The big news of the day for econo-geeks is the letter from the Head of the Office of Budget Responsibility to Cameron, rebuking him for his false assertions over the impact of austerity on growth.
In the longer term, though, I don’t think will be the most signficant lie in Cameron’s speech. I think this will be:
This deficit didn’t suddenly appear purely as a result of the global financial crisis. It was driven by persistent, reckless and completely unaffordable government spending and borrowing over many years. By 2008, we already had a structural deficit of more than 7 per cent – the biggest in the G7.
No source is given for this 7% assertion, but as far as I can tell* it comes from the 2012 IFS Green Budget which says:
Our estimates, based on the OBR’s latest official forecasts, suggest that the apparent ‘hole’ in the UK’s public finances that has opened up since the March 2008 Budget – that is, the additional structural borrowing that is now forecast to persist in the medium term, over and above what was forecast in the March 2008 Budget – equates to 7.5% of national income (or £114 billion in today’s terms) (p.51).
This does not, of course, say what Cameron appears to be claiming. In fact, we get the actual estimated structural deficit figures for 2007/08 further down the same page:
In 2007–08, total PSNB stood at 2.4% of national income. Since, at the time, the Treasury thought that the UK economy was operating slightly above its productive potential, underlying structural borrowing was estimated to be a slightly higher 2.6% of national income. The larger output gap** now estimated by the OBR implies that structural borrowing in 2007–08 in fact stood at around 3.5% of national income [my emphasis].
The reason I think this apparent lie is more important than the one about the austerity effect is that it looks like it’s going to be the main one used to beat Labour with. As the next election approaches the Conservatives will realise they are unable to defend their own record on the economy, and will need to rely on the “mess Labour left us in” narrative which served them well early on.
The general ‘worst in the G7′ structural deficit accusation is not entirely new – it dates back at least to the ‘emergency budget’ in 2010 ( see p.8, although no figure is given there, just a reference to an OECD report, in which I’ve been unable to find the assertion backed up). However, it has not been used again until recently, and this firming up of a (false) figure appears to be a conscious attempt to resurrect it. Further, the 7% figure is important because it allows the Conervatives to claim it is the highest since the war, whereas in fact the IFS report makes clear that it was higher twice under the Major government:
A structural deficit of 3.5% of national income in 2007–08 would have been the highest level since 1995–96 (when it stood at 3.8% of national income) but still far below its previous peak of 5.5% of national income in 1992–93.
In any event, I expect to see the 7% structural deficit line to be trotted out regularly by the Tories, including by Cameron at PMQs, over the coming months. I hope Labour will be alert enough to call them out on the spot, referring to the actual figures set out in the IFS report.
* I suspect the 7% figure comes from here because it was trailed at the weekend (possibly by mistake) in a tweet from the Conservatives’ press office:
Terrible banking was cause of banking crisis. Before that happened, the UK under Labour, was running deficit of over 5% of GDP.
@citizenandreas check the Most recent IFS report on structural deficit when banking crisis hit.
** It’s also worth pointing out that measuring the output gap is a very unexact science. The figures used in the IFS report are based on OBR work, which in turn depends on a wide variety of source information to try to calculate “the difference between the current level of activity in the economy and the potential level it could sustain while keeping inflation stable in the long term”. These sources include , for example, British Chamber of Commerce surveys of recruitment difficulties in firms. While the OBR report says that the historical analyses “appear to give a plausible representation of UK business cycle history and remain close to the range of alternative estimates”, it also notes that “[a]ny output gap estimate remains uncertain, even when it relates to the past. Similarly the estimates presented in this paper are subject to significant uncertainty and remain work-in-progress.” With these caveats, the OBR report finds that a structural deficit of 3.5% in 2008, pre-crisis, compared with the 2.6% on which the Treasury was basing its projections.
In my main post on Cameron’s EU debacle earlier, I noted how the European Union Act 2011, pushed through by Cameron as a way of deflecting attention from his failure to live up to his “cast iron” guarantee on a referendum, is likely to come back to haunt him.
It occurs to me that one part of his speech illustrates this cock-up perfectly. Cameron asks:
And I would ask: when the competitiveness of the single market is so important, why is there an environment council, a transport council, an education council but not a single market council?
So Cameron apparently wants an addiitional institution within the EU to coordinate single market policy. I’m not sure why, but let’s take him at his word.
Now, the function of the transport council, which he refers to by way of comparison, is set out at Articles 90 to 96 of the Treaty on the Functioning of the European Union. Similarly, if a single market were to be established as a result Cameron’s negotiating brilliance, it would also require inclusion within a revised TFEU if it were to have legitimacy
But the European Union Act 2011 makes ot very clear that a change to TFEU which entails “the extension of the competence of the EU in relation to cooridnation of economic and employment policies” (sec 4 (f) will require a referendum for its ratification.
So if Cameron were successful in negotiating a new Single Market coordination function, AND if legislation were introduced for an in/out referendum, we’d be stuck, by law, with two referenda, potentially weeks apart.
The online social enterprise community – of which I may now well be an honorary member – has had some debate about the importance or otherwise of the Secretary of State for Health’s recent definition, for the first time in English law, of what it is to be a social enterprise, which I covered here, and originally here.
David at Beanbags and Bullshit gives links and a good overview of the debate, which boils down to different views on whether the definition set out in the new Healthwatch regulations will come to act as precedent, replicated in other legislation and in broader NHS (and other departmental) policy, or whether it’s strictly focused on the very narrow, and relatively unimportant issue (given their lack of real power) of who will get to run Local Healthwatches.
To date, my own position on this has been simply “I don’t know”. On the one hand, it has been difficult to work out how exactly this new definition might be used as a lever for privatisation of NHS services. On the other, it’s a puzzle as to why the Department of Health would go to so much trouble expanding the usual conception of social enterprise to include private firms as long as they don’t take out more than 50% from profits in any one financial year, unless there was some kind of plan to expand its use beyond the financially unimportant Healthwatch scheme.
However, the news emerging about Monitor’s Fair playing Field recommendation, that private health firms should become exempt from corporation tax on their NHS profits, has me leaning a little towards the latter interpretation, namely that the Healthwatch regulations form part of some devilishly clever scheme.
I find it difficult to believe that Osborne will find it politically feasible to stand up at the next budget and announce this new tax break in the face of a popular swell against tax avoidance, however much it might be sold on the grounds that Any Qualified Provider private firms currently suffer from unfavourable cost terms when compared with the NHS itself. That would surely be too risky as a confirmation of whose side the Tories are on.
But if the tax break is dressed up as an incentive for social enterprise, tapping into the government fairly well developed narrative on the virtues of mutualism and pointing to existing ex-NHS staff mutuals as an example, but conveniently leaving out the detail of how social enteprises are legally defined nowadays, Osborne, Hunt and the private health lobbyists may well feel its worth a go as part of the pre-election scorched earth strategy.
Or maybe that’s a conspiracy theory too far. I still don’t know.
If I’m right, you heard it here first. If I’m not, then it’s simply the usual omnishambles, ok?
ps. I ‘m thinking of doing a Freedom of Information request on the consultation responses and meetings which fed into the Healthwatch regulations, to try to ascertain to what extent the private health lobbyists were at work. Has anyone else reading this done one, or are they interested in doing so?
How new is the Tories’ new nastiness? Quite new, it would appear:
Geroge Osborne, 2011 Autumn Statement:
I also want to protect those who are not able to work because of their disabilities and those, who through no fault of their own, have lost jobs and are trying to find work.
Tory attack ad, Dec 2012:
Who do you think this goverment should be giving more support to? Hardworking families……Or people who won’t work?
The Lancashire Evening Telegraph reports (i.e. copies and pastes a press release) :
A NEW organisation to improve health and social services in Lancashire has been unveiled.
Lancashire County Council has joined forces with Parkwood Healthcare to form a new health watchdog called HealthWatch Lancashire.
Parkwood specialises in providing staff, including nurses, care assistants and project workers, to the NHS, private and voluntary organisations.
From April 2013, the new organisation will replace the current Lancashire Local Involvement Network (LINk) as an independent watchdog, listening to local people’s concerns and ensuring the best services for them.
In dryer terms, Parkwood Healthcare has won the contract from the County Council to run Lancashire Healthwatch (see No.5 in May 2012 Cabinet minutes), pursuant to the Health and Social Care Act 2012.
Clause 183, para 2.2 of that Act requires the following in respect of such a contract:
The arrangements must be made with a body corporate which—
(a) is a social enterprise, and
(b) satisfies such criteria as may be prescribed by regulations made by the Secretary of State
This makes the award of the contract look very odd. I have checked out Parkwood Healthcare on the Companies House site and it is a Private Company Limited by Shares. As such, it is surely outwith the normal definition of a social enterprise.
So have the County Council acted illegally in awarding the Healthwatch contract to Parkwood Healthcare?
Well, maybe, or maybe not. The Health and Social Care Act, courtesy of a late amendment in the Lords (unchallenged by any member of any party), provides a definition of what itmeans by ‘social enterprise’ (Clause 183 para 7):
For the purposes of this section, a body is a social enterprise if—
(a) a person might reasonably consider that it acts for the benefit of the community in England, and
(b) it satisfies such criteria as may be prescribed by regulations made by the Secretary of State.
Now, I’m a pretty good at ‘reasoning’, even if I say so myself, but I don’t consider that Parkwood Healthcare ‘acts for the benefit of the community in England’, precisely because the organisation’s legal status is not one normally associated with social enterpise.
Further, we don’t know what criteria may be prescribed in the secondary regulations, because those regulations are still a matter for consultation; indeed those consultations appear to have a particular focus on what ‘social enterprise’ is to be taken to mean (see Issue 1 in these slides).
So in summary, we have a (Conservative) County Council apparently offering a ‘social enterprise-only’ contract to what is clearly a private firm, but which might just arguably be considered a social enterprise under Andrew Lansley’s new regulations. Except that they haven’t been issued yet.
Further, the contract has been awarded to a Lancashire-registered firm which, at least judging by the website section on the nursing agency part of its business, may have a financial interest in delivering some of the services that it is now being contracted to scrutinise*.
At the very least, I think Lancashire County Council needs to be asked a few questions about this**, including whether it has made provision in the contract with Parkwood Healthcare for its termination/withdrawal, in the event that the secondary legislation makes such a contract unlawful.
* We should be clear that this is not entirely new. According to its accounts, Parkwood Healthcare already has contracts to “act as the host for voluntary organisations to meet and influence service provision” in Lewisham, Harrow and Greenwich, while also offering nursing agency services in the London area.
These contracts come under the previous government’s Local Involvement Networks (LINk) legislation, but the difference is that in these cases their ‘hosting’ services have been subject to a degree of accountability from those members that make up the Local Involvement Network itself (cf. the Lancashire LINk board structure, for example). Under the new Healthwatch provisions there appear to be no such safeguards, with LINks simply abolished in favour of Local Healthwatch arrangements.
** I should stress, not least so as to avoid any risk of legal action, that I am in no way suggesting that Parkwood Healthcare has acted improperly in tendering for the Lancashire Healthwatch contract. It is the Council’s actions that I question.
Gove’s statement to parliament on the ‘O level’ leak contained this justification:
The sad truth is that, if we look at the objective measure of how we have done over the past 15 years, we find that on international league tables our schools fell in reading from 523 to 494 points, in maths from 529 to 492 and in science from 528 to 514.
Gove is referring to the Programme for International Student Assessment (PISA) study, and the data he provides is correct.
This is interesting for two reasons.
1) This time around Gove relies on the raw score changes rather than on the international league tables which have been the focus of misinformation, dating right back to 2010, since when he and his department have relied heavily this false data to set out their case for education ‘reform’.
The dodgy league table data has been used repeatedly in the last week by Tories and their supporters, including Liz Truss MP, Toby Young (repeatedly on telly, I understand), Phillip Blond and Stephen Robinson so it is a surprise to see a sudden change of tack by Gove himself.
The change suggests strongly that he and his DfE team, complicit in the lies that have been so consistently peddled, have recognised that the game is up, and that they can no longer get away with it. This amounts to a victory for TCF and for others who have sought to bring the DfE’s disgraceful manipulations to public attention.
2) Nevertheless, Gove can’t bring himself to stop the lying completely. While it’s good that he’s abandoned the totally invalid claims about slippage in comparison to other countries, he continues to suggest a downward trend on UK scores which simply does not stand up to serious analysis.
As I’ve noted several times, no proper trend analysis between 2000 and 2009 is possible because the 2000 sample was not large enough to be statistically robust.
Moreover, the 2000 and 2003 tests were conducted some months earlier in school year 11 (Nov/Dec) than the 2006/2009 (March-May) as an exception in the international study (because they get in the way of GCSE preparations). As John Jerrim of the Institute of Education has noted, this makes a pretty obvious difference:
[I]t is important to understand that between November/December and March‐May of year 11 is likely to be a period when children add substantially to their knowledge of the PISA subjects as it is when pupils are working towards important national exams. Consequently, one should expect the year 11 pupils in the PISA 2000/2003 cohort to out‐perform their peer taking the test in 2006/2009 due to the extra five months they have had at school….. This would in turn suggest an overestimation of the decline in PISA maths scores over time.
Look at it the other way round. If scores in 2006/2009 had not been lower in 2009 than they were in 2000, a valid question might have been what the hell teachers and students learn during most of year 11.
So bizarrely, we’re left with a situation where Gove has been forced to lie a little bit less than he has done so far, but where he’s so dependent on the use of the PISA tables to defend his crackpot scheme that he’s still forced to mislead the House of Commons.
The benchmark for excellence in response to the leaked ‘O’ Level/CSE plans has been set by Christopher Cook at the FT, with his convincing use of the National Pupil Database to show that the poorest children will be hit hardest:
The most significant issues around this idea are related to social mobility: the CSE will tend to be an exam for poorer children. Consider who would take the CSE if schools could select the quarter of pupils with the lowest average grades with perfect foresight.
Every child from the 29th to 48th percentile gets an average grade of “D”. If that were not hard enough, children are moving targets – particularly in the early teenage years. There is a lot of movement between standardised tests. One third of the bottom quarter of children at the age of 11 break out of that grouping by the age of 16.
If we win in 2015, we won’t put the futures of 70% of children at risk. We’ll give everyone the opportunity to make the best of themselves. We’re the party of legitimate aspiration. We commit to stopping the two-tier exam system, and returning to policy based on respect for professionals and honesty with data.
Stephen Robinson, an ‘author and political commentator’ writing for the Financial Times today, is clearly a Michael Gove fan:
Michael Gove is surely on to something with his announcement this week of a long overdue shake-up of the curriculum. As successive secretaries of state have, year after year, hailed ever more implausible “improvements” in exam grades, Britain over the past decade has plummeted in the international rankings: from 4th to 16th in science; 7th to 25th in literacy; and 8th to 28th in maths.
Stephen Robinson, ‘author and political commentator’, is also utterly wrong, as is the sub-editor of a respectable newspaper for allowing this bilge through.
The UK has simply not “plummeted in the international rankings”. Like ‘author and commentator’ Phillip Blond a couple of days ago, Robinson is quoting figures he’s picked up elsewhere, and clearly hasn’t bothered to look at the original OECD’s Programme for International Student Assessment (PISA) report, or at the National Foundation for Educational Research (NfER) summary of the OECD findings as they apply to England.
So once more with gusto……
The UK has NOT fallen from 7th to 25th in reading standards. To say so is a lie.
The notion that UK is 25th is the result of deliberate disinformation campaign by the Department for Education, subsequently repeated maliciously by the Head of Ofsted, Sir Michael Wilshaw, and picked up with jubilation by a popular press desperate to do down education and educators.
It is a lie because the DfE fails to tell you that:
1) Chinese Tapei and Denmark are placed above the UK in the international ‘league table’ in question because they start with an earlier letter in the alphabet. They have exactly the same score (495). This would put the UK joint 23rd.
2) Some 12 other countries, nominally above England in the 2009 tables, have statistically insignificant higher scores; statistically, the UK is not 23rd, but equal 13th, on this basis. NfER makes this point explictly:
Because of the areas of uncertainty described above, interpretations of very small differences between two sets of results are often meaningless. Were they to be measured again, it could well be that the results would turn out the other way round (p.8)
3) Shanghai and Signapore are above the UK in the 2009 tables but didn’t take part in the 2006 survey, so the UK can’t be said to have ‘fallen’ below them; in comparison with 2006, the UK might be said to be 11th.
4) In any event, the OECD’s warned explicitly (para 2) against comparing earlier PISA results with earlier data, because the very low response rate for earlier years created big concerns about sample validity.
In keeping with this more sensible analysis, the NfER report in December 2010 said that:
England’s performance in 2009 does not differ greatly from that in the last PISA survey in 2006 (p.37).
This is decidedly not “plummeted in the international rankings:.
Space does not provide for a fuller review, but the picture is similar for maths and science.
In science, the UK continues to do significantly better than the OECD PISA average, and it is simply wrong to say the UK is in 28th place in maths, given the statistical insignificance and the introduction of new countries. Of maths, NfER says:
England’s performance in 2009 does not differ greatly from that in the last PISA survey, apart from a slight drop in the number of high-achieving pupils and a slight increase in the gender difference in favour of boys (p.30).
I hope both Robinson and Blond will be forced to apologise for their blatant peddling of the DfE’s lies (Blond has so far not replied to the evidence I presented to him), but the buck has to stop with Gove.
The deliberate use of misleading data for political gain – another ‘back to basics’ campaign as cover for government failure – should be a resignation matter.
I do wonder why Labour’s education team has not picked up on this.
This was my less-than-measured immediate twitter-response to Osborne’s Mansion House announcements last night:
Osborne plan: start economic recovery via support for High Street bank lending? Utter fucking cretin. Does he not know the word ‘collateral’?I suppose neither he nor his coterie have ever had much problem with collateral.
Final piece in the jigsaw of evidence that Osborne simply doesn’t grasp how the real economy works, how investment decisions are taken.
Peston comes to a fairly similar, though somewhat more polite, conclusion this morning, when he says of this £60bn Funding for Lending scheme (combined with the ‘Extended Collateral Term Repo’ guarantee)
Bankers give me two reasons for their doubts about how far the schemes will revive our anaemic economy.
First, they say creditworthy businesses and households are reluctant to increase their debts in these uncertain times. Second, many of the companies and individuals desperate to borrow are those in some financial difficulties, so the banks don’t actually want to lend to them.
Here is the nub of the matter: the Treasury and Bank of England want the risks of lending to stay with the banks; but if that remains the case, the new credit almost certainly won’t get to those who most need it.
Precisely. Well nearly precisely.
While Peston gets businesses’ and households’ reluctance to borrow as the key obstacle, he doesn’t quite get why this reluctance comes about. The reluctance often stems not from amassing debt per se – people know e.g. from the Glasers’ purchase of Manchester United that having massive debts can be a pretty good way to get very rich – but from lack of collateral.
Osborne’s a cretin, tinkering at the margins with a Plan C that might end up being even worse than Plan A, not least because of its propensity to create inflationary bubbles in the parts of the economy where people will and can still borrow e.g. property in the South East, asset stripping firms.
The real tragedy is that there are simple alternatives which would work.
First and foremost, of course there’s taking the £140bn Osborne’s hoping to keep of balance sheet in a ridiculous bid to balance his books, and stick it in the real economy through public works schemes, both capital and revenue (e.g. developing that universal childcare scheme, which I’ll be blogging more on later).
That’s called Plan B, of course, and doesn’t need complicated deals with Pension Funds to make it happen.
Second, if he still wants to go down the private lending line, there’s ordering taxpayer-owned banks to reduce their collateral demands when lending. Of course this increases the default risk, but few ordinary people go bankrupt on purpose, and on balance it’s worth it for the overall growth you get. Just ask Grameen Bank, which have been providing collateral-free loans for 30-odd years with very low default rates.
Third, and related to the second, massively expand the finance available to mutuals, social enterprises, trades councils and other non-profit structures (inluding local authorities and Clinical Commissioning Groups), either by demanding that these same taxpayer-owned banks lend to them on the basis of a) their constitutional and legal commitments to their identified social good; b) simplified ‘Social Impact Bond’-style monitoring requirements, minus the investment return complexities which are making these vehicles so hard to get off the ground at anything like a game-changing scale.
If the banks aren’t up to this – and it is likely that they won’t be – the loans should be fed through alternative financial intermediaries like Charity Bank and the Social Investment Business. They’ve been managing these ‘social impact’ processes for years now.
None of this is rocket science. It just needs a Chancellor who understands how the rest of us live. Ah, right……..