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.