Only Civil Servants Can Save The British Economy

That's the conclusion I reach from reading Lord Young's report on Growing Micro Businesses. The report makes it clear that government plans to fund small business growth and harness public spending power are still medium term options. Absent substantial growth, all we can do in the short term is make sure our tax revenues aren't wasted on a day-to-day basis. Can our public sector colleagues plug the leaks?

The scenario

Public spending is still roaring away at 44% of UK GDP and tax revenue barely exceeds 35%. This represents a yawning chasm that remains to be filled with higher taxes and/or spending cuts - unless GDP grows substantially faster. This would make public spending less of a drag on the economy (35% is the ideal number) and produce more tax revenue to pay off public debt and narrow the deficit. Unfortunately, the productive economy is limping along, largely due to problems in the UK (and EU) banking systems. This is particularly bad for the UK, as businesses rely on only a few major banks for over 90% of funding.

The growth strategy

Unable to improve the flow of funds to the productive economy via the banks, Lord Young's report reveals that the government's growth strategy depends heavily on educating over 4 million small businesses about alternative ways to finance increased production and employment, and using public sector procurement to buy more from those smaller businesses. Theory has it that, as they grow, the rest of the private sector will also benefit, and away we go...

Awareness of alternative finance

Unfortunately, Lord Young notes that the government is yet to come up with "a robust, evidence-based strategy for communications to all micro, small and medium sized businesses" to explain the alternative funding options available. Some money is being offered via alternative finance platforms, which leverages their private marketing spend, but apparently the government still needs to issue more information on support schemes via Gov.uk (the 3rd attempt at a government portal).

However, educating SMEs about non-bank funding options is only one side of the equation. Success also depends on persuading mainstream savers and investors to put money into alternative channels. This collides with the £400bn ISA programme, which massively subsidises bank deposits and regulated investment funds that don't support the productive economy. Countless people have explained this particularly vicious circle to the government. But the Treasury seems determined not to level the playing field, either by extending the ISA scheme to include alternative financial services or by reducing the size of the incentive that favours only bank deposits and regulated funds.

This is a problem that seems unlikely to be resolved any time soon.

Smarter public procurement

So where are we on the road towards smarter public sector procurement?

Unfortunately, the smarter procurement drive is mired in the need to "simplify and standardise procurement practice across all parts of Local Government, health trusts and the wider public sector".

This seems an enormous challenge. The next step, for example, is to initiate consultations on reforms to public sector procurement standards...

So actually getting the public sector to buy more from SMEs from the top down is likely to be a very long way off.

The last card - plugging the leaks

That leaves only one option in the short term: civil servants spending less and more wisely.

That doesn't mean slashing welfare payments, and so on. It means wasting less money in the context of the £166bn the public sector spends on its own goods and services.

Surely not all of this needs formal consultation. I mean, isn't it partly a mindset? Thriving private sector businesses recognise the need for constant change to remain aligned with their customers' evolving behaviour and changes in the market, and public sector organisations face the same challenge. Yet we hear little about how the public sector evolves to be more customer-aligned and efficient. Do public sector workers realise the scale of the opportunity to help? Surely they aren't resistant to the idea - after all, they must be among the most publicly spirited people in the country...

It's unfortunate that the public focus is preoccupied with the other side of the government balance sheet. It seems such a waste of time and resources to get distracted by the moral panic about how much more tax foreign corporations should pay, when we could be getting so much better value for the crushing amount of tax that each of us already pays personally.

The process of hauling people before the Public Accounts Committee alone costs money. And we have to be mindful that reforming international tax treaties will rest on the shoulders of public sector staff who may well spend, very inefficiently, huge amounts on travel and other services in the negotiation process. 

Ironically, even the argument about extra tax revenue demonstrates why it's critical to fix all the holes in the bucket before pouring more money into it.

BubbleAid

A Conservatory Dream

Last night we were treated to the story of a family who can now achieve their dream of building a conservatory, thanks to a generous donation by UK taxpayers. 

But the story goes way beyond enabling home improvements whose name bears a cunning resemblance to the leading UK political party which spawned the spending programme. 

In fact, even the name "Help to Buy" is misleading, because this scam scheme unlocks plenty of other fantasies at the same time: the home owner couldn't even afford the house, much less an extension; the building company wouldn't otherwise make a profit on building it (and wouldn't build it at all); the bank wouldn't have the mortgage on its books; and the Treasury wouldn't end up with a 20% 'investment' in overpriced residential real estate. 

In short, we simply couldn't have another housing bubble without this scheme. 

So the least we can do is call it "BubbleAid".

While the economic justification of BubbleAid is maybe a little er... soft, it's difficult to question its political brilliance, coming as it does right out of the Fabian Society playbook. I can't think of a single middle class person who wouldn't want to realise their dream of a conservatory at other taxpayers' expense. We're talking a tsunami of greed rolling right across the entire United Kingdom, coast-to-coast.  

And nobody will ever vote it down because they won't believe that killing the programme will ever see a reduction in their taxes. 

Besides, UK taxes will never go down. The UK government will never spend less. Those are pipe dreams. 

Haha. Tax and spend less. Imagine it...

Are you smoking crack?!

When we need more money, we're just going to get those vicious, good-for-nothing global corporations to pay more in UK taxes. Simple. 

I mean, clearly other countries don't need the extra tax revenue, otherwise they'd be making those evil death stars pay more already, right? So it's open season. Britain can charge the bastards whatever the hell it likes. Nobody can stop us.

Don't pay any attention to that lunatic Senator Levin and his mutinous crew. Their demands that the United States should get a fair share of Apple's revenues will never take precedence over every Briton's right to realise the Conservatory dream.

So dream on!

Long live BubbleAid!

Playing The EU Fiddle

You know you're being played like a fiddle when Westiminster erupts over something as nebulous as Britain's membership of the Europe Union.

It doesn't matter what anybody thinks about the sustainability of the EU and whether Britain should be in it or not. The issues are too complex for anyone to be "right" about them. We may as well have a referendum about whether there is life somewhere else in the Universe. One day it might be clear, but not now. Today, in the FT Wolfgang Münchau calmly says that Britain could achieve all the current benefits with bilateral trade treaties, while in the WSJ Simon Nixon argues it's a matter of in or bust. Does either position truly reflects how the whole EU disaster will play out, who will lose and who will gain?

Nobody knows.

But this we do know: Britain's membership of the EU is an ideal topic of argument if you're trying to distract the population from the fact that your party has no idea how to resolve the current economic disaster right here at home. So, rather than fall for a faux controversy generated with the help of has-been Tory grandees, let's lock the current lot in the House of Commons until they get the country back on track.

Image from History.com.

Political Clarse

The term 'political class' is being waved around at the moment like a loaded pistol at a poker game. 

It's not clear whether Ken Clarke started it while pompously woofing about UKippers, or whether Farrago reached into his arsenal when counter-jibing about the "ossified elite".  

Either way, it's alarming. 

Mosca, Weber and other students of the political animal may have used the term in a derogatory sense, but we run the risk that petty politicians struggling under the weight of grandiose delusions will ignore the irony and claim it as a badge of honour. We are talking, after all, about a bunch of cretins who will clutch at any brick they can add to the wall between 'us' and 'them', even if it means building a duck house with a moat. They are desperate, in fact, to ossify any elite they can lay their hands on. 

So let's have no more loose and dangerous references to 'political class'. If it must be written down, then at least spell it in a way that reveals the true meaning. 

Image from BucklesAndTees.

What Happened To 'Class A' Political Journalism?

My appetite whetted by this week's local electoral melodrama, I've been searching for some Class A political journalism to feed my lust for pragmatism. 

There were little flashes of it from a few of the TV people. Michael Crick, who blew the lid off the Andrew Mitchell stitch-up, was rude as hell to Farrago, no doubt furious at having stuck to him like a leech in the hope of discovering anything coherent and coming up empty-handed. That left the usually mild-mannered Gary Gibbon to go after the rest of the gang. Desperation set in after the AutomEtonian responded to every single question with the line that this week was simply about local councils. He genuinely seemed to forget he was the Prime Minister, and I guess it's easy to see why. This seemed to put Gary in such a foul mood that he went after Flash Nick and Millibore like a mortar crew on speed. Each prevarication was interrupted with a fresh round down the tube, and another explosion of disbelief at the factually-twisted response. 

The only problem with the Gibbon assault was the apparent premise of the questions on capital spending: that it's the job of the state to fill every hole in the infrastructural landscape. Creating a whole new mountain range out of UK public debt is strange medicine indeed, whatever the cause. Ironically, Flash Nick went closest to a straight response, saying that while they'd barely invested a bean of new public money, the coalition has done a great job of attracting private capital to public projects. If that's true, then let's hope they've overcome the planning fallacy, and the PFI vultures leave a little flesh on the state carcass for the rest of us. 

As for Ed, well... 

In the end, the howling in my soul could only be quieted by re-reading "Fear and Loathing on the Campaign Trail '72". Forty years on, nothing has changed. The vicious wheels of the party political machines are still flattening the best interests of the citizens into the road in the rush for power and patronage, and Thompson's substance-fuelled take on the political animal is so brutally right that the recognition will make you laugh like a hyena. This, for example, could have been written today:

"This also reinforced my contempt for the waterheads who ran Big Ed's campaign like a gang of junkies trying to send a rocket to the moon to check out rumours that the craters were full of smack."

Now why doesn't anyone write about politics like that anymore?

Is it merely because today's journalists are sober, or have they abandoned hope that we can produce anything different to the current stage-managed pantomime?

A Thumping Pay Rise For Central Bank Non-Execs?

I was bemused to see the call for a giant pay-rise for the Bank of England's non-executive directors earlier this week. Especially given last week's admissions by certain former central bankers that no one is in charge and they don't understand how advanced economies actually work - not to mention last year's independent findings that the Old Lady of Threadneedle Street suffers from undue deference and group-think.

Surprisingly, the argument for the pay-rise is not that inflation has increased above the Bank's own target (a bit close to home), or that the value of their work has shot up dramatically in the light of global economic events (er, it's arguably gone down). 

No, apart from an 'increased workload' (which the FT interprets as a reference to the aforementioned independent reports, prepared by others), the central rationale is that they're underpaid compared to the non-executives in other (failing) banks. Apparently it's a bit unseemly for the non-executive directors of such a grand old institution to be effectively donating their services, and a pay rise will 'boost their prestige', as the FT puts it. One "reformer" is even quoted as saying:

“Continuing to call this body the court and paying people so little conveys the wrong impression externally.” 

Fans of corporate politics might sense that someone is teeing-up the existing non-execs, like so many golf balls, ready for the new Governor to drive them into oblivion.