As we enter 2011, BOM will be taking a break.

Partly it's a simple matter of time. I'm taking on some new projects, including writing a long-mooted book on the iniquities of our Big Government. There just won't be enough hours to do that alongside the sort of digging that's always supported BOM's best posts.

But it's more than that. After six years, I increasingly find myself repeating posts I've done before - often many times. MOD procurement disasters, mass welfare dependency, dumbed-down education, killer hospitals, egregious politicos, bungling bureaucrats, fat cats, rip-offs, cock-ups, debt and taxes... it all just goes round and round and round, apparently impervious to attack, world without end. And once you feel like that, daily blogging threatens to become a sentence rather than the release it once was.

You even start to ask if change is ever possible? Yes, we are shot of abysmal Labour (for the time being), and yes, the coalition has sounded far more radical than we'd ever imagined it could be. But radical action, well, that's something else altogether.

Action to break up state monopolies and bear down on welfare requires a government prepared to take on the BBC and the rest of the left-wing media. It means robustly rejecting the left's assertion that equality is more important than prosperity. It means confronting the politics of envy, by for example, abolishing the 50p tax rate on the good old fashioned grounds that it raises no revenue and will be catastrophic for growth.

Unfortunately, none of that seems likely to happen any time soon.

So what to do? We need to move forward.

One thing I can do is try a different approach - hence the book, and a couple of other projects. There has to be some way of getting where we need to be.

I'll still be posting from time to time over at the TaxPayers' Alliance, and the BOM back catalogue will remain here. But for now, thank you all for your interest, comments, and support over the years, and let's hope for a 2011 that at least sees us edging in the right direction.

BOM is closing down for Christmas. But before we go let's leave you with a riddle to ponder over the mince pies.

Tyler has been doing some more work on the pay gap between the public and private sectors. As everyone surely knows by now, average public sector pay is considerably higher than private sector pay. When we last blogged it, we reckoned the public sector premium stands at an astonishing 50% - once we take account of the full cost of those gold plated pensions.

How did we reach that conclusion? We based it on the following analysis from the Office for National Statistics, which compares the public and private sectors in terms of both gross pay and total reward (ie including employers' pension contributions):


The conclusion is overwhelming - for both men and women, for both high and low earners, for incomes including and excluding pensions, public sector employees do much better than private sector. The median full-time employee in the public sector gets nearly 30% more than his/her counterpart in the private sector, once we take account of the employer's pension contribution.

And in truth, the public sector does even better than the ONS numbers suggest. That's because the ONS only takes account of the employers' explicit pension contribution, a contribution that hugely understates the true cost of public sector pensions.

As we blogged here, the true cost of public sector pensions as a percentage of salary averages around 25% more than current pension contributions. Which means that we need to gross up the public sector total reward numbers even further. At the median income level that takes the public sector premium up to a staggering 50%+.

All of which is pretty shocking.

But the public sector unions and their supporters have come up with an answer. They say that the public sector premium reflects the fact that public sector employees are on average better qualified than their private sector counterparts.

Here for example is what the TUC says:
And the TUC is quite right - the proportion of public sector employees who are graduates is indeed much higher than it is in the private sector. In fact, at nearly 40%, it is twice as high.

Now, the TUC reckons that explains why public sector pay is higher. They're better qualified than the dolts working in the private sector, so naturally they get paid more.

Whether qualification and other differences really do explain the earnings gap is the very thing Tyler is currently attempting to bottom out. But it raises another perhaps even more critical question - in our current parlous economic state can it possibly make sense to have so many of our expensively educated graduates working in the public sector?

Because as the TUC highlights, although the public sector "only" employs just over 20% of Britain's manpower, it employs 40% of our graduates. 40%.

Can we afford to have 40% of our best brains working in the non-wealth producing public sector? Don't we need them in the private sector creating the prosperity that will power us out of Labour's economic crater?

That's a real Christmas riddle.

What's that?

Most of those supposed public sector grads are no such thing? Their growth merely reflects the "significant decreases in the proportion of public sector staff with higher education short of a degree (which we will call diplomas for simplicity)"? Many of those new public sector grads are merely redesignated diploma holders (like nurses)?

Hmm. You've probably got a point there.

Hmmm...

The mince pies are calling. Happy Christmas everyone.

Labels: public sector pay, universities

When all else fails, look at the facts. Tyler has been spending so much time screaming at those free-loading students on the telly, that he temporarily forgot that vital insight.

As we blogged here, Lord Browne's recommendations on higher education funding were spot on, and we strongly support their swift implementation by the government. It simply isn't fair that taxpayers should pick up the tab for uni courses, when it's the students themselves who get the lion's share of the benefits. Why should we pay for them to schlep their way into higher income jobs?

As Browne's report shows, the average male graduate can currently expect to receive a boost to his lifetime income of around $200,000. And although the boost for female grads is less, it's still well worth having.

But the question we taxpayers need answering is how much do we get? Given that we've been paying the bulk of the costs, what have we had back?

Because although we keep hearing students and academics telling us that we'll all benefit from graduates "boosting the economy", there is a distinct lack of fact to go with such assertions. How much benefit, and how does it stack up against the costs?

So here are a few facts, taken from this paper produced for the European Commission.

The critical calculation goes by the snappy title "the public rate of return to tertiary education". No, don't switch off. All it means is we're comparing the extra income generated by these higher earning grads in future (as against the income they'd have generated without a degree), to the costs of putting them through uni (including the loss of income they'd have generated had they been out working). And we express that return as an annual percentage, just like the interest rate on your building society account.

Anyway, despite the explosion of M Mouse degrees and the general dumbing down we all know about, it turns out that this return is still quite respectable. According to the OECD, the average UK graduate currently generates a public rate of return of around 6.5% pa. In other words, by investing in his university education, society gets a return of 6.5% pa over the next 40 years*.

Now that's not bad in today's circs - much better than the 0.5% pa paid on a typical bank savings account. In fact, it's much better than Tyler assumed (hence the need for facts). So we really shouldn't knock it.

But the key question is how does that 6.5% return get divvied up? Who gets it - the individual student or society as a whole (aka the taxpayer)?

It turns out that here in the UK, the graduate does very well indeed. Although the overall public return is only 6.5%, the average graduate's return (according to the OECD) is 14.4% pa - well over twice as much.

How? How can the grad get so much? Simple - he doesn't have to pay anything like the full cost of his university education.

But if the grad gets much more than 6.5%, that means the rest of us must be getting less - we know the size of the cake, and if he gets a bigger slice, we get a smaller one.

So is that fair? Is that a fair division of the spoils?

I submit to you that it isn't. And when we look at other countries, we can see that the division is much less fair here than it is elsewhere. Here are the OECD figures for a range of European countries, showing how the gap between the private return (the slice going to students) and the social return (the fixed cake) is higher here than anywhere else, except the Czech Republic, Portugal, and Switzerland.

Looked at in that light, it seems pretty clear some rebalancing is required. We need to reallocate some of the return away from the students themselves back to society in general. And higher fees are an excellent way of achieving that.

There's one other interesting factual snippet in this EC paper, on the question of whacking students from poor backgrounds.

We've been hearing a lot about how the higher debts driven by higher fees will put off poor students from going to uni. And how that isn't fair.

But it turns out that from a financial standpoint - even when they can access higher edcuation - students from poorer backgrounds don't get nearly as much out of it as richer students. It seems that the return for richer UK students is getting on for three times that for poor students.

Why?

Here's the long version:

The short version? The damage is done long before university level. If we really want to help kids at the bottom, we need a radical improvement in our state schools.

Sounds familiar somehow.

*Footnote. Yes you're right - the OECD numbers are based on what yesterday's graduates of different ages are earning today. And actually that may not be a good guide to what today's grads will earn over their lifetimes tomorrow. So with dumbed down degrees etc, the OECD's numbers may very well overstate the prospective return to uni education today.

Labels: universities

This morning's National Audit Office report on the cost of bank bail-outs is being headlined as saying taxpayers will likely escape without loss. But it actually says nothing of the kind.

True, the NAO tells us taxpayer exposure to the special guarantee and indeminity schemes (the Asset Protection Scheme, the Special Liquidity Scheme, and the Credit Guarantee Scheme) has halved to around £500bn. But:
That massive implicit guarantee is one we've blogged many times. And let's be under no illusions - at a time when there are still huge uncertainties surrounding the creditworthimess of banks right across Europe, the market reckons our two big nationalised banks remain pretty risky.

As the NAO highlights, the market price for insuring against default by RBS or Lloyds has remained right at the top of the range for similarly sized European banks (NB a 5 year Credit Default Swap cost of 200 basis points pa roughly means the market reckons there's at least a 2% chance of default within 1 year, implying at least a 1-in-10 chance of default within 5 years).


And with that level of risk, unsurprisingly our banks have underperformed other banks in the equity market:


In other words, we're still propping up two relatively high risk megabanks that the market doesn't much like the look of.

And there's another point the NAO highlights. In order to inject funds into the banks, the government has had to borrow more. And that costs. According to the NAO:

Whatever it says in the headline, the bottom line is that we ain't out of jail yet. Not by a long chalk.

Labels: bank bailouts

So Deputy Governor Bean says that he and his colleagues at the Bank of England are watching inflation "like proverbial hawks".

Hmm. You have to wonder whether Proverbial Hawks watch the right bit of the field.

Because today's inflation figures have yet again surprised on the upside. CPI inflation has moved back up to 3.3%, and RPI inflation is back up to 4.7%. Inflation has been above the official 2% target for 39 out of the last 48 months, and with VAT going up to 20% in January that record is set to get even worse. Some hawk.

In Tyler's experience what actually happens is this: the economics establishment lock themselves into a particular world view and find it incredibly difficult to admit they've got it wrong. Even when the numbers start telling a different story, people cling on to their world view and explain away the numbers as a temporary aberration.

OK, the facts are these.

In the two years since Lehman blew up and we were told we faced the unfathomable horrors of deflation, the overall price level has increased by 5.2% (CPI). Prices have not fallen. We have not had deflation.

The impetus - as we've blogged many times - has come from import prices. The combination of weak sterling and soaring world commodity prices has pushed up the cost of our imports by 10%.

The Bank and others have argued that we can live with that, because it hasn't fed through into wage increases. In other words, there is no 70s style wage-price spiral in the making.

But wages have certainly not been flat. Despite the rise in unemployment and widespread concern about job security, average earnings have still gone up by over 3%. And although the recovery has only just started, one-third of firms are already reporting skills shortages. As they say in labour market circles, watch this space.

Of course, there is that other explanation for the Bank's inaction - the not-so secret plan to inflate away the UK's debts.

Like we've said before - sell money.

PS A great shame that Mr Dale has pulled the plug on regular blogging. He was one of the original UK political bloggers and was always well worth worth reading. He'll be missed.

Labels: inflation

Back in the 70s the Big Apple nearly went bust. After years of gross fiscal incontinence under Mayors of both parties, the City of New York was on the skids.

Naturally, they turned for help to their fellow Americans - the folk with whom they had been bonded for two whole centuries, one nation under God.

And you know what their fellow Americans said?

Drop Dead. That's what they said. You got yourselves into this mess, so you can get yourselves out of it. Besides which, we never liked you anyway.

Four decades on, and five little PIIGieS find themselves facing a very similar predicament. Because although the Greeks and the Irish have so far been bailed-out by Northern European taxpayers (including us), nobody seriously believes that's the end of the matter. The fiscal deficits and banking debts of the PIIGS are way beyond their own ability to fund, and way beyond the total European bail-out fund already established.

But will Northern Europe's taxpayers be prepared to shell out even more to rescue the PIIGS? Will they want to carry that weight for a bunch of spendthrift Latinos who spend half the day dossing around in the shade, and with whom historic relations are perhaps best described as troubled?

This morning Boris highlights the issue. Just like he and we Eurosceptics have always said, it turns out Northern Europe's taxpayers really don't want to pay for the profligacy of others. Your average German does not recognise a duty to support the Spaniard.

Quite rightly, Boris demands an apology from all those arrogant half-baked Europhiles who denied there was a problem and wanted us to join the Euro - the ones who wrote us all off as "xenophobic, garlic-hating defenders of the pint and the yard and the good old bread-filled British banger".

Ah yes, how right he is.

Yet there's one bit of Boris's argument that sent the Tyler eyebows twitching skywards. Contrasting the disparate tribes of Europe with the cohesive whole that is Albion, he says:
By and large, hmmm? A nice phrase, and a nice way of reminding the rest of Britain that they'd better keep the Golden Goose of Londinium sweet. Because to our certain knowledge, there are increasing numbers of London taxpayers who most definitely do not accept that their taxes should be carted off to fund the Picts and the Celts.

We've blogged the regional unfairness of Britain's fiscal arrangements many times (eg here). But just as a reminder, here's the latest analysis from Oxford Economics. It shows that Londoners are made to contribute a net £2 grand pa per head. That is, the average Londoner pays £2 grand pa more in tax than he gets back in terms of public spending:


As we can see, the only regions that actually make a net contribution are London, the South East, and the Eastern region - together comprising the Greater South East. Every single other region takes more than they pay (and in Scotland's case, Oxford Economics have allocated to them all North Sea taxes).

It's been like this for as long as anyone can remember, and the obvious question is why do those living in the Greater South East put up with it? Without the fiscal drain to subsidise the other regions, the average family in the Greater South East would be getting on for £5000 pa better off.  That's serious money, and you'd think most families would notice.

Which brings us to today's Localism Bill.

As regular readers will know, we're great fans of localism (eg see here). We absolutely believe that local councils should have greater authority over the services they provide, so they can respond both to local priorities, and to local cost conditions. So to that extent we welcome the Bill.

Unfortunately, as far as we can see, the Bill does not address the single most important requirement for localism to work - sorting out the money. What would really concentrate minds in local councils, and would make local electors really focus on the issue, would be if councils had to raise much more of their own money for themselves (aka fiscal decentralisation).

As things stand, they get the vast bulk of their cash from Whitehall, and they get it whether or not they satisfy local electors. Indeed, we have just about the most centralised system of local council finance anywhere in the developed world (eg see this blog).

It is a recipe for continued inefficiency at the local level, and a recipe for continued fiscal transfers from the productive to the less productive.

One day in the tough years to come, the Greater South East is going to wake up. One day, its families are going to look at that £5 grand pa being carted off elsewhere and ask why? One day, its taxpayers are going to tell the rest of the country to drop dead.

PS This morning's R4 Today gave us yet another example of BBC statism. According to them, the main problem with Pickles' localism is that it might result in mad-cap councils doing mad-cap things, and surely government has a responsibility to stop that. Like Whitehall has got everything taped.

Labels: localism, regions

BOM correspondents have spotted the following, including news of some real old favourites:

1. NHS Supercomputer still haemorrhaging cash

Were you by any chance under the impression that our new broom government had scrapped Blair's wildly expensive and wildly useless NHS Supercomputer (see many previous blogs)? Er, no. All they've actually done is attempt to renegotiate the contracts with the IT suppliers.

AMB highlights an interesting post on the latest position by Tony Collins, the former Editor of Computer Weekly and a man who did much to expose the lunacy in the first place. He tells us that the Department of Health are signing a new agreement with one of the main suppliers (CSC) to deploy a system (Lorenzo) that the hospitals themselves don't want and may never use. Collins writes:
So WTF is Lansley's Health Department doing this?

Well, on the positive side, the new agreement will apparently save around £0.5bn compared to the previous contracts. But it will still leave this bit - that may well not ever be used - costing us £2.7bn. That aside, Collins suggests three other highly plausible explanations for the Department going ahead:
And the cost to us taxpayers? As always, it's virtually impossible to know. All we can say is that the Supercomputer has already cost us something like £6bn, for which we have got sweet FA in terms of value.

(PS This of course is not the first Labour contract our new government has tried and failed to get out of. The contract for those two new aircraft carriers had been so heavily tilted against taxpayers that it was actually cheaper to carry on rather than pull the plug. Even though we can't now afford the aircraft to go on them, and we will have the first navy ever to sail two carriers with nothing to carry. Nelson must be spinning - see this blog)

2. Student Loans Company still malfunctioning

Peter T highlights the fact that the Student Loans Company (SLC) is still not managing to pay loans on time when they are needed. In other words, despite all their promises to do better in 2010 after the shambles of 2009, the SLC still failed to pay 26% of students by the first day of term this year.

Which meant of course that many students were forced to look for emergency employment so they could eat. Bar-keeping and lap-dancing may well be good experience for later life, but that's not what we pay the SLC £94m pa in administration cost to deliver.

3. British Council still cocking-up

David Blackie reports on the latest cock-up by our old friends at the British Council.

The BC has a marketing arm for British education institutions seeking to sell courses to overseas students - Education UK. It was established a few years ago to provide a Big Government Solution in place of the private marketing operations that had existed previously. And yep, you guessed it - it's a disaster.

In fact, it's so shambolic, and its website is so dysfunctional, that the BC has now been forced to refund subscriptions to participating institutions. David writes:
As we've blogged many times, the hopeless BC should be abolished. And we're seriously disappointed that Cam has not only allowed it to survive, but reportedly clasped it to his bosom on those recent trips out East.

Gah.

4. International sports bunfights still losing money

Bobby Charlton (hmm... sounds familiar somehow) emailed to point out that South Africa didn't make nearly as much out of the 2010 World Cup as had been billed:
Well, who'd have possibly guessed that?

Thank God we got shafted by that nice Mr Blatter.

Labels: Bonfires, British Council, npfit, quangos