What Nigel Farrage has got right … and the need for radical political reform

“He operates in the gulf between the public and us here at Westminster. And there’s plenty of room for him there.” For most people in the UK there is no need to explain who is being described here. For any foreign readers, it is a quote about Nigel Farrage, leader of the UK Independence Party (and it was said by one of the UK’s most distinguished Parliamentarians, Frank Field). However, if the word “Westminster” was replaced with “Washington DC”, or “Brussels”, or “Paris” etc, then it could easily refer to any of a growing number of anti-establishment parties – the US Tea Party, the French Front National, the Spanish Podemos or the Greek Syriza. There is clearly a crisis in democracy in the West. Gallup’s global polling shows that in much of the West the majority of the public has lost confidence in their form of national government. This is at its most dramatic in the Mediterranean countries, e.g. in Spain where confidence has fallen from 58% in 2008 to 18% in 2013, although this still puts it ahead of Italy, Greece and Portugal! National government in these 4 countries enjoys lower public confidence than in the Democratic Republic of the Congo! Whilst confidence remains high in some Nordic countries (e.g. Norway at 66%) and above 50% in several other western countries like Canada and New Zealand, it is also very optimistic in many developing countries such as Ethiopia (77%), Ecuador (62%) and India (56%). But the majority of  British people lack confidence in national government (just 38% are confident), a similar level to the French, Danish and Japanese. It’s better than in the US (29%) but well behind Afghanistan (48%)! Indeed, 4 out of 10 British people lack confidence even in the honesty of national elections, albeit that’s better than in the US where it is 6 out of 10. In the UK, public satisfaction with the leaders of the 3 main political parties has reached a historic low, with the combined scores of all 3 being -22%. One of the most striking manifestations of public alienation is voters staying away from the ballot box. For comparison it’s worth noting that the X Factor Final typically sees 1 in 4 of the public voting for their choice. The recent European elections saw just 1 in 3 UK adults voting – a similar level to that achieved in recent local government elections. Turnout is much higher at the General Election, but in the last decade only 60-65% of adults have bothered to vote even at this level, compared to say the 1950s when up to 85% would vote. The two most popular UK politicians are Nigel Farrage (who is anti the political elite) and Boris Johnson (who looks like the elite, but is directly elected as Mayor of London). We should look for clues in their popularity.
However, these issues of alienation run deeper than politicians would like to believe. It’s not just nihilistic cynicism, recession fatigue or unpleasant racism – although there are elements of all of those. It seems that people are concluding that, for all the promise of democracy, ordinary people appear to have little or no impact on their Governments. We now know this is true – at least in the US, for which we have data. Earlier this year, Professor Martin Gilens of Princeton University published very powerful research which showed that “ordinary citizens have almost no influence over what their government does in the United States”. Gilens had looked at the history of almost 2,000 policy decisions over a 20 year period. He found that the economic elite ( corporations, business and the richest 10% of people) got their way two-thirds of the time, twice as often as the median citizen and sixty times more often than the bottom 10%. This mattered most when people at the top and the middle disagreed – e.g. over tax levels and the regulation of business. Guess what? The people in the middle tend to lose the argument. Even when there was 80% or greater support in the country for a particular policy change, the change mostly didn’t happen. That was because policy debates were heavily influenced by interest groups. Interest groups were dominated by the economic elite (e.g. business and professional associations). In the US, the preferences of business interest groups negatively correlated with the majority preferences of the US public. Business interest groups were twice as influential as mass interest groups – mainly because they were twice as active. And interest groups (the research shows) were mostly against change. The elite preferred things as they are – by definition, it seemed to work for them! So the lack of majority power and a status quo bias meant that even when large majorities wanted change, they often didn’t get it, unless the economic elite wanted it too. I haven’t seen similar research for the UK, but I suspect it would make uncomfortable reading for most politicians, probably with the exception of Nigel Farrage, who might suddenly have an evidence base for his anti-elitist rhetoric.

So, if these are deep problems, what could be done? The political class needs to have a radical think about constitutional reform. Now, I have catholic tastes in my existing friendships across the political class. Some are passionate about equality, others about free enterprise; some have invested their lives in global development, others in parochial pavement politics. But I must admit I have always crossed the road to avoid constitutional reformers – those whose lives are devoted to voting systems and political structures. The constitutionalists always remind me of those hi-fi buffs who obsess over expensive and obscure woofers and tweeters, but then turn out to like nothing more than Simon and Garfunkel or Celine Dion! Like many, I have rather lazily assumed that the British don’t really go for constitutional change. Like many, I have a vague sense that our constitution has organically grown over centuries to give us a stable, if occasionally eccentric, system. But, of course, much of this history is pretty recent. A hundred years ago on the eve of the First World War, 16 out of 20 people didn’t even have a vote. The last thirty years have in fact been a period of hyper-active, if completely incoherent, constitutional reform. We have had: devolution to Scotland and Wales; self-government in Northern Ireland; proportional representation in local government in Scotland and London; the abolition of metropolitan government in our major cities; the creation of Select Committees; and, the widespread elimination of county government. In just the last couple of years, we’ve had referenda on an Alternative Voting System and Elected City Mayors, along with another intense, but failed battle to reform the House of Lords. This year we have a referendum on Scotland leaving the UK and within 3 years we’re likely to be voting on whether to remain in the European Union. So clearly the British do do constitutional reform! However, it’s all one sort of democracy. Whether it’s devolved, national or international, our ability to influence things comes (for most people and most types of voting) through parliamentary style representation. By and large, our democracy is representative – we choose someone to represent us in a council, a national parliament or an international parliament and then they go on to join-up with others and choose their leaders, who in turn become our leaders. So, we have, mostly, an indirect democracy. And where we don’t have proportional representation, then the first past the post system means that voters in safe seats have little individual influence on the national system. My eldest (and politically active) daughter who gets her first General Election vote in 2015 has realised that living in the Henley-on-Thames constituency removes her right to have any impact on whether Ed Miliband becomes Prime Minister. But even if she had a way to help him into office, he could easily be replaced by his party colleagues without reference back to the electorate. Given the limitations of the national voting system, what about all the other votes that express the people’s will? Everyone has at least 3 votes – local, UK and European. Some have 4 (e.g. in Scotland or London) or even 5 votes (e.g. in shire county areas, with county, district and parish). But with the exception of the devolved administrations (like Scotland or London), the other votes (local government and European) too often tend to be poorly attended protest votes against the national government of the day, rather than real votes about local or European issues. I have mixed feelings about my inability to name the leaders of either the county or district council leaders where I live. On the one hand, it’s embarrassing as I take much more interest in politics and government than most. On the other, it’s reassuring that I am part of the 92% majority of people who can’t name their council leaders. The majority of people with an Elected Mayor do know who runs their area – i.e. they have a direct democracy. ( Given my political anorak habits, I can actually name many of the Elected Mayors up and down the country!)

If we are to re-engage the public, we need to offer some radical solutions. In order to stimulate this debate, here are 4 straw men. I am not arguing for them, just arguing that we need to start arguing:

1) Public Juries

A first step could be to give ordinary people a chance to take part in government. There are many decisions which politicians have decided to give away to independent panels, experts and committees. There are national structures (e.g. Low Pay Commission to decide on the Minimum Wage level) and local structures (e.g.panels to decide on the adoption of children). These processes are typically populated by the great, the good and the worthy – the elite. One way to reinvigorate democracy would be to abolish this remote and elitist approach and replace it with “Public Juries”. Members of the public would chosen to serve on these juries, based on a representative demographic sample. Those chosen would be obliged to serve, just as they are obliged to do jury duty in the legal system. There would be a judicial style process chaired by an impartial public servant and the jury would hear arguments from a variety of sources before making a decision. This is not about consultation – it is about replacing the “quango-cracy” or “magistracy” with other decision-making bodies. The jury decision would have the same status as the decisions made by the body which the jury had replaced – i.e. it might be the final decision, or the formal recommendation to Ministers. Bodies which could be replaced by this approach include: determination of the National Minimum Wage level by the Low Pay Commission; the setting of interest rates by the Monetary Policy Committee; decisions by NICE on which treatments should be funded by the NHS; recommendations by the Migration Advisory Committee on immigration levels; recommendations by the Advisory Council on the Misuse of Drugs; recommendations by the Honours Committees on who should get knighthoods and medals; local decisions by Licensing Panels about the sale of alcohol or the numbers of taxis; decisions by economic regulators about consumer prices versus investment in particular regulated industries, such as water; etc. In addition, this approach could be used for a wide range of difficult decisions taken by Ministers, where it is tempting for Ministers to avoid hard choices, e.g. local health service rationalisation plans. Juries might also replace various appeals processes (e.g. for planning applications or immigration). And public juries would offer a better solution than peer review for judging the behaviour of politicians themselves (e.g. on expenses issues). Some of the juries might be small (e.g. for an adoption) or large enough to be nationally representative (e.g. on the Minimum Wage). But (I hear some people say) how can the ignorant masses decide on these highly expert and sensitive topics? Well, the jury approach (trial by one’s peers) works well in our justice system. And most of these decisions are about justice, making trade-off decisions and giving each side a fair hearing. I am envisaging that, as in a trial, there is a moderated opportunity to hear both sides of a case before making a decision. Where Public Juries have been used ( in diverse locations from China to Texas, and on diverse topics from health reorganisation to clean energy) the public changed their minds substantially as they heard the evidence and engaged in the debate. In these debates, it is the role of experts to make their arguments and it is for the people to make the decisions. Participative democracy like this could re-engage the public. It would be possible to allow the public to follow the case (online or on TV). If future decisions are well publicised, there could be a big build up in the public domain, e.g. social media campaigns. And if all this sounds a bit exotic, it’s worth remembering that this was the form of democracy favoured by Aristotle. The Kleroterion was a Greek lottery machine which randomly selected citizens to join a Council to govern Athens. The idea was to avoid the oligarchy of a political elite. It seems unlikely that Nigel Farrage will mention Aristotle (unlike perhaps Boris Johnson) but they seem to be on the same lines.

2) Directly elected European President

A second step might be in Europe. Even the most passionate Europhiles must despair about the democratic mess which is the European Union. There are European elections. But they are for the bit of the European government which has the least power – its Parliament. Day to day power rests with the European Commission which is run by ex-politicians, who are are appointed through the patronage of individual national governments. The big decisions sit with the Council of Ministers, the 28 heads of government who horse-trade their way to compromises which leave none of them satisfied, and none of them feeling accountable to the public. (I gave up trying to explain all this to my newly-voting daughter, who concluded that a UK vote was just about who should get a domestic bloody nose from the voters.) Let’s assume for a minute that we’re staying in the European Union. Let’s also assume that the Council of Ministers reach a fresh agreement on what scope and powers the EU should have (e.g. its role in agriculture or immigration). With these settled, we could then replace the Parliament and the Commission with a directly-elected President. The European public (not the dining rooms of Brussels) would choose their President, using a similar voting system to the French Presidential elections, but with elections held every 3 years. The President would then choose his or her own Commissioners. The Council of Ministers could change the scope or powers of the President and would set the overall budget. But after that, the President would be directly accountable only to the people. He or she would have the option to hold electronic referenda on big issues, or to appoint Public Juries. Assuming that the EU continues, there are huge and urgent Europe-wide economic issues on which to engage the European public (via direct election, referenda or juries) if Europe is to thrive in the new global economy. At the moment, there is a lack of the strong political leadership needed to help the European public understand and accept the challenges they have to face. It is better to decide cleanly what, if anything, we want decided at the European level and then create a directly-elected representative to wield that power (be it broadly or narrowly defined) in a strong and highly accountable way.

3) Directly elected Presidents for the UK nations

A third step might be to have directly elected Presidents for each of the 4 UK nations (Scotland, NI, Wales and the UK). In effect, this makes a formality of what is actually going on in elections. It’s clear, for example, that, in spite of the personal merits of local Members of Parliament, the 2015 General Election will boil down to whether the public wants “President” Cameron, Miliband, Clegg or Farrage. So why not let people elect them directly and then let the successful candidate choose who is in their government (as Obama does in the US)? If nothing else, it would allow people to have a national vote for a national government, where every vote counted, and it would require the winner to have the support of the majority of the electorate. Two features our Westminster system lacks. But how do we avoid the problem that directly elected Presidents are often blocked by other branches of Government? As we know, the US constitution was inspired by the Jeffersonian principle of giving government the least amount of power and then spreading this power across the greatest number of bodies. In the US (and elsewhere) we know this leaves gridlock and a public confused about who is in power and who is accountable to them for what. But if Presidents could stay highly accountable to the public, then would we even need the other branches of government – the lower chambers who legislate and the upper chambers who refine the work of the lower chambers? Instead, could we not replace these others branches with direct input from the public? For example, maybe big annual decisions (such as the Budget) or major primary legislation should be subject to a public online referendum. It ought to easy to make online voting easy, secure and, if necessary, frequent. It is no longer the case that communities which are days away from their capital need to send representatives to follow events and vote on issues. Modern media brings government and the people together in real time. In terms of shaping and debating legislation, maybe Presidents would be obliged to put all new draft legislation out to pre-legislative scrutiny. The power of the elected executive would be moderated by the people, in real time, rather than by other elected representatives, competing for legitimacy. (It’s entirely feasible that a ceremonial monarchy continues in this scenario, if that’s what the public wants).

4) Russian doll Mayors

Elected Mayors are a good thing. Like the Presidential model, having Mayors gives the public a direct vote for who they want to run the area and requires the winning candidate to secure a majority of the electorate. The challenge is that we need Mayors at different levels. On the one hand, there is a serious lack of big, strategic Metro Mayors for our larger conurbations. We have one in Boris. Should we have more? This could be for each of our biggest city regions (e.g. Birmingham, Glasgow, Liverpool, Manchester, Newcastle, etc). But we also need them at a very local level. In other countries, e.g. France and the US, there are mayors for very local areas, including the 37,000 communes of France and many of the 20,000 US municipalities. Just as in London, we have a Mayor for Hackney and a Mayor for London as a whole, fans of Danish TV drama will know that in Copenhagen local areas elect a Borgmester for their neighbourhood and an Overborgmester for the City as a whole. We could see these as Russian doll Mayors – we could have as many as we liked, with each smaller geography siting inside a large one. However, I suspect that for most people 2 would be fine. Again, rather than having lots of councillors to limit the power of Mayors, their executive heft could be moderated by direct public participation in online referenda or public juries on major decisions.

These are just a few ideas for reforming our political structures. There are many other, and probably better, ones that we should we considering. Indeed, there are other ideas elsewhere on my blog (e.g. hypothecating taxes, for example for the NHS) which could make a real difference. The straw man ideas in this post are about trying to move away from the indirect democracy which offers the public infrequent opportunities to express a view about who they delegate to represent them in a rather complicated, distant gathering of the political elite. Instead, these ideas aim to stimulate a debate about giving ordinary people more opportunities to directly express their opinions, to directly choose their leaders and to delegate their decisions to their peers for complex decisions best suited to a jury. If such ideas worked, they might reconnect government and ordinary people and reignite the political battle of ideas about what kind of future we want to pursue.

Five steps to save what really matters in the NHS and lose what gets in the way

Like the great majority of British people, I am immensely proud of the NHS and instinctively defensive when it is attacked. And yet, I am not sure many of us are very clear what we think the NHS actually is. Sometimes people think that it’s all a public service, but up to a third of the NHS funded staff work in profit-making private businesses (GPs, dentists, opticians, etc). Sometimes people mistake the professionalism of medics for the ethos of the NHS, when there is no evidence that medics in other countries are any less professional, or indeed that the same NHS medics are any less professional in their own private practice (e.g. hospital consultants). Many people, who have never known any other provider than the NHS, associate medical innovation and progress with the NHS, marvelling at the improvements in, for example, cancer care over the last 30 years, but without realising that the same (amazing) improvements have been made in other countries, often, sadly, to a greater extent. Much of what we admire about the NHS is what people in other countries admire about their own health services, public or private. It’s just that for 93% of people in the UK, the NHS is the only health service that they consume, so their admiration goes to the NHS. However, I am very clear what I care most about in any debate about health and the future of the NHS. Any visit to the USA always reminds me of what is actually truly special about the NHS. And that is the wonderful principle that people in the UK do not have to worry about whether they can afford the health care they need when they need it and the costs of that health care are paid for through a progressive tax on everyone. A textbook case of “to each according to need, from each according to their means”. Of course to many Americans (and some on the right in the UK) this sounds like socialism. But it’s unthinkable that we would move away from this principle. It’s an important moral principle that healthcare should be provided through social solidarity, across generations (as it’s mostly consumed by the very old) and across income groups (as the better-off pick up most of the tab). However, there is also plenty of pragmatic economic justification for this approach. Effectively, we are pooling risk. None of us know who will have the greatest needs. Nor do we know when that need will occur. So it makes sense to create the biggest risk pool possible. For me, then, what I want to defend, protect and enhance is the NHS as a national health insurance scheme – keeping healthcare free at the point of access, paid for by those who can most afford it in a major act of social solidarity, the key obligation that we decide to have to each other. That’s the kind of principle worth going to war to defend. But that’s the end of my socialism in terms of the NHS. I don’t accept that in order to have social equity we need to mirror other aspects of the Soviet system. It’s pretty clear that the current NHS provision needs a revolutionary dose of both glasnost and perestroika. On the other hand, there has been a lot of good reform, especially in the creation of new types of institution. But this reform has been hobbled by a lack of clarity of about what is and isn’t the NHS and an overwhelming and negative culture of bureaucratic paternalism, which aims to plan out the lives of both medics and patients, rather than letting them find their relationships in a competitive market. So here’s my thoughts on how to build on the current direction of travel in the NHS but make a revolutionary leap forwards, saving what matters in the NHS and destroying what hinders progress.

I suggest a 5 step approach:

1. We could declare that the NHS is simply a health insurance scheme – no more, no less. It would not be an employer, a provider, a planner of health services, a trainer of staff, etc. It could be known as NHS Insurance (NHSI). Its mission would be to fund high quality healthcare, free at the point of use to everybody based on need and funded through the tax system. We would ,therefore, maintain what is best about the NHS – that no-one should worry about whether they can afford the healthcare which they need when they need it; that healthcare is given to those in need, funded by those who can afford it. NHSI would set out clear, national entitlements as to what was covered by the insurance scheme, removing local policy choice. There would be vigorous political debate about the scope of the entitlements and the levels of funding provided. There would be an independent watchdog (probably, the existing NAO) to see whether NHSI achieved value for money in the prices it paid for health services and the clinical outcomes. 

2. We could take the NHS out of general taxation. Instead, National Insurance (NI) taxes could be renamed “NHS Insurance”. The rates of the NHSI would be set by the Health Secretary, rather than the Treasury. The money raised by NI (just over £100 billion per year) is almost exactly the same as the cost of the NHS. NI already looks like a health insurance scheme – it is funded out of earned income, with contributions from both workers and employers. It is a progressive charge – nothing is paid on the first £8,000 of earned income and then it is charged to employers (13%) and employees (12%) up to £42,000. After that, it is charged at 2% of income. Clearly there is scope to increase the rate above £42,000 as and when more money is needed. There is also the opportunity to remove some of the current exemptions and lower rates – e.g. for the self-employed and high income older people. The progressive nature of the insurance scheme could be fixed in primary legislation, but the details subject to political decision-making by serving Health Secretaries. Parties could therefore campaign to raise or decrease, or vary NHSI charges, quite separate from the general approach to taxation. This would focus the debate on how much people want to pay for healthcare. The current cost of the NHS is £2,000 per person per year. But as NHSI (replacing NI) would come out of earned income, the cost to those in work will have to cover children, the retired and working age people not in employment. This means that an average working age household, with a combined income of around £40,000 per year, would pay about £4,000 out of their salary. Their employer(s) would pay the same again. Both could be shown on the payslip – showing the average household that £8,000 (or c£150 per week) was being paid for NHSI. This should focus everyone’s mind on the cost of NHSI and help the public connect more clearly with the debate about “more, or less, money for the NHS”. 

3. As the NHS would no longer be a provider, we could transfer the ownership of NHS services to the staff who provide them. The majority of NHS funded organisations are already privately owned by the people who provide them – dentists, pharmacists, GP practices, opticians, etc. We could complete that journey for the other 1m staff – those working in hospitals, ambulance services and community services. At the moment, the ownership of many of these NHS services sits in a twilight zone – who owns a foundation trust? We could set a deadline for all current services to be taken over by employee-owned organisations. This could be, for example, all of a large hospital being taken over by its staff. Or smaller groups of staff (e.g. a pathology lab or a clinical department or a community mental health service) could opt out on their own. It maybe that some hospitals will want to make the hospital facilities a separate business from the staff who work in it ( in the same way that most private hospitals work). The new organisations could be for profit (like GPs or dentists are now) or not-for-profit (as BUPA is now), as the staff wish. The new organisations would, in the future, be able to merge, acquire or be acquired in the future, but only if a majority of staff shareholders vote for it. This is to stop a few people profiting from selling out their colleagues. 

4. Like other health insurers, NHSI would accredit providers, i.e. those it is willing to fund. This would cover the prices for services and the quality standards to be met. Accreditation would be open to any providers to offer any service – former GP practices might want to offer diagnostic testing in competition with hospitals; hospitals might want to offer GP services; a mental health practice in the North might want to expand in the South West; pharmacists may decide to offer a wide range of GP services, or maybe just a minor ailments services; etc. This is similar to the current philosophy of “Any Qualified Provider”, but with much more incentive for these now private providers to compete for service. Quality would be judged by the Care Quality Commission, as now, but NHSI would also need monitor outcomes and costs, taking over the role of (and people in) local Clinical Commissioning Groups. Where providers with critical facilities got into financial trouble or where competition was ineffective in a local area, the existing regulator, Monitor, would step in to protect consumer interests. In fact, the current NHS organisational structure would work well in this new world – it was designed to go in just this direction. 

5. Clearly, there is a risk that if ownership is fully transferred to those who provide the services they will put their own interests first, rather than patients. An obvious risk is that where medics or facilities are in scarce supply, the staff owned businesses will put up prices and increase their incomes. The best medium term way to avoid this is to reduce scarcity. The key scarcity is staff. The UK has one of the lowest numbers of doctors per head of population in Europe. In fact, it comes 24th out of 27, only managing to beat Poland, Romania and Slovenia. Austria has nearly twice as many doctors per head of population as the UK. Germany, Italy, Spain and Sweden all have more than 40% more doctors. The situation in the UK has got better – there are now 138,000 employed doctors, compared to just 102,000 10 years ago. Supply has grown through a mix of more training places and immigration – a third of hospital doctors are now foreign born. The current planned economy of the NHS limits the numbers of doctors – by fixing national pay levels it limits the number of jobs. It also sets pay at a high level. For example, in the UK GP partners earn something 3.4 times the national average wage, whilst in Australia they earn 1.7 times. That’s twice as much, in comparative terms. Whilst much of the problem in the absurdly expensive US system is high pay for doctors (e.g. orthopaedic surgeons earn twice as much in the US as they do in the UK, where they are the highest paid of doctors), in some countries (e.g. in central Europe) doctors earn less than the national average. There is no shortage of people, with the necessary talent, wanting to be doctors. So, we should push for a major expansion in medical training (e.g. 100% more doctors being trained?). Partly, this cost will be absorbed by student loans, partly it will be overseas students paying their own way and partly by NHSI on the basis that it will reduce future costs by increasing supply. A major increase in supply should encourage more people to go into unfashionable medicine (which has shortages) and the demise of national pay rates (given that all provision is private in this new world) means that doctor pay will be set by the market and doctor income will vary according to what they deliver.

5. After these changes, then we could get really radical. We could make it a truly patient-driven NHS. This is the current mantra of NHS managers. But they then often want to do the opposite – to have a “driven-patient” approach, creating pathways down which they wish to herd their sheep. A good example is the current NHS focus on trying to stop patients turning up at hospitals at their own convenience and getting them access to 9-5 community services instead. A patient-led approach would follow people’s revealed preferences – they are happy to visit a major outlet that offers better convenience and the promise of immediate attention. They do it every week at supermarkets. The average person only has 6 miles to get to their A&E, which has lots of fixed costs to sweat and assets to offer. It would be possible to offer a wider range of services on those sites, instead of trying divert demand away. In the current old world, NHS managers (of various kinds) sit around trying to plan out their options. I am not suggesting that they now plan out a new set of services on hospital sites. The key to this is to eradicate the bureaucratic purchaser or planner of services, currently known as commissioners. Instead, we could let patients choose what they want, in response to what competitive providers offer. NHSI would pay for the service, as chosen by the patient. In effect, we would be offering everybody (poor, average income or better-off) what today only the rich can have. In a new world where all health organisations are privately owned (albeit mostly by the staff who work in them) and all organisations are free to offer any (accredited) services to anyone they wish, we could let rip with patient choice. There could be 4 ways to put patients in charge:

(a) Direct access immediate services – This could include all those services where the public just wants to be able to turn up, find out what’s wrong with them and get immediate treatment. This includes GP services, paramedics and Accident and Emergency. For these services, we could say that patients can go anywhere they like – to any accredited provider. Rather than having to register with (and stick with) a GP, they could book an appointment anywhere, as they would for almost any other professional service in the private sector (e.g. seeing a solicitor). This would allow those who just want to see a doctor to see one. It would not prevent people who want it from sticking to the same doctor. The choice would be theirs. This would mean replacing the annual capitation fee with a fee-for-service, allowing the GP service to bill NHSI for seeing the patient. It would prevent the rationing of healthcare by GPs by how many of their (average) 1,575 patients they choose to see in a week. Clearly, it relies on all accredited providers being able to see health records. This may take a few years, but it is getting rapidly easier to achieve. (There are lots of ways to achieve it, including encouraging people to own their records on a cloud-based system, giving access to providers as they wish). Similarly, patients could go to any accredited A&E service. And of course, hospitals would be free to develop their A&E services to offer 24-7 GP services, whilst GPs could reciprocate with services for minor injuries or crises for those with long-term conditions; accredited pharmacists could offer a range of GP services, as could accredited mental health therapists. In all cases, providers would need to attract patients to have any revenues at all. Patients would have unlimited access to these direct access services, as they do now, funded by NHSI.

(b) Specialist diagnostic services – The second category of services is where patients are referred (by the direct access providers, e.g. GPs or A&E) for specialist diagnostics. This might be direct referral for tests (e.g. MRI scans). Or it maybe to specialist consultants for their opinion. Just as in private health insurance, patient access to these services would have to be through accredited referral. But once referral is given, patients could be given the same choice as they would get now with private insurance. They would be able to go to any accredited doctor or provider. Competitive providers would directly market to individual patients, offering, for example, faster access to testing, if people are willing to use facilities at weekends or evenings. Alternatively, many patients may just take a recommended routes from their direct access medic doing the referral.

(c) Planned services – Once a patient knows that he or she needs a time-limited course of treatment or particular service they would then have a choice about who they got that from. This would include operations, oncology, maternity, mental health, etc. They would choose accredited doctors or providers in the same way that they would with private health insurance. Again, providers would market themselves to individuals and compete on quality and convenience.

(d ) Long term conditions – The largest part of NHS spending goes on people with long term conditions. These are chronic diseases which can’t be cured, but which can be managed. This includes, for example, heart disease, diabetes, MS, arthritis, dementia and respiratory conditions. Government estimates that this is 70% of NHS spending. There is strong evidence that what works here is giving patients access to integrated providers – e.g. to an integrated dementia service (which includes primary, community and hospital inputs). There is also a philosophical commitment to given patients control over the health service they receive and more ability to self-manage their conditions. However, this is too often just rhetoric. A simple way to move this forward would be for NHSI to give patients with a LTC control over the budget. They would have to choose an accredited integrated provider – a prime contractor. That might be a hospital or a GP practice or a new type of organisation (e.g. Acme Diabetes). That provider would be expected to provide a full range of services (from regular checks through to urgent care) and they would need to configure professionals, technology and drug treatments into packages of care that attracted patients. They would have to resolve all the fragmentation across current providers into a simple package of care. Again, providers would market directly to patients and NHSI would set per capita prices for the annual treatment of the individual.

I would emphasise that these 5 steps fit easily into the journey already underway in the NHS. But the way that they fit together would remove the bureaucratic paternalism which currently gets between intelligent patients making their own choices and responsive medics creating attractive solutions to win the business of those patients. These suggestions therefore could accelerate the pace of the journey underway, but without jeopardising what I care most about in the NHS, the principle of access according to needs, payments according to means.

Sorting out the public finances – Part 3 : Re-nationalisation, pensions and infrastructure

One of the funny things about democracies is how sometimes there can be a cross-party consensus amongst politicians that the public is wrong on a major issue and can be safely ignored by them, one and all. Opinion polls continue to show that 70% of the British public want to renationalise the privatised utilities – water, gas, electricity, railways. This is not a rejection of capitalism – they are clear that they don’t want to renationalise British Airways, Rolls-Royce, BP or Jaguar Land Rover. But they clearly feel that our national infrastructure should be under public ownership. And yet even Ed Milliband, the most overtly left-wing and populist Labour leader for thirty years, see such ideas as beyond the pale. This generation of politicians (and senior civil servants and journalists) has grown up accepting that the Thatcher settlement is inviolable – that to undo what she did would take us back to the 1970s. Even those who do argue for renationalisation seem to accept that it’s an unaffordable pipe dream. But what if the public is right? What if it’s time, after 30 years, to think again about nationalisation? Maybe each generation needs to think, pragmatically, about the right solution for its era, rather than fetishising the solution to the last one? And what if renationalisation is perfectly affordable and could actually improve the public finances?

In this political debate, we are often stuck in the narrative of thirty years ago. A Cold War narrative, in which domestic politics was just part of a black and white global struggle between Communism and Capitalism. And, as we know, Capitalism won. Like the fall of the Berlin Wall, the privatisation of our national infrastructure was an icon of this victory. Not only could even our drinking water be privatised, but millions of British people could buy shares for the first time as the privatisations made capitalism truly popular. And clearly, privatisation achieved a lot. £100 billion of investment into our water infrastructure. Being able to get a new telephone line when you wanted it, rather than going on a long waiting list. But thirty years later, it is worth revisiting this narrative – the world is no longer a black and white struggle. In a world of state capitalism and after the 2008 humiliation of the uber-liberal economists, are there are new types of nationalisation to offer the public?

Indeed, the “private sector” which owns much of our infrastructure is in fact often the public sector of other countries! For example, our largest water company, Thames Water, is owned by the governments of China and Abu Dhabi. Or look at the UK government’s recently agreed thirty-five year contract with the “private sector” to build a new nuclear power station in Somerset, guaranteeing a revenue of over £80 billion, with a minimum price for the power produced, set at roughly twice the current market price. Such contracts have been deemed necessary to secure private investment in long-term assets. There were two “private sector” investors in this deal – the French government (owner of EDF) and the Chinese government (owner of the two Chinese nuclear corporations). If the “private sector” is not a foreign Government (through a government owned company or sovereign wealth fund), then it is often a foreign public sector pension scheme. For example, London’s High Speed Railway to the Channel Tunnel is owned by two of Ontario Province’s public pension schemes. Globally, there is now some $50 billion of overseas public sector pension funds invested in infrastructure, mostly from North America but also from north European countries. The trend is growing – earlier this year, the world’s biggest pension fund, the Japanese Government Pension Investment Fund, allocated some of its giant £750 billion fund to a joint venture with the Ontario Municipal Employment Retirement Scheme to buy up Western infrastructure. However, these funds do not like to build new infrastructure – they look for mature assets in developed countries producing strong financial returns from low-risk assets. They often find these in the UK, which attracts a fifth of all global pension fund investment in infrastructure. Our regulators have become very good at ensuring that overseas investors get the low risks and strong returns that they desire. (But they have lost the confidence of the public. For example, polls suggest that less than one in five people now trust energy companies to act in the customer’s interest.)

For all the debate about nationalisation, it is worth noting that, in fact, much of our infrastructure is not privatised at all. Network Rail, which owns and operates England’s track, was officially reclassified last year as a part of the public sector, bringing to an end a long and unhappy period clinging by its finger tips to its private sector status. Scottish Water has never been privatised. Nor has Northern Ireland Water. The UK’s motorways are owned and operated by the Government, paid for by taxes, rather than charging tolls, like many countries in Europe. Many of our airports are still owned by local authorities, including Stansted, Manchester and Birmingham. Councils still own nearly 2m homes.

So, if this debate about nationalisation or not isn’t so black and white, what could a new narrative look like? After the Great Financial Crisis, perhaps we should think about all this in terms of national balance sheets. How can countries match their future liabilities (like future pension costs) with their assets (like owning water companies which produce predictable cash flows to cover those pension costs)? This is, in effect, what other countries are doing when they are buying our infrastructure assets and companies. They are anticipating future liabilities (e.g. pension costs for Canadian public servants or social costs in the Middle East when oil revenues dry up) and acquiring assets which can cover those liabilities. They are putting the resources on their balance sheet to productive use. If this makes sense for them, why aren’t we doing the same? Infrastructure is all about assets (creating investments like roads which fuel economic growth) and liabilities (like repairing railways when they wear out, or replacing power stations when they reach the end of their life). Given the UK consensus that we need to invest massively in our infrastructure, after decades of under-investment, we are in danger of seeing infrastructure merely as a lot of liabilities ( hundreds of billions needed for power, rail and roads). This comes on top of many other liabilities on the national balance sheet, not least the £900 billion of future public sector pension liabilities which are unfunded. Add these to the £1.5 trillion of national debt predicted for 2018 and the future, like that of much of the West, looks gloomy. It is pretty challenging. But if we think about the nation’s balance sheet in a more joined-up way (across the public and private sectors and across assets and liabilities), we can begin to see things differently and, potentially, more optimistically.

One way to do this would be to see if we can solve four problems with one solution. The first problem is that we need massive capital investors, with a long term commitment to improving the UK’s infrastructure. The second problem is that we need our public sector pensions to be properly funded. The third problem is that we need the owners of the UK’s infrastructure to be acceptable to the British public and trusted by them. The fourth problem is that Government sits on hundreds of billions of assets on its own balance sheet, doing nothing with them. In finding a single solution to these four problems, we have some strong starting points. We have a regulatory system for our utilities which is good at guaranteeing investors a predictable and healthy return on their investments. We have the examples of overseas public sector pension funds, paying premium prices to get a slice of the UK infrastructure market to match their future liabilities. We also have the examples of overseas governments putting the current wealth on their balance sheet to productive investment in the UK. These starting points suggest that one solution to the problems we face would be for UK public sector pension funds to own the UK’s infrastructure. When such pension funds own private sector companies, we see that as private ownership. For example, when the Local Government Pension Scheme currently buys a a stake in a company, we don’t see hysterical headlines saying that the company has been nationalised. The pension funds have capital to invest, they are subject to statutory requirements to maximise investment returns and they invest in companies with the best private sector management. But given that very little of the privatised utilities are owned by UK public sector pension funds and, even more problematically, most of the UK public sector pensions are unfunded (i.e. have no money at all), how could this solution possibly work?

Well, if we assume that the UK Government is willing to intervene with all its financial and statutory firepower, here are three illustrative examples of how UK national infrastructure could be owned by UK public sector pension funds. (I am not arguing for these solutions – I am just arguing that we should have an argument!):

1. Renationalise energy and water and return their ownership to local authorities – There is only one funded public sector pension scheme in the UK (assuming that we see universities as in the private sector). That is the Local Government Pension Scheme. This has assets of some £150 billion. Unlike the North American public pension schemes, it only has 1% invested in infrastructure. The LGPS is in effect paid for by taxpayers. 20% of the council payroll is paid into the pension scheme. Given increases in life expectancy, the liabilities of the scheme increase 10% every decade. The LGPS currently operates 99 local funds, all with expensive advisors and overheads. A first step would be merge these into one consolidated fund. A second step would be sell-off 75% of its current assets, releasing £110 billion of cash. This would be the war chest for the third step, which would be to purchase the currently privatised utilities in water and energy. £110 billion should be sufficient to buy the water companies, National Grid, the energy generators and the power network companies. The remaining wealth of the LGPS is available for future investment in new infrastructure. The companies bought by the LGPS continue to be privately-owned – in the same way as other companies owned in part or full by public sector pension funds. The companies would still be regulated and Government would still underwrite contracts for major new infrastructure, as it does now. The regulator (and Government) would have a duty, as now, to ensure that the companies can make an acceptable return for their shareholder, equivalent to what the LGPS would have earned on its current investments. But the public would know that the single shareholder in energy and water is now the LGPS. It is in the public’s interest for this shareholder to make a strong return. A strong return will reduce the pension deficit for local councils, which in turn will reduce the contribution required from the council tax. In effect, this makes all council tax payers shareholders in the nation’s energy and water companies. For those with a sense of history, this returns energy and water to their municipal origins.

2. Fund the Armed Forces Pension with public housing and land – The Armed Forces Pension is currently unfunded, but has future liabilities of £125 billion. Here’s a way to fund the scheme. The ownership of all council housing stock could be transferred to this new Fund, including outstanding debt. All of the 1.8m homes would be sold on the open market as and when tenancies reach a natural end. At an average market value of £120,000, this would generate some £220 billion over a 15-20 year period. Of this some £30 billion would be used to pay off the outstanding debt on the houses. Of the balance of £190 billion, £90bn would be used to replace the sold-off properties by building 1.8m brand new social homes, providing the £50,000 capital subsidy that each one needs. It could then own these new homes, but have them managed by housing associations. This would leave a net cash surplus of £100 billion to go into the new Armed Forces Pension Fund. In addition to council housing, Government could transfer to new Fund the £40 billion of repayable grant that sits on the balance sheets of housing associations. It could ask for interest on the grants at, say, 5% per annum, generating a new income stream of £2 billion per year, or the repayment of the £40bn grants, funded by the sale of existing properties when tenancies naturally churn. In addition, it could transfer all surplus military land, adding many more billions of development land. Suddenly, we would have a new force in the land – the Armed Forces Pension Fund, with up to £140 billion of financial assets, land worth billions and over £250 billion of housing assets (i.e, the open market value of the 1.8m new social homes it built and owns) , focused exclusively on meeting the country’s housing needs. By rebuilding the council homes it sold off, it would add 1.8m new homes to the country’s housing stock, doubling the number of homes built during the period. After this, it’s mission would be build private homes. It would have a statutory duty to maximise returns on its assets from housing development. Ist would be obliged to put to work its massive financial muscle and the MOD’s surplus estate to transform the country’s housing supply. The Fund’s assets and revenue, along with its long term focus, would give it the financial strength to build homes ahead of demand and to develop at scale and over decades, e.g. creating new garden cities and suburbs.

3. Fund the NHS Pension with transport assets – The Government could create a funded scheme for the NHS, focused on transport. It could establish this fund by gifting two major assets overnight. Firstly, it could transfer Network Rail, with its assets of some £50 billion and annual profits of £2-3 billion. Given there are no private shareholders, no compensation would be due. This ownership could extend to other major new rail projects, such as High Speed Rail. Given the massive scale of investment in the UK’s railways over the next few decades (even before High Speed Two, capital spending will be the highest since the Victorian era) this asset base will rapidly expand, as will the profits. Secondly, Government could transfer ownership of the Highways Agency and the national road network into this NHS Pension Fund. This network has an asset value of over £100 billion. The Government could give the NHS Pension Fund the £2-3 billion per annum share of the current Vehicle Excise Duty (VED) which goes to the Highways Agency. However, given that this tax base will decline (given carbon efficient cars), the NHS Pension Fund could be asked to introduce tolling onto our national roads, as a replacement for VED. This would replicate European charging – so only those who use the national roads pay. On this basis, the NHS Pension Fund would be able to raise funds to improve the UK’s road system, where investment has been only half of that of our European competitors in recent decades. A regulator for both road and rail would allow the NHS Pension Fund to make a normal commercial return from its ownership of roads and rail. If it’s returns were better than predicted by the regulator, this would reduce the pension contributions needed from the NHS and, hence, from taxpayers. These two assets together would make a big dent in the £300 billion liabilities of the NHS Pension Fund. Given that NHS pensions are cash positive in this period (i.e. there is a large fairly young workforce paying in more now than is paid out), the NHS Pension Fund could put current surpluses to good use to create future assets.

Similar solutions can be found across the Government’s balance sheet. For example, maybe the ownership of school buildings should be transferred to the Teachers Pension Fund. Gradually a rent could be introduced payable by schools as tenants to the Teachers Pension Fund, creating a revenue stream. The Pension Fund could be the source of capital investment for those wanting to open new schools, as well as a residuary body for school buildings which have outlived their usefulness. Or, maybe the (funded) Universities Superannuation Scheme should be obliged to buy a substantial tranche of Student Loans debt, sharing some of the risk in whether students are able to pay off their education debts by finding well paid careers.

The idea would be to have the benefits of capitalism, e.g. the obligation on the capitalists (the pension funds) to make a good financial return; the opportunity to use today’s private capital (i.e. people’s savings) to invest in assets which make our economy more prosperous in the future; keeping companies under private management and ownership. But also to ensure that the UK’s future infrastructure investment needs can be served from UK capital, including the dormant assets sitting on the UK Government balance sheet, and that we have big players who are obliged to invest in the UK. This mirrors the retrenchment of banks after the 2008 Crisis, where they now largely balance their assets and liabilities in their own country, rather than being spread all over the world.

What would this all achieve? Would the public feel better knowing that privatised companies are owned by the NHS, Armed Forces and Local Government Pension Schemes? Would the public recognise that that strong profits from these companies were keeping down taxes, which would otherwise have to rise to pay for pension deficits? What would it be like if the UK had 3 new financial giants stalking the land, with hundreds of billions to invest in new housing and infrastructure? Would the cost of capital fall, cutting the cost of investment? How could we still have competitive pressure – e.g. by having separate operating companies (e.g. regional railways, existing water companies, etc) with incentivised managers competing to achieve the highest customer service and operational efficiency, underpinned by a regulator which penalised under-performers and public sector funds obliged by law to achieve regulatory standards and strong financial returns? Could there be a fairness debate, which says today’s population should pay a bit more for their utilities today to generate profits paid into pension funds for their old age, rather than just leaving the bill to be picked up by future generations? There is a lot to think about and this piece is just a thought experiment to spark debate. But perhaps in a General Election year, the UK public deserves some fresh thinking about renationalisation. Who knows, they may even demand it.

Sorting out the public finances Part 2 – Every part of the UK to pay its own way

The only thing more depressing than looking at the hard economic facts about our lowest performing regions is listening to the debate about how to solve the problems. There are two strands to this current debate. Firstly, there is a repetitive list of non-radical solutions (e.g. building new R&D facilities) to be found in all the Local Enterprise Partnership plans submitted yesterday to the Government. My reaction to these sort of solutions is the same as when an acquaintance told me that she was rejecting the normal treatment for cancer (aggressive surgery, chemo, radium, etc) and opting for the much more pleasant route of homeopathy. I wished her well and understood her horror at the thought of radical treatment. But I knew the statistics were against her. Such is the depth of the challenges in our low performing areas that only radical treatment will work. Secondly, there is a near universal clamour now for more devolution of power and money to the local level in the low performing areas. But this usually means devolving decisions on how to spend public money and how much to borrow, assuming that the tab will stick be picked up by others. Credible devolution has to based on requiring local areas to balance their budget locally. The problem underlying these two issues (avoidance of radical treatment and disbelief that low performing areas could ever balance their budget) is the lack of political leadership at a local level: the ability to own and explain the scale of the problem, to act swiftly and fundamentally to find solutions and to get people on board with the changes necessary. Oncologists have learnt how to do this. How could we rapidly help political leaders to be able to bring the right medicine to their areas? And, given it’s hard, do we really need to confront the problem?

At the height of its recent crisis, Greece had a fiscal deficit of 15%. This drew worldwide attention, threatened the European banking system and required an international bail-out in exchange for a brutal turnaround plan, supervised by the Troika of the IMF, the EU and the ECB. The UK’s deficit was also unsustainable, standing at 10% in 2011. However, this national average hid the fact that half of the UK had deficits which were as bad as Greece, or much worse. This meant that almost 3 times as many people in the UK lived in regions with worse deficits than Greece, with its population of just 11m. Three parts of the UK stand out, with 2011 deficits which were more than twice the level reached by Greece – Northern Ireland (39%), Wales (36%) or the North East (32%). But the rest of the North of England (NW and Yorkshire & Humberside) and the Midlands had higher deficits than Greece. By contrast, in 2011 London and the South East were in surplus, whilst Scotland, the East of England and the South West had UK average levels of deficit, albeit it at c10% they were high. A recent study suggests that Greater Manchester, one of the more successful cities in the North, is currently running an annual deficit of £5 billion per year, which would require local people to earn 30% more in wages and profits to break even. Whilst the deficit areas of the UK are now (rightly) asking for more devolution of power and financial responsibility, it is important to note that, ironically, it is only our highly centralised system of government which has stopped these areas going completely bust. Not only would 20-40% deficits have been unacceptable to lenders being asked to fill the gap in regional finances, but if these areas had had to do their own borrowing then the weakest of the areas (running a 20% deficit over 30 years) would find that the majority of their spending today would be on debt interest payments, leaving only 3rd world levels of funding for pensions, health, education, etc. Of course, the lenders would have called time on this situation many years ago, causing a collapse of Argentinian proportions.

There is a lot to do to solve the long-term problems we face. But I propose 3 things which I think are big enough to be game changing:

1. Legislate so that public spending and tax balance in each and every part of the UK within 15 years

We can’t just take regional fiscal deficits for granted – and we don’t need to. Given that the UK needs to balance its budget, it’s no way to run a country if half of it can’t pay its way – particularly if the situation is going to get worse. The main lesson of the Great Financial Crisis for the West was that someone always has to pay. At the moment the deficit areas of the UK have relied on income transfers from London and the South East. But clearly this isn’t enough, which is why the country still has one of the highest deficits in the developed world, in spite of tough cuts over the last few years. Even when the national deficit is eliminated in 2018, this will disguise the ongoing structural deficits in half of the country, some of which will remain in excess of Greece’s deepest crisis. Even if the south of the country could afford to subsidise the rest (which I doubt), it is a very risky strategy for the UK as there are many competitive threats to London and the South East. We all know what happened when we relied on the City of London to pay for the rest of the country’s public spending – it was great whilst it lasted and disastrous when global events turned against us.

So, my proposal is that every nation (Scotland, Wales, NI) and every region of England is required by law to balance its spending and revenue by 2030 and make prescribed progress every 3 years to this 15 year goal. This would include all spending – pensions, health, education, benefits, policing, local authority services, etc – with the exception of capital spending on economic infrastructure. The latter is lumpy (e.g. a high speed railway happens once in a generation) and a genuine investment in economic growth. The taxes (and other revenues) collected in the area would need to cover spending – eliminating any structural deficit. Rules would be set to allow for the economic cycle – small surpluses in good times, small deficits in bad times. Tough rules would also be set to force local areas to sort out their balance sheet – e.g. selling off their social homes given that market rents and social rents are similar in these areas, releasing tens of billions of pounds to reinvest in economic infrastructure like rapid transport links between Northern cities. The nation or region would be given a high level of fiscal devolution, as the only way to balance the budget is to increase taxes or reduce spending. This would be a dramatic step for the UK, which has about the lowest level of sub-national fiscal devolution of any developed country. But it’s necessary. And it’s also obviously possible, as we are going in that direction with Scotland. Irrespective of the independence vote, Scotland already controls the majority of public spending and is about to take on responsibility for the levels of income tax collected in Scotland, taking on the risk and reward of them rising or falling.

My law gives power and accountability to the national governments, but insist that the UK Secretary of State for each nation was equally obliged to achieve the fiscal balance. The national governments and the relevant SoS would be obliged to produce a 15 year plan, with 3 year milestones towards balancing the budget. This would need to be validated by the Office for Budget Responsibility (OBR). There would need to be a rolling 3 year budget, which is on track to hit the 3 year milestone. This would be validated by the relevant National Auditor. It is not so immediately easy to choose who should be in charge in the English regions. Ideally, there would, as in London, be strong Mayors leading the metropolitan city regions (Greater Manchester, South Yorkshire, etc). But there aren’t. There is lots of current debate about this. Well, maybe, we just need to bite the bullet and do it. One answer would be say that unless a city region chooses to have a Metro Mayor, then a Government Minister would be put in charge of balancing the budget in each city region. He or she would be democratically accountable, but clearly it’s less attractive than a directly elected local politician.

The UK Government would still play a vital role in tax and spend. Firstly, it would still have key national responsibilities, like defence and national security, national transport, economic regulation, etc. Secondly, it would put the financial might of the whole of the UK behind each nation and region’s fiscal position, issuing national bonds, managing the cash flow of spending and revenues, dealing with shocks to the system. Thirdly, it would do much of the administration for nations and regions, such as collecting taxes, paying pensions, etc – but they would pick up the tab in their locally balanced budget.

This fiscal devolution is tough medicine. But it also treats people like grown ups. We have seen how local government and the police have responded in the last few years to having to make large cuts in spend, in exchange for more freedom to make the best local fist of it. At the heart of this devolution is local political leadership and its ability to engage local people in the difficult choices in making the books balance. Much of this is about who pays what tax (e.g. more freedom on council tax rates or National Insurance charges), what levels of entitlement can be afforded (e.g. whether benefit rates or public sector pay should be regional rather than national) and which types of public spending are the real local priorities. But of course, the big opportunity to change the deficit lies in improving the local economy. My other proposals focus on the best ways to do this.

2. Double the number of 25-34 year olds in the designated regions within 15 years

There is a demographic crisis in the deficit areas. Overall population levels are predicted to be either static or have modest growth. But this disguises the problem. On the one hand, the population is growing because people are living longer. And this is what drives public spending – on pensions, on health care, social care, etc. On the other hand, in many areas, the working population is declining. And this is what causes tax revenues to decline. This is the worst possible vicious circle for a future deficit, let alone the local economy. We can see this clearly by looking at the Old Age Support Ratio, i.e. the ratio of the working age population to the retired population. In Leeds, for example, this is currently 3.2 (i.e. 3 times as many working age people as retired). But in 20 years time it will fall to 1.7. Even putting up the retirement age to 70 is not enough to maintain the current ratio. (It would need to be 72).

But why isn’t there a demographic crisis in the South? The answer is simple, if politically uncomfortable. More than a third of London’s residents were born overseas – compared to 1 in 20 in the North East. Indeed, there are now more foreign born people in London than there are residents of any description in the North East! London and the South East have about a quarter of the UK’s overall population but more than half of the foreign born residents. The pace of this divergence between the South and the rest of the UK has really accelerated in the last 15 years. A telling statistic is that until 2001, the North West had a bigger population than London. Now London has 1m more people. It has grown. The North West has been static (like the North East and Wales). 1m more foreign-born residents moved into London in this period. Merseyside, for example, attracted just 29,000 additional foreign born residents between 1995 and 2012. Its working age population will fall by up to 15% over the next 20 years.

It’s very hard to see how the deficit areas can turn themselves around without a major inward migration of working age people. The critical group to attract is the 25-34 year olds. These are the wealth creators, who have turned around many cities in the world – including London. Given the challenges facing the deficit areas, there is a need for a massive increase in the size of this group and it is urgent. Therefore, I propose a target of doubling the size of the age group in the deficit areas within 15 years. That would add about 10-15% to the total population in each of the areas. This is the sort of growth that London and the South East have experienced in the last 15 years. Starting in 2015, this could be a “15 in 15 from 15″ strategy.

Where will all these people come from? Well, it’s too late to start breeding, as today’s new born won’t join the labour force in the next 15 years. So it means attracting young people from elsewhere. Partly this can be from other parts of the UK, especially the South. We could adopt a number of targeted policies to achieve this. For example, many of the deficit areas attract large numbers of students, but then struggle to retain them once they graduate. Perhaps we should offer a 5 or 10 year holiday on repaying student loans for those stay in the area to which they moved to study? Perhaps we could offer government backed mortgages for first time buyers who relocate into the area, where payments start low and rise in line with inflation over 25 years (rather than the current opposite which undermines home ownership aspirations for all)? But a large part of the increase will probably have to come from immigration. Let’s save a full argument about immigration for another post. Suffice to say here that I think we need high levels of immigration for 2 reasons – our ageing population and our need to attract the world’s best to the UK – but it needs to be the right immigration, so we need much more control of who comes to the country. In this spirit, one answer to the problems of the North would be offer location-specific visas, entitling people to live and work in a named city or region. This isn’t as impractical as it may first sound. We already do this for the largest group of visa holders – students. A visa is tied to a particular course at at a particular university – if the student fails to attend or leaves the university, the visa is revoked. So it’s entirely feasible to do this for designated areas of the country, perhaps attaching a visa to a job / running a business and payment of Council Tax in the area. This doesn’t just mean offering visas to non EU countries (e.g. to the young Australians, Canadians and South Americans) and seeing what happens. It should also mean investing very heavily in head-hunting the best in the world. Silicon Valley is what it is in large part due to the active recruitment of India’s best software engineers. Why don’t our deficit areas employ headhunters and offer incentives to the world’s smartest 25-28 year olds – the products of the world’s best universities in design, business, applied science, etc and those trained by the world’s best corporations. They aren’t hard to find, but they need a hard sell … and visas.

There is clearly also a hard sell needed within the deficit areas to convince people, who feel that there aren’t enough jobs or public services for those who already live there and believe, wrongly but passionately, that more people moving into the area will just make everyone worse off. It’s not easy to explain the complexity of labour market economics or fiscal sustainability. Let’s try a one word explanation – “Suarez”. The immigration of a Uruguyan into Liverpool has transformed the fortunes of the football club and the morale of at least half of the city. It has also lifted the global status of the city. (The other half of the city has been cheered by the genius of their new Spanish manager.) As Liverpool are poised to win the Premier League, I haven’t heard many local voices calling for South Americans to be sent home so a local lad can have the job! We need the same attitude to the economy as we have to football – busting a gut to get the world’s best people to come, in large numbers, to our deficit areas.

3. Create a bigger private sector in the deficit areas

In half of the country, less than half of working age adults work in the private sector economy. In South East, the richest region, two-thirds of working age adults work in the private economy. In South Wales, it less than a third. Throughout our northern cities (and the largest cities in the Midlands), 6 out of 10 working age adults are not working in the private sector. This includes major business centres like Manchester and Birmingham.

How can we possibly balance our national budget if this continues? One-third of the population is retired, the school leaving age has been raised to 18 … so how can we pay our way if less than half of the working age adults are employed in the private economy? The first problem is simply that in the deficit areas not enough people work, irrespective of who they work for. In the most prosperous parts of the country 9 out of 10 working age adults are in employment. In some of biggest Northern and Midlands cities, this falls less than 6 out of 10. The second problem is that not enough people work in the private sector. The average UK ratio of private to public jobs is 3:1, i.e. three-quarters of jobs are in the private sector. In the most successful areas of the UK, there are 6 private sector jobs for each 1 in the public sector. In the deficit areas many areas struggle to achieve 2:1. In Cardiff and Swansea, for example, there are only 3 private sector jobs for every 2 in the public sector. The problem is not too many public sector jobs. It’s a shortage of private sector jobs. Often the areas with a high proportion of jobs in the public sector have the lowest levels of people working in any sector. One rapid answer to this problem is to move the public sector into the private sector. This is not ideology, but pragmatism. Local public bodies rarely bring any income into the area – they just meet local need. But turn them into real businesses and they will be incentivised to draw business into their area (e.g. taking over the back office functions of public bodies in the high cost South East; attracting overseas private patients into local hospitals; diversifying from public revenues to win private sector business like the Teachers Pension Agency in Darlington has done by winning work from the life insurance industry in London; etc). One would expect the deficit areas (with lower costs and slack labour markets) to have attracted a lot of outsourced activity from higher cost, tighter labour markets. However, the opposite is true. London and the South East earn twice as much income (wages and profits) from outsourced businesses as the North West, Wales and Northern Ireland. Not only does privatising public services offer the chance to bring in external revenue, it also gives a unique opportunity for a dramatic shift in culture in the deficit areas from a public sector focus to a new entrepreneurial era. But this won’t come by simply asking large, Southern based corporations to take over public bodies. My proposal is that we mandate, within 3 years, the transfer of public services (apart from the police) to new employee-owned businesses. The models for this in the private sector are outstanding – world class organisations like John Lewis and Arup. Having our teachers, doctors, nurses, social workers, highways engineers, etc owning their own company and having to compete for contracts every few years would mark a historical change in the economy and culture of the deficit areas.

Conclusion

This is radical treatment. And probably no more popular with many people than being told they need radical medical treatment! But balancing the books, importing a workforce that can pay for the ageing society and turning millions of public sector staff into business owners are the sort of measures which could change the survival rates of our struggling areas and, just as importantly, ensure that the whole country can pay its own way. I am not naive about how hard this is for any politicians. And before my radicalism is dismissed as Southern arrogance, I would note that I spent the first 25 years of my life in the North West. When I was little my dad and grandad both worked on the Liverpool docks, then as they were closing we moved for a new job in a factory in the false dawn that was Skelmersdale New Town, where within 15 years most of the new factories closed down too. So I know this is a tough assignment, but I also feel passionately that it must be grasped.

Sorting out the public finances Part 1 : Changing the debate

This is the first of a 5 part approach to sorting out public spending. The later parts include: A fiscal turnaround plan for the UK regions whose deficits are much worse than Greece; Sorting out which generation should be paying for what.

Part 1 – Two ideas to change the debate about public spending?

It is no wonder that Western governments have got into such a fiscal mess – it’s almost impossible at the moment to have a meaningful public debate about the right overall levels of taxation and spending. There tends to be lots of fragmented debate about individual taxes (e.g. fuel duty, inheritance tax, personal allowances for income tax, bingo taxes, etc). There is an equally fragmented debate about individual areas of public spending (e.g. new roads, the police, social care, unemployment benefits, etc). But there is little meaningful debate about the right overall levels of taxation and spending – beyond the ideological preferences of the left and the right for more, or less, of it all. Nor is there any relationship in most people’s minds between what happens to particular taxes and what gets spent on particular services. This means that most people want to see taxes come down (especially the ones they notice the most) and public spending go up (especially on the services or benefits they most appreciate). In the absence of a proper joined-up debate, we drifted into the absurdity of 2009 where the Government was spending like a Scandinavian (almost half of our national income) and taxing like an American (little more than a third of our income). The result was the highest annual deficit of any developed country. Since 2010, at least, most people in the UK now agree that Government’s expenditure should not exceed its income. By 2018, after 7 years of painful austerity, we should achieve a balanced budget. It will be the first time in 20 years. But it won’t be job over. The pressures on public spending (e.g. from the ageing population) could easily overwhelm a less than robust tax base (e.g. falling revenues from fuel efficient, low carbon cars).

We need a better way to debate what we want Government to spend and what we’re willing to be pay in tax. It can be meaningless to debate how much in aggregate a Government should tax and spend. Whether it should take 20% of our income (as in Mexico) or nearly 60% (as in France) depends on the roles and ambition we give Government. There are some fixed elements of the current UK political consensus ( a universally free and high quality health service; free schools; a universal and meaningful state pension; redistribution of money to poorer areas; etc) which mean that public spending, and hence UK tax, will always be fairly high. Conversely, UK private spending in these areas will be relatively low (e.g. on private health). Sometimes the headline numbers for Government spending are so striking that they spark the debate – e.g. 20 years ago, the Swedish Government was spending two-thirds of national income, prompting a tough fiscal regime to get down to today’s half of national income; in healthcare, the US Government spends far more per capita on healthcare than the UK, in spite of our having the NHS and US government spend on health being less than half of the total public and private spend. In these extreme cases, it becomes clear that something must be done, but, as Obama has learnt, far from clear what solutions the public will wear. But with the UK’s extreme deficit now falling, there is a danger that public and political attention drifts away from the major fiscal challenges we still face.

Is there a fresh way to engage the public in this fiscal debate? I have two suggestions:

(1) Every public body (be that a Government department or a local public body) which spends money should raise its own income, by setting a tax which is clearly and exclusively linked to that public body. So rather than the Treasury raising all of Government’s taxes and pooling the funds, the Secretary of State for Health, for example, would set an NHS Tax to fund his proposed level of spending on the NHS.

(2) The level of spend for each service or benefit should be explicitly set, by each Government, as a percentage of our national income. This would allow a public debate about the priority accorded to the particular service or benefit, and how it compared to other countries. For example, this was how Tony Blair publicly set the ambition in the early 2000s that the NHS should receive 8% of GDP, to be in line with other rich Western countries. .

How could this type of hypothecation work? Let’s look at each proposal in a bit more detail.

(1) All the spenders have to raise their own taxes

This is a radical idea that would spell the end of the Treasury’s fiscal role as we know it. Under this principle any department or public body which spends money should be directly responsible for raising the money to pay for its spending. They would have their own specific and exclusive tax. The relevant politician would determine the level of the tax to meet their own spending needs. For example, the Secretary of State for Health would determine the NHS tax and be accountable for it, as well as the spending which it funds. Clearly, in central government each Minister would need to get Cabinet support for their proposal (as they do for all policy decisions), but it would be their decision on tax and spending.  Moving to this system may not be as hard as it sounds. It’s possible to align existing taxes with existing spenders, rename the tax to show its hypothecated purpose and give the relevant politician the power to take this forwards. 

- National Insurance could be renamed “NHS Insurance (NHSI)”. The current NI tax and NHS spend roughly balance. The nature of the NI tax ( a percentage of wages, paid through a mix of employer and employee payments) is very similar to health insurance payments in other countries. The Secretary of State for Health would determine taxation policy for the new NHSI – the amount to be raised, the balance of contributions between employers and employees and the progressive burden of the tax on different payers. 

-  Income Tax could be renamed “Pensions and Disability Tax”. This would include all payments to pensioners (State Pensions, Pension Credits, etc). It would also include DWP’s disability benefits (DLA, AA) and Local Government’s social care budgets. This spending would consume all of the income tax receipts. If the public recognises this, it should lead to a more grown up discussion about the affordability of our entitlements and the trade-offs between tax and spending. For example, if people understand that raising the retirement age by 1 year avoids adding 2p in the pound to the basic rate of income tax, we will have a better informed political debate. 

- Corporation Tax could be renamed “Income Guarantee Tax”. This would fund the cost of all employment-related benefits – tax credits, housing benefit for working age people, unemployment benefits, childcare support. This spending roughly balances with Corporation Tax receipts. Linking the two would illustrate the cost to taxpayers of having a minimum income guarantee. It would also make the point to employers that their taxes could be lower if they provided more and better paid jobs. 

- VAT could be renamed “Education Tax”. VAT receipts would be enough to cover pre-school, schools, further education, higher education, apprenticeships and adult skills. The level of VAT and, critically, the exemptions from it would be determined by the Education Secretary. This might assist a more grown up debate about some of the exemptions – e.g. the tax-free status of clothes for well-off children – versus the need to spend on children’s education. 

- Wealth Taxes and Business Rates could be renamed “National Security Tax”. The wealth taxes include capital gains tax, inheritance tax, stamp duty and share duty. Together with business rates, this would provide enough revenue to fund the budget for National Security spend, including defence, intelligence and the national crime agency. There might be two taxes – the property taxes (business rates and stamp duty, for example) set by the Defence Secretary and the wider wealth taxes (e.g. CGT) set by the Home Secretary – in order to get the funding split right.

Excise duties could be renamed “Investment Tax”. These revenues comes from duty on fuel, tobacco, alcohol and gambling. They would pay for future public assets, e.g. in transport, science, flood defences, business investment or social housing.This would tie a consumption tax on “bads” to investment in our future prosperity. This would give a new moral high ground to this tax base. 

- Smaller departments could, similarly, get their own taxes. For example, Airline Passenger Duty could be the tax base for the Department of Culture Media and Sport, as it would cover their costs and is linked to tourism, both in-bound and out-bound. Similarly, DEFRA could be funded by environmental taxes like the landfill tax and aggregates tax, or DECC by the climate change levy. 

- Council Tax in this system would more closely match local authority and local Police spending – as large elements of spending (in adults and children services would be funded through the national tax system e.g. via the Pension and Disability Tax). There would be some complexity (as always) to make sure that individual areas had the right funding.  

 

Some people will struggle with the idea of spending ministers being tax-setters. But how is the idea of a Defence Secretary setting a tax on property any different to a County Council Leader setting a tax on property to pay for adult social care? It promises a new type of political debate – as spending ministers may aim to be known as tax-cutters, or charges could be introduced to reduce taxes, or entitlements expanded in exchange for a visible increase in the tax, etc.

2) Setting spending targets for each service or benefit by percentage of national income.

Clearly, it is important that whatever money is allocated to a service or benefit is spent well. Spending more is not necessarily a good thing – if money is wasted, or could be better spent elsewhere, or better spent by someone other than Government. Similary, spending less is not necessarily a bad thing – if the same or better can be achieved with less, or if there is something better to do with the money. However, it is also true that, assuming it is spent efficiently, the level of public spending on a particular service or benefit is an expression of our collective priorities and expresses our values. Firstly, it shows how much of our private income we’re willing to give to Government for a specific service or benefit. Secondly, it shows how much we value one thing over another. So, for example, we are spending about 2.5% of our national income on defence. This is roughly half the proportion of income spent by the US, but roughly double the proportion spent by the Germans and Scandanavians. By contrast, we spend just under a fifth of our income on social protection (pensions and welfare payments), compared to the Americans who spent less than a tenth, whilst the French and Danes spend a quarter of their income. David Cameron promised at the last Election to increase overseas aid spend to 0.7% of our national income, which has been achieved in spite of the austerity budgets and makes the UK the first western country to hit this international target. The UK has poor levels of private sector investment in R&D. This depresses our total spend (public and private) so that the proportion of our national income spent on R&D is roughly half that in Japan and some Scandanavian countries, as well as being a long way behind the US. This puts pressure on Government to compensate for low private levels of investment. So, for governments, these sort of decisions are partly a matter of keeping up with our competitors, partly an expression of political priority and partly a pragmatic means of controlling spending. There are 3 elements to this allocative decision:

(a) How much of the national income ought a country like ours to be spending on an issue, e.g. providing pensions;

(b) How much of that total spending should come through the tax system, e.g. balance of state versus private pensions;

(c ) How much can be afforded by the taxpayers at  a given time, e.g. the level of state pension that can be afforded. 

There are 6 big fiscal decisions which cover 90% of the debate :

(i) Collective funding of health services

(ii) Provision of State Pensions and Disability Benefits

(iii) Guaranteed incomes for working age individuals and families

(iv) Collective funding of education, from pre-school, through school to colleges and universities

(v) Scale of investment in national infrastructure

(v) Scale of economic investment, e.g. R&D, skills,  (including the cost of tax reliefs as well as spending)

(vi) Scale of our international commitments in defence, diplomacy, aid and national security.

Wouldn’t it be refreshing if the next Election was an explicit debate about the proportions of our national income we should devote to each of these areas and how much of that should be via the tax system? This would require an unprecedented engagement of the public in setting fiscal priorities – tax by tax, spend area by spend area. It would make explicit that getting more services or benefits requires taxes to go up, and vice versa. It would also force the ideologues (big spenders, little spenders) to argue specifically the rights and wrongs of taxing and spending for a particular service.

If we combine these two ideas together, then we will have individual politicians (central and local) accountable for raising enough tax to fund their individual services and benefits. And, hopefully, we will have reconnected the public with the fiscal choices they face – getting them to take more responsibility for either reducing spend or raising taxes to pay for what they want.

How to create 2m new private sector jobs in the lowest performing regions – in just 3 years

 

There is no end of debate about how could the rest of the UK’s economy perform as well as London and the South East? Here’s a simple, but bold idea to transform the under-performing areas of our country within 5 years, changing both the culture and economic structure of those areas. The key thing with this idea is that, unlike most economic development, the levers of change really do sit with local and central government – but whether they are prepared to pull those levers is the issue. 

In half of the country, less than half of working age adults (18-64) have jobs in the private sector economy. In the most successful areas (e.g. the South East counties), the figure is two-thirds. In the least successful areas, it is little more than a third (e.g. in South Wales) .   Throughout our major Northern England cities (and our biggest Midlands cities) only 4 out of 10 working age people are employed in the private economy. This includes large cities with major central business districts and big private employers like Birmingham and Manchester. It is slightly hard to believe that in one of the world’s most established market economies, the majority of working age adults in large swathes of the country are not employed in the private sector. 

Does this matter? Well, low levels of employment in the private economy appear almost always to mean a weak local economy. For these areas with low levels of private employment and a weak economy, there are typically four problems:

Firstly, not enough people have jobs in any sector – private, public or voluntary. More people working means richer regions and richer households. The most prosperous economies in Europe have high rates of economic activity in their population – much of Scandinavia’s success, for example, comes from the very high levels of female employment. This is true within in the UK. Some areas of the South East have nearly 9 out of 10 working age adults in employment; some of our biggest cities in the North and Midlands have less than 6 in 10 people in employment. The gap between the two is a mixture of fewer people seeking employment and higher rates of unemployment. 

Secondly, of those who work, not enough people work in the private sector. This matters because the most successful areas have far more of their residents in private than public sector jobs. The average ratio of private sector to public sector employment is 3:1, i.e. 3 times as many people are employed in the private rather the public sector. In the most successful parts of the country, this rises to 6:1. In Cardiff and Swansea this falls to 1:1.5, i.e. there are only 50% more people employed in the private than the public sector. There are  many places (e.g. Glasgow, York, Newcastle, Sheffield) which only just manage 2:1 and the biggest northern cities (e.g. Leeds and Liverpool) are well below average. This is not an ideological concern. Private sector businesses can grow the local economy – they are able to compete regionally, nationally and internationally to bring new revenue into the local area, generating extra wages and profits for the local economy. In most cases, the public sector can’t do this. Local public bodies mostly only provide for local needs and are constrained by the size of that local market. They mostly don’t sell their services to other areas or pull external revenues into their local area. Local economies get rich by specialisation and exchange – doing what they are best at and trading those services with other areas. People working in the public sector largely can’t do this. They can be world class at what they do, but are mostly unable to grow their market share. Where public services have moved to the private sector, they have a track record of growing the local economy. A good example is the Teachers’ Pension Agency in Darlington, which since it was privatised in 1996 has diversified into processing services for the life insurance industry, importing work from London and elsewhere into Darlington. Similarly, some of London’s best health providers attract custom from all over the world. It’s worth noting that the most successful areas of the country have the highest proportion of outsourced services. Outsourced services are 10% of the economy. (Two-thirds of outsourcing is between private sector companies. Contrary to what many on the left assert, outsourcing is a pragmatic, not political, way for organisations to focus on their core activities and only one-third is from the public sector). The economy in London and the South East has twice as much of its income (wages and profits) from outsourcing companies as the most deprived parts of the North West, Wales and Northern Ireland. Given the lower employment costs and higher unemployment rates in these more deprived areas, one would expect the opposite. 

Thirdly, this is not a simple story of the public sector being too big in the less successful areas. Some of the places with the lowest private sector employment rates also have the lowest public sector rates as well. For example, Birmingham, Middlesborough and the Welsh Valleys all have below average percentages of the working age population employed in the public sector. The problem is not that there are too many public sector jobs, but that there aren’t enough people in private sector jobs. For example, Copeland in Cumbria has the highest proportion of its local jobs in the public sector (at 52%) but only 14% of the working age population are employed in the public sector. The problem in too many areas is that not enough people are in work – for anyone. The areas with relatively few people employed in the private sector are the areas which struggle to grow new enterprises. The birthrate for new businesses in the South East is double that in the North East, whilst the London business birthrate is three times higher than the North East or Wales. London’s birthrate is typically more than double the rate across the whole of the North and Midlands. Given that it is young businesses which generate jobs and growth, this matters hugely. 

Fourthly, public sector employment currently looks under threat in many of the areas with limited private sector jobs. As one city leader said to me recently, the public sector looks like the new declining industry. After the loss of jobs in manufacturing, shipbuilding, coal mining, textiles, etc, public sector jobs face two big threats. The first threat is fiscal. Cuts in spending have necessarily hit the areas with the highest public spending. Given that spending is highest in areas of deprivation, the cuts have been felt hard in areas with low levels of private sector employment. It’s hard to see this getting easier for some time to come. The second threat is technology change. As government goes digital, there will be much less need for large administrative processing centres. This is a particular threat to areas (e.g. Liverpool, South Wales, Newcastle, Sheffield) where previous governments relocated civil service jobs to mitigate the effect of other declining industries. 

Most of the areas with these problems have plans to tackle them. Their economic plans commonly focus on three big actions: to attract private sector employers to the area; to develop a more entrepreneurial culture and increase the formation of new businesses; to skill up the local workforce to improve its access to employment and to attract employers. But I think that most of these plans are missing a big opportunity to transform these local economies – and an opportunity which is, unusually for economic development, entirely within the control of local and national governments. A simple way to rapidly increase the level of private sector employment  in these areas is to transfer public sector jobs to the private sector. Done in the right way, this could transform the economic culture and employment opportunities of many of our struggling cities, towns and counties. But it must be done in the right way. My proposal is this:

1) By 2017, all areas of England and Wales with below average rates of employment in the private sector would be legally required to reduce their public sector employment to meet a set of very demanding quotas (outlined below). By definition, this would impact on half of the country. It would mostly affect the North, Midlands and Wales. But there would be a number of other areas affected, e.g. some East London boroughs. The quotas would cover the whole public sector in the selected areas – central government, local government, education and health. Up to 2 million jobs could transfer to the private sector. Why quotas? Well, they have worked well when used. Three examples from the early 1990s are instructive. For example, 20 years ago legal supply quotas were introduced in community care – 80% of all new spend had to go to the “independent sector” (either private or voluntary sector). From almost nothing, an independent sector was created which has since grown to see hundreds of thousands of staff employed in businesses and charities (big and small) delivering social and community services. Without this legal requirement, it is almost certain that all of these jobs would be in the public sector. Similarly, quotas were introduced for public service broadcasting. The BBC was required to buy a quarter of its output from an independent sector and the new Channel 4 was designed to buy 100% of its programmes from the new “indies”. Since then a vibrant indie sector has grown up and the BBC has opened up a further 25% of its output to competition. The third example is FE colleges which were all transferred into private companies in the 1990s. Since then, there has been an active programme of mergers and acquisitions within the sector. One example of the entrepreneurial spirit is that 2 Northern FE colleges (Newcastle and Manchester) have between them won the majority of contracts for prison education across the whole country. By contrast, when legal requirements to privatise are withdrawn the public sector has tended to re-grow its own employment, e.g. after Compulsory Competitive Tendering was ended, a range of local government services were brought back in-house. One example is that just over half of refuse collection is now back in-house. Personally, I think quotas for the whole of the country would be a good thing. But this proposal deliberately applies just to the areas with limited private sector employment – it is intended to give those areas a headstart on the rest of the country, creating businesses which can then sell themselves to the rest of the country, given that the non-quota areas have less dependency on / expertise in the public sector and are likely to buy-in services from the new businesses.

2) My way to reduce public sector employment (and increase private sector jobs) would be to transfer existing staff and services to employee-owned companies. This is an essential part of transforming the economic culture of the areas affected. There are many benefits of transferring functions to large existing corporations. But that misses the point. We want traditional public service staff (and areas) to become entrepreneurs, shareholders and commercial successes. That is what will empower them to take control of their own destiny and to win market share to benefit their local area. Employee-owned companies are not a wacky, hippy idea. Some of our most successful companies are employee-owned – John Lewis in retail and Arup in construction. Much of the resistance to privatisation has come from staff who do not want to be taken over by an existing company or public bodies who do not want a small number of existing managers to make themselves rich through “fat cat” wages or profits. Employee ownership addresses both issues. Indeed, it has a growing track record in the public sector, with some 30,000 staff having moved into employee owned companies in recent years. There can be many forms of employee ownership, including involving a minority stake for existing private companies and financial backers. Should staff not be willing to take ownership of their organisation / service, then the fall-back could be a traditional outsourcing. 

3) There could be different quotas for different types of service. For services with a well developed market already, the quota would be 90% in each service. This would include services which are heavily outsourced (in the economy as a whole at least) by the private and public sector (e.g. IT, construction, property management, call centres, back office functions, etc). The 90% also include services where there is a strong mixed economy in public services (e.g. social care, special education, prisons, hospital labs, social housing, highways management, early years, etc). I think there is a strong case to set a similar quota for most other local government services in these areas (e.g. planning services) and central government administration (e.g. benefits administration, court services and job centres). By contrast, I would exempt the uniformed part of the military, police and fire services. In all these cases, their business support functions ought to be subject to the 90% quota. That leaves two major services which will be seen to be especially sensitive – health and schools. But how sensitive are they really, if we are talking about employee-ownership? The idea of mixing the private sector and the NHS gets people very agitated. But actually the great majority of NHS organisations are profit-making businesses, most of them owned by their employees already. Really? Yes, really. Firstly, there are the thousands of dentists, opticians and pharmacists who provide NHS funded services – from their profit making businesses. Some are huge (e.g. Boots the Chemist) and most are small enterprises. Secondly, there are the GP practices. In most cases, GPs are not employees of the NHS, or any other part of government. They are the owners of small businesses and instead of a salary their personal income comes exclusively from the profit they make from running their own surgery – the profit being the difference between the prices the NHS pays their business and the costs they incur (premises, staffing, etc) in delivering the required services. GPs are regularly named by the public as the most trusted and valued public servants, irrespective of their long-term determination not to be public sector staff and to stay as profit-making business men and women. So if they can run successful NHS businesses, what is to stop medics in hospitals doing the same? Most hospitals have become more like businesses in recent years – as independent foundation trusts. But the ownership of these trusts is not really clear. Making them employee-owned businesses would seem like a logical next step. Within this move, many medics may wish, and could be supported, to spin-out smaller businesses, typically in their own specialism. Similarly, the transfer of state-funded schools from the public to the independent sector is well underway. We now have thousands of academies and a growing number of free schools. We have now had 25 years of giving schools autonomy. The model works – dramatically well. We could now push this to a conclusion in the quota areas – completing the transfer of state schools to academy or free school status and giving employees ownership of their schools. In both health and education, there is already a system of minimum standards, inspection, public data on performance, money following customer choice and a system for dealing with failed organisations. This could easily apply to the newly employee-owned hospitals and schools – if they fail to meet minimum standards and / or attract enough customers to be viable, the regulators could (as now) transfer ownership of the assets to another organisation. Given all these points on education and health, there is a strong argument to apply high quotas for transfer to the private sector of hospitals and schools in the selected areas. 

4) Where the new businesses get contracts, the initial contracts would only be given for 3 years. (In other cases, such as schools, money would follow customer choice as it does now). The initial contracts would give them time to sort themselves into shape, on their own, or through mergers, acquisitions or divestments. At the end of the 3 years, customers for their services (be they individual consumers or public procurers) would have full discretion about the sort of services and providers they want in the future. At this point,   the new businesses would have marketed themselves to other areas, both locally and nationally, which, along with the entry of new entrants to the market, would create healthy competition. The ex public sector businesses would be free to sell their services to the private sector, as they wished. 

The key to these changes is:  achieving them fast (to focus on action, not debate); making them happen on a mass scale (so that they change the economy, not just create individual case studies); creating big new markets (to inspire entrepreneurial endeavour amongst former public servants who can see a way to grow their market share); mandating action (to align public sector reform with the economic and fiscal urgency facing these areas of the country). If national politicians are unwilling to impose quotas, there is nothing to stop one or more of the new city regions applying the quotas to themselves. But local action isn’t as useful as national. Turning up to 2m public sector staff into shareholders in their own businesses, competing for demand and innovating to be the best, is a bold ambition. But I think the time is right – for both local economies and public services. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Are environmental groups guilty of crimes against humanity?

Environmental groups like to argue that they are protecting the planet against the crimes of humanity. But is it time to turn the tables and ask if it is they who are committing crimes against humanity with their misguided impact on global development? 

Over the last few decades, environmental groups have had a major impact on global policy. Some of this has been well judged and effective. For example, England’s recycling of household waste has improved from 11% to 43% in the last decade. In the same period, the average carbon emission of new cars in the UK fell by 30% and is set to have halved between 2000 and 2020. Similarly, new cars have become 25% more fuel efficient in the last decade and lead has largely disappeared from petrol. Ozone damaging CFCs have virtually been eradicated, meaning that the ozone layer should fully recover from the earlier impact. The success stories have common features: a mix of consumer price rises and regulation has stimulated a competitive private sector market to respond with new technology that efficiently addresses the environmental goal; the environmental groups have stuck to straightforward environmental issues (not confusing them with bigger ambitions to bring down capitalism or turn the tide on consumption) and they have not been prescriptive about the solutions. But on the big global issues (such as climate change) the environmental groups have not only been ineffective, they have set the wrong agenda and, tragically, got in the way of the effective solutions which are so badly needed. In doing this, they have alienated popular support for environmental change and, much more importantly, they have done great harm to the lives and prospects  of billions of people. 

If we are to consider a charge sheet for crimes against humanity, then let’s look at 3 issues where the prosecution may have a prima facie case – agriculture, energy and greenfield development: 

1) Agriculture
If (like me) you are prepared to accept an international scientific consensus, then it is clear that GM crops are safe. To quote the American Association for Advancement of Sciences: “The science is quite clear: crop improvement by modern molecular techniques of biotechnology is safe. The WHO, AMA, UN Academy of Sciences, British Royal Society, all …come to the same conclusion…it is no riskier than conventional plant improvement techniques”. In 2012, the UK’s Chief Scientist said “It would be irresponsible for us to turn our back against the environmental and development benefits of GM and other agricultural developments of GM … at a time when the planet desperately needs these breakthroughs for sustainable development”. And yet no GM crops are grown commercially in the UK. Not one. The EU has only ever approved 2 GM crops for commercial use, in spite of the EU’s Chief Scientist saying that there is no single case of GM crops having an adverse impact on humans, animals or the environment. Does the protest against GM matter? Well, it matters more than almost anything. Let’s take some examples. Vitamin A deficiency is a major health problem in much of the world – leading to both blindness and death for children. Golden Rice is a strain of rice genetically engineered to have a high beta-carotene content to meet Vitamin A needs. Because it is a GM product it has been bitterly opposed by environmental campaigners. It was developed in 1999, but 15 years later it has still not been grown commercially anywhere in the world. Since 1999, 7m children have either died or gone blind due to Vitamin A deficiency. In a world where more than 1 billion people go hungry each week and which may have to almost double its food production by 2050, it is a big deal that 30% of the world’s crops are destroyed by pests. GM either has solved or can solve most of this problem. For example, an English firm has developed a strain of wheat which emits a deterrent to aphids and the same chemical attracts aphid predators like ladybirds. However, attempts at field trials were thwarted by environmental protesters. There are lots of exciting developments in the pipeline specifically tackling devastating crop diseases in Africa in cassavas, cowpeas and bananas. Where GM crops have been adopted (e.g. in cotton) the use of pesticides has been dramatically reduced.  In a world in which water shortages are arguably the greatest threat to development, it is vital that biotechnology ensures that crops need less water, given that 70% of all water use is for agriculture (and in some developing countries it is 90%). The Gates funded work on Water Efficient Maize for Africa (with a GM crop that can sit out a drought and wait for the rains to come rather than going to waste) is just one example of a major game changer. So why do the environmental groups stand opposed to the scientific consensus that GM crops are safe and essential to sustainable development? (Indeed the same groups use the argument that the scientific consensus is beyond doubt to  fiercely attack any dissident voices on climate change.) A quick look at the Greenpeace website reveals the reason. The top issue they identify in agriculture is that 10 corporations control 70% of the seed market. If you read the anti-GM propaganda from environmental groups it is clear that the opposition is motivated more than anything by hatred of both capitalism and large multi-nationals. Instead, a vision is put forward of retaining small scale organic farming in much of the world. This flies in the face of the success of intensive large scale farming – if we tried to produce today’s world’s food output with 1960 technologies we would need to farm an extra 3 billion hectares, a landmass equal to 2 South Americas! The environmental antipathy to global capitalism can look benign unless you look at the analogy of other science-based industries. For example, the pharmaceutical industry relies on the potential of a multinational corporations to make global profits from new drugs to fund long-term, expensive and high risk research into medicine. Imagine if the environmentalists had opposed the commercial use of pharmaceuticals with the same arguments they make against GM – “we shouldn’t mess with nature”; “traditional medicines will be displaced by multinationals and their aggressive roll-outs of new profitable drugs”; “trials should be prevented”; “it is better that people avoid cancer by changing their lifestyles rather than being given chemical cocktails to attack the disease”; etc. The parallels are chilling. So, if we are happy to use bio-technology to create medical products to put in our bodies, surely we should be happy to do the same with food? For the last 10,000 years we have been genetically modifying foods, as plant and animal breeders have selected the genes they want or don’t want. Now we can do it quicker and more ambitiously; now the world can’t wait; now we should get on with it. 

2) Energy

The environmental groups have scored some spectacular own goals on energy. The climate change treaties have seen the West’s production of carbon fall. But its consumption of carbon has risen sharply. The treaties imposed production targets on the West but not on the developing and emerging economies – as they were driven by a Western guilt-trip, rather than a comprehensive solution. So the West has outsourced its production of carbon to the emerging economies. The result has been the worst of all worlds. The emerging economies have produced our goods in a more polluting way than we would have done ourselves – burning coal and generating unabated pollution. Any rational analysis would before the treaties would have shown that the biggest threat to the environment always comes from newly industrialising countries. Over time, industrial countries reduce their pollution through abatement and efficiency. For example, the high income countries reduced emissions per dollar of GDP produced between 1940 and 1998 by 90% for sulphur, carbon monoxide and volatile compounds. But China is burning nearly twice as much coal to produce a dollar of GDP as the West. (However, Chinese cities are better than Japan’s early development, where for example its cities were 3 times as polluting as Beijing and Shanghai today.) The hard numbers on the treaty failures are bracing. Since 2000, two-thirds of carbon emissions have come from China, which uses 2.5 times as much energy to produce industrial goods as Germany. By 2015, China will emit twice as much carbon dioxide as the US. Not only have the climate treaties been disastrous for carbon emissions, they have been destructive for the people of the emerging economies. In northern China, for example, life expectancy has been reduced by more than 5 years by air pollution. India has the worst air pollution in the world and two-thirds of the 20 worst polluted cities. Meanwhile, in Europe, the environmental groups have focused on the rapid adoption of renewable energy generation. They have willed the means, rather than the ends. Rather than relying on carbon prices and regulation driving private sector solutions to reduce carbon, the environmentalists have insisted on European law mandating renewable energy in short order. This flies in the face of how markets respond. Governments have been put in a weak position – as market takers they are trapped into buying today’s very high cost, very ineffective renewable solutions. In the UK, this focuses on rushing into very expensive off-shore wind, signing up to long-term contracts which cost 2 or 3 times as much as gas power. But more worryingly, the energy produced is unpredictable and often not available. For example, in the middle of November in 2012, Germany found that its combined wind and sun renewables (which are meant to cover different weather) only produced 4.8% of the energy of which they are supposedly capable. So as well as the expensive renewables we will have to build a parallel energy industry (based largely on carbon) to produce reliable energy. In the rush to renewables, the green groups encouraged the burning of timber. In the UK, the Drax power station has been converted to annually burn more than the UK’s entire output of timber. Meanwhile, in Germany, a third of renewable energy comes from burning timber and it looks like 20% of German land will be used by 2020 to grow biofuels. In the US, 40% of the corn crop is used for fuel. Late in the day, the environmental groups have seen the devastating effect of biofuels production on forests and food-growing farmland. They have also conceded that the carbon neutrality of burning trees (e.g Drax burns 165 square miles of trees each year) is only true over hundreds of years. In terms of the climate change crisis in the next few decades, burning trees for energy is making things worse. Against this domestic introspection, little has been done to urgently endow the world’s poorest with the energy deserve. The people of sub-Saharan Africa currently use only 1% of the energy per head as the west – each day, their total use of energy is equivalent to lighting a single bulb for 4 hours a day. In parallel, the environmental campaigners have iPhones whose mobile computing etc uses the same power year as a refrigerator. We clearly need a new type of international treaty on energy – one which urgently reduces the burning of coal by India and China (replaced by ample supplies of gas, which uses half the carbon of coal); one which stops wasting hundreds of billions on today’s weak renewables and instead channels those massive resources into R&D to push forward with new technologies that can really solve the problem, e.g. nuclear fusion; one which acknowledges and accelerates different solutions in different countries – e.g. solar for Africa and the Middle East, nuclear for high income countries, gas for the US; etc. But this will require the environmental groups to acknowledge that: the world has an ample source of energy resources; that we should promote more energy use in the world to improve the lives of the poorest; and that the legacy we want to leave future generations should focus less on the depletion of resources and more on the new technologies we invent to power the world, sustainably.

3) Use of land
The Council for the Protection of Rural England is currently campaigning against the potential use of greenfield land for new homes. It opposes greenfield development. It believes that any new housing should be inside existing city boundaries. It has spent a huge amount of time looking at the actual and emerging Local Plans for local authorities across England and believes that up to 500,000 new homes might be built on greenfield land over the next 20 years. The majority of these greenfield homes are not yet approved. But the CPRE’s screaming headline is that this could consume 150 square kilometres. But England has 130,393 square km – so that it is just 0.1% at risk. Even if all the new homes were put in the South East (which they won’t be) it would be a lot less than 1% of the South East. Even if all of England’s new greenfield housing went into Wiltshire it would only use 4% of the county! It is true that England has one of the highest population densities in Europe. It is also true that with a growing population and immigration people are feeling that the country is full. But the truth is completely the opposite. Let’s look at England first, then the UK more generally. Nearly 11% of England is now urban. That means that 89% is not developed. But even this exaggerates the concreting over of England. 80% of urban areas are not built upon. Just over half of all urban areas is green space ( parks, sports, etc), a fifth is gardens and 7% is waterways. So the percentage of England which is built upon is just over 2%! If we look at the wider UK, less than 1% of land is built upon. Indeed, even if we look at the percentage of the UK which is urbanised in any way (including parks or rivers in towns) it is just 7%, compared to 13% which is now woodland. (Woodland is now at the highest percentage since records began 90 years ago.) The numbers matter. The UK has a full blown housing crisis.  Home ownership rates are plummeting; 3.3m young adults (20-34) live with their parents; we have the smallest new homes in Europe; demand for housing has been double supply for decades; rents consume half of many people’s incomes. Worse is to come – the number of English households will rise 20% in the next 20 years.  The solution is simple – build more houses. More houses means giving up greenfield land. Clearly we have plenty to sacrifice. And a very little sacrifice would have a dramatic impact. If the CPRE’s figures are correct, then, pro-rata,  a 1% sacrifice of greenfield land would allow 5m new homes in England, which is more than enough for the next 2 to 3 decades. The uncomfortable truth is that the CPRE and others of their ilk are hoarding the countryside for themselves – keeping their house prices artificially high, excluding others from enjoying their natural environment and avoiding the UK’s social diversity. As well as the millions of people who are denied the chance to have a home of their own in the areas they would like to live, the political effectiveness of the environmental groups has a detrimental impact on those who live in urban areas. The insistence on turning all urban brownfield sites into hyper-intensive development means that cities and towns are unable to convert these sites into green areas (e.g. new parks, new wooded areas) to improve the quality of life of the rapidly growing urban populations. The hysterical opposition to greenbelt development means that low grade land around cities is protected, whilst commuters are forced much further away from the city to the other side of the greenbelt taking higher quality landscape to meet their housing needs and then creating commuter congestion as they drive back into the city. Our two most promising small cities for economic growth, Oxford and Cambridge, and the prospects of young people in those cities are hobbled by this environmental policy. Clearly, the development of greenfield land needs to be very carefully managed. I am not calling for a free-for-all. But just think how our most beautiful landscapes are enhanced by the sympathetic towns in them – imagine how our environment would be degraded without the built beauty of Bath, Canterbury or Durham. Indeed, the most apparently natural landscapes in the UK are anything but – e.g. the Lake District is a deforested area, subject to intensive over-grazing which has eroded the whole area of its natural state. And its full of villages and small towns. But, my, it’s stunning. Giving up 1 or 2 percent of England’s greenfield is the right price to pay for transforming the lives of millions of people. 
Having looked at just 3 areas where environmental policy is working against the best interests of humanity, it is clear that a prima facie prosecution case can be constructed. I say this as someone deeply concerned about the world environment (e.g. I gave up eating meat 30 years ago because it is about the worst thing for the planet). To reform the environmental movement, the first step is to ensure that we spot and call-out the environmental lobby’s grinding of other axes – be it anti-capitalism or self-interested house price protection. But the second step is challenging those who put preserving the natural world before the needs of people. Some of the environmental agenda verges on pantheism, creating a guilt that any conversion of nature to human use is a desecration of something which is worth much more than human need. But with 9 billion soon to be on the planet, we have to focus on how the natural world has to meet our needs as humans. (We can’t avoid having 9 billion people, it’s now inevitable). We should switch our focus onto how to get the most out of the natural world, in the most equitable, imaginative and sustainable way. That means moving to a debate which is more rounded (how we best develop the world, not just how to protect nature), more optimistic (using and accelerating our science and technology breakthroughs) and fairer (ensuring that the richest people and countries give the poorest the best chance to attain what they already have, be it food, energy or homes). Any sentence for crimes against humanity should be suspended to allow for future good behaviour.