Things That Annoy Me

Irrational Rantings from Prof. Ryan Spox

Capitalism 101

Things that annoyed me today:

Mostly it was the realisation that the man in charge of the UK’s economy doesn’t seem to understand how Capitalism works. Poor Gideon Osborne, with his not entirely relevant degree in Modern History, has struggled for some time to get his head around the idea that successful capitalists invest in projects which make them money. Gideon apparently thinks that the idea of capitalism is to sell your assets off cheaply in order to let other people make money.

Landed by his predecessors with a 39% stake in Lloyds banking group, Gideon first demonstrated his inability to grasp simple sums when he announced that he would cheerfully start selling of that stake when the share price reached the heady level of 61p per share even though his disgruntled employers (the struggling British taxpayers) had forked out 73.6p to buy them in the first place. But, in that strange, scary place which is Gideon’s financial head, the sum (61-73.6) equals a nice positive number. We would like to think that a stock broker or similar financial guru who publicly lauded his plan to sell clients’ shares for about 80% of what they paid for them would not be handling their accounts for much longer. Sadly, Gideon’s clients are not allowed to actually sack him. Only his boss and top chum, wee Davey Camerloon ,can do that.

Matters have risen somewhat to a head in the last couple of days since, for the first time in living memory (well, of any five year olds) Lloyds has posted an interim profit. Boyed up by government cash and, through the simple expedient of charging its borrowers vastly more than it pays its lenders, it has successfully not made a substantial loss for the first time since 2008. As a result, at the time of writing, the share price is well above the magic 61p figure and almost up to what was paid five years ago. Clearly, to a man of Gideon’s financial acumen, this is the time to sell. Of course, a proper capitalist would actually hold off until the rising share price had just about peaked, thus maximising his profits. Indeed, we suspect that Gideon might go down this route if these were his own personal shares, or even the personal shares of a chum or proper business colleague. But, as Chancellor of the Exchequer, he has a sacred ideological duty to not make money for the government when he can dump assets at a loss-making price that then allows big corporations to reap the benefits, transfer the money to an overseas subsidiary and then pay no Corporation Tax on the profits.

Some folks might even hold onto the shares on the basis that the dividends they get from the – almost inevitable – future profits would help pay off the family’s (or in this case, nation’s) debts. We would tend to agree, but only if the income from retaining the shares is greater than the interest on the debt that could’ve been paid off by the sale of the shares. (This is basic family financial planning: if you owe £1000 on which you pay £50 interest a year then, should you inherit a spare £1000 which you can invest for a guaranteed income of, at today’s rates, about £5 a year, you are clearly better to use the capital to pay off the debt rather than using the income to pay the interest. Curiously, this is a basic sum that most people seem unable to grasp.)

Depending on how you do the sums, Lloyds quoted profits were either £2.1bn or £2.9bn. (The bank favours the latter figure as, the more profitable they appear, the higher the share price rises and the more likely it is that BritGov will dump its shares and piss off and leave them alone to get back to screwing their customers.) Now, as a fully privatised company, if they paid 20% corporation tax on that profit (which they won’t – no bank ever does) that would net BritGov between £0.4bn and £0.6bn in tax revenue. If, however, BritGov kept the shares and took a proportional 39% cut of the profits it would get pretty much double those figures. And that would go on for as long as the bank stayed in profit. And, if it started to lose money again, like any sensible capitalist investor, BritGov could quickly dump its shares and invest in a better run and more profitable business.

Sadly, Gideon’s desire to sell the shares has little to do with such thinking and more to do with the ideological position that Government has no business actually making money. Everyone knows that Government gets its income from tax. Anything else smacks of Communism. State owned businesses competing in a free market and paying their profits directly into State coffers? Heresy! Much better to sell the assets cheap and let “proper” capitalists benefit from the future profits the business makes.

And, if we’re lucky, Gideon might even get a modest percentage of those profits in the form of tax (typically lower than 10% once a bank’s accountants have worked their magic). So, in a sense, everybody wins. Although, in a more accurate sense, the vast majority of us lose substantially.

Still, that’s business!

They’re All At It Together…

Things that annoyed me today:

Mostly it was the vexing issue of MPs’ salaries. Apparently, we don’t currently pay them a high enough salary to encourage top-flight politicians to enter the profession. Clearly, this is bad thing for the future of our nation since, as we are constantly being reminded, you have to pay top salaries if you want to hire top people. (Unless those people are, say, nurses, teachers or members of any of the emergency services.) If we want top quality government, we’re going to have to pay more to attract top quality professionals, experienced in the art and science of governing.

Except, in a democracy, that’s not how it’s supposed to work.

We have neither the time not the inclination to deliver a lecture on the convoluted historical development of the British democratic system. Let’s just say that, if you are a “typical, average Briton”, Parliament did not even pretend to care about representing your interests until about a hundred years ago. Government of the People, by the People, for the People has never been the business of the UK Parliament.

But, these days, the exalted elite who slumber in its hallowed chambers have to pretend, at least publicly, that representation of your interests is what they are all about. And, by some convoluted logic only they can understand, it follows, therefore, that whatever we’re paying them, it isn’t nearly enough.

Back in January, when a gaggle of not- terribly-busy MPs found the time to fill out a pay-related survey, this revealed that, on average, they felt they deserved a pay rise of over 30%. (We do wonder what sort of results we would get if we allowed the workers in any institution to say how much of a pay rise they thought they deserved. If they averaged 30% would that be sufficient motivation for their employers to rush through such a pay rise? We suspect not.) Sadly for the MPs they are no longer allowed to just vote themselves a decent raise – they lost that power in the aftermath of the expenses scandal, when the nation discovered that many MPs regarded the submitting of dodgy expenses claims as an entirely legitimate way of supplementing their meagre incomes. Since it seems we can no longer trust them to handle the petty cash, a suitable “independent commission” now decides if they deserve a pay increase. Speculation at the moment is that a more moderate figure of 10-15% will be suggested as a reasonable raise. For the record, most public sector salaries are, to all intents and purposes, frozen; many private sector ones have gone down in recent years. We truly are all in this together.

Historically, of course, MPs didn’t get paid at all. Partially this was because serving in Parliament was seen as a civic duty, a calling rather than a profession. Like being a minister of religion. Or a missionary. But mainly it was because, to be an MP, you had to be rich already. Salaries for MPs were only introduced at the start of the 20th Century precisely because it was otherwise impossible for people (at this stage only men, of course) who were not independently wealthy to dedicate several years of their lives to Parliamentary service. This is one reason for the historically close relationship between the Labour Party and the unions – the unions funded the first Labour MPs who, otherwise, would have slept in the Commons chamber and eaten out of Westminster bins.

Today MPs are really rather well paid, with a basic salary of £66,000 and all sorts of generous top-ups if they actually take on any real responsibility, like chairing committees or heading a government department. Obviously they could all earn much more by working in the City or writing opinion pieces for national newspapers but, even for people who have selflessly devoted themselves to a life of public service with long and anti-social hours, they are still remarkably well rewarded. And that’s without factoring in all the other perks and expenses for which they are eligible.

And that, it seems to us, is the problem here. In a representative democracy, becoming an MP, whether you pass your time as a lowly back-bencher or rise to ministerial glory, is supposed to be something that citizens do out of a desire to serve. Whether they are serving the Crown, or the Nation or their fellow citizens is irrelevant. What they should not be doing, however, is serving themselves.

So, the very fact that we have “professional politicians” is inherently undemocratic. (And don’t get us started on the obscenity revealed by the endless references to “the political class”.) MPs should serve a term or two (at most) and then be recycled back into the community. No-one should ever look on Parliamentary service as a career in itself. And, unless you are a complete buffoon, the fact that you have served, even if for just one Parliamentary term, is always going to enhance your employment. If nothing else, it should guarantee you a job as a teacher in one of that nice Mr Gove’s new Free Schools – no training or relevant experience required, after all.

We saw, on TV news, some silly Conservative MP grumbling about how he gave up a more lucrative job and took a significant pay cut when he became an MP. No, he didn’t, he took a career break in order to serve the community and a grateful community responded by paying him a decent stipend to compensate him whilst he served. He went on to say that, unless MPs remuneration was made more competitive we would end up with a Parliament filled with chaps like him who were, well, independently wealthy or 20-30 year olds who had no experience of government but could afford to serve because they had not yet acquired those significant life expenses, like a string of polo ponies or a tax-deductible vineyard in France, that the average Brit has to pay for.

There is so much wrong with this attitude that we barely know where to start…

Firstly, the use of “remuneration” and “competitive” is wholly misleading. We call what MPs get a “salary” but really it is a “stipend” which can be usefully defined as:

a payment that enables somebody to be exempt partly or wholly from waged or salaried employment in order to undertake a role that is normally unpaid.”

Stipends aren’t meant to be “competitive”. They’re meant to be adequate to reward what you do in light of the sacrifice you make. Quite a different thing.

Secondly, a Parliament with a higher percentage of 20-30 year olds might not be a bad thing. Once you pass the age of forty you learn to cope with the fact that all young people are idiots by recognising that they are no greater idiots than you were at their age and at least they have the energy to actually participate in a vigorous Parliamentary debate until 2am then spend two hours knocking back cheap shots in a heavily subsided Westminster bar and still be able to chair a sub-committee meeting at 9am, fuelled only by a bacon roll and a can of Red Bull.

And, thirdly, the idea that paying MPs a mere three times the national average wage (again, not including perks and expenses) means only the rich will bother to enter Parliament is patently untrue. When MPs got no salary at all, people still stood for, and got elected to, Parliament, precisely because they had the passion and the conviction to try and do something worthwhile to make life better for others. Wouldn’t we be better off with a Parliament filled with passionate people, young, old, male, female, all creeds, colours and shoe sizes, a representative cross-section of the UK population, all of whom had chosen to make an admittedly small sacrifice in order to serve a higher purpose?

We’d vote for that.

In fact, the threat of a future filled only with super-rich MPs is just a rather crude scare tactic. Our “Rich Disgruntled Tory” of Westminster is basically saying:

“Pay me more to be an MP or you’ll only have people like me as MPs.”

Does that even make sense?

To cap it all, the broadcast media have been going round asking people if MPs are paid enough and then comparing their current salaries with all sorts of totally irrelevant and incompatible actual, genuine professions, like head teachers, and senior civil servants and top army commanders. And, yes, MPs salaries are lower than most of those but that is precisely because being an MP is not a profession and certainly should not be a career. It is an act of public service which involves some personal sacrifice but, through salary, expenses and perks, a grateful nation will ensure that the financial sacrifice, at least, is not too great. As a starting point, we would suggest that, in addition to reasonable and justifiable expenses, MPs should be paid the national average wage. That might focus their minds a bit and also give them an incentive to boost the economy in way that truly benefits everyone. They don’t even need a London weighting because the expenses will take care of their food, rent and travel.

But if they really must get some sort of pay rise, perhaps it should be performance related? And that performance should be tied to defined targets in areas that genuinely measure the delivery of good governance to the nation as a whole. In that spirit of public service that should underpin our democracy, we would be more than happy to take six months out of our day job and, say, a quarter million pounds of tax-payers’ money, and devise a fair and transparent remuneration scheme for our elected representatives.

And we wouldn’t even ask for expenses.

Buddy, Can You Spare A Dime?

Things that annoyed me today:

Mostly it was the jaw-dropping suggestion that some of this country’s illustrious band of law-makers cannot be trusted to put the Nation’s long-term best interests ahead of their own desire for short-term personal gain.

We refer, of course, to the alleged misbehaviour of a number (somewhere between 1 and 650) of elected MP’s and another number (somewhere between 2 and 763) of members of the House of Lords who may, or may not, have been engaged in slightly questionable dealings with external corporate interests. If you point your Internet pixies here: “Corrupt? Moi?” you can read all the sordid details of who is supposed to have done what when to whom and for how much.

Obviously, we don’t believe a word of it.

For one thing, everyone knows that MPs are democratically elected representatives who have selflessly devoted themselves to serving “the public good”. Often, they have turned down the opportunity to earn vast personal wealth through a business career. Most of them live a frugal lifestyle, spending their working week living in cheap, rented flats, travelling to and from their place of work on crowded public transport and then putting in long unsociable  hours in cramped, old-fashioned accommodation. And even when the working day is over they have other duties to attend to, from helping constituents with legal or social issues to advising charitable institutions on how best to improve the lives of ordinary citizens. Yes, just one quick glance at the daily life of a typical British MP will bring home the reality that, truly, these people are a special breed of secular saints.

And what is true for MPs is even more so for members of the House of Lords. Once, sensibly, we knew the Lords could be trusted to always put the nation’s interests first because it was mostly composed of people whose impeccable qualifications for the job had been, quite literally, bred into them. Unfortunately, with the weakening of aristocratic blood-lines due to over-enthusiastic breeding from a declining gene-pool, it proved necessary to pad out the Lords with what were, for want of a better term, Commoners. Here, however, that British genius for muddling through came into play. Over time the Lords was slowly filled up with people who were either semi-retired time-served senior political figures with a wealth of governmental experience and a proven track record of selfless public service or they were the next best thing – semi-retired time-served senior Establishment figures with a wealth of business experience and a proven track record of selfless public service.

And so what we have ended up with is an Upper and Lower house both filled with people who have dedicated their lives to the service of others, no matter what the financial, emotional or physical cost to themselves. You couldn’t ask for a better way to run a country!

Now, we will admit there have been some glitches along the way. We did have the “Cash for Honours” scandal, where political figures were, allegedly, taking money from rich people in return for a suitable mention on the honours lists: a knighthood here, an elevation to a Lordship there, but we must remember a couple of important points. Firstly, running a political party, or even just a personal political campaign, is a very expensive business and, clearly, because our MPs are dedicated, selfless secular saints, anyone who helps them to pay for their campaigns is also acting selflessly and in the public good and therefore, obviously, deserves recognition by a grateful nation. And, secondly, since the recipients of these honours were always wealthy and successful business people, it follows that they are exactly the sort of people we want to be elevated to a Lordship and thus given a seat in the House of Lords.

There was also the “Cash for Questions” scandal in which individual MPs appeared to be taking money from external, often corporate, bodies and, in return, raising specific topics during such Parliamentary free-for-alls as “Prime Minister’s Question Time”. Yes, it looked bad, some might even say corrupt, but we must remember that these were, in a sense, legitimate donations just like those offered during the “Cash for Honours” scandals but the difference here was that the donors didn’t even expect any concrete recognition in return. They just, perhaps, suggested that a topic of public interest could be raised in an appropriate Parliamentary forum. That’s a twofold example of public-spirited behaviour by corporate bodies: first of all they donate money to assist the political process and secondly they raise awareness of important national issues. And yet the media, whose sole and selfish purpose is to make profit by selling advertising, publicly pilloried all concerned for their alleged “corruption.” Now that is just silly! After all, if you had written to your own MP and drawn his (and most of them are boys or, more accurately Old Boys) attention to, say, the plight of the abandoned, psychologically damaged ex-Servicemen who make up a disturbing proportion of our prison population and, at the same time, had included a £10 donation to help him publicise that cause, would there have been any mention in the national press? Of course not!

And then there was the whole “MPs Expenses” misunderstanding in which it was alleged that a teeny minority of MPs and Lords were taking advantage of the Parliamentary expenses system to benefit their own wallets. Now it should be obvious that, even with the finest democratic selection system in the civilised world, with over 1300 individuals filling the halls of Westminster there is a small chance that one or two of them will crumble in the face of overwhelming temptation and make a silly mistake that costs them their position. But we have laws for dealing with that sort of thing, which is why a couple of MPs did face prosecution for, frankly, fiddling their expenses. Justice was served; the system worked.

As for the other, genuine mistakes and misunderstandings, there are a number of important facts we must consider before leaping on the bandwagon of berating MPs over their expenses. For one thing, they don’t exactly earn a living wage and, for another, being an MP (or an active Lord) does cost quite a lot of money. It stands to reasons that you have to spend a lot of time living in London, and that’s really expensive. And, obviously, you have to travel to and from London, unless you already live a short bus-ride away from the Palace of Westminster which, for all sorts of complex geographic and demographic reasons, most MPs don’t. Now, we used to get round that problem by simply not letting people become MPs or Lords unless they were already rich enough to pay the day-to-day expenses themselves. The tacit understanding was that they could then exploit their position in Parliament to generate revenues that would adequately compensate them for their personal investment in the nation’s well-being. But, to be honest, that didn’t work out too well over the years. Which is why we have the current system of salaries and expenses, all of which are carefully scrutinised by committees and commissions staffed by Top Men. Top Men, people! It doesn’t get more trustworthy than that.

Furthermore, the fault, as should be obvious, lies with the system, not the people. Clearly, if the system is too complex for MPs to understand then honest mistakes are inevitable as an over-worked MP struggles with the subtleties of an Excel spread sheet and a crumpled Starbucks’ receipt. And, if the system is set up in such a way that minor, personally beneficial adjustments can be made then that, too, is the fault of the system. You cannot blame a person for sticking to the letter of the law rather than its spirit. That would be as unfair as blaming corporate tax lawyers for insisting their clients blindly follow every aspect of the laws on corporation tax, including exploiting all the loop-holes.

And now we have the allegations of MPs and Lords agreeing to act as paid lobbyists for assorted business interests. Allegations made, of course, by journalists in pursuit of profit and backed up by questionable circumstantial evidence in the form of mere time-stamped and untampered-with video recordings.

But, really people, are we to accept that, when an MP or Lord is selflessly serving the public good, they must also decline any opportunity to advance their career outside Parliament or undertake legitimate paid consultancy work unrelated to their Parliamentary for an external body even when that work may, conceivably, end up benefiting some parts of the nation? Ridiculous! That would be like expecting senior military staff not to cultivate close financial relationships with defence contractors or telling GPs not to accept all-expenses paid promotional trips from pharmaceutical companies.

Or, indeed, telling political parties that they cannot accept vast donations from large corporate entities who have a whole raft of carefully thought out policies they’d like to see reflected in the next party manifesto. Why, without this sort of thing, the whole British political system just couldn’t work!

Forensics for Ducks

Things that annoyed me today:

Mostly it was the breathtaking stupidity of what passes for a Law Lord in Scotland. Bear with us on this one. We are referring to a rather obscure but very tragic case involving the decomposed body of a dead child, a mother convicted of murder, a conviction quashed on appeal and the stupendous arrogance of a bunch of old men in silly wigs. (Conviction Appealed)

The details of the case need not concern us. What does is that, due to the decomposed state of the dead child’s body, establishing a cause of death was not strictly possible. Consequently the prosecution turned to a so-called “expert” witness for, well, an expert opinion which could be deduced from the rather pathetic skeletal remains. It is the evidence of this expert witness which has so upset the appeal court judges that they just tossed the whole case out. Asked to infer a cause of death from the bones, the expert did just that, and stating what, in their expert opinion, the cause of death could have been. That’s an expert opinion. That’s the kind of opinion you get from experts. They don’t say what definitely did happen, they just say what they can infer from the evidence. Like everything in science there is an implicit probability attached to any statement, a fact with which the legal profession in general seem to have enormous difficulty in coming to terms. They’re quite happy with the concept of “reasonable doubt” in a legal case but utterly incapable of grasping the notion of probabilities of causes and effect when it comes to scientific opinion. Still, that’s lawyers for you. Never the brightest buttons on the coat, they make economists look like innovative thinkers.

So upset were they by their inability to grasp basic scientific concepts that the appeal court judges went on to dismiss the evidence on the basis that the principal expert has “no medical qualifications.” Well, that’s just shocking, isn’t it? Here’s some fly-by-night chancer masquerading as an expert and offering opinions that can only be trusted if they are pronounced by a proper qualified physician with a medical degree and everything. Because, let’s face it, what other kind of person could possibly know anything about inferring cause of death from a mere pile of sad little bones?

Well, possibly Dr Sue Black, Professor of Anatomy and Forensic Anthropology at the University of Dundee and generally regarded as one of the world’s leading practitioners in her field which, amongst other things, involves being an expert in inferring causes of death based purely on skeletal remains. You might, naively, think that she knows what she’s talking about. But that’s not good enough for the Scottish Law Lords because, in their view, she’s not a proper doctor! Why, the woman’s never prescribed an anti-depressant in her life! (Quack! Quack!)

Just to clarify their views on letting such amateurs interfere in areas that should only be entrusted to someone who gets to call themselves “doctor” because of a post-medieval convention, rather than because they studied their specialist subject long enough and well enough to earn an actual PhD, one top law dog, Lord Clarke, helpfully added:

“Putting matters colloquially, it cannot be right for a trial judge to allow an obvious ‘quack’ doctor to speak to a subject in a supposed expert way in relation to which he has no qualifications.”

Wow. Just “Wow!” What can you say to that? Now, we are expert in many areas, but Scots Law is not one of them. Consequently we really do not know if a respected Professor at a Scottish University is able to take any sort of legal action against an ignorant and opinionated Law Lord who has used a court judgment to publicly slight their entire professional reputation. But we really hope she can. And does. And if she can’t, next time the Scottish justice system seeks her help, we trust she will just tell them to go jump in the sea.

And then, when their bones finally wash ashore, perhaps she can examine their skulls for signs of cretinism.

A Bank For All Seasons

Things that annoyed me today:

Mostly it has been the vexed issue of how to monetise vulnerable bankers. You cannot imagine how dreary it is to be complaining about bankers again. Haven’t we all made our point and surely it’s time to move on? They know we disapprove of what they did, they’ve said they’re really, really sorry (however unconvincingly) and crossed their hearts, hoped to die and promised really, really hard to try not to get caught again and yet we still keep picking on them. It’s unfair to an entire profession of socially vital individuals as well as detrimental to the economy as a whole. Frankly, we feel rather ashamed with ourselves for bringing it up once more, rather like an early 19th Century politician such as, say Wm. Wilberforce, banging on again about the evils of slavery even though everyone’s heard all his arguments before and, besides, the economy would – maybe – tank without it.

So… what about bankers has annoyed us recently? Ah, yes, the Libor rate scandal. Having been caught in the commission of a crime, the Royal Bank of Scotland (or RBS as ScotGov would prefer as it tries to distance itself) have been roundly punished in accordance with the British judicial system’s long-standing three legged stool of retribution, deterrence and rehabilitation. In short, the bank has been stuck with £390 million in fines and those individuals who foolishly left fingerprints at the crime scene but were not smart enough to “move on” before the Old Bill turned up have been “disciplined” in some vague, ill-defined way which seems to involve neither jail-time nor, in fact, being sacked. But the important thing is that the guilty have been, in some sense, punished in such a dreadful and public way that others will be deterred from committing the same heinous crimes and, at the same time, the guilty perps are being gently rehabilitated back into wider society by, for the most part, letting them carry on with their lives and jobs as if they’re only offence had been sleeping in the toilets.

This has also provided another excellent opportunity for the RBS Top Man “Honest” Stevie Hester to appear on British TV telling us how bad everyone else was and how he has to make sure that the culture is changed to ensure this never happens again. Which, as we have said before, is just a poorly-coded way of making it clear that he has no intention of resigning over this issue. And why should he? Even though he has spent most of his career in banking, he wasn’t involved in the LIBOR fixing, knew nuffink about it (“Honest”) and has only been in charge at RBS since 2008. So, clearly, even though he is paid an obscene sum of money for standing on the bridge of the supertanker, tooting the horn and tinkering with the settings on the GPS in order to give the impression that he is, somehow, actively controlling its destiny, he cannot be held in any way accountable for LIBOR fixing because it was only happening for a couple of years after he took over and, really, that’s barely enough time to find out where the office photocopier is, let alone take a glance at the bank’s internal accounts to see how it’s making its money. It’s really not very fair to expect him to take responsibility for something that was happening in the corporation for which he is responsible during the period in which he had responsibility. That’s not how these things work.

Even more vexing than the question of why responsibility no longer implies being responsible is the issue of how RBS will find the dosh to pay the fines. The total of £390 million is made up of two separate fines  – about £300 million imposed by US authorities and another £90 million by the UK’s Financial Services Authority (Incidentally, the FSA is not an arm of the UK State. Instead it is a quasi-independent corporation, funded by the UK financial industry but tasked by Britgov with regulating the very industry that pays for it. Which makes you wonder – where does that £90 million fine go? Who actually gets the money?). Anyway, Prime Minister of the Exchequer, Giddy Davey Camerosborne has made it quite clear that the UK taxpayer, as represented by Britgov, ain’t posting bail for the bank this time, a bold statement which makes you wonder why on earth anyone might think they would. After all, do they pay your parking fines? Britgov may own more than 80% of RBS shares but that still just makes it one of many shareholders, with the same limits of liability as Great Aunt Mae with her two RBS shares she inherited from her dead husband. Nobody expected her to fork over £390 million to bail them out, so why would anyone expect the UK State to do so?

In fact, Camerosborne has said that the fines should be paid from the money the bank’s Top People have carefully put aside for paying themselves their well-deserved bonuses. Hmm… Sounds good on paper, doesn’t it?

Except… Falling, as we do, into the broad demographic category of “UK Taxpayers” we find this quite unsettling. For one thing, if we are investing our hard earned cash in a publicly traded corporation then we expect to see that corporation’s profits being paid to us in the form of an appropriate dividend which represents our return on our investment. That’s Capitalism 101, that is. With that in mind, if they have £390 million in the bonus pot for clever little bankers then that is £390 million that’s not in the dividend pot for the investors who, technically, own the bank and for whom, technically, all those clever little bankers actually work. (We are simplifying things slightly, of course. For example we are neglecting the effect of the onerous tax burden that the bank’s accountants have to work so hard to minimise.) As a UK citizen and thus, at least in a symbolic sense, a shareholder (Britgov “owns” the shares but Britgov is acting as a representative of the People. Isn’t it?) we are not happy at our employees helping themselves to our profits, without our permission, which is essentially what these bank bonuses are.

For another thing, given the inability of the average corporate executive to understand the basis of Capitalism as outlined above (i.e. no matter how fancy your job title you are a mere employee and you work for the investors who actually own the business) if anything, like paying massive fines, reduces or removes this year’s bonus then the clever little bankers will just have to make it up in the future which means that for the next few years weasel words will be employed to justify increasing the bonus pot at the expense of the dividend and / or that both bonus and dividend pots will have to be dramatically increased by boosting future profits, either by screwing customers in the High Street Banking end of the operation or by taking even stupider risks in the Gambling Investment Banking end. Or both.

So, either way, as a UK Taxpayer, we will end up paying for this. Which is probably what most of us expected all along.

Meanwhile, the new Top Man at Barclays bank has very graciously announced that he will not be taking his full bonus entitlement this year. Given that he’s only been “in post” for a few months, during which even more dodgy and downright illegal activities have come to light and during which the bank’s performance, as a corporation earning dosh for its shareholders, has been simply abysmal we have to admire his chutzpah in declining this bonus that he clearly hasn’t earned and yet expecting us to view this as an act of self-sacrificing humility.

And that’s before we move onto all the naughtiness slowly coming to light that other UK (and foreign) banks have indulged in, whether it be money-laundering, rate-fixing, insurance sale scams or simply breaking international sanctions imposed on Evil Dictatorships…

But, enough for one day. Our over-developed sense of moral outrage cannot take too much of this stuff.

Instead we will change direction and direct your attention to recent developments in the abuse of the English language. The first offender is the tendency of people, especially those in the broadcast media, and including those at the BBC, who really should know better, to ignore the fact that the word “vulnerable” is spelled, well, “vulnerable.” As a consequence, when we hear them describe things or people as being “vunnerable”, which seems to happen several times day now, we get a tad agitated.

The second offender is the neologistic verb “to monetise”. Everything about it is wrong. It’s an ugly, de-humanising and harsh sounding word, used to describe any process where people or things, from High Art to human suffering, are converted into mere mechanisms for generating revenue streams for somebody else. What’s worse, it is much loved by the kind of sleazy little corporate clones who refuse to recognise the fundamental basis of Capitalism: that they do not own the corporations for which they work but are mere servants of the shareholders, to whom they are, or should be, directly answerable. Yes, even to all 60 million of them.

To Tax Or Not To Tax

Things that annoyed me today:

Mostly it was the vexed question of tax avoidance. Specifically, it was the depressing realisation that we have no idea how we can actually achieve that heady goal in our own personal finances.

Let us be clear here: tax avoidance is the entirely legal process by which individuals or corporations act in certain ways to reduce or remove their obligations to pay certain taxes. Tax evasion is the act of illegally evading taxes you are required to pay. So, for example, if a corporation makes no profit then it will pay no corporation tax, because corporation tax is a tax on profits. A simple way to avoid corporation tax is, therefore, to ensure that you make no profit. If, however, a corporation “cooks its books” so that it declares a failure to make profit when the actual profits have been hidden from the taxman, then it is being very naughty and engaging in tax evasion and its corporate officers may end up in jail. (A cynic might suggest that this only happens to corporations who have failed to make adequate donations to appropriate political institutions. We, however, reject such a view, preferring to believe that all politicians are incorruptible paragons of virtue, Shining Knights who seek only to serve the Public Good. Gawd bless ‘em! Gawd bless ‘em all, we say!)

So, having got that out of the way, there is a bit of stushie in contemporary British society over the whole tax avoidance issue. A few months back we had our heroic Prime Minister, young Davie Cameron publicly lambasting the comedian, Jimmy Carr, for trying to hold on to most of his hard-earned wages by participating in complex off-shore tax avoidance schemes that were surprisingly similar to the ones favoured by Mr Cameron’s father and which helped make “Call me Dave” the privileged rich kid he is today.

But, as a society, we have moved on from there and now we are all getting super-agitated over the issue of global mega-corporations that seem to do a huge amount of business in the UK, involving a vast turnover of cash, and yet pay incredibly little – or no – corporation tax simply because they appear to have made little or no actual profit. And yet, curiously, they still feel it is worth continuing to do business in the UK. (Tax Me Harder)

To put all this in some kind of context, let us consider a few irrefutable facts:

First of all, it is a basic tenet of contemporary Capitalism that a corporation exists to make profits. It needs those profits in order to pay dividends to its shareholders who are after all, its actual legal owners. Those afore-mentioned cynics with whom we do not associate ourselves, might point out that many corporations have forgotten the second of the sentences above: they want to make profits in order to boost the share price and trigger bonuses. The actual shareholders are an irritating necessity who can be safely ignored because, rather than being private individuals who have invested some spare cash in a venture that might boost their family incomes and in which they might be expected to take a personal interest, they are themselves corporate entities who only hold onto the shares long enough to see their price rise sufficiently that selling them generates a tidy profit for their parent corporation, leading to increased share prices, dividends and bonuses all round.

Secondly, if, as a species, we intend to live in a society larger than a family-sized group of hunter-gatherers then we are going to need to have government. Here, by “government”, we are not referring to such bloated self-seeking gravy-trains as BritGov or any of its international partner conspiracies. Rather, we refer to “government” with a small “g” by which we mean a mutually accepted (if not necessarily agreed) system of rules, regulations and corresponding enforcement authorities which help us get through the day without killing each other or suffering the inconvenience of a foreign invasion. Along the way it can also provide a modicum of infrastructure that keeps things ticking along and, for the Godless Communist Extremists amongst you, it can even educate your children and ensure that they, and you, don’t die unnecessarily of easily preventable medical conditions.

Thirdly, if we’re going to have government then, somehow, it has to be paid for. And that means taxes. This is why taxation is as old as civilisation and – probably – is actually older than that. Throughout history, taxes have been paid in produce, in labour and, most conveniently, in the form of money. Even in so-called “failed” states like much of Somalia or bits of central Africa people still pay “taxes” to scary men with guns although what they get in return is rarely the benefits of enlightened government but, more probably, the benefit of not being killed.

So, whether your government is Big or small, National or Local, Federal or State, in order to function it needs your taxes. (How much it needs and what it should do with them is a matter for your own individual politics. Today, at least, we are not going down that route other than to note that many governments seem to have lost sight of the fact that they do not exist simply in order to collect taxes to pay for their own existence; rather, they’re supposed to be raising the money in order to actually do useful things.)

In order to collect taxes, governments pass, and then enforce, laws that say who will pay what, when and why. In order to maximise profits, corporations will attempt to minimise the taxes they pay whilst, in most case (we would guess!) remaining within the law. The result, inevitably, is a pseudo-biological “arm race” between the taxman and tax lawyers. Yes folks, it’s evolution at work!

The reality of modern Britain is that, as a result of frankly moronic financial planning by a series of disparate flavours of BritGov, going back over decades, we are, as a Nation, a bit strapped for cash right now. So we need to maximise our tax returns. Which, inevitably, has drawn attention to the afore-mentioned corporations who seem to have very successful businesses which pay very little actual tax. Clearly, they are up to something and, whatever it is, is obviously Bad, even if it is not, in any sense, illegal. And this means that they are not playing the game of pretending that “We are all in this together.” And that makes them doubly bad. What makes them triply bad, and especially ripe for official denunciation, is that some of the more obviously out-of-kilter financial results are for corporations that can, perhaps, be best described as “Foreign” or, even more despicably, “American”. Yes, Starbucks, Amazon, Google and Apple, we, and BritGov, are looking at you.

The reality, not surprisingly, is that all large corporations play this game. BritGov just seems curiously reluctant to point the accusing fingers at supposedly “British” companies like Boots (co-owned by a US private equity fund and some legitimate Italian businessman), Cadbury’s (owned by the US food mega-corp Kraft)  and so on. In fact, this has been happening for years as you can explore for yourself here: Tax Free Britain.

Or you can just examine this:

Top 12 UK Tax Dodgers from 38 Degrees

Top 12 UK Tax Dodgers from 38 Degrees 

Which comes from here: 38 degrees – tax dodgers

Now, all of these corporations will point out that they employ lots of people within the UK, that those people not only pay UK income tax but also spend their money in this country which attracts further tax in the form of VAT, duties and Lord knows what else and, therefore, the fact that the corporation makes little or no profit and thus pays negligible taxes does not mean that it is not benefiting both the economy in general and tax returns in particular. And all that is absolutely true. The UK’s economy and tax income is better off for having them here. So Hurrah for that!

But…  Were these private companies, whose owners were all on the books as employees, then they would have no requirements to pay dividends to shareholders and they could be hugely successful, thriving businesses whilst ensuring that their Pre-Tax Incomes were exactly balanced by their Expenditures, including salaries and income-related tax-deductions for everyone who works there. The net result would be everyone has a well-paid job, the company keeps going (and possibly even growing) year after year, yet never actually makes a taxable profit whilst still contributing economic benefits and tax income to the state.

The problem for such a company arises if it does have shareholders who expect a dividend. To pay a dividend it has to make profit, which is then taxed before the dividend is paid. Still, if Starbucks, Google, Amazon, Apple and their ilk make negligible profit and thus pay negligible dividends to their shareholders, then – however disgruntled their shareholders might be – everything is above board, is it not?

Except they do make profits and they do pay dividends. In fact, they make huge profits. But, being multi-national mega-corporations whose HQ is not based in the UK, they just use clever accounting to claim that they don’t make any worthwhile profits from their businesses in the UK and, therefore, don’t pay any significant tax here. The details of how they do this vary from corporation to corporation and aren’t really relevant here. What matters is that they do it and it is, currently, entirely legal.

And that seems to upset a lot of people. The outrage is caused by a feeling that whilst this may not be illegal it must, surely, be immoral. The basic argument is rather simple: any corporation that trades within the UK is benefiting from the entirety of the system of government that exists in that nation and it is, therefore, only right and proper that they contribute a fair share to the running costs associated with that system of government. Here, unsurprisingly, there is a conflict between the definition of “fair” and the reality of “legal”. For most people, the more actual profit your corporation makes as a result of its business dealing here, the more actual tax you should contribute to the cost of keeping the UK open for business.

The fact that you can choose to pretend that you actually made that profit in another country with a different tax regime does not change the moral argument: you want to play here, you have to pay here. To exacerbate things, the reality is that, the bigger the corporation, the more likely it is to be able to avoid taxes in this way. Your local joinery company may only employ three incoherent teenagers and a Polish dentist (he’s handy with a drill!) who do good and reliable work but you can be pretty sure that a small business like that pays a higher rate of corporation tax on its actual UK-generated profits than any global mega-corporation (including, incidentally, most UK-based banks). Little guys can’t afford the expensive tax lawyers required to set up these entirely legal methods of avoidance.

Incidentally, did we mention that, however annoying their behaviour might be, what all these corporations are doing – like poor Jimmy Carr before them – is entirely and undeniably legal.

Still, it would be nice if they did contribute a bit more to the UK’s coffers so BritGov decided to name and shame them all (well, except the UK banks, obviously). This led to calls for a boycott of these businesses because they didn’t deserve our business. An understandable knee-jerk response, perhaps, which tended to ignore awkward realities such as the fact that many Starbucks’ branches are actually franchises – the owner pays the corporation a licensing fee for use of their brand and products and then proceeds to run a small business which employs local people, makes profit and pays its taxes on that profit. Meanwhile, the franchise fees that were paid disappear into the global Starbucks’ coffers and vanish from the sight of the UK tax system forever. So who does boycotting hurt? Not the mega-corporation, obviously.

(Of course, if UK consumers were not such sad, impressionable basket-cases who can’t enjoy a decent cup of coffee unless it has a recognised brand-name plastered all over it, the franchisee could be running an excellent, independent local coffee shop which actually generates higher profits, and thus taxes, because it doesn’t need to pay that franchise fee. The reason people take on the more expensive franchise option is because that’s what consumers want. Instead of simply boycotting your local Starbucks, try signing a solemn oath that, if it goes independent, you will continue to support it by buying its new, and probably better, coffees.)

And yet, bizarrely, the public outcry and calls for a boycott have prompted Starbucks to state that, over the next two years they will pay more tax than is currently required of them.

Sounds good, right? The system works, people power prevails.

Really?

A corporation will pay more tax than it is legally required to do because BritGov has publicly “outed“ it and, in essence, bullied it into paying some sort of protection money? That’s a slightly disturbing thought. How many of us are going to spontaneously decide to send HM Revenue and Customs a bonus cheque for, say £1000, in January? They haven’t asked for it, they have no basis for expecting it, there’s absolutely nothing in Law to say you should do it, but, hey, let’s just send them some extra money anyway.

Will you be doing that? We suspect not. But, over the next two years, Starbucks will be doing exactly that: paying BritGov a legally unnecessary £20 million just to make this story go away.

And that’s What’s Wrong With This Country Today. Someone does something which is not, according to current law, illegal but which most people find objectionable and immoral and all BritGov can do is talk about it in the hope that the offender will change their behaviour? Do they not understand what governments are for? They make laws in order to define what is, and is not, legal. And then they actively enforce them. And in a democracy those laws will, at least in principle, reflect the Will of the People. (Don’t laugh, there may be impressionable children reading this.)

Should global mega-corporations making huge amounts of money in the UK actually pay a reasonable amount of tax in order to continue doing business here? Well, of course they should and if, currently, they are not legally obliged to do so, then the solution is unbelievably simple: change the tax laws. If they don’t like it, they will leave and someone else will fill that void. But the reality is that they won’t leave, because a huge income generated in the UK on which you pay 24% corporation tax is still a whole lot better than no income on which you pay no tax. (In the absence of any kind of state benefits system, which would you prefer: a guaranteed income of the UK average of £24,000 a year on which you will pay, roughly, 20% tax? Or no income at all on which you pay no tax? Which makes more financial sense?)

If only young Gideon Osborne had studied something useful at Uni, like Accountancy or Home Economics, he might actually understand this stuff.

Press Ganged

Things that annoyed me today:

Mostly it has been the Leveson Inquiry. Or, more accurately, the recommendations of the Leveson Inquiry. Or, more accurately still, the vague and uninformative reporting of the recommendations of the Leveson Inquiry. (Leveson At A Glance…) We know that the press are upset by them and that Nice Mr Cameron is refusing to introduce new laws to make being a newspaper journalist a hanging offence and people who’ve been comprehensively worked over by innocent journos out to make an honest buck feel that they have, somehow, been shafted, but we’re still surprisingly vague about what Lord Justice Levson’s recommendations actually are.

Let us consider the background to all this: Leveson was an inquiry into press ethics, forced upon BritGov because so much of the UK’s press business (especially the newspaper end) had been very, very naughty over the past few decades and the electorate had finally Expressed Serious Misgivings, which always makes politicians sit up and pay lip-service. It was not a criminal investigation, although it did uncover – or at least more overtly publicise – criminal activities undertaken by members of the press, nor was it specifically an inquiry into the assorted recent phone-hacking scandals which have led to around 90 people – including senior figures in the UK press pack –  now facing serious criminal charges.

So, here is what we have learned about the press business in the course of our short, but useful, existence. Firstly, any story that you read in a newspaper is probably wrong. The degree of falsehood will depend enormously on the importance of the story, the integrity of the reporter, the agenda of the editorial board and, of course, the likelihood of anyone suing the publishers. On every single occasion on which we have seen a newspaper report that covers an event, incident or story of which we have either personal or professional knowledge or experience, that report has been wrong in at least some important detail. Some reporters are just too lazy or incompetent to get things right and even the most scrupulously ethical reporters will make “honest” mistakes on occasion but the real reason newspaper stories are always wrong is that those who write, and publish, them are less interested in the facts than they are in telling a good story. And a good story is one the public wants to buy. Truth is irrelevant; it is the quality of the story that matters.

And this single-minded desire to tell a good story leads us inexorably to the other thing we have learned about the press. Newspapers exist for one purpose and one purpose alone. And that is not to report the news, with the justification that a functional democracy needs an informed electorate. Nor is it just to sell newspapers, with the justification that it’s a business and news is its product. Put simply, newspapers exist to sell advertising. That is their primary function. Advertising is what makes them profitable. That’s why crap newspapers can be sold for 20p and some can even be given away for free. As a source of income for the publishers, the cover price is just icing on the cake. Rupert Murdoch did not shut down the News of the World because he was shocked and horrified by the extent to which it broke the law in pursuit of a story, nor did he do it because the Great British Public were so disgusted by the paper’s criminal activities that they refused to buy it. He shut it down because the NotW brand had become so toxic that advertisers no longer wanted to be associated with it and that meant there was no longer any justifiable business case for keeping it going.

And, of course, he could then pretend he was doing it for all sorts of warm and fuzzy ethical reasons whilst telling the world how humble he felt. Meanwhile, if you want to read the same old made-up stories, buy the Sun instead. Or the Times. There’s little real difference these days.

So what did Leveson actually recommend in order to bring the Monster to heel? Well, like most of the UK’s population we haven’t actually read it, or looked at it, or, until today, even seen it. It is awfully big and contains a lot of words and even the Executive Summary is ridiculously long and, since most of us still have to walk the dog before it gets dark and then find something for the kids’ tea, we’ll just have to rely on others to tell us what it says. Those others being, inevitably, the press and politicians. Hmm… How’s that going to work out?

Anyway, according to the Press, implementing any of Leveson’s recommendations would involve the complete overthrow of freedom of speech, freedom of the press and, possibly, our right to bear children. We may be only days away from seeing newspapers forcibly shut down and their editors tossed into jail as BritGov brings in sweeping new powers for statutory regulation of, well, everything we hold dear. According to the Tory wing of BritGov, however, that’s not what he said at all and there is, therefore, no need to do anything except thank Leveson for a Job Well Done and the press have certainly learned their lesson this time, yer Worship. Nothing to see, move along now. Here, Mr Cameron, is, of course, defending press freedom because there’s nothing the Tories hate more than any attempt by government to control, direct or silence the media. (Well, except the BBC, because it doesn’t make a profit, so is not a proper business, and it certainly doesn’t contribute to their campaign funds.) On the other side of the great political divide, the LibDem wing of BritGov are saying that, clearly, some sort of new legislation IS required in order to tame the beast, although no-one seems entirely sure what form that legislation should take. From slightly further left of that comfortable centre wing of British politics, little Teddy Milliband and his team are also demanding some sort of legislation because, well, that’s what Parliament is for, dammit. The more laws you pass, the harder you must be working, right?

So the press say it means one thing, half BritGov say something else, the other half disagree and the rest of the political masses all say something else. Hmm… This is a bit worrying. If you can’t trust your press or your politicians to tell you the truth, straight up, no chaser, then who can you trust?

Well, perhaps an actor. Namely – and rather surprisingly – Hugh Grant.

As a victim of intrusive, and illegal, newspaper harassment Grant put aside his tiresomely befuddled screen persona and turned into a coherent, thoughtful individual in order to give evidence to the inquiry and become a leading figure-head of the Hacked Off campaign which wants some sort of legal underpinning of whatever it is that will Put A Stop To This Nonsense. Hugh is also, to our knowledge, the only person to have vociferously pointed out that, although Leveson has called for new legislation to encourage the press to behave, he has also made it abundantly clear that the first achievement of any such legislation should be to:

“enshrine, for the first time, a legal duty on the Government to protect the freedom of the press.”

So not quite a future of secret courts and List D Notices, then?

You can read it all for yourself by going to What Leveson Actually Said and clicking away to your heart’s content. Just don’t plan to do anything else this week…

So there we have it, a report into press ethics reveals that the press misbehaves and politicians collude with them and then both the press and the politicians work hard to “spin” their reports of what the report said should be done to improve their reporting. Confused? Excellent! We suspect that’s what both press and politicians were hoping for all along. We all agree that Something Must Be Done but it all seems rather complicated and now that X-Factor has finished we’re just looking forward to the Strictly Come Dancing Xmas Special. It’s bread and circuses, people, bread and circuses. Only, with Gideon Osborne in charge of the purse strings you ain’t getting the free bread any more.

So, at the moment Young Mr Cameron is saying there are no firm plans to draw up any new legislation even though he promised to implement whatever recommendations Leveson made, so long as they weren’t totally bonkers. Which, clearly, if you read them, they are not, although, equally clearly, they do not meet Dave’s exacting standards for classification as “non-bonkers”. But, terrifying though it is, we may actually agree with him on this one. We just have to ask ourselves: is new legislation really necessary?

The way we see it, when the press publish a story, there are three possible scenarios:

  1. Everything in the story is true and all the information was obtained in an entirely legal manner. In this case, no matter how awkward, embarrassing or career-destroying the story is, there’s really very little you can do about it. They’ve told the truth and they’ve done it legally.
  2. Everything in the story is true but some of the information was obtained in an illegal way. In this case, they’ve told the truth but they’ve broken the law to do so. Criminal investigations and possible prosecutions of the press are in order. At some point an appropriate legal authority (police, prosecutor or judge) may decide that, however illegal the newspaper’s actions, it acted in the public interest and should, therefore, be admonished. So it’s a smack on the wrist, and maybe even a fine, for breaking the law but an acknowledgement that society, as a whole, is better off because of their actions. However, if they didn’t act in the public interest, the prosecution should proceed, in accordance with the law, with the proviso that, following a conviction, any punishment is sufficient to act as a real deterrent against future law-breaking.
  3. Some of the information presented in the story is not true. Anyone with a personal involvement in the story who feels defamed or distressed by the reports should be able to bring legal action against everyone involved in publishing the story. Since most people can’t afford to risk suing a newspaper publisher, the cost of that action should be met by a public fund which is maintained by, say, a levy imposed on all newspapers. If the existing legal system finds the newspaper to have misled, misreported or simply lied about the story, they should be subject to both reasonable damages, paid to those they have distressed, and a substantial fine, payable back into the public fund used to sue them in the first place. The important thing is that the amount it costs the publisher should always be greater than the revenue they have earned by publishing the story in the first place. Naturally, if the story included factual information illegally obtained, the usual criminal investigations should be initiated.

You will, no doubt, protest that none of this addresses the thorny issue of privacy and press intrusion. To which our knee-jerk reaction is to suggest that, on any occasion when an individual feels their privacy has been compromised we should start by asking, firstly, if it really has and, secondly, if so, is there an existing law that adequately covers this? If there is, invoke it. But stop making up new and unnecessary laws to cover the more remote corners of public and private life. That’s what we have judges for, to interpret the law and apply it in a grown up and sensible matter. And if they’re not doing that, then we need to appoint better judges.

Now, we do not wish to suggest that the recommendations of the independent Spox Inquiry as presented above are absolutely bullet-proof but that could be, in part, because we have spent remarkably little time on them. However, if any member of BritGov’s inner Cabal Cabinet should chance to read this and is willing to punt, say, a hundred grand, tax-free, our way, we are fully prepared to come back within, oh, six months, with a more concrete and workable proposal which will help to ensure that the press behave in an ethical and justifiable manner, without resorting to a Stalinist system of state-regulated censorship. There, we’ve made the offer and it’s a lot cheaper than the Leveson guilt-fest. And we promise our Executive Summary will be no more than an easily digestible half-dozen bullet-points.

For two hundred grand we’ll even provide evidence of why it will work. Ooh! Evidence-based policies! Now there’s a scary thought for any politician…

Of Bricks And Booze

Things that annoyed me today:

Mostly it was BritGov’s attempts to stop us drinking ourselves to death whilst enjoying the chilled ambience of the English countryside. Here we are, cunningly, referring to two different news stories on entirely different topics which both reveal the breath-taking lack of thought that the current BritGov puts into its policies before releasing them into the wild to go forth and multiply.

The first announcement is on the controversial topic of minimum alcohol pricing, although this time in England. Apparently Eng-err-land is going to have a minimum 45p per unit price and someone or other (we forget who, read the damned article for yourselves: Booze News) wants that increased to a “more sensible” 50p per unit, as is proposed for Scotland. With reference to the proposed “Scottish Experiment”, we have already droned at length about the sheer, doomed stupidity of any minimum pricing policy as a mechanism for controlling binge drinking. In particular we have pointed out that any “studies” which claim such a policy has any benefits are Scientifically Flawed and represent little more than wishful thinking, which is not something on which any sensible self-respecting government should base policy decisions.

Although it does seem to be good enough for both BritGov and its disaffected Northern Cousin, ScotGov.

The only things of any real note in the article are that the “evidence” being quoted is a study by SheffieldUniversity, rather than the gloriously flawed Canadian study that ScotGov’s trained monkeys preferred. This study, at least, does more than simply establish that raising prices reduces sales but makes a stab at “estimating” (i.e. guessing) what impact reduced sales would have on alcohol-related crimes and social problems. Here, too, it is, inevitably, deeply flawed, not least because it is based on modelling, rather than actual hard data. Now, we are great believers in the power of mathematical modelling for doing all sorts of useful stuff, but it has to be models based on actual, real theories firmly pinned to reality be cold, hard facts. Instead… well read it for yourselves: We Got Paid For This! Read it and weep for what passes for “Science” in modern Britain. And don’t forget to admire the especially entertaining graph that was required to “prove” that, as prices go up, people buy less.

An extra source of irritation in all this is that, as with the imminent “Scottish Experiment”, BritGov’s announcements on their ominously similar English Experiment never seem to address the issue of what happens to all the extra cash that such a policy would extract from honest law-abiding drinkers. It’s not a tax, just a minimum price so, presumably, the money goes straight to the retailers? How does that help the rest of Society? Even if all the cash went straight to profits on which they pay the full Corporation tax, that’s still only at a rate of 24% leaving them lots of dosh for bonuses and dividends. It might not be so bad if the money went straight into programmes to educate the public on the dangers of boozing and to rehabilitate those who hadn’t been paying attention in class. But that, it would seem, is not the case. Instead, problem drinkers will just blindly fork out more cash for their drug of choice and the law-abiding minority will expand their hobbies to include home-brewing of beer and bath-tub fermentation of fruit-based wines.

So we can expect to see a rise in demand in England-shire for houses with a built-in airing cupboard which can provide the ideal warm, fuzzy environment required for churning out gallons of Chateau Plonk and Domestic Cooking Lager. Well, until Nanny decides to crack down on that as well….

Which brings us neatly on to the second aspect of today’s complaint: the rather brilliantly stupid suggestion by England’s Planning Minister, Nick Boles, that what England needs to do is build lots and lots of new housing. And build it pretty much everywhere. (Boles Up!) Well, except on soiled, polluted and derelict “brown-field” urban sites because that would cost a lot and eat into developer’s profits. Fortunately, young Boles has obviously taken a drive through the English countryside and noticed that most of it isn’t really used for much. It has no factories, houses, streets, airports, private members clubs, opera houses or any of the other paraphernalia of Civilisation. Instead there are endless, dreary fields which have either been abandoned to choking infestations of seed-bearing grasses and the sorts of vegetables you can quite easily find in any supermarket or else have been occupied by packs of wholly unsupervised and near-feral domestic pets.

(Let us just make it clear, at this point, that this is a specifically English issue and not a UK one. It’s all part of that Nice Mr Cameron’s plan to drive Scotland out of the Union by showing the Scots what’ll happen to them as well if they hang around too long.)

Anyway, all this waste land is lying unused and England has a housing shortage and building houses would provide jobs for plebs with house-builder-type skills as well as profits for construction companies and would provide houses for people who currently don’t have one, well, at least it would if they could afford them, and, in the same way that a collapse of the construction industry is usually the first sign of an incoming recession, a resurgence in that same industry can be taken as an indicator that, like any low pressure system blowing in from the Atlantic, the recession has passed. Which does make you slightly suspect BritGov’s motives. Do they want to build houses in order to house the homeless and “kickstart” our economy (much like WWII re-armament did for the USA) or do they want to do it just so they can claim that their economic policies have already worked? We dread to speculate.

Naturally, Boles doesn’t want us to build more of the sort of bland brick crappy “smallest houses in Europe” that the Nation’s construction industry has long favoured in order to cut costs and maximise profits (why fit two attractive well-built houses on a piece of land when you can squeeze in four crap-boxes and still charge the same price per house?). Oh, no, he wants nice houses. Indeed, as he says:

The built environment can be more beautiful than nature

No, really, he did say that.

Now, we are not the sort to indulge in some kind of New Age Tree-Hugging Hippy nonsense where we walk these mean streets barefoot in order to feel the quivering soul of the Land (usually caused by a passing juggernaut) nor do we subscribe to some pre-War Middle-England fantasy about raising dogs and children in some quiet corner of “England’s Green and Pleasant Land” but we do accept that, whilst some fragmentary pieces of the “built environment” can be quite breathtaking in appearance, the sad reality is that most of it isn’t. Except in a bad way.

And the reason for that has, generally and historically, been down to cost. Building nice stuff costs more than building crap. Which is why Boles’ call for a programme of frenetic building, but with the aim of producing a better class of construction, seems curiously naïve, especially since his own government (specifically himself) wants to “simplify” (i.e. do away with) much of the current system of planning consent which is intended to protect us from short-term cowboys seeking to make a fast profit by building crap with which the rest of us have to live for generations to come.

As ever with BritGov’s knee-jerk policy statements this one serves only to distract from the real issue that England genuinely does need more housing but that housing needs to be affordable, to the people who will live in it, rather than those who would profit from it, and it should be built where people need housing, not in remote infrastructure-poor areas of rural England. And anything that boosts the construction industry would certainly be of benefit to our struggling economy. Hmm… perhaps we could instigate some kind of State-funded programme to help local authorities build aesthetically acceptable housing in areas of need and then rent it out at a low, but sustainable, cost to those who actually need it? Now that might work.

Although it does stink of a return to the 1930’s… Which might, actually, fit in with the rest of BritGov’s current policies.

Floods of Tears

Things that annoyed me today:

Mostly it has been the unacceptable risks posed by rain-induced flooding. In particular we refer to the recent tendency for the UK to experience prolonged heavy rain that results in the flooding of domestic and business properties. Now, we would suspect that there has always been a tendency for prolonged heavy rain to lead to flooding but what is new here is that in the last few years we have had an unusually high incidence of torrential rains and when that occurs, instead of swollen rivers flooding into water meadows, they are flowing through people’s houses. (Some might claim that the real cause for concern should be this new tendency for persistent, heavy rain which may be linked to Global Warming-related Climate Change. We shall stay away from such claims because, obviously, Climate Change is Just A Myth, propagated by greedy scientists with some kind of ill-defined personal stake in needlessly scaring us all.)

Anyway, we are very annoyed by the risks posed by all these recent floods. And here, obviously, we are referring to the risks posed to the future profitability of the UK’s major insurance providers. Yes, yes, we do realise that those unfortunates who find their living room waist-deep in a heady mix of river mud and raw sewerage may find the experience a tad traumatic but – for heaven’s sake people! – this has been happening for years now. Some of these people have had their houses flooded twice in one year. They should have got used to it by now.

No, the real threat posed by flooding is that insurance companies are gamblers and, like all gamblers, they don’t like to lose. And, when they do lose, they really, really, don’t like to pay out.

And that’s bad new for the rest of us, because the insurance companies have come up with a cunning scheme to minimise their future losses. Unsurprisingly, their plan is to make all the rest of us pay. (Insurance Scam) More specifically, their plan is to get BritGov to force everyone with a household insurance policy to pay a surcharge of around £8-£10 on top of their normal premium in order to build up a fund that will allow insurance companies not to lose money by settling customers’ legitimate claims. BritGov are, perhaps reluctantly, being bullied into accepting this because the alternative is to allow the insurance companies to simply declare certain properties uninsurable and so refuse to cover them.

Now, you may scratch your collective head at this and point out that there are all sorts of risks – and risk-prone individuals – that insurance companies regularly refuse to cover – drivers with neither licence nor MOT being an obvious one. If your house is flood-prone and the insurance company won’t cover you then, surely, that is a risk you chose to accept when you bought a house that was prone to flooding. And, if you did unwittingly buy a house that was prone to flooding – even if, historically, it never had before – then that is your own stupid fault for not thinking things through before you bought it. Caveat emptor, innit mate? As the Romans might have said.

However, because BritGov are much smarter than you, they know that we can’t have that sort of nonsense because an uninsurable house is, essentially, an unsalable house and the whole point of law and government is the protection of property rights. (Check your history people – that’s why governments came into existence.) Besides, since so much property is at risk from flooding, now or in the future, making it uninsurable and unsalable would have a negative impact on property values, going forward (as pundits like to say, but we don’t).

Which would be a Bad Thing, because never-ending property price increases are, clearly, a Good Thing. As everyone apparently knows.

So BritGov has insisted that insurance companies continue to offer policies to flood-prone properties. And that is a problem for the insurers because, if they actually have to pay out on their policies, then they are losing money yet their entire business model is based on selling you insurance against which they hope you will never need to make a claim.

Clearly, the regular occurrence of flooding is nothing to do with that typical mix of greed, corruption and incompetence that allowed construction companies to reap lovely profits by building on flood plains without making any attempt to even address the issue that “flood plains” are called that for a reason. Accordingly, we cannot expect those who reaped said profits to do anything about paying for the construction of flood defences. No, that is obviously a job for government because it is funded by tax-payers and they can afford that sort of thing.

But that has left us with the problem of how to provide affordable insurance cover for uninsurable properties. And that’s what led to the genius idea of making us all pay an extra £10 or so as a contribution to someone else’s cover even though that payment would never benefit us personally.

Now, just to be clear, we have no issue at all with the idea of BritGov collecting an extra £10 in taxes from every UK household and using that, in some way, to help fellow Citizens and socially-acceptable foreigners deal with the issues surrounding their uninsurable homes. After all, we are crazy enough to believe that a government’s primary reason for existence is to protect its Citizens from all sorts of threats, whether domestic, foreign or climate-related.

What we do find galling is that a supposedly “free market” system which espouses the individual’s responsibility to look after themselves, which decries any attempt at “business-unfriendly” regulation by an interfering “Nanny” state, which believes that, so long as the cash is rolling in, it’s OK to sell people stuff they neither need nor understand, still cries “Mummy!” every time it sees a slight bump on the road ahead.

So, as responsible citizens and, indeed, human beings, we are happy to contribute according to our ability in order to assist fellow humans, in accordance with their need. We’re just a bit reluctant to be scammed, again, in order to let faceless corporations duck their responsibilities whilst profiting from other people’s misfortunes.

The insurer’s themselves guesstimate that at least 200,000 UK households are at a serious risk of flooding “sometime” and up to 10% of the nation’s 26 million or so households may, conceivably, be at some risk of a flooding-like incident at some point during their prolonged existence. (Insurance Sums) (Other figures are less apocalyptic, but we wouldn’t expect the insurance companies to go in for panic-mongering, would we? It’s not like they have a vested interest in making this situation look worse than it is…) Interestingly, they also tell us that a “typical” household flood-related insurance claim is about £20,000 and so, even if said house only floods once every 100 years that means they would have to raise its annual premium by £200 because that’s what you get when you divide £20,000 by 100 years and they’re sure as hell not going to threaten existing profits in order to make that pay-out themselves.)

Now, bear in mind that the UK’s household insurers saw their profits rise by 11% last year, despite the increasing incidence in domestic flooding. And then reflect on the fact that, once those 26 million households are coughing up an extra £260 million per year, all it takes is a couple of relatively “dry” years and the insurance companies are looking at a nice extra profit to make their accounts look good, safe in the knowledge that, if there is a bad year and cash is tight, BritGov will bail them out thus protecting those all-important profits.

Still, instead of whining about it, let’s look at some alternative sums. The real number of interest here is not how many UK households might get a bit damp sometime in the next millennium but how many actually get flooded each year. It’s surprisingly hard to find out such a figure with just a cursory browse of the Internet but, given that about 900 households have been flooded in the past week’s heavy rain in SW England, let’s be generous and assume that 10,000 will suffer flood damage this year. Out of 26 million, that’s not really a lot. In fact, if BritGov collected an extra £10 per household per year in tax, it could easily fork out that average £20,000 payment to more than 13,000 households every year. Plenty enough to cover the reality. Any excess in a given “dry” year could go to increasing the fund or paying for better flood defences. Heck, we might even persuade those most at risk to pay £20 extra a year on the understanding that they really would directly benefit from this socially responsible collective action.

So, really, a modest tax rise (about 20p per week per household) could make the problem of uninsurable houses go away and we’d all be better off, if only in a spiritual way. Government gets to do what it’s supposed to do – protecting its Citizens, by benefiting from economies of scale whilst not being driven by the need to make a profit. The alternative, it seems, is that we pay the same amount of money in order to insure insurance companies’ profits against the risk that they might possibly have to make pay-outs at some indeterminate time in the future. Maybe.

We know which proposal we’d prefer.

At the moment, the talks between BritGov and the insurance companies are at an impasse because, as the BBC reports, BritGov is reluctant to agree to:

a temporary, interest-free, overdraft for the industry, to help it meet the cost of emergencies in the first few years of the scheme while the fund builds up.

Well, it seems only fair that tax-payers should meet all the costs, doesn’t it? After all, where would the economy be if businesses actually had to deliver what their customers had paid for?

Gas Attack

Things that annoyed me today:

Mostly it was the vexed question of energy pricing. Yes, yes, we know that sounds like a topic for discussion by those voodoo priests of pseudo-science, the economists but, with the nights drawing in and winter fast approaching, energy prices are a subject close to every Briton’s frigid little heart.

In particular, there were three items of energy-pricing-related news that annoyed us this week. The first, and simplest to deal with, is BritGov’s heroic plan to cut back our national carbon emissions, reduce traffic congestion and cut the annual road death toll by the simple expedient of adding an extra 3p to the roughly 75p tax already payable on every litre of petrol and diesel sold in the UK. (Fuel Me Twice…) Now, we do understand the argument that, in order to function a government needs money, that the easiest way to get that is through taxation and, if a government is going to tax anything, it ought to be something you do that, at least potentially, harms other people. So taxing vehicle fuel makes some sort of sense. (Although, if the intention really is to discourage you from your anti-social driving habits, it does leave the question of how your government will raise funds in the future.)

Anyway, we understand why they tax fuel, even if we don’t necessary agree with the rates at which they tax it. What we do find difficult to stomach is their intention to slap this extra 3p on each litre at a time when the oil industry has been playing merry havoc with the price at the pumps which goes up and down all the time, but mostly up. Given that we already have some of the most expensive fuel in Europe, if not the world, and no-one can afford it at its current price, for either personal or business use, it seems unnecessarily harsh to us to slap an extra 3p on the price just because young Gideon Osborne can’t figure out how to balance his spreadsheets. (Hint to Gideon – balancing a national budget is one of those areas of life where your 2:1 in Modern History isn’t the most useful training you could have had. If only you’d done 1/3 of an Economics degree, like your boss, that Nice Mr Cameron.)

Next on the agenda is the – rather unsurprising – accusation that big energy companies have been conspiring to fix the wholesale price of gas (Gas Leak). The details are excruciatingly boring but, in the proverbial nutshell, this is the energy equivalent of the recent banking LIBOR scandal – speculators are conspiring to fix the wholesale price of gas in a manner that is most advantageous to them, allowing them to make savings that they then don’t pass on to their customers because that, frankly, would be madness. How else is an ambitious city-bound wide-boy supposed to turn an honest profit, if not by breaking the law? Naturally, all six of the UK’s leading energy suppliers deny any knowledge of, or involvement in, this activity.

A cynic might suggest that this is about as valid a protestation of innocence as the various highly-paid banking wünderkinder’s denials of any knowledge that the banks they were being paid a fortune to run were illegally fiddling with the LIBOR rate. We are not such a cynic, if only because we are not entirely sure of the extent to which any of these suppliers are directly involved with wholesale gas prices which, to a large extent, owe most of their price fluctuations to profit-seeking speculation by commodities traders. (You know how it works – buy at this price, sell at that, make a profit – or a loss – whilst contributing nothing of any tangible value to any human activity yet still clinging to the forlorn hope that – somehow – “economic activity” is not bound by the Laws of Thermodynamics.)

Although we were amused by the statement from Energy UK, the  industry’s representative body that its members would:

“co-operate fully to rebuild trust.”

Hmm. So not to investigate wrong-doing? Or to ensure prosecution of the guilty? Or even to guarantee that all savings are passed on to the customer? No, they’ll just co-operate in order to rebuild trust. Is this because, if the consumers don’t trust you, they’re harder to scam? Good to know where the industry’s priorities lie.

Bizarrely, the BBC article linked to above went on to tell us that:

“The cost of wholesale gas makes up the majority of our energy bills – 45% of the average energy bill is made up of the cost of wholesale gas, supply costs and profit margins.”

That’s not really a very useful fact. How much of that 45% is wholesale cost as opposed to supply costs and profit? It could be 40% profit and 2% wholesale for all we know.

Which leads us to the icing on the cake – SSE, one of the UK’s afore-mentioned big six energy suppliers, announced that its half-year profits for the six months to the end of September are a stunning 38.3% up on the same period last year. (It’s a Gas, Gas, Gas!) (Obviously, as they are a socially responsible wholly British company, we can assume that they will be paying the full 24% corporation tax on that profit.) Now, we fully understand that it is a fundamental tenet of the capitalist system that companies must make profit and we also understand that publicly-traded companies (i.e. those whose shares are flogged on the Stock Market) have a legal obligation to make profit in order to benefit their shareholders who receive their share of the profit in the form of dividends. However, we are, we confess, a little confused as to how they managed to increase their profits to this extent when – price fixing not withstanding – the price of their raw material (e.g. the gas they either supply directly as, well, gas, or which is used to generate at least some of the electricity they also supply) has been going up.

Now, obviously, so long as your entire business model isn’t based on selling stuff for less than you paid for it, you can generate a bigger profit by shifting more units, which is to say, selling more gas or electricity, but this seems unlikely over the six “spring and summer” months, regardless of how bad they were this year. So, you can also generate extra profit, by putting the price up, which SSE, like everyone else, has certainly done recently, but that 9% price hike doesn’t seem to explain the vast 38% profit rise. Oh, unless they are actually paying less for the raw material they are selling to you at an inflated price. Which can’t be the case because they keep telling us that the wholesale price they pay is rising and, unfortunately, they have no option but to pass that price rise on to the end user (i.e. you).

And yet… curiously, SSE’s own chairman, Lord Smith of Kelvin, justified this massive increase in profits by saying that:

“higher gas and non-energy costs unfortunately had to be reflected in the increase in household energy prices”.

Which might be true but, as we have said above, doesn’t really explain how a rise in wholesale prices that triggers a rise in retail prices produces a rise in profits of more than 4 times the percentage increase in the retail price.

Confused? Well, let us explain.

SSE is, at heart, a retail business and any retail business gets its income by flogging stuff to consumers. The business earns money (let’s call that Money Earned) by exchanging its products for the customer’s hard-earned cash. But the business has a variety of costs associated with that process – the price it paid for whatever it is selling, the cost of storing and transporting said products to the point of sale, the cost of staff salaries, of rent and utility bills on premises and so on.  Let’s call that Money Spent. As the old adage has it, you have to spend money in order to make money and the profit you make is simply given by:

Profit = (Money Earned – Money Spent).

A simple calculation which is not entirely unfamiliar to the average household budget-keeper.

Now, for the SSE case, things are a little muddy because they supply both gas (which is directly affected by changes in the wholesale gas price) and electricity (which is bought from electricity generating companies who may be burning gas to generate their product). So, let’s restrict ourselves to the simplest case – the direct supply of gas to consumers. We confess that we do not fully understand exactly how many cost-attracting processes are involved in the long journey from an underground gas reservoir via a gas-pipeline, a storage tank, miles of smaller pipes and a few pumping stations to the unlit stove-top burner you only remembered as your Ryan Air flight landed in Majorca but, for the sake of illustration, let us assume that the Money Spent by SSE per unit of gas delivered covers more than just the wholesale price they paid for the gas, with the rest being composed of the cost of storing and transporting the gas, delivering it to you, administering the whole process and paying all the salaries and other costs required to support everyone they employee in their entire business. On top of that they add a modest Profit, to make it worth their while, and we thus find the price they need to charge you, the consumer, for said unit of gas. Let us be generous and speculate that a rather high 30% of the price they charge you is down to the wholesale price they paid for the gas.

Now, to keep the arithmetic simple and stop your heads exploding, let us assume that this mythical unit of gaseous power is sold to you for £1.00 which, of course, includes their profit on the sale. Accordingly, of that £1.00, 30%, which is to say, 30p, was the wholesale price of the gas. So if that wholesale price rises by, say, 10%, then the gas now costs 33p which means, in order to maintain exactly the same level of profits, SSE needs to charge you £1.03 for that precious unit of heat and light-delivering methane. That, in case, you hadn’t realised it, is a mere 3% price rise.

We concede that a more sophisticated analysis, if we could be bothered attempting it, would not only uncover more accurate figures for all these stages but also allow for a variety of other real-word factors, such as the extent to which the transport, storage, delivery and administration stages all, themselves, involved some use of the energy which has just got a little more expensive. It might even take into account that SSE’s business includes delivering electricity to your door, as well as gas, and that not all the ‘leccy it sells is gas-generated. But, frankly, supplying that level of detail would require an entire book, or possibly a Parliamentary Inquiry. Beside, accuracy is not required in order to make the important point: a given rise in the cost of raw materials does not translate directly into an equivalent (or greater) rise in the cost of getting the “finished product” to the consumer.

You might want to mull over the fact that the same simple logic applies in other energy-related products. Thus, a 10% rise in the price of a barrel of crude oil does not remotely justify a 10% rise in the forecourt price of petrol.

So, we find it a little hard to make sense of the final utterance by the arithmetically and analytically challenged Lord Smith of Kelvin, who went on to say:

“While some observers may choose to criticise SSE for making a profit and paying a dividend I believe that profit and dividend allow SSE to employ people, pay tax, provide services that customers need, make investments that keep the lights on and create jobs, while providing an income return that shareholders like pension funds need.”

An amazing statement which is mostly complete bollocks, as we have shown above. Why is this man in a position of responsibility with an important utilities company when he clearly does not understand that profit is what is left after you have met all your “running costs”, which includes the “employing people, investments and job creation” parts of that statement while the “providing services that customers need” part is, in fact, being directly paid for by the customers?. That profit is then taxed by a grateful government (at a standard rate of 24%, as we would like to remind SSE’s accountants) and what’s left is the “after-tax” profits which can then be paid to shareholders in the form of a dividend.

We do, however, admire the man’s chutzpah in suggesting that the sole reason a company like SSE makes any profit is in order to pay out dividends to the pension funds who are, obviously, its main shareholders. The thought that your meagre pension payments have been secured for another year must be very comforting to all those pensioners who face freezing to death this winter because they can’t afford their energy bills.

Still, as we’re sure Lord Smiffy would agree, “Hey, it’s just business.”