The TaxPayers' Alliance - Better Government

Another business survey; more bad news for RDAs

However hard one trawls the web, it's hard to find an independent analysis of RDAs that gives them a  really good review. Journals dedicated to regional issues - a natural home for pro-RDA opinion one might think - struggle to present a case beyond "they're better than nothing". Most studies settle with: "some might be doing ok, most could be done away with". The TPA's assessment, published last year (see here), was undoubtedly one of the most critical out there, but even the Government sponsored review, carried out by PwC, had to rely on 'projections of potential future benefits' to find anything positive to say.

But whatever academics, economists or campaign groups might say about them, the real acid test must be business opinion. After all, RDAs are supposed to be 'business lead', 'business focused', tasked with improving their regional business environment. Even though the Government has now ditched the RDAs original objectives (a sure sign that even the Government felt RDAs weren't cutting it), business remains the RDAs primary focus.

So the latest survey of IoD members, carried out in March 2009, is not good news for RDAs:

•  Only 18 per cent of of IoD members state that RDAs perform well when rating delivery against target.
• Around 60 per cent say that their region would have achieved the same growth rate without RDAs.
• There is a clear North-South divide in the perception of the contribution of RDAs to economic performance.
• Members support deep cuts in RDA expenditure.

Assessing the RDAs against their priorities (increasing inward investment, building an enterprise environment, etc) the results were stark, with "a very poor assessment of overall performance". No area of RDA activity commanded a positive response of more than 18%.

Another metric, how businesses felt their region would have grown without RDA input, again "showed weak business confidence in the effectiveness in RDAs". 58% felt that their region would have grown exactly the same without the RDAs presence, with a further 7% suggesting that without RDA input the region might have grown even faster. Only 14% championed the role of RDAs in assisting regional growth.

 

Considerable regional differences were an interesting feature of the IoD survey, with the North and South West expressing significantly stronger approval for RDAs than the East and South East. Such a disparity may not be surprising, considering the relative economic strengths of the regions; i.e those regions with lower GVA support RDA activity more than those regions that are doing relatively well. Such differences can be over done though; in the North-East, the region with the strongest support for RDAs, only 37% expressed a positive opinion (as opposed to 30% who express a negative); in the South East, the region one might expect to have the least support for RDAs, 20% were positive, 43% negative. Surprisingly, considering the visibility of its RDA, support was lowest in the West Midlands. Only 14% were positive, while 44% were negative.

The most revealing section of the survey concerned RDA funding. As the write up notes, the RDAs "might argue the the findings ... reveal a need for greater resources in order to improve delivery.The survey results should not be interpreted in this way".

Those surveyed expressed strong support for reductions in expenditure on RDAs. Only 1% favoured an increase; 15% support maintaining levels; 42% favoured a 100% reduction. Three quarters of members favoured a reduction of between 25% and 100%. "Results only fall marginally short of an overall majority of IoD members calling for the effective abolition of RDAs." 

It should be, as the IoD write, "a wake-up call" for the Government and RDAs. The IoD and business, it should be noted, are not intrinsically anti-RDA; few rational people object to organisations that willing throw money at them. So members must be particularly disenchanted with RDAs to express the firmly negative opinions they did. It's fair to say that in this acid test, as in so many others, RDAs have not come out well.   

Business, Innovation and Skills

Among the parlour games played at Downing Street last week (musical chairs, pin the blame on the donkey, smash the Brown pinata, etc), pass the parcel was the one most emphatically won by Peter Mandelson. Every time the music stopped, the good Baron was holding the parcel, a wry smile on his face.

The prizes at every stage were generous: titles, prestige, influence. But at the heart of the parcel, the biggest prize, sat a new department; 'BIS', the Department for Business, Innovation and Skills. This new fiefdom, sprawling across SW1 and the Government's policy agenda, is a suitable home for the man who is now Labour's most powerful minister (including the prime one). The old shack, concentrated mainly on regulating business, just didn't cut the mustard for the UK's new 'First Secretary of State and President of the Council'.

The product of a merger between BERR (the Department for Business) and DIUS (the Department for Innovation, Universities and Skills), BIS will - just like its predecessors - "build Britain’s capabilities to compete in the global economy".

To this end, BIS will "design tailored policies for sectors of the UK economy that represent key future strengths and where government policy can add to the dynamics of the market" and "invest in the development of a higher education system committed to widening participation, equipping people with the skills and knowledge to compete in a global economy and securing and enhancing Britain's existing world class research base", along with 11 other simple aims.

It is, in short, a monster department, a hybrid of two significant ministries that were only created themselves back in 2007 (at a cost of £7 million). Moreover, it is a department with so many responsibilities that its focus is unclear; business, further education, trade?

Universities and FE are probably the greatest losers out of this merger, being quite clearly made subservient to Government's business agenda. Indeed this machinery of government change was less a merger, and more - as in actual business - a takeover. Mandelson's old business department (BERR), itself of disputable value, has absorbed the fairly lacklustre department responsible for universities and science funding, confirming to the Government's many critics within the University sector, that it has long seen them as just a laboratory for future business ideas. Never before have the commentators on the Times Higher Education Supplement website sounded so vitriolic.

Considering the importance of our university and science research sectors, it's disheartening to see them treated like bargaining chips in the political machinations that have kept Gordon Brown in No. 10. But the problems with this take over, carried out so glibly by the Government, go beyond its relegation of further education.

Such machinery of government changes are fundamentally bad for scrutiny and accountability, and ultimately for good governance. Occasionally there are good reasons to abolish a department, create one or merge two, but such occasions are rare. As the Public Administration Committee found in its report on this issue, Governments use the power too readily, for purely political reasons, failing to acknowledge the impact they have. It's not just financial cost - although this re-branding exercise will cost taxpayers up to £3 million - but rather the impact on the House of Commons; Committees have to be abolished and reformed, MPs have to reorientate themselves. In this particular case, MPs sitting on the BERR select committee, just two years into the job, probably beginning to get to grips with the department and impose some proper scrutiny, are now faced with a new beast, larger and more complex. The DIUS select committee has been abolished.

Constitutionally too, BIS poses some problems. Lord Mandelson, who was not elected and does not sit in the Commons, is now responsible for one of the biggest departments in Government. It will be at the centre of the Government's interventions in the economy, single market and education, but MPs will not be able to hold to him to account. He also sits on top of a departmental hierarchy that boasts 10 ministers, (the Treasury only has 4), many of whom are members of the Lords (see here). As the Government supposedly leads us into a new era of transparency and accountability, of reform and renewal, BIS embodies a very expensive and retrograde step.  

But along with Downing Street's decision to withhold the details of the inquiry into Shalid Malik's indiscretions, BIS really sums up the approach that is being crafted. Talk the talk but don't walk the walk; do anything to preserve power, even at the expense of good governance; give power to those with political skill, marginalise those that don't. Unfortunately it's us that lose out from this strategy: taxpayers, students, businesses. Let's hope that the 'other place' (the Lords) is up to the challenge of keeping a close eye on the new Department for Business, Innovation and Skills. 

Brown's new cabinet ... not much real world experience

As Brown's new Cabinet settled down to their first meeting this morning, Liam Byrne may have joked that for a board of directors, few of them - himself included - really know much about their portfolios. Andy Burnham, who until recently was in charge of the rag tag department for culture, media and sport, is now responsible for one of the biggest employers in the world, the NHS. Lord Adonis, a former education minister, is now in charge of transport.

Unfortunately for Mr Byrne (the new chief secretary to the treasury), his joke probably fell flat. Not just because it's not funny  - it's more tragic if anything - but rather because few around the Cabinet table even know what a board of directors is supposed to look like. The private sector experience between them is impressively low. Indeed experience of a life outside politics is fairly limited.

Ex-journalists and policy advisers in the main, the Cabinet is not lacking in intellect. But besides Liam Byrne and few others (out of 20 plus Cabinet attending ministers) none of them has any experience of what it's like to run a business in Britain, or even be employed by a regular SME. While management of the departments can be farmed out to civil servants - which in itself is highly problematic, as such officials are not only hidden from public scrutiny, but also unaccountable to them - policy is still being written by people who don't fully appreciate the 'on the ground' implications. Politics comes before knowledge, and policy is often much worse for it.

Not that the shadow cabinet is much better. Nor the House of Commons as whole. As a TPA report explored last year (see here), working knowledge of the private sector is remarkably low among politicians. As we look to build a better politics, one key part of must be to bring into it more people who understand how policy impacts on people beyond focus groups and consultations.   

TPA response to new RDA enquiry

As has been discussed a little in earlier posts, back in December 2007 the Department for Business,  Enterprise and Regulatory Reform (BERR) employed the consultancy firm PriceWaterhouseCooper's (PwC) to investigate, in depth, the impact of RDAs on England's regions.

Better late than never, the PwC report was finally published yesterday. In an impressively caveatted conclusion, the evaluation states that:

"there is credible evidence that all RDAs have generated regional economic benefits which exceed their costs. This is especially so if account is taken of the potential persistence of the benefits and of future potential benefits, although there are inherent uncertainties in these estimates. Across all interventions the annual impact on GVA resulting from jobs which have already been created or safeguarded is broadly equal to the cost, but if allowance is made for the expected persistence of these benefits, then every £1 of RDA spend will add £4.50 to regional GVA."

"The picture, however, is varied. On the one hand, some projects and programmes have already achieved regional benefits in excess of costs, notably in the area of business support. On the other hand, some interventions have not yet achieved regional economic benefits in excess of their costs, although the majority of them have the potential to do so if the expected benefits arise. This is especially true of many physical regeneration projects/programmes where the investments are expected to deliver longer term benefits."

The TPA's position on RDAs has been made robustly before (see here), but in sum, we believe the evidence does not support the notion that RDAs offer value for money. Although we acknowledge that RDAs have been active in handing out grants, administering support programs and rehabilitating brown field sites, our thesis was that the strategy embodied by - and the spending administered by - the RDAs had not noticeably affected the regional growth patterns established before 1999. Indeed in some areas we posited that growth had actually slowed, despite the massive spending. The argument was that such extensive investment (over £15 billion between 1999 and 2008) should accelerate growth, or at very least maintain it at pre-1999 levels. This, along with 'narrowing the economic gap between regions', was the explicit objective of RDAs at their inception. They are objectives that RDAs have failed to deliver on. A conclusion which - to be bold - the PwC report does not refute.

The PwC conclusions are being presented as: "every £1 spent by RDAs adds £4.50 to regional GVA". (GVA stands for Gross Value Added, a measure of economic output). In other words, RDA spending yields significant returns. But the PwC conclusions (replicated above) do not say this. They say, quite fairly, that the overall benefits of RDAs have, to date, been roughly equal to their costs. For every one £1 spent on job creation or protection, we have got £1 of benefits back.

From what we can establish so far, the assessment is based on studies (organised by the RDAs themselves) designed to substantiate the RDA's performance measures, of the number of jobs safeguarded or created for instance. Taking job creation specifically, these surveys asked businesses how many staff they have employed since 'X', and how many of those they would not have employed if the RDA sponsored programme did not exist. This approach clearly has its limits, with companies making necessarily rough estimates of how many people they might have hired if a programme didn't exist. This method might also be compromised if firms felt that telling researchers working for the RDAs that a scheme created few jobs undermined their chances of receiving future grants.

The particularly interesting part comes from the calculation of 'potential benefits', those that may occur in the future. For instance while RDA's have been essentially subsidising jobs (a grant to a small company encourages them to hire someone new) the 'potential benefit' accrued by that company keeping that employee on after the grants stops could mean as much as £3.50 in additional GVA for those initial pounds spent. So the conclusion is really that RDAs 'might' be worth the investment. After £16 plus billion to date, we all hope so.

The report is necessarily complex, and any simplistic assertion that says it concludes RDAs give almost £4 for £1 spent is as unsubstantiated as one that says the report has found RDAs to have been a huge waste of money. It says neither. The hundreds of programs administered by RDAs, in distinct areas such as job creation, brown field redevelopment and business support, means that the picture differs not only between regions but between programs. However if nothing else, it is ironic that while the RDAs of 2007 are given a cautious thumbs up on the grounds that they might have been worth the investment, the RDAs of 2009 exist in a rather different economic context, and have assumed a rather different role (that of the Government's regional recession co-coordinators). Now every £1 spent is on a job 'saved', rather than created. The focus is now on preventing a regional down-turn, rather than encouraging regional growth. In the current climate, the fact that RDAs (read 'taxpayers') are simply subsidising jobs is less controversial than it would have been a year ago.

But that does not mean that RDAs are a positive addition to our already unfathomable Government architecture. Whatever the pros and cons of taxpayer funded job support schemes in a recession, if they are the chosen policy then why can't local government administer them, or central Government's own regional offices? Moreover, a tax cut for small business is, in many ways, better than a hand-out. Most SME's want to expand, hire new people, keep their existing staff on. A tax cut keeps money in their pocket in the first place, enabling them to hire that new person, or keep the current ones. Instead of taxing the business, filtering the money though dozens of costly bureaucratic layers, only then to give the money back to the business in a subsidy, the tax cut would just leave the business with more money. No-one should believe that RDAs, local or central government help struggling businesses. Taxpayers do. And there are alternative ways to hand outs with which to help.

Little resolved by Commons enquiry into RDAs

The TaxPayers' Alliance has a clear line on Regional Development Agencies (RDAs): abolition. In the absence of any real data showing that RDAs have had a positive economic impact on England's regions (despite this being their express purpose) we concluded that much simpler, cheaper ways of incentivising business could be found, principally in the form of tax cuts.  We argued that organisations in which senior staff were predominantly career civil servants could not be called 'business led', and we suggested that RDAs duplicated the work already done by other expensive quangos, both at home and abroad. (To read our full investigation into RDAs, click here).

While we did not expect the House of Commons Business and Enterprise Committee to come out in full throated support of abolition, we had hoped that its enquiry into RDAs (launched last June) would open up the issue to broader political debate. Unfortunately though, the Committee's investigation appears to have been severely hamstrung, and its subsequent conclusions (published last week) are rather unedifying. Critically, it does little to address the main problem with RDAs, which is the question of their effectiveness and value for money.

This enquiry was to be underwritten by an analysis of the RDAs impact by PriceWaterhouseCooper (PwC). This had/has the potential to be a genuinely independent assessment, unlike BERR's annual efforts. And it was the conspicuous absence of this PwC report (whose publication has been delayed by BERR for almost 5 months) that hamstrung the Committee's investigation. The absence of the report - noted by the Committee as particularly problematic - is highly suspect, as BERR sources confirm the report was completed on time (November 2008). We can only suspect that it does not provide the thumbs up hoped for by Government. BERR officials are no doubt busy deciding to how to spin or bury it.

Without this PwC report the Committee's enquiry was rather limited to general discussion, although its report does give some detailed consideration of the Government's future plans for RDAs. They express strong disappointment that the Government is pressing ahead with its plans before the publication of the PwC report. They also note the considerable support for a level of governance between central government and local authorities expressed by business groups. However beyond this the report recycles many of the concerns raised in earlier investigations. And not just the TPA's, but the many studies that came before and after. From left and right, groups and organisations are concerned about the cost, impact and democratic implications of RDAs. The Committee's conclusions reflect this; being 'business led'  is important, but are RDAs genuinely so (in terms of expertise and personnel); has the incremental accrual of powers by RDAs diverted them from their central aim; etc (to see all the conclusions see the full report, pages 50-55).

In short, the Committee's report poses many important questions, but provides very little in terms of answers. Rather limp in its critique, it 'notes' the various different areas of concern, but in the end gives the RDAs a tentative pass, largely it seems because people see the virtue in a regional tier of government; "they don't necessarily think this one is very good, but it's the one we have, so it's better than nothing" seems to be the general idea. The unfortunate consequence of this report is that some will see it as an endorsement of RDAs, when in fact the Committee makes it quite clear that it has serious concerns about the "structure, work and responsibilities" of RDAs. 

Hopefully the PwC report will be published soon, giving some answers to the Committee's questions. It is a shame this enquiry could not fulfil its remit, properly investigating the utility of RDAs. But then again, if the PwC findings are anything like ours, one can understand why the Government didn't want it to.

Obama appoints dedicated 'performance' officer

The Times reports today that President-Elect Obama will appoint America's first Chief Performance Officer, to scour budgets line by line for inefficiencies and waste.

While positions already exist in the federal government to monitor the efficacy of programs and initiatives (such as the Congressional 'Government Accountability Office' and 'Office of Management and the Budget' ) this will be the first executive position assessing federal spending for waste, and many hope that Nancy Killefer (Obama's candidate for the role) will have a significant impact. The odds are stacked against her, but with a $1.2 trillion budget deficit, planned tax cuts and bold spending plans, President Obama is going to need every penny Ms Killefer can find.

So in light of the burgeoning deficit in the UK, and the waste and inefficiencies in our government, would such a position be a sensible appointment over here. In principle, yes. With complete access to all Departmental, agency and public body accounts, a platform from which to publicise waste and suggest reform, and some powers to actually make cuts, a UK Chief Performance Officer might be a good thing. But if the position was relegated to just making suggestions and pushing for 'efficiency drives' then the job is useless. And this is just what a British version would be. As the Gershon review has revealed, the forces allied behind the status quo (unnecessary quangos, programs, jobs) would make the job of an effective 'Performance Officer' next to impossible. Cuts can and should be made. There is chaff to separate from the wheat. Obama's appointment of Nancy Killefer acknowledges this. It is high time the UK Government did too.

We don't need anyone to run the world

John Stossel, in the Wall Street Journal, makes a powerful case that attempts to control by regulation activities that are regulated by spontaneous order are usually doomed to fail:

"Most of life works by spontaneous order. It characterizes how we choose our jobs, hobbies, associates, recreation, etc. When politicians try to regulate the process, they usually make life worse.

I try to demonstrate that in my upcoming ABC TV special, "John Stossel's Politically Incorrect Guide to Politics." I centrally planned a skating rink, and stood in the center of the ice and shouted through a bullhorn: "Slow down! Turn right. No backwards skating!" It didn't work. People hated it. Some fell, just as predicted by George Mason University professor Daniel Klein, who came up with the idea.

Had I been directing an economy, politicians would say that I failed because I'm not smart enough. They'd demand that we elect an expert. So I gave the bullhorn to Olympic gold medalist Brian Boitano. He did no better. Even a genius, or an angel, will lack knowledge of the individual skater's situation. It changes moment by moment. Mr. Boitano and I had no clue who was off-balance, who wanted to speed up, who needed a bathroom break. The skaters each perceived the situation as it happened, and followed their own principles of motion.

Most skaters ignored Mr. Boitano. He told me, "They want to do their own thing." "Yeah," replied one woman, "I don't wanna do it if someone's telling you what to do." Freedom is a good reason not to interfere. Still, we're told that the government must regulate the economy. Barack Obama says today's economic problems are "a stark reminder of the failures of . . . an economic philosophy that sees any regulation at all as unwise and unnecessary."

But governments have regulated and subsidized the housing and financial industries for years. Fannie Mae and Freddie Mac were created to interfere in those markets. Had actual private companies invested in those mortgages, they would have been subject to market checks. But they were not. The results were predictable."

How meaningful is a target of an 80% cut by 2050?

By 2050 Ed Miliband will be more than eighty years old and no longer in government.  The new 80% target for greenhouse gas emission cuts is therefore not a standard that he will be judged by.  It is just a way of striking a pose, and an absurd one.  Since the Government came to power, and despite massive burdens being heaped on individuals and businesses, emissions have not fallen but increased by 1.6%.

The economy is in crisis with shares around the world still tumbling amid fears of a recession.  Within Ed Miliband's own sphere of responsibility, Britain faces an energy crisis (PDF), with a huge gulf in capacity that will lead to blackouts unless urgent steps are taken.  That the Government are still fiddling with meaningless targets while the economy burns shows how utterly broken our sytem of government is.

Government should take lessons from Channel 4

In these troubled economic times everyone feels the pinch. Most of us will consider our
budgets more carefully and think twice about our spending.

Channel 4 it seems is no different. Hit by falling advertising revenues, Andy Duncun - the channel's Chief Executive - told press yesterday that "our objective as a public organisation is to operate at break even. With revenues falling, we've no alternative but to cut costs."

What could be more sensible; when money is short, consider spending less of it. Alongside a cut in its programme budget, Channel 4 is planning a round of redundancies - from 1,000 staff to around 850 - and making a reduction in its funding of cinema.

Prudent measures for tougher times. If only the Government could take a few lessons from its subsidiary company. With one of the biggest budget deficits in the EU, and projected borrowing set to push that deficit towards being the biggest in the developed world, the British state desperately needs to consider its spending commitments and organisation. The Government needs to question the value of thousands of its quango jobs, its spending on dozens of inessential programs. Just like Channel 4, the Government has to face reality and seriously consider cut backs. Debt is one of the primary causes of the problems we now face; looking to bury the country in more of it is anything but prudent.

Thanks for reading.  If you agree with our campaign for lower taxes and want to know more about the TPA, you can register online, completely free of charge, here.

Woefully inadequate

The results of an inquiry into the loss of 25 million child benefit records have been released, they are reported in the Times:

"The loss of 25 million child benefit records, complete with sensitive personal information, was brought about by a “woefully inadequate system” being used by staff who were working on a “muddle through” ethos, a damning report has found.

The 59-page report found that there were “cultural failures” at HM Revenue and Customs (HMRC) and practices at the organisation were “far from what they should have been”."

The description of a "muddle through" ethos is pretty telling.  Our public services are too often the victim of muddle through management.  Ministers, who are normally inexperienced and only in place for a couple of years at a time, can't do much more than muddle through.  The shortcomings of political leadership lead to weaknesses in the rest of the organisation.  If public services continue to be run by the political-bureaucratic hierarchy they will continue to make the kind of mistakes we saw with the data loss at HMRC and, more recently, the Ministry of Defence and nine hospital trusts.