The sacrifice of the few on behalf of the many

To paraphrase Machiavelli, "For the Prince/Tyrant to stay in power, he must reward those who support him and weaken those who oppose him." In modern democratic language this would be "Maintain your core vote".

When historians look back at governments, they always focus upon what those governments achieved, what lasting legacy they left as a result of their time in power. Some governments are more memorable than others. I cannot help thinking that unless something dramatic changes in the next two years, the current government is not likely to leave much of a legacy beyond being a memorable coalition that muddled along during a severe economic depression.

The fundamental issue is that I cannot look at any of the government policies and think that they will help much. The language has been very much of austerity and surely successfully fixing or breaking the economy would leave a memorable legacy? In reality, I can only feel that the current period of government will be remembered as one of retrenchment.

By this I mean that just about every policy implemented by this government feels like it is aimed at removing something from most people. Welfare benefits, retirement age, pensions, wages, employee rights, right to privacy and so on. All the policies seeking to address these fundamental issues seem to take something away from the population at large. By unpleasant coincidence, many of these retrenchments benefit large corporations who have lobbied government or made political donations. While this may benefit a cosy elite, it does nothing to shore up the core vote or make the population want to re-elect a government that it thinks has taken so much away that was previously accepted as 'a right'. The equal marriage law is an exception and there are already hints that this surprising drive for this law by the Conservative is a desperate attempt to counter this perception, even at the cost of core party support.

No wonder the 'swivel eyed loons' are so strident, they themselves must feel the general frustration and while they may have some ideological affinity with the policies designed to pare back the state, they can also all too easily see that the few are making uncomfortable decisions not to the benefit of the many. Those politicians making the decisions benefit in the short to medium term, but those that come after them will suffer the consequences as seen by the rapid increase in voter disenfranchisement.

The coalition government is breaking one of Machiavelli's key rules, shore up your support and undermine your opponents. Labour know how to obey this rule and recent history shows that they will do this even at the cost of good government policies. Helping lobbyists and big businesses will not get the coalition votes, but then they will be in the money anyway so why should they care? Unlike the Princes and tyrants of Machiavelli's time, being toppled from power in a democratic society is unlikely to be fatal. It is a bit like those chief executive contracts, you get a golden handout from being kicked out rather than suffering some form of punishment. What a shame Ministers cannot be motivated by long term share options!

Deception and taxes

Let's start with a fun quote from Machiavelli:


Of mankind we may say in general they are fickle, hypocritical, and greedy of gain. 
Niccolo Machiavelli 


Do you agree with this statement? So when the Treasury Minister David Gauke states that it is morally wrong to pay cash in hand is he perhaps stating the obvious and that many people are willing to deprive the Government of those precious tax revenues? Perhaps even the attitude from many people likely to be a resounding "sod off you hypocrite!"


I don't think this really is much of an issue on the Govermment's radar at all. It is not a new issue and it has been something that has been known about and managed as best as possible over decades. It is claimed that this low level tax avoidance is costing the Government £2 billion a year. Considering that the major tax avoidance wheezes are being done by corporations and rich individuals and this is costing the Government trillions. That is where the attention should be going. 


So why is this non-story suddenly newsworthy? Time for another quote from Machiavelli:


One who deceives will always find those who allow themselves to be deceived. 
Niccolo Machiavelli 


This cash in hand story is only to deflect attention from the whole issue of corporation tax avoidance. Can we really blame rich people and corporations from seeking ways to reduce their tax bill? It is a simple fact that no one likes paying taxes. They do so because they have to and hopefully because they believe it is the right thing to do because they directly and indirectly benefit from it. Yet what if they feel that they do not benefit and that governments of all political colours squanders it and is too corrupt to manage it properly? How resentful must those people feel to pay those at the top who enrich themselves and their friends/political donors at public expense?

The whole issue of tax avoidance is squarely the Government's fault. It happens because it allows tax avoidance of all shades to happen through poor or slack legislation and enforcement. Furthermore, people don't trust politicians and they definitely don't trust them to spend the money wisely. Thus a political atmosphere of resentment is being created and the only way people can fight back is to withhold their taxes through covert means. Protest against the government is meaningless and worse still risks people losing their jobs, violence is an extreme method of protest and withholding your taxes overtly gets you put in jail.

I do not claim tax avoidance is directly linked to political protest, but I do claim that a subconsious culture is being created where those who can avoid tax do and don't feel guilty about it because they don't feel the Government deserves their money. It should definitely be an issue of concern to the Government and I fear obviously hypocritical comments by Treasury Ministers is not going to improve the situation. Everyone knows who the real tax avoiders are and it is not those builders/plumbers/decorators.

False promises, the PFI mess

The recent news that some London Health Trusts are in financial difficulty does not come as a surprise to me for two reasons: I read Private Eye and I have seen or been involved with a number of PFI (Private Finance Initiative) deals. With every single PFI I have looked at, I have never thought that any of them delivered genuine value for money for the taxpayer. But as there was no other money available and as the political instructions were very clear that they should be used, I like many other civil servants, simply had no choice but to get on with it. The sad truth is that many spending promises made by Government in the last 12 years were false promises, using money it did not really have and signing up to deals that were simply licences to the private sector and the banks to rob the UK taxpayer. Thus Labour (and no doubt the Coalition will too) put the public finances into debt in order to buy votes and thanks to the financial/banking crisis the chickens are now coming home to roost.

Maybe I should provide a brief explanation of how a typical PFI arrangement works so that people can understand how ludicrous PFI is. Bear with me as I try to simplify a very complicated area of government business.

Let us say that you are in charge of a project such as building a hospital or school or even to supply the Royal Air Force with air to air refuelling tankers. All this has been done under PFI. You need a big chunk of money to do so, for simplicity’s sake, we will use a nice round number of £1 billion. You are told, that your Department does not have the money and Treasury will not give it to you. But to maintain the current service, the operating budget is £50 million a year and this can be increased to £100 million a year (don’t ask how they manage this, it is a mystery!). As a good project manager, you need to think through-life for your project, thus you combine the cost of buying your hospital/school/tankers and the cost of running it. You need to put a time frame on it so you say 20 years. This neatly means you need £2 billion all in for a 20 year project (£1bn to buy and £50m x 20 = £1bn to support). Lo and behold, the £100 million a year operating budget over 20 years the Department is willing to give you also comes to £2 billion. Result! (Warning: most PFI do not work out this simply, I can almost guarantee that in most cases the PFI forecast is more expensive over the 20 years rather than breaking even, explanation of why is below)

So you now have a requirement, a budget and a plan and so you compete for a private company or consortia able to build what you need and keep it running for 20 years. This competition process may cost you £2 million (team of lawyers, commercial officers and experts to assess bids etc) and takes, at a minimum, two years to get to contract. Fast forward to you have selected your bidder/consortia and the discussions now turn to raising the money. Needless to say, most companies don’t have £1-2 billion in cash, so they go to the bank. The bank is willing to support the deal, but of course they are going to charge you interest on any money borrowed. Oops, this means you need another £200 million over the 20 year project because of course the £100 million a year estimate did not include commercial interest rates (remember it is £50m a year to support, another £50m a year from capital costs). This is where it gets farcical, the Government can borrow money from the Bank of England for a far lower interest rate, but you are not allowed to do so. PFI is about using private money to fund public projects. Your Department approves this increase in budget because you really badly need the hospital/school/tankers.

Off you go, things get built or made and the service is up and running. A financial crisis hits and the bank raises interest rates. That is another £100 million added to the cost. Don’t forget you have effectively borrowed £2 billion for 20 years, money costs more over time due to interest. Now your project will cost 2.3 billion over the 20 years. Of course if you had fronted up the £1 billion construction money from the beginning you wouldn’t have to pay the interest, but you did not have the money and so that is that. Your private company/consortia is able to get a better deal on the interest payments through refinancing, but the contract does not mean you get any of it. The private entity can also sell your PFI contract to someone else and again you contractually have little power over this. The contract is all about delivering output and availability, how it is delivered is not meant to be your concern as long as you get the service you asked for.

Let’s go back a bit and remember that previously it was costing the Department £50 million a year to deliver a service that was probably ok, but not brilliant. Your private entity has managed to get the costs down to £45 million a year by being ‘efficient’. One would think this is a good thing and the private entity is earning the extra profit through this ‘efficiency’. Ignore the fact that the cleaners are illegal immigrants barely paid the minimum wage, maybe the hospital/school is not as clean as it used to be and maybe a few shortcuts are being taken here and there to save money. There are two big problems. One is inflexibility. It is all about the contract. Don’t really need 100 beds or a 1000 school places any more? Tough, it is what was asked for in the contract, you still have to pay for it until the contract ends even if you don’t use it. Of course you could ask for a contract amendment, but I can promise you that the bill will sting. Why should the private entity play nice? Remember, they want the profit, what is in the public interest is your problem not theirs. The second problem is that almost without exception it is impossible to transfer sufficient risk to the private entity, not least because the cost is astronomical and/or you remain responsible no matter what. In the case of the RAF’s tankers, they may well be technically owned by the banks, not the RAF. Funny enough banks are very averse to letting their assets fly to dangerous places no matter how desperate the need. The RAF could over-rule them, but will have to pay a contractual penalty for doing so or suffer the consequences such as a plane having to divert to an airfield thus not achieving its mission. What if a patient dies in your hospital because the contractor did not clean it properly? It may be the contractor’s fault, but the NHS/Department of Health is still ultimately liable because it is with them that the patient has the ‘contractual’ relationship. You struggle to pass the cost to the contractor because the contract said it should be cleaned daily and that is what they did even if badly.


The example above is actually very conservative and I have not tried to over-egg the maths. In the real world, the figures are often considerably worse. All too often the private entity would have recovered all the cost by year 12-15, but of course the Government is still paying the flat rate as stated in the contract. Thus that private entity would, using the example above, make £50m of pure profit for the last 5 years of the contract. So much for saving the taxpayer any money...

Of course there is the irony that thanks to the financial crisis the taxpayers now own most of the banks holding the PFI contracts. So effectively the Bank of England is now loaning/giving the money to the banks who put commercial interest rates onto it and lend it to the PFI contracts who add their cut which is paid for by the Government. No wonder the whole thing is so complicated! Maybe life would be so much easier if Government departments borrowed the money directly from the Bank of England to pay a contractor to build the hospital/school/tankers (thus owning these assets), then paid for the support of these assets to other contractors on a rolling basis. They could even do clever things like break the support contract into small chunks and choose a local small firm thus ploughing money into a deprived local economy. Perhaps such a thing is rather old fashioned, but it does mean the taxpayer is not paying a huge interest bill and inviting the private sector to find ingenious and less than moral ways of making more profit (funnelling payments off-shore to avoid tax, employing illegal immigrants etc). Don’t get me wrong, I am not saying there is no role for the private sector and that they should not be invited to bring their own assets to make a public service work better, but PFI has to be the most convoluted and flawed way possible to achieve this. It has effectively saddled the Government with a huge annual mortgage bill that it is very hard to get out of. There are some PFI success stories, but the astronomical cost and mis-management completely outweighs them.

This Government has set the goal of deficit reduction its number 1 priority. How will it achieve this unless it rips up those billions of PFI deals? Aha, there is a better way – let the contracting authorities such as the London Health Authorities go bust and the PFI investors lose their shirts. Possibly a number of people will be made redundant. Sorry NHS, as the doctor might say, “it will sting a bit, but this treatment is necessary.” But who will treat those patients desperately in need of care? Step up Andrew Lansley’s new commissioning bodies and ‘any willing providers’. Probably the same people who shafted the UK taxpayer on the original PFI deals. Mind the dead bodies as you go please…

Kick starting some economic recovery

In the heart of government, there are some universal golden rules. One of them is that no decision is truly black and white. Everyone has their own opinion and most people will broadly agree on what is the morally right thing to do, but when is comes to making or implementing government policy there is always a side effect or unintended consequence. It could be a well known problem such as giving welfare support to out of work people which unfortunately discourages them from going back to work (called the Welfare Trap by economists) or it could be something more complicated such as offering more lenient sentences to suspected rapists in an attempt to improve conviction rates and spare rape victims the horrifying ordeal of testifying in court. Ian Duncan Smith, the Secretary of State for Work and Pensions, is making a big deal of trying to tackle the welfare trap and Kenneth Clarke, the Justice Secretary, had to pedal back from his clumsy efforts to gain support for his more lenient sentences idea. Wherever you stand on these issues and whatever opinion people may have, fixing these problems is not black and white - you don’t want unemployed people unable to even feed themselves and their children because they can’t find work and the justice system desperately needs to improve the conviction rates for rape cases, but how do you do it? And then there is the issue of trying to fix the economy…

Significant political bickering is underway in the UK, Europe, the USA and elsewhere about whether it should be austerity or growth, more or less taxes, more or less government spending and so on. So many people claim to know the answer, yet I can’t help but feel that if any of them are proved right by history it will be by accident rather than by truly understanding how to fix the problem. Everyone can see there is a problem, but no one can make a fully logical argument about what will actually work, there are just too many economic variables to take into account. Getting the UK economy (or other troubled economies) to grow again is not a black and white issue no matter what any politician or economist says. What is clear is that the UK population is not confident that the government (or the opposition benches) knows what to do. The French have certainly already demonstrated this lack of confidence by voting out Sarkozy and this pattern is a familiar one across Europe . Conservative and Lib Dem MPs and Ministers are not in a happy place right now, they know that in 2015 they will face electoral wipe out if they have not ‘fixed it’. On the face of it, Labour needs to do nothing more than avoid looking stupid to be able to win that election.

So what would a Machiavellian sort of advisor whisper into the ear of George Osborne, David Cameron or Nick Clegg? What secret trick could there be lurking within the secret file named, “Break glass to kick start the UK economy and win the election”?

I am thinking of an economic concept called ‘Helicopter Money or the Helicopter Drop’. It is a very simple concept. The UK Government and/or the Bank of England simply gives money away to UK citizens and tells them to spend it. They can do this by reducing taxation or by printing more money and giving it away as a lump sum. This may sound familiar and that is because it is, it is called Quantative Easing. But of course, all that money is going to the banks and they are not in the mood for sharing it right now which is part of the problem. So would giving UK citizens the money instead work better?

Looking at the 2011 census results, there are approximately 65 million people in the UK . Not all pay tax, not all work, not all are here legally and not all can vote. To keep things simple, I would favour paying a lump sum to everyone who can vote. Yes children and teenagers do miss out, as do prisoners and immigrants, but this is the easiest way I can think of tracking everyone down to give them the money and thus giving it to people who should be spending it. By law, you have to register to vote (knowing that this sort of gift was coming would make people eager to comply with that law!) and as everyone can only have one vote, thus they should only receive one cheque via this method. Yes there is room for error and yes it can be abused, but these issues would have to be tolerated in the name of the national good. Now back to our 65 million figure. A back of the fag packet calculation (using this source) says around 15 million will be missing out from being too young or not eligible to vote. So that means 50 million people to send cheques to. Let’s say we give them £1000 each and so easy maths says that this is £50 billion ( UK not US billions) of Quantative Easing going direct to UK citizens. Now this is a lot of money, but it is a hell of a lot less than what the Bank of England has already committed to for the banks, £325 billion according to the BBC. Ok so there might be a higher admin cost, but this would again be money spent in the UK employing people to distribute this money, itself not a bad thing and would hardly be billions in itself by using the existing electoral roll.

So the rules for the Helicopter Drop would be simple. If I was the Government, I would say, “Here is £1000, spend it however you want. All we ask is that you spend it in a way that helps the UK economy, your choice on how you do it.” So no buying TVs, Ipads or anything else made in China please! On the other hand, this is not that bad as long as UK consumers use UK retail outlets to buy those products. Guidance could be produced to show that fixing or extending your house, donating to charity, going on a UK holiday, having a gluttonous party or even putting it into a savings account in your bank (thus improving their capital which is what QE is all about) would all help. Sure, rich people who don’t need the money would also benefit and no doubt some people will hide it under the mattress or spend it abroad. But this does not matter, the point is that this is money people are being gifted and we all like to spend our gifts don’t we? The rich may even spend £2000 rather than just £1000. It is all about telling people that it is up to them and giving them the feel good factor to get into the spirit of things.

So the question that needs to be asked, will this actually work? Who knows. I don’t think it could be any worse than the current methods. In fact, I think it can only benefit the UK economy because it gets money flowing again which is what is desperately needed. More money going through the system means companies are more confident and employ more people, where that money goes is not so important, just as long as it goes somewhere in the UK. More importantly for the politicians, it sends a warm message that the Government is going to trust the people to help fix the economy and if it works, the Government gets the credit for being creative and generous. The only remaining question would be when to do it. Not too close to the election as that would look like outright bribery and you need time for it to look like it worked and kick started the economy when it desperately needed it. So, a gift for the Queen’s Jubilee? Next year perhaps? I await with bated breath…

Machiavelli would probably approve, but then he knew his Roman history where the emperors did something similar on a regular basis. Buy the mob, it worked then can it work now? This trick was also done by President Roosevelt during the Great Depression of the 1920s. This cartoon was a pessimistic view of that approach. It didn't work out too bad for the Americans in the end did it...