Banking on the taxpayer

Third in the list of this week's bad policy ideas* is the revival of talk of a state-owned or -backed infrastructure bank. The FT wrote approvingly of how both major UK parties are considering this option:

By reducing the risk to investors, it could bring down the cost of capital for the industry and hence the ultimate cost to consumers... 

The bank could fund projects such as nuclear plants and wind farms, spreading the risk over a range of investments and issuing bonds that could carry tax advantages and possibly a state guarantee...

In return for the cheaper funding, the industry would have to accept tighter regulation, moving away from the UK's free market for energy towards a framework of returns agreed between companies and the regulator.

The Conservatives' New Economic Model, launched on Tuesday, promises:

We will create Britain’s first Green Investment Bank, which will draw together money currently divided across existing government initiatives, leverage private sector capital to finance new green technology start-ups and back the bright ideas of the future. Lord Stern has agreed to advise us in the creation of this Bank. 

It turned out that Lord Stern had agreed no such thing, thank goodness (haven't the Tories noticed that fewer and fewer people think the Stern Review's approach to carbon valuation holds water?). But that's just a sideshow. The point is that, with or without Stern, the Tories are quite committed to the concept.

Meanwhile, Labour (according to the FT) is:

considering such a bank as a way to raise funds from long-term investors such as pension funds

It looks like most of our intellectual class thinks we need goverrnment-managed lending to deal with the difficulties of long-term investment in infrastructure. They are wrong. We need to deal with the reasons that businesses judge there to be insufficient reward to justify the risk of investment in infrastructure, not preserve those inefficiencies by hiving off a chunk of the risk to taxpayers, pension-fund beneficiaries and the like. The following is an attempt to explain how and why.

The remorseless decline of tribal socialism

My copy of Dan Hannan and Douglas Carswell's book, The Plan, arrived today. Haven't read much yet and don't agree with all that I've read, but all the same, if you haven't got a copy, you should. It's well worth the read, and more right than wrong.

Something struck me about a graph of voter turnout in UK general elections, early in the book. It looked like Conservative wins were generally on higher turnouts than Labour wins. I thought I'd check.

What follows is not strongly statistically significant, but it's not insignificant.

My impression was confirmed by the figures. Since the war, the average turnout at elections where the Conservatives won was 76.4% and when Labour won was 72.5%.

In collating the figures and looking for an explanation, some other trends suggested themselves. The Labour vote appeared to be much more consistent than the Conservative vote. And indeed it is. The standard deviation in the Conservative vote is 1,932,000, whereas the standard deviation in the Labour vote is 1,393,000. The standard errors from the linear regression lines show similar but even stronger outcomes (1,955,000 for Conservative, 1,224,000 for Labour).

Graph of votes for 2 main parties in UK elections since 1945

And even this overstates the variability of the Labour vote, due to two extraordinary performances (one good, one bad) in 1983 and 1997 (the reasons for which are well known and not representative of Labour's performance under normal circumstances). Without these two, the standard deviation in their vote is only 1,122,000, whereas you can take the two most extreme performances by the Tories out of the equation and the variability of their other performances would still be such that their standard deviation would be around 1,600,000, much higher than Labour's all-inclusive figure.

The consistency of the Labour vote made it relatively easy to spot another trend. Their vote is heading quite remorselessly downwards (with the exception of 1997), even as the voting population increases. So, statistically, is the Tories' vote (though marginally less so). But in the Tories' case, this trend is dominated by their dismal performance in the last three elections, again for reasons that are well known. Taking those performances out of the equation, the Conservative trend is somewhat upwards, whereas the Labour trend remains unremittingly downhill.

Some highly-speculative conclusions suggest themselves to me.

  1. The Labour vote is more tribal and dependable (and, I am tempted to say, unthinking).
  2. Elections are won or lost by the extent to which non-Labour voters are sufficiently alarmed by Labour to turn out for the Tories, or sufficiently disillusioned with the Tories to stay at home and let Labour win by default. With the exceptions of '83 and '97, the electorate seem to swing to or from the Tories, much more than they swing to or from Labour.
  3. Labour may not be able to rely on disillusion with the Tories bringing them back to power in the future, as their core vote is declining, and they don't usually pick up much of a swing vote. Recent events won't have helped.
  4. Going by the trend, even with a fair wind and a competent and likeable Prime Minister, they would be doing well to pick up 10,000,000 votes at the next election. If they are out for more than one term, their core vote may be down to 9,000,000 and that will rarely be enough to win an election, even against an unpopular Tory party, and even if the Tories don't correct the constituency boundaries that are currently gerrymandered to Labour's advantage.
  5. Labour are unlikely to have a fair wind between now and the election, and they bottled the chance to ditch their incompetent and contemptible Prime Minister, so 8 to 9 million votes looks like a realistic expectation for the coming election.
  6. If the last three elections were representative of a sustained trend, but assuming that Cameron will come in above trend, the Tories could expect upwards of 11 million votes.
  7. But the last three elections look like aberrations rather than part of a trend to me. If so, the Tories have a decent chance of being in the 12 to 14 million range for votes. Psephologists may doubt the likelihood of such a strong swing, but 1997 demonstrated that something of that scale is possible, and Brown's government is every bit as unpopular as Major's was, Brown is personally much less well-liked, and Labour won't be able to point to three years of strong economic performance and good guardianship by a judicious Chancellor.

Unless the Tories self-destruct or Brown gets his economic miracle, this highly-speculative, statistically-weak analysis hints that Labour may be about to get drowned by a democratic tsunami greater even than the media have been starting to suggest.

Good on the British people. It may be slow progress, but it seems that each time we give the socialist alternative a chance and discover what a disaster it is in the long-run, a few more people learn the lesson and don't forget it again. They may still be susceptible to all sorts of woolly, interventionist, paternalist nonsense from wet, one-nation Tories, but at least they have recognized that the socialist snake-oil doesn't work. I haven't felt so optimistic in a long time - not about the political options that we have at the moment, but about the fundamentally-sound economic sense of a good swathe of the British public, despite all the best efforts of our intellectual class. It confirms my belief that British voters could be persuadable to support a genuinely-economically-liberal party, if one were to present itself to them.

Temporary lacuna

Sorry I've gone quiet again.

Although I work in the energy industry, my greatest passion (policy-wise) is the perversity and cruelty of welfare policy and the overwhelmingly negative effect it has on our economy and the wellbeing of those it affects, rich and poor alike.

I was recently lucky enough to sit next to Shaun Bailey, and chat to him about welfare issues. Shaun's descriptions of the follies of welfare policy are powerful and authentic. However, for me, he has not yet followed his diagnosis through to the logical prescription: Basic Income plus Flat Tax (BI+FT).

I have been planning for some time to put together a website to set out a political programme, to be called Freedom and Responsibility, based on Austrian, classical-liberal, individualist principles, in which a BI+FT approach is a central plank. The conversation with Shaun motivated me to get on with it. That is what has been distracting me from Picking Losers. It may take some time (although I have already programmed the system that allows you to compare the outcome of the current system and a BI+FT system for your household's disposable income over a range of earnings).

In the meantime, here are a couple of gems that I gleaned as I updated myself on our current welfare system (I first got into the tedious detail while lying in bed with a ruptured Achilles and watching the Tory party conference on TV around 3 years ago - ah, those were the days...). You may already be aware of these, but they exemplify for me the stupidity and perversity of the current system:

  1. When calculating entitlement to Pension Credit (a top-up to the State Pension for those with little additional income), the state takes account of the amount of savings that the pensioner has. The basic Pension Credit can be worth upto around an additional £1800. If the pensioner has more than £6000 of savings, the Pension Credit is reduced on the basis that each £500 over the £6000 will yield income of £1/week (i.e. £52/year). So the government, whose policies have been primarily responsible for the fact that you are doing well to get over 1% interest on a savings account, treats pensioners as though they get over 10%. When did anyone last get 10% on a savings account? If you were on a modest wage, would you bother saving more than £6000 (which would contribute under £100/year to your income at the moment) for your retirement, faced with this extraordinary disincentive? 
  2. If you are unemployed and receiving Jobseekers Allowance (JSA), and find a part-time job paying over £2600 p.a. (for contributions-based JSA, zero for income-based JSA), your JSA will be reduced by £1 for every £1 that you earn. That is a 100% marginal effective tax-rate! You will be no better off earning £5000 p.a. than you would have been if you earned £2600 p.a. (and in fact worse off for some, once one takes account of other benefit withdrawals). There are also ridiculous penalties under the JSA for savings, given current savings rates. It has made little sense for quite some time now for low-medium earners to put money away for a rainy day - the government will penalise them for it until the money is gone.

The mindless, heartless stupidity of it makes me seethe. As does the equal stupidity of commentators who allow that Brown and Balls, the architects of our dysfunctional system, are either intelligent or compassionate. They are clever in the art of intimidatory politics, but utterly unintelligent, verging on sociopathic.

Responsible to whom?

From the BBC's live blog of Gordon Brown's press conference yesterday:

1705 The prime minister says he "will not waiver and will not walk away". He adds: "I admit there have been full mistakes made and I accept responsibility."

JamboTheJourno tweets: I think Brown's acceptance of responsibility potentially gives him the opportunity to start afresh.

Taking responsibility doesn't mean what it used to, does it?

The whole country has shown that it doesn't want this unelected Brown government.

  • Labour don't control a single council in England, and are down to under 180 councillors in the contested constituencies, compared to nearly 1500 for the Tories.
  • The LibDems have far more (473) councillors than Labour (and have a higher share of the vote).
  • Almost as many independent as Labour councillors were returned (164 and 176 respectively).
  • Who could ever have imagined seeing the Tories controlling Lancashire and Nottinghamshire?
  • Eleven ministers, including six cabinet ministers have quit (Jacqui Smith, Hazel Blears, John Hutton, James Purnell, Geoff Hoon, Paul Murphy, Caroline Flint, Tony McNulty, Margaret Beckett, Beverley Hughes, Tom Watson).
  • Brown has so much confidence in his parliamentary party and they in him, that he can't find suitable candidates for the vacancies from the 350 or so Labour MPs, and has to give two departments to the unelected Peter Mandelson and draft in other unelected individuals like Lord Adonis, Glenys Kinnock and Alan Sugar.
  • Brown is so enfeebled and dishonest that he can't move the ministers that he had planned to, then lies to the press by claiming that he had never planned to move Darling, and then preaches about the virtues of honesty and integrity that he learnt at his father's knee.
  • Less than half the Labour activists or supporters surveyed in polls on the Labourlist website, for Channel 4 News, in the Mail on Sunday and The Times want him to lead the Labour party into the next election.
  • In recent polls, the majority wanted a general election now (Telegraph, ITV News).

But what do the public know? Who are we to judge the Prime Minister? What matters is the Prime Minister's judgment of himself (and, to a lesser extent, the judgment of those who depend on him for their government positions):

"If I didn't think I was the right person, leading the right team, I would not be standing here... I have faith in doing my duty, in being fair to others, and in honest politics, and this is who I am... Our party cannot lead or succeed by heeding the empty and expedient reactions of the hour... I will not waiver, I will not walk away, I will get on with the job and I will finish the work."

So that's alright then, Gordon. You carry on "taking responsibility" by ignoring everyone else and reducing the country to penury to pay for your mistakes, while we figure out, if you won't listen to opinions expressed peacefully and democratically, how else we get rid of you. Your delusional faith in your own abilities and refusal to heed public sentiment may be the death of democracy in this country, but what do you care? You are in good company with other leaders who knew that their leadership was in the best interests of their ignorant, ungrateful populace. Charles I, Louis XIV, Stalin, Hitler, Mao Tse Tung, Saddam Hussein, Kim Jong Il, Gordon Brown...

Renewable redistribution

It was a miserable budget. Lots of people got screwed. The main ones will be picked up by the commentariat. Let me add to that list a group who many might imagine had done quite well: renewable developers.

But didn't Darling throw lots of money at renewables?

Well, sort of.

The headline was £525 million "uplift in support for offshore wind investments" that "is expected to support £9 billion of investment and power up to 2.8 million homes". Pretty generous, right?

The way this money will be delivered is by "banding up" offshore wind under the Renewables Obligation (RO). Therein lies the rub.

Gordon's Investment Bank

The European Investment Bank (EIB) "has 6 priority objectives for its lending activity":

  • Cohesion and Convergence
  • Support for small and medium-sized enterprises (SMEs)
  • Environmental sustainability
  • Implementation of the Innovation 2010 Initiative (i2i)
  • Development of Trans-European Networks of transport and energy (TENs)
  • Sustainable, competitive and secure energy

Our company (an SME in renewables) recently approached them about funding for a project in a remote part of Scotland to produce sustainable heat and power (including district heating to social housing), and sustainable heating fuel to be distributed from the local port (which needs the business since the decline of the fishing industry) to parts of the UK where resources for sustainable heating are scarcer. This ticks most of the above boxes, but we were told by the EIB that the project is too small. They have a "priority objective" to support SMEs, but a project costing tens of millions of pounds is too small? How big are these SMEs that they hope to support?

Still, no one is guaranteed finance, and perhaps the EIB have more suitable projects elsewhere. Happily, there have been a spate of announcements recently on projects that have received or are in the running for funding from the EIB, so we can see how they are meeting their objectives:

A delightful list of innovative projects by SMEs, promoting cohesion, convergence, sustainability, competitiveness and security in the transport and energy sectors.

Government ≠ Country

Alistair Darling, explaining that the downside of reduced bonuses in the City is reduced tax revenues, said (on the Andrew Marr show this morning):

"that's why our income as a country has gone down".

No Alistair. That's why your income as a government has gone down. Government income is not the same thing as national income, and government is not the same thing as country. This confusion is at the root of the Labour delusion.

Or are you claiming that City bonuses drove national income? And if so, why are you trying to make dramatic reductions in City bonuses?

PMQs & Climate Change

In today's PMQs, Ming Campbell asked the PM, with specific reference to the recent floods the following question:

"The Prime Minister was responsible for the establishment of the Stern report which as he will recall pointed out the severe economic consequences of climate change. Isn't it clear from the events of the past few weeks that we can not afford not to take the necessary steps nor indeed not to spend the necessary money in order to mitigate the effects of climate change."

To which Gordon Brown answered:

The Government gets gold (Tories silver)

The results are in. As expected, the Government has won Gold, while the Conservatives have had to settle for Silver (Gilt). It's a creditable performance, but not quite competitive. Close, but no banana - is this a taste of things to come?

OK, the proxy battle being fought at Hampton Court Flower Show isn't a perfect test-bed for the political contest. But neither is it unrelated.

DfES Hampton Court GardenThe Department for Education and Skills garden won not only Gold but Best in Show with a celebrity- reinforced team of all the talents, fronted by Chris Beardshaw of Gardeners' World and Flying Gardener fame. They also threw money - £250,000 - at the project to ensure success. I am told that this is the going rate for a show-garden of this size, and that Chris and his team did very well to ensure a successful return on the "investment" (to use the Government's preferred term for spending). However, it was up to the Government to specify the size and budget, and once again they have shown a disinclination to cut their cloth to suit their means. Success, but at a price.

As a project that was intended to involve "the active and creative participation of the young people themselves", there was potential to save some of the cost through the involvement of those young people. Unfortunately, that participation was limited to design and growing the plants. Health & Safety regulations meant that the children could not be involved in the construction of the garden. A wasted opportunity to educate, enthuse and save money, thanks to red-tape.


Tory Hampton Court Garden

The Tory garden was built for The Conservative Foundation, whose purpose is to build a "secure capital fund" that will "safeguard the Party's finances for the longer term". In other words, the Tories have created a garden to attract the coffin-dodgers who make up a large part of the visitors to this sort of show and who might be prepared to leave them some money in their wills. This would be a more effective strategy if anyone was actually manning the garden, as was not the case (on occasions, at least) on the opening day. Cynicism and incompetence - what could be more Tory nowadays?

The LibDems were nowhere to be seen.

Very educational, these garden-shows.

Rosie Boycott: Labour have made a hash of things

Rosie Boycott has just said on This Week that "in 1997 we were elated but actually we didn't have that many great big problems. And there are a lot of big problems: there is the war, there is the environment, there is the huge gap between the rich and the poor, you know we've had nine murders of young men in recent weeks, we've had gun crime, we've had all sorts of things that are awful." In anyone else's mouth, this would mean that the Tories left things in a pretty good state in 1997 and Labour have made a hash of things since then.


JG has posted on the subject of Tony's legacy. This post started as a comment, and grew so large that I decided to post it separately.

I must see things through an inverting lens.

  • Reagan: Never a buffoon in the eyes of those old enough to see through the Spitting Image caricature, and intelligent enough to understand the mess the Western economies were in in 1980. Heard an excellent example recently of how well Reagan "got it", better than any American president for a century, from a woman who worked in his administration. Her husband also worked for him, in the Department of Agriculture. Invited to see the President, he told Reagan how efficient he was going to make the Department. Reagan's reply: "Now listen, don't make it too efficient. Can you imagine if we got all the government we pay for?" That's a smart cookie.
  • Thatcher: Cruel to whom? The British government had spent decades being cruel to those who wanted to improve their lot, and generous to those who just wanted a wage for a day's attendance or better still a wage for no attendance, regardless of whether they contributed to the economy. She reversed that, and although far more people benefited (then and now) than suffered at the time, all people talk about is how hard it was on the people who had been screwing the British economy for decades. I'm sorry, but they had it coming to them. And as for megalomania, her biggest mistakes were when she left people like Geoffrey Howe and Nigel Lawson (and her European counterparts) to lead her up the garden path on the Single European Act and the ERM. I bet she regrets being too soft, not too hard.
  • George W Bush: The good part - lower taxes. The bad part: bigger government. If he had managed to rein-in government spending to match the tax-cuts, he could have been remembered as another Reagan (domestically). Instead, he will be remembered as a contributor to one of the biggest economic imbalances the world has ever seen. Unless, that is, the intellectuals find a way to rewrite history to blame the coming collapse on something else (that better suits their view of the world, e.g. it was nothing to do with fiscal irresponsibility). Combine that with his failure in the clash with Islam (let's not call it a clash of civilizations, that is too good a word for the state of modern Islam), and he ought to go down as one of the worst presidents in their history. Not for what he wanted to do, a lot of which wasn't too bad, but for what he actually did, which was a lot worse.
  • Blair: His principal legacy is the bureaucratization and re-socialization of Britain; the restoration and extension of the leviathan state - more layers, more powers, more employees and sub-contractors, more welfare-dependency, more intervention in business and charity, more intrusion into personal and family affairs, more central-planning and micro-management, more regulation, more taxation....

Public money used to bank-roll the Labour party to win the next election? Surely not!

The Labour party and the Government are just about to get caught up in a good old fashioned sleaze story. The Times has broken the story that the massively in debt Labour party has been using government grants for its policy-making process. The Institute for Public Policy Research (IPPR) has received nearly £1 million in government grants. They are the people behind popular ideas such as road pricing, rubbish taxes, ID cards and justifying hospital closures.

Another day, another regret

More bitter experience. More unfinished business.

LP has pointed out The Guardian article in which Lord Falconer declares that Tony Blair has "big regrets" about not tackling the culture of public-service provision earlier. "I don't think we even really clocked that agenda until four or five years on", he is reported as saying.

This is looking like a theme. Why would the departing leader and his supporters be drawing attention to his failures? Has anyone got an alternative explanation to the one I posited yesterday?

The Project, Phase 2

Forget the legacy and the lecture circuit. Tony Blair has no intention of retiring from the front-line, nor even of being a good back-seat driver. He is preparing for the next phase of his political career, not for life after politics. How else are we to interpret his article in yesterday's Telegraph?

Mr Blair is positioning himself as the voice of wizened authority, of hardbitten realism, of painful lessons learned through bitter experience. Even the picture accompanying the article displays a harder-nosed Blair, staring out from the paper with a look of contempt that seems strangely familiar.

Alan B'Stard Anthony Blair
Anthony Blair Alan B'Stard

The Telegraph interpreted Mr Blair's article as an admission that he "got it wrong on problem families". But that was merely a tasty morsel offered out to a right-wing journal. It was not the main message. The main message was that you need experience to understand the real causes and solutions to social problems, experience that Blair has and Cameron does not.