall by default in such circumstances with the public becoming defeatist about the power of the state to provide the basics where the individual cannot.
Old Labour was and is wholeheartedly pro-public service. New Labour has to a significant but one-sided degree donned the economic clothes of Thatcherism. They have not in practice retained the low tax, low spend part of Thatcherism, (although in truth that was often more observed in theory than practice during the Thatcher years). What they have accepted with the fervour of the religious convert is the Thatcherite commitment to introducing private enterprise into public matters, either directly or through sub-contacting. In particular they want the burdensome government responsibility for complex organisations such as the NHS to be placed either at one remove in so-called freestanding agencies or, even better, cast adrift entirely into fully fledged private business where the public will pay directly rather than through their taxes.
This is not done from noble or even purely ideological motives. It is largely grubby expediency, both at the national and international level. On the domestic front, if a service can be put entirely outside the public realm, the government loses a responsibility. It neither has to account to the public for the service nor raise the money to pay for it. The public pays directly and the one time public employees cease to be a charge on the public purse, both as employees and as future pensioners.
Of course, the provision of some services is so absolutely essential that the government cannot shuffle off all responsibility – such as health and welfare provision – but even there they distance themselves by placing responsibility with so-called freestanding units such as the Benefits Agency or by diluting direct public control through contracting out such jobs as cleaning, transport and food supply. The advantages for the Government are two. First, the government has the opportunity to muddy the waters by saying that the people providing a poor service, for example, hospital cleaners, are not government workers (thus giving the spurious impression that the government are not responsible). Second, overt long-term costs are reduced because no pension costs are incurred by the taxpayer. I say overt because often such savings are offset by increased benefit take-up by those made unemployed, take low paid jobs which qualify them for benefit or who require more state aid in old age because they have no adequate workplace pension.
Although Labour has accepted the distancing of government from direct provision of public services part of Thatcherism, it has not accepted the other half of the equation, that government control of private enterprise should be slackened as much as possible. Judged by their performance since 1997, Labour’s general economic tactic at present is to control business without owning it. This, ironically for a government supposedly of the left, is the classic economic tactic of fascism.
Those are the mundane, dirty causes of the trend towards a repudiation of public provision, but there is also the question of psychology. The most corrosive aspect of politics is ideology. (The only sane way of approaching politics is to ask what ends you wish to achieve and then seek the means to achieve them. The means are important in as much as they should not be immoral or their employment in some way to compromise the desired ends.)
By ideology I mean a political creed which purports to have the answer to everything. Marxism does that with its attachment to the inexorable march of the dialectic through history: Neo-Liberalism does it with its quasi-religious belief in the market. It is the latter which has captured modern British politics, at least at the level of those who control the major parties.
Neo-liberalism, like Marxism, has considerable emotional rewards for its disciples because it offers a complete explanation of and guide to action for its disciples. The need for hard thought is removed, all the disciple has to do is refer to set principles and interpret any situation in their light. It is the type of creed to appeal to the religious temperament such as Blair’s.
The Blair Government is reflecting a general trend in the First World. We are moving into an age of plutocracy, of a time when the rich use their power to advance their own interests without concern for the poor and the poor have no power to stop them.
Nor is it only the poor who are affected. The middle classes may ape the rich and parrot their ideology, but they are increasingly finding it more and more difficult to sustain the lifestyle which people in their position had previously taken for granted, such things as home ownership, private schools and even a university education having all become so expensive that even an income well above the average cannot meet them all.
There is nothing surprising in this behaviour. Elites as a group will always behave selfishly at best and be deliberately abusively at worst.There may be individuals within an elite who will have a genuine concern for the poor – Lord Shaftesbury in the 19th Century for example with his campaign against child labour – but their concern will be corralled both by the limitations of their social horizon and by self-interest. Often a humanitarian cause will be divorced from the general inhumanity of the conditions of the poor – Wilberforce’s anti-Slavery campaign is a classic example. Very rarely indeed do members of an elite give up t eir own material privilege – two examples are the philosopher Wittgenstein and the Victorian English missionary C.T. Studd who both gave away their inherited wealth. However, even they did not give it to the poor, but transferred it to other members of their family.
All human institutions become corrupted by elite self-interest. The German sociologist Robert Michels developed the notion of the iron law of oligarchy early in the last century. He intended it to explain why institutions and movements supposedly devoted to the promotion of the interests of the poor, for example Social Democratic parties and trade unions, invariably became corrupted into being vehicles primarily for the promotion of the interests of those who gained power within them. In fact, what he was describing was a general behaviour associated with any formal institution. They invariably become a vehicle primarily for the promotion of the interests of those who gain power within the institution. Its ostensible purpose will be pursued to a degree but only in so much as it does not clash with the interests of its controllers. If we accept that elites will always exist because human society is inevitably hierarchical, the central political question becomes how far can the masses prevent thwart the naturally abusive tendencies of the elite? For most of history the masses have been generally very unsuccessful in this aim. Their only times of success have come within the context of the modern nation state.
43. The nation state – the only democratic platform
Democracy in the literal direct sense does not exist in the modern world, indeed for practical reasons cannot exist in a state of any size. What we have is what political scientists call elective oligarchy, a political system whereby the electorate is offered a choice ever few years between competing parts of a society’s elite.
That paints a dismal picture for the masses. However, even within an elective oligarchy, they can exercise considerable control given the right circumstances. What the masses can do and have done for most of the past century and a half in Britain is exert an ever increasing control over the elite through representative institutions. But they have only been able to do this because the representative institutions have operated within the context of the national state. Elites as groups have been forced to take heed of the masses because they relied upon their votes to be re-elected and the system worked by and large because the major political parties offered a meaningful alternative on the most of the great issues.
In the past thirty years our political circumstances have changed dramatically. Two things have happened. The freedom of action of the Government and Parliament has been greatly reduced and the political parties have become ideologically aligned.
Entanglement in the EU has resulted in a majority of British legislation ultimately originating not in Parliament but within the European Commission, while various treaties have removed whole swathes of political choice from the electorate, ranging from proper control over foreign policy and border control to the pursuit of a national economic policy. Most profoundly the European single market agreement and the GATT treaty arrangements and membership of the World Trade Organisation (WTO) have left British parties with no choice of economic policy, or as things stand they have to support the notions of free markets and free trade. Any party wishing to offer protectionism and state intervention in the economy cannot do it unless they commit themselves to withdraw from the EU and WTO.
The consequence of the our membership of the EU and our other treaties is that our politicians in practice can offer very little difference in policy to the electorate. And, of course, our politicians find it convenient to use our EU membership and other treaty obligations to excuse themselves from responsibility for unpopular measures or as justification for forcing through vast amounts of detailed legislation which Parliament, let alone the electorate, is barely aware is being passed into law.
The position is worsened by the careerism of the modern politician. This has always existed to a degree, but what we have now is of a different order of magnitude. The really depressing thing about the House of Commons now is the sheer narrowness of experience of the members, many of whom have never had a career other than their political one. Hence, once on the political career bandwagon they cannot afford to get off. The current bandwagon is the internationalist one.
Internationalisation od economics and politics dissolves national sovereignty. The left may cheer this but they are discovering by the day just how restrictive international treaties and membership of supranational groups can be. As things stand, through our membership of the EU and the World Trade Organisation treaties, no British government could introduce new socialist measures because they cannot nationalise companies, protect their own commerce and industry or even ensure that taxpayers’ money is spent in Britain with British firms. As far as economics is concerned, a British government can have any economic system they like provided it is largely free trade, free enterprise.
The Right are suffering the same sickness with different symptoms. They find that they are no longer masters in their own house. They cannot meaningfully appeal to traditional national interests because treaties and EU membership make that impossible. Control of national borders has gone.
A reversion to nationalism need not be a party political matter in Britain, but the modern British left are unfortunately conditioned to believe that the national state is at best outmoded and at worst xenophobic, racist even. This ignores both the history of the mainstream British left and mistakes form for content.
The Labour Party for almost all of its existence has been strongly protectionist and hence de facto in favour ofthe nation state. Indeed, Blair in the late 1980s was still an economic nationalist. Moreover, for most of the time Labour has been consciously in favour of the nation state and of Britain’s independence – few could give the likes of Attlee and Bevin lessons in patriotism.
As for mistaking form for content, it is simply a matter of empirical fact that the nation state does not produce a uniform behaviour – take Switzerland and Iraq from the present day as examples of that. The idea that nation state equals aggressive, xenophobic, badly behaved warmonger is a literal nonsense. In particular, there is good empirical evidence that where there is significant democratic control within a nation state, this makes aggressive war much less likely than where a dictatorship exists.
It is also true that supranational bodies are not noticeably better behaved than nation states. Worse, they have a large element of the sham in them, being invariably dominated by the more powerful component states, for example, the UN being heavily manipulated by the USA and the EU broadly controlled by its major members. Supranational bodies are not simply vehicles for the normal process of power-mongering, but, in practice, that is their prime function. That they give a spurious appearance of international agreement and legitimacy adds to the ability of the dominating states within them to exercise control over weaker states by direct threats, the withholding of money and, most insidiously, the development of bureaucracies which carry forward the policies forced on the supranational bodies by the most powerful members. ( It is often said that the UN has no power. This is utterly mistaken. It may not have an army but there is a vast web of agencies which allow a great deal of control and influence to be exercised over states which seek their assistance. Some such as the IMF and World Bank control client countries from the outside, while others such as UNHCR permit direct internal interference on the ground.)
Nothing I have written is meant to suggest that private enterprise is not the best way of managing most human economic activity. Being in favour of public services and the welfare state does not mean being in favour of spending for spending’s sake. Nor does it mean recklessly advocating public provision regardless of the cost.
History shows that governments are poor at managing enterprises in comparison to private business where proper competition exists and universal provision of the basics of life are not at stake. Nor should the government provide directly where the provision of money to those in need will solve the problem. It would be grossly inefficient, for example, if a government decided to supply food directly to people in need rather than give them the money to buy the food and even more outlandish if the Government decided they had to produce the food as well as supply it.
But there are some items which are beyond the realistic reach of most people. The provision of healthcare, education and a liveable pension in old age are absolute necessities because few of the population can undertake the cost of providing for these for themselves and their children. It is also essential that decent housing is available for all and the state should intervene to ensure its provision.
As a matter of policy direct public provision should be restricted to areas of service where universal provision is required and where it cannot be supplied by private businesses because of the need to make a profit.
It is also unhappily true that bureaucracies have no natural size. If a government is willing and the tax revenues sufficient, there is no end to the expansion of administrate for administration’s sake. Strict limits need to be put on the number of administrators, the limits to be set by deciding in advance what is to be provided and how much it will cost.
Universal provision has the advantage of simplicity and of maintaining the dignity of recipients. That rich and poor are eligible for the same provision is neither here no there because any seeming redundancy in providing benefits to the better off can be adjusted through the tax system, that is, the richer you are the more income tax you should pay. (The very rich and the self-employed to a degree can avoid income tax, but most cannot).
Mixing public and private, as with PFI, fatally blurs lines of responsibility. This means that when things go wrong no one is held responsible. Politicians point the figure of blame at public servants running “arms-length offices” such as the Benefits Agency or the private companies which have supplied the service, civil servants point at private companies or even, whisper it softly, politicians, and private businessmen blame politicians and civil servants. The taxpayer is left with the worst of all worlds, the ultimate responsibility for picking up the bill but no meaningful control over how it is spent.
Necessary and desirable as public provision is, it should be, like private charity, a safety net not an end in itself. Monetary benefits to those of working age should not be so generous as to dull or even remove the desire and need to work where the individual is capable of doing so. Take away the need for private effort and the economy will suffer.
Supporters of public provision should always keep firmly in mind the fact that the money from the provision comes from the profits of private business. Take too much from that and the less there is for reinvestment and the starting of new businesses. In high tax, high regulation economies there is a considerable disincentive effect on business generally with a marked tendency for domestic companies to move to countries with a more friendly tax and regulatory regime and for foreign companies not to invest. That in turn will reduce the amount of future profit and private employment and consequently lessen the tax available for public provision. It is important not to kill the goose which lays the golden egg. This should be obvious, but all too often the supporters of public provision seem incapable of making the link between public spending and the ultimate source of the taxes which fund it.
In short, public provision should be kept to the minimum of what is necessary for an advanced, civilised and stable communityand that provision should be adequate but not lavish. What needs to be understood above all is that if public provision is lost, the large majority of the population will find not that it is choice between public services and private services. Rather they will find the choice is between much reduced services or no services at all.