The TaxPayers' Alliance - Burning our Money

Corin Taylor talks to PR week about council publicity spending

This clip, from Friction TV, has the first five minutes. The full video is here.

Northern Rock Guarantee- How Much?

Wrecked on Granite

As already blogged, yesterday's Treasury statement on the extended Northern Rock guarantee suggested taxpayers are now on the hook for all of the Crock's borrowings, except for a few billion of subordinated debt: ie we are guaranteeing around £100bn.

Yet most of today's headlines say the guarantee "only" covers around £56bn. So what's going on?

The HMT press release yesterday morning said the guarantee covers retail deposits, wholesale deposits, unsecured borrowing, secured borrowing where the security actually turns out to be insufficient, collateralised and uncollaterised derivatives, onshore and offshore. Which is pretty well everything- hence the £100bn.

But when, a little later in the morning, the Bank of England Governor and Deputy Governor appeared before the Treasury Select Committee, they told a slightly different story:

"Essentially, this does widen the scope of the guarantee to pretty much the whole balance sheet excluding the capital and the Granite securitisation. All that guarantee is secured against the asset value of the company."

Mervyn King, governor of the Bank of England, said about 40 per cent of Northern Rock's £114bn ($229bn) balance sheet related to the Granite programme, with a third covered by the extended guarantee.

A further 25 per cent was Bank of England and Treasury loans, "leaving a very small residual that is essentially capital".

So in terms of money, that means we've now lent c £29bn directly to NR (equals 25% of £114bn), and guaranteed a further c £38bn (equals 33% of £114bn). Which totals c £67bn.

So the origin of that quoted £56bn is mysterious.

And taxpayers should also remember that while the c £45bn of NR's now notorious offshore Granite securitised borrowing is supposedly excluded from the guarantee, without it, Granite would soon unravel. That's because although the Granite borrowings are secured against specific pools of NR mortgages, the Rock has continuing obligations to maintain those pools- the programme is not "fire and forget".

What's more, Granite's borrowings are essentially short-term. It is constantly needing to "roll-over" its maturing debt- ie redeeming existing borrowings and replacing them with new. Once Granite's investors take fright at NR's capacity to perform, roll-overs get very difficult, and the whole programme could collapse. And what gives it urgency is that the Granite borrowings are maturing fast, with £1.5bn due in January alone.

We stick to our view: the reality is that taxpayers are on the hook for the whole lot. Which according to the BoE is well over £100bn.

Latest On Crock Crisis

Darling's the one in the cap

Today, Chancellor Darling has extended the taxpayers' guarantee to virtually all Northern Rock's borrowings: retail deposits, wholesale deposits, unsecured borrowing, secured borrowing where the security actually turns out to be insufficient, collateralised and uncollaterised derivatives, onshore and offshore. The whole kit and caboodle.

Which totals c £100bn.

Or £4,000 for every household in Britain.

(Yes, the HMT press release excludes subordinated debt, but that's only a few billion; and yes, it theoretically excludes the £40-£50bn still borrowed through the offshore securitised Granite programme- but only so long as Granite can carry on rolling over its borrowings... which it will only do with that HMG guarantee).

So now we're formally guaranteeing a bank that remains fully owned by shareholders. It requires a breathtaking disregard for taxpayers' interests to even contemplate such a situation. Our bungling rulers are giving us the worst of both worlds- we bear all the downside but any upside goes elsewhere.

Since we last looked at Northern Rock a week ago, things have got worse for taxpayers on a number of fronts:

Bid progress... minimal

The two bids from Branson and Luqman Arnold are still out there, but are looking shakier by the day. Arnold has now been forced to promise more equity capital, but it's only £200m more- peanuts in the current situation. And his promised total equity injection is still less than Branson's. Against that, NR shareholders prefer Arnold, and reckon Branson's management team has been weighed and found wanting.

In terms of we taxpayers getting our money back, neither bid looks credible. A "City Expert" told the Sunday Times:

“The basic problem is that the banks don’t have a lot of money available, and both Branson and Arnold are finding it difficult to get support. The two bidders are pretty lightweight. Branson is the nearest thing in the business world to Princess Diana.”

The Treasury is so worried it's appointed Goldman Sachs to assemble a financing package that would be available to either bidder. Sounds like a long-shot, and taxpayers should also remember that super-smart Goldmans are not known for working on a charitable basis. Who will pay them, we wonder...

Finance... not available

With all major Western banks under the credit cosh, the chances of them stumping up even £10-15bn are diminishing. And for taxpayers, that's not enough anyway. We are in the hole for a loan now approaching £30bn.

Deposit and borrowing guarantee... boxed in

Even before today's announcement, taxpayers were on the hook for the Treasury's 100% NR deposit guarantee, and as we blogged previously, there's a real question over whether the Crock can survive without it- even after a sale. Last week we noted that Branson's presence had apparently stopped the haemorrhage of NR's retail deposit base, which was encouraging. But latest reports say that it's started again.

Make no mistake- the guarantee means taxpayers are exposed to the risk, just as much as with a continuing loan.

Mortgage assets... heading South

We were initially assured NR's £90bn mortgage loan book was of unimpeachable quality- as safe as houses. Now we know it's showing signs of "credit impairment" (eg see this blog), and the latest dire news on the housing market means it can only get worse. Much worse. Which of course is precisely why the commercial banks are wielding those 20 foot bargepoles so vigorously.

Non-mortgage assets... heading South

In September NR told us their £15bn of non-mortgage assets were all super-high quality:

"Northern Rock invests in high quality and well diversified assets... Northern Rock only has a £75 million direct exposure to the US sub-prime market which is all rated AAA, and a £200 million exposure to the US CDO market, within which there is indirect exposure to US sub-prime. Of the £275 million combined exposure, £193 million is rated AAA. We also have £325 million of investments in a number of Structured Investment Vehicles (SIVs)."

AAA huh? Just three months later we learn they've written down their SIVs by more than one-third (£118m) and their CDOs by two-thirds (£130m). Taxpayers- most of whose exposure is unsecured (see previous blogs)- should be alarmed.

Shareholders... demanding recompense from taxpayers

According to the Telegraph, the disappointed hedge funds that bought into the Crock in the hope of a quick killing, may now demand a direct payment from taxpayers:

"A nationalisation of the bank could force the Government to pay £1.7bn to Northern Rock's shareholders, including Rab Capital and SRM Global, the hedge funds that bought big stakes in the bank after its problems became apparent.

SRM's Jon Wood is understood to have received legal advice indicating that precedents across Europe suggest the Government would need to pay no less than £4.10 a share to nationalise the bank - equivalent to Northern Rock's book value."

Shark is as shark does. But who reckons we can depend on Darling and Brown to defend us?

Decisive action... forget it

When we first blogged the Crock three months ago, we said:

"Darling has emerged from his hole to assure us there's no need to worry... We taxpayers should be anything but calm. What if the collateral against which we're now lending to NR turns out to be worth less than NR claim? How confident can we be about the value of those highly geared mortgages in an environment of rising rates and (probably) falling house prices? What about their £15.4bn of other assets, including exposure to CDOs, SIVs, and SIV-lites (see this blog)- how secure are they? The answer is nobody knows- which is precisely why the money markets no longer want to lend to them.

Of course, there's no way NR can now maintain its independence... No doubt "the authorities" are right now frantically trying to strongarm someone into taking them over. And no doubt the possible buyers are saying they will need some form of government guarantee on that dodgy loan book. And maybe the authorities will offer some form of... what shall we say... douceur.

But there's one thing we must be absolutely insistent on. Before taxpayers are required to shell out a bean, the NR shareholders must lose everything. As we argued here, they've had the upside, and now they must pay the price."

We were wrong about only one thing: when we said "no doubt "the authorities" are right now frantically trying to strongarm someone into taking them over", we were being wildly optimistic. The "authorities" have been totally stymied by Brown's crisis of morale. They are incapable of making decisions about anything that matters.

And as for Darling's half-baked idea that henceforth decisions on banking crises should be made by a Cobra-style committee headed by ministers, it would be hilarious in any other circumstances. Can anyone seriously imagine that bunch of spineless incompetents making decisions about difficult and risky stuff like this? Photo ops and wasting our money, sure. But sorting out a banking crisis?

Personally, I'd rather trust details of my name, rank, and bank account to Her Majesty's Revenue and Customs.

Pensions Black Holes

How a pensions black hole works

Yesterday our battered beleaguered rulers bunged £3.9bn more taxpayers' money into yet another pensions black hole.

Now, all of us sympathise with the 130,000 people who lost all or part of their pensions when their companies went bust up to 2003. And all of us can see that they were grossly misled by that stream of official assurances that their final salary pensions were safe (see here for Mail's campaign).

But as taxpayers, we need to be quite clear about one thing: once again we're being forced to pay for clearing up a pensions mess largely created by our rulers.

If the government had not issued all those incorrect and misleading assurances that final salary pensions were safe, these pension members and their trade unions would have had no basis for their legal case.

More fundamentally, if successive governments had squared up to the truth about final salary schemes, they'd have established an insurance scheme long before 2004.

The whole pensions universe abounds with hugely expensive black holes. And as we've blogged many times, successive governments are in denial about the looming crisis (eg see this blog). Despite a string of weighty reports (eg the Turner Commission- see this blog), they are still not gripping the real issues. Which are:

• Pension age- increasing life expectancy means the State Pension Age (SPA) needs to be increased sharply; the current plan is to raise it to 68 by 2044: pension experts reckon we need quicker action and that SPA needs to go to 70, which would save us about £15bn pa- c 1% of GDP (eg see this blog);
• Public Sector pensions- the scandal of largely unfunded public sector pensions continues (eg see this blog); in the face of pressure from their union paymasters, Labour backed off increasing the retirement age from 60 (or even below in some cases), and the total cost to taxpayers is currently put at about £1 trillion- twice the officially declared National Debt.

As we've said many times, the combination of spineless politicos and our chequebook is not a happy one. And unless you want to spend your old age living on Value Buy pizza, some people suggest you move your savings offshore and don't plan on retirement until 75. At which point you should emigrate.

PS The splendidly opulent pension arrangements enjoyed by the boys and girls in blue are once again highlighted by the case of Ian Johnston , who leads the British Transport Police (BTP) and is a national police spokesman on organised crime. It turns out he is the highest-paid officer in the country with an estimated pay-and-pension package of £260,000 a year. The reason? He retired from the Met at age 55 on his full £70 grand pension, and then promptly got himself a new job with the BTP on £195 grand pa. Plus of course, the usual generous police expenses (£6,964.40 last year). If only everyone had such a cushy pension deal.

Down At The Nick

Why have three out front when none will do?

Worrying news from Cricklade:

"NORTH Wiltshire's top cop has warned residents in Cricklade they could be responsible for the closure of their own police station.

Cricklade Police Station, in High Street, no longer has a manned front desk due to cutbacks, but Chief Inspector Boland urged residents to use the station as much as possible.

When members of the public complained it was closed, Ch Insp Boland assured them it was manned and officers at the station would respond if they were not tied up.

"It is not closed but when the accountants come to review our expenses the first thing they will say is that it is perceived to be closed anyway' and they will close it," he warned."

Did you follow that? Cricklade residents (aka the customers) are angry because their local police station is closed- ie if you go there you find nobody manning the front desk, and even if you shout, nobody comes. But rather than putting it right, North Wiltshire's top cop advises them to pretend the station's functioning properly as it is. Otherwise, he says, it will be perceived the residents perceive it's closed, and it will be closed. Even though in real world terms, it's closed already.

Only in Stalin's Russia is such madness possible.

And there's no doubt Stalin would have approved of the commissars' programme to streamline policing by closing stations. As he would have appreciated, manned stations open to the public are a huge distraction for the police. Far more efficient if they concentrate 100% on their core function, which is to carry out orders from above.

So all over the country, stations are closing. According to the Sunday Telegraph, more than 600 have already closed since Big Government Labour came to power:

"Only one police station in eight is now open 24 hours a day and 18 out of 43 forces do not have a single station open around the clock."

It is true that new stations have opened, but these tend to be of a very different type, often closed to the general public altogether. For example, in the Met area, the plan is to close local nicks and organise policing around out-of-town mega-bases. According to the Register:

"This gives a basic blueprint along the following lines. Most conventional policing, and most police, will be at the 'flexible warehouse' that isn't open to the public, but that is quite likely to occupy industrial estate sites. Visible policing (aside from the ones tearing around with flashing blue lights) will be in shop-style high street premises."

And the high street premises will be small kiosks in shops or libraries, manned by those Community Support "Numpties in Yellow Jackets" (see this blog), and only open 9-5. Need to see a cop outside office hours, and you'll have to take your chances on waiting for a blue light car to come available. Which wasn't good enough for 14 year old Jack Large who died earlier this month after being stabbed outside an unmanned station in Chigwell.

Regular BOM readers will already be aware of how this plays out in affluent areas. In places like Primrose Hill- part of LB Camden- local residents have given up on the police altogether, and hire private security guards to patrol the streets. That's despite the fact that Camden reportedly has 827 police officers, 169 police staff and 98 Community Support Officers.

What do they all do? You know the answer- six out of every seven hours is spent doing admin and taking meal breaks (eg see here).

In Primrose Hill, residents buy their way round the problem. As with the rest of our dire public services, everything's fine so long as you can afford to pay twice.

Of course, if you live in Chigwell or Cricklade and you can't afford to pay twice, you're stuck.

Bring on those elected sheriffs. The ones that have to serve their local customers or they get slung out.

HTP: John B

Police Pay - The Worst Of Both Worlds

Is this what you want?

So just let me make sure I've got this right. We're paying our policemen better than they've ever been paid, yet they're going on strike (or at least, intending to come down en masse with Blue Flu).

Having perused the stats, we can confirm they're certainly well paid. According to the Office for National Statistics, your typical copper at sergeant and below now earns £36,700 pa (ASHE April 2007; T 14.7a, full-time median). That compares with economy-wide median pay of £24,000 (ft median). So the cops get a premium of 50%.

Back in 1997, the same typical copper got about £24,000, so his pay has gone up by over 53%. Since prices have only increased by 17% (CPI), that means a 30% increase in real pay. And in 1997, the economy-wide median pay was £16,700, so the police premium was "only" 44% (ASHE 1997).

With police pay up by 53% and average pay only up 44%, the relative position of the police has improved significantly. Here's the picture:

And on top of their cash in the hand pay, there's that gold plated pension. Whereas for most employees final salary pensions are now a distant pre-Labour dream, the police still enjoy index-linked final salary pensions and retirement at 50. These days that's worth at least 30% on top of declared salary (eg see this blog).

So we'd say Labour has done pretty well by the police (and see here for Reform analysis).

Especially considering we taxpayers have done much less well. Despite all that extra cash, police efficiency levels have plumbed new depth (see this blog). According to the latest report into police funding from the Home Affairs Select Committee, since Labour took over, total police funding has increased by 40% in real terms. And although some crimes have fallen, the serious crimes we really worry about haven't. Moreover, much of the overall fall has had nothing to do with the police. As the Committee notes:

"In the case of both vehicle crime and burglary, improvements in security—far more than any government action—have probably been a significant contributor to overall falls... Excluding successes on burglary and vehicle theft, there has been a more mixed picture in tackling overall crime, particularly given the increase in resources available to the police. For example, between 2002–03 and 2005–06 violent crime as measured by the police recorded crime statistics showed a 21% increase..."

So if you were a cop, your best bet would be to think "thank you very much" and shut your gob. You certainly shouldn't be drawing attention to yourself by going down with a dose of Blue Flu. Because as the firefighters discovered, the public often have no idea what public employees get paid these days, and when they find out they can turn nasty.

But that aside, how is it possible for the police to have been paid all this money and still be so hacked off? How on earth have we ended up the worst of both worlds?

No prizes for guessing the answer I'm afraid: this government has been unspeakably incompetent in managing public sector pay. Right across the public sector they've given us the classic boom-bust cycle: years of huge uplift, followed by a sudden halt.

From the nurses to the police, they ladled out great dollops of cash during the fat years, getting virtually nothing in return. And, who could possibly have guessed, the recipients got habitualised to it.

So now the cash has run out there's a real problem. Just like there was the last time we came to the fag end of a grand socialist feeding binge. That particular fag end came to be known as the 1970s, which not only gave us the three day week and Red Robbo, but also- less forgivably- the kipper tie, tank tops, and the Rollers. Is that what you want to see again?

When your correspondent was involved in the nightmare of setting pay and bonuses for his co-workers, he soon discovered a Golden Rule: never give anyone so much in one year, that you may need to slash it again the following. Remember there are fat and lean years, and try to think longer-term. You ignore that at your peril: you can so easily end up with staff who are both highly paid and extremely hacked off at the same time.

So why hasn't the public sector discovered that?

And while you're at it, why can't those expensive pigs fly?

PS FYI, the median pay of senior police officers (inspector level and above) is now £52,925 pa (plus pension and, er, expenses). Back in 1997 it was £34,880, an increase of 52%. The latest salaries of the very top cops are listed here. EG: Met Commisioner - £234,939; Met Deputy Commissioner - £193,959; Chief Constable of Greater Manchester - £163,908. And none of them are accountable to us taxpayers.

Putin Helps British Taxpayers

There are going to be a few changes...

No wonder they don't want him to retire. This morning President Putin has even found time to help us beleaguered British taxpayers. He's ordered the closure of no fewer than 15 offices of the totally useless quango the British Council.

BOM readers will be familiar with the Council (see here for summary). It employs over 7,500 people in 110 countries all around the world. It costs £0.5bn pa, of which £0.2bn is a straight subsidy from the taxpayer, with much of the rest comes from "selling" services to other bits of the public sector (see here for latest annual report).

Chaired by my Lord Kinnock, it employs his son- as Head of the St Petersburg branch- and his Lordship's longtime favourite "Axeman", Billy Bragg, has been on the Advisory Council. It costs each and every British family £20 pa, yet nobody can explain how we benefit. At all.

Indeed it's so bad, there is an excellent blog dedicated to its misdeeds- David Blackie's The Language Business.

Last year David blogged the Lords Foreign Affairs Committee which called for two urgent probes into the BC- one by the FCO and one by the National Audit Office- although nothing has happened. As David pointed out:

"The organisation enjoys public funding, charitable status at home, diplomatic status abroad, early retirement, index-linked civil service pensions, enthusiastically embraced contracts with government departments, and the very agreeable freedom to enter into any commercial arrangement it pleases without any public accountability, ombudsman, non-executive director or external moderation or control."

So hurrah for Putin! At last, someone's taken action. In March he finishes in Russia. Surely his English must be as good as Capello's, so maybe we could put him in charge of liquidating useless British quangos.

Crock Escape Plans

At the Northern Crock, taxpayers remain on the hook for £25bn of loans and a further £15bn plus of guarantees for depositors (see previous blogs here, here, and here, and this Treasury statement which spells out that the guarantee applies not only to retail deposits, but unsecured wholesale deposits as well).

So what do we now know about the Branson (see this blog) and Luqman Arnold escape plans (see here)?

The short answer is precious little. What we have been told is that neither is offering to repay anything like the whole £25bn we're owed on Day One. Branson has offered £11bn, and Arnold £10-£15bn, but since neither seems to have entirely tied up the commercial banks to provide the money, there isn't a whole lot to choose between them. They are both planning to keep £10-£15bn of our cash to be repaid at some stage over the next few years, effectively on a best endeavours basis. And in an environment where house prices may well be sogging drastically.

Moreover, taxpayers need to remember a very important point- our loan to the Crock is in two parts. Around £11bn seems to be secured against mortgage assets. But the rest- the bulk- is unsecured. And this being the real world, we can be pretty sure that both Branson and Arnold are proposing to repay the secured debt first. By "unencumbering" £11bn of mortgage assets in that way they will be be able to reuse them to secure more borrowing from commerical banks.

Unfortunately, that leaves taxpayers standing in line with all the other unsecured creditors for repayment of the other £15bn. And according to that leaked NR sales memorandum (see this blog), £74bn of the Crock's £90bn mortgage assets are already "encumbered" (ie pledged as security to existing lenders). So the unsecured lenders are pretty thinly covered.

In reality, we will only get our unsecured loans back anytime soon if NR's retail deposits base can be rebuilt, with fresh deposits being used to repay us. But is that in any way feasible? And more specifically, is it feasible without a continuation of the government deposit guarantee?

Both bids seem to envisage keeping that guarantee in place for "a period". Darling's plan had been to step away under cover of an increase in the general bank deposit guarantee up to £100,000. But that's now being opposed by the commerical banks on cost grounds (see here), so it looks very much like taxpayers will be staying on the hook.

True, Branson's bid does look the likelier of the two to survive without the guarantee. Whatever the City may think, many members of the public do seem to trust him, and since he launched his bid, NR's loss of deposits has reportedly dropped from about £200m per day to roughly zero. Arnold has no such credibility, and his intention to stick with the busted Crock brand looks like pie in the sky.

And even with the Branson bid, does anyone seriously imagine Virgin could capture a quarter of all new UK retail deposits, as apparently envisaged in their plan? Just take a look at the deposit market breakdown pre-crisis, with NR on just a 3% share: Source: British Bankers Association 

As we've said many times before, it's very difficult to imagine taxpayers escaping intact from this fiasco. And at the end of the day, it may very well be that nationalisation and an orderly run-off is the best we can expect.

But what we should not accept is a deal where we continue to underwrite the bank while existing shareholders retain a stake. If the bank can't survive without state support, it's effectively bust, and shareholders must lose everything. Taxpayers should never be forced to bail out shareholders.

These two bidders should be asked to reshape their bids so that taxpayers are taken out whole soonest- no continuing loans, and no continuing guarantees.

If they can't do so, then Kaletsky nationalisation is the least worst option: the government gives notice that all loans must be repaid in full by end-February (including rolled up interest); failure to do so means Northern Rock will be nationalised for £1, depositors paid out, the assets sold off over a period of time, and the entire operation closed down.

A Sense Of Shame

Not the only hangover from Mr Hoon's time at MOD

Last week your correspondent attended the Public Accounts Committee hearing on MOD's bungled 2003-06 sale of QinetiQ (transcript here and see previous blogs, including here). BOM readers will be familiar with the huge profits made by the purchaser- Carlyle- and the company's executives led by Sir John Chisholm.

As you might expect, PAC members launched a heavy attack on the witnesses, who included Sir John himself and the present MOD Permanent Secretary, Bill Jeffrey. Overall, both came out of it with their wickets intact, inasmuch as they stood their ground and the Committee learned little beyond the NAO report (see here).

But it was still a sobering reminder why civil service mandarins cannot be trusted to avoid a skinning when it comes to dealing with the sharp end of the private sector. PAC Chairman Leigh described MOD officials as "naïve babies in a sea of sharks".

One exchange is especially worth highlighting. Leigh was questioning Chisholm, who as you will recall, made a £25.8m profit on his £100,000 investment (a 19,900% return):

Q18 Chairman: What the public think is that it is frankly appalling. It goes totally against any concept of ethical capitalism, Sir John, that you can put £100,000 into a business and emerge with £25 million of taxpayer's money. Nobody from outside can understand it. Do you have any sense of shame here before us?

Sir John Chisholm: I have a considerable sense of having led a team to create £1 billion worth of value for the taxpayer. I think that is a great achievement by the team...

I believe in any deal like this there was a contractual agreement put by the investor to the management team that had considerable risk for the management team at the time and they signed up to it...

The NAO report itself says that if the company had not achieved a 20% return at least then the management team would have lost their whole investment.

It wasn't a popular line with the Committee, but we have some sympathy with Chisholm. He did risk his own money, and he was only receiving what had been agreed by MOD. Why should he be ashamed?

The shame rightfully belongs to those who committed taxpayers to the transaction- ie MOD ministers and officials. They were the ones who let in Carlyle at too low a price, and they were the ones who then agreed the juicy incentive scheme for execs.

And lest we forget, the Defence Secretary at the time was Geoff Hoon, now Labour Chief Whip. The MOD Permanent Secretary was Sir Kevin Tebbit, now a director of Smiths PLC, the technology company, and also Chairman of Finmeccanica UK. Both companies have extensive defence businesses, and... well, whaddaya know... extensive contracts with MOD.

But behind both of them was the Treasury, pressuring the MOD to secure a sale in order to hit its top-down asset sales target. Now remind me... who was Chancellor at the time? When we talk of shame, let's locate it in the right place.

PS This is not the first time BOM has disageed with Chairman Leigh on blame attribution. Regular readers will recall the appalling case of the Norfolk and Norwich hospital PFI contract, where the contractors cleaned up at taxpayers expense. Sir Edward described them as the unacceptable face of capitalism, but the real blame lay squarely with the Simple Shopping Department of Health.

PPS The QinetiQ debacle contains some ominous pointers for the Northern Crock escape plan- public officials under political pressure to reach a quick deal, a preferred bidder arrangement that went disastrously wrong, and some pretty sharp operators on the other side of the table. We'll be blogging it separately.

Burning Money At The Carbon Trust

Carbon Trust meets the real world: why businesses don't implement its carbon reduction measures

The National Audit Office recently reported on the Carbon Trust (here), and this week the Public Accounts Committee questioned officials from the Trust and Defra.

The Carbon Trust likes to describe itself as a private company, but in reality, virtually all its funds come from taxpayers, at a cost of £103.2m pa.

It's high-flown aim is to help achieve the government's carbon reduction targets. But in practice that boils down to little more than pestering commercial businesses to switch off their lights, hiring hundreds of external consultants at a cost of £45m pa to do the same thing, spending £9m pa on glossy ad campaigns, making interest free loans for carbon reduction projects, and providing subsidised equity funding from the public purse (aka picking winners in green energy technology).

The Trust's main activity so far has comprised giving advice to companies and public sector bodies on how they should cut carbon emissions. But only 12% of big energy users have actually taken up the offer. And even among those that have, most have ignored/rejected most of the Trust's recommendations.

That's probably because the advice largely consists of the blindingly obvious- eg they "helped" Manchester United FC by suggesting they turn off the lights in the stands at night. Brilliant. No wonder 20 per cent of customers say they would have made exactly the same changes without any Trust involvement whatsover, and 68 per cent would have made at least some of the same changes.

Does anyone actually pay for such advice? Hardly. The Trust's consultancy services are free to "customers", and while they reckon the "market" for advice is growing by 20% pa, the NAO says "there have been few new entrants to the market... growth is likely to reflect the Carbon Trust’s own market position"

So how do we know we're getting anything at all for our £103.2m? We have to trust the Trust's own calculations of how much carbon reduction its advice generates. And as the NAO notes: "Measuring impact in carbon terms is a relatively new area of expertise, robust methodologies for which are still being developed". Quite.

In a highly unsual step, the Trust has also set up a private equity company. A member of the PAC noted that this was the first public sector private equity fund he'd ever come across. The idea was to raise a £75m fund from private investors, leveraging the Trust's expertise and contacts. That failed, but there are major question-marks over even considering using a public sector resource in this way. Specifically, a large chunk of the rewards would have gone to employees.

According to the NAO: "CT Investment Partners LLP 75 per cent of which is owned by Carbon Trust Fund Management Holdings Limited (which is a wholly owned subsidiary of the Carbon Trust) and 25 per cent by Clean Tech Venture Partners (a partnership owned by two employees of CT Investment Partners). As part of the partnership arrangements, it was agreed that any future carried interest would be split 75 per cent to Clean Tech Venture Partners and 25 per cent to Carbon Trust Fund Management Holdings Limited. Clean Tech Venture Partners paid £50,000 for its interest in CT Investment Partners."

Get the picture? Those two lucky employees have put up just £50 grand, and on a multi-million tax funded pot, would have received 75% of all the Partnership''s "carried interest" returns (which would be 20% of all fund returns above a hurdle return of 6% pa). The head of the Carbon Trust told the PAC that a total £10m fund might generate a 3x return in three years, suggesting that was fine. But on our calculation that would leave the two employees with a return of £2.7m: nearly 300% pa. And on the same basis, a £75m fund would have generated a £20m return. Nice deal if you can get it.

This all looks like another grotesque waste of public money. The Trust talks the talk of "customer offer" and equity returns, but it's producing zilch pay-off in terms of cold hard cash. And while they theorise about government intervention being necessary to correct "market failure", with oil at $100 per barrel, we reckon the market will take care of energy efficiency a lot more dependably than a bloated half-baked quango.

We were disappointed the PAC let off Defra and the Trust so easily. It may be only £100 mill, but a hundred here, a hundred there.... etc.

Non-job of the week

The GLA is the epitome of what we’ve always predicted regional government would become.  It’s growing, taking more of your money in taxes and constantly creating more pitiful excuses for its own existence.  So we’re not surprised that one of the jobs to come out of the GLA is our non-job of the week.

It was laudable that The Mayor’s office has been promoting the ‘one’ London theme, that Londoners of whatever background are united regardless.  Yet in today’s Guardian, they are advertising for an Asian Affairs Policy Adviser.  The job description is as follows:

“Policy Adviser (Asian Affairs)
£47,815

This is your chance to join the most pioneering regional government in the UK. You will provide high level support and expertise in the devising and developing of policies and strategies, as well as playing an integral part in promoting the Mayor's agenda for London and advising on the management of change.

You will offer advice on relations with the Asian community and the issues affecting Asian Londoners. This varied role will see you undertake research and analysis across the range of the Mayor's policies, ensuring that equal opportunities are promoted and the benefits of London's diversity are realised.

A successful track record in developing policy, aimed at improving services for Asian people, is essential for the role and you will be comfortable working in a complex political environment, with proven ability to present concise reports and presentations on sensitive issues to a diverse range of people. Ref: MO12.”

This job is another argument for the abolition of the GLA.  Londoners, of all backgrounds, want their taxes cut and services delivered, not meddling, patronising bureaucrats taking money from frontline services.  You can email the GLA holding them to account on jobs like this here, because it’s important we taxpayers keep up the pressure on the politicians wasting our money.

Uneeza PISA

Results not quite as promised in the original plans

The OECD's Programme for International Student Assessment (PISA) has just produced its latest batch of results. They show the UK crashing down the international rankings of educational attainment (see rankings here). Once again, it seems, the government has done the eezy peezy bit - spending the money - but failed to deliver any actual results.

Specifically, in a survey of attainment among 15 year olds across 57 leading economies, the UK slumped in all three areas examined:

• Reading- down from 7th in 2000 to 17th in 2006, in line with the OECD average but behind for example Estonia and Liechtenstein
• Maths- down from 8th to 24th
• Science- England down from 4th to 14th

Overall, it's a grim picture, especially remembering Labour's huge increase in education expenditure. We're currently spending £41bn pa on state schools in England alone, and according to the government that's £5290 per pupil, up 87% in real terms over the last decade (see table 8.5 here).

The PISA surveys are based on a consistent set of student tests applied consistently across all 57 participating countries. And the results underline once again how our dumbed down exam system gives us a totally misleading view of what's really happening to the quality of education in British schools.

And there's another interesting aspect to this. When the first PISA study was done in 2000, there was considerable scepticism about the UK's relatively high ranking. There was talk of nobbling, and carefully screening of participating pupils to make sure a lot of good ones were entered.

The suspicions were heightened when we failed to appear at all in the results tables of the 2003 PISA study because our "sample size was too small".

Now on the third attempt, it seems there's nowhere left to run. Short of withdrawing from the study altogether, the commissars have had to grit their teeth and make the best of a bad job- hence the attempt to big up the Science results, where we're still (just) above average.

PS: Prof Alan Smithers has an interesting article on this here.

Video Introduction to Council Spending Uncovered 1: Publicity

Mark Wallace, TaxPayers' Alliance Campaign Director, gives a brief introduction to the new report:

Council Spending Uncovered 1: Publicity

• NEW SERIES TO REVEAL HOW COUNCILS REALLY SPEND THEIR MONEY
• AVERAGE PUBLICITY SPENDING DOUBLED TO £1 MILLION SINCE 1997
• TOTAL TOWN HALL PUBLICITY BILL £450 MILLION A YEAR

With council tax bills having doubled over the last ten years, the TaxPayers' Alliance has launched a new series to review expenditure by local authorities in all corners of the UK and highlight areas of spending that could and should be reduced.

The Council Spending Uncovered series challenges the claim that Town Halls are short of money by publishing figures that will allow council taxpayers to decide for themselves whether their local authority is spending their money wisely.  These figures have never previously been compiled in one place because the TPA is the first non-government body to have collected the accounts for all 450-plus councils.

The first paper in the Council Spending Uncovered series examines the increase in town hall spending on publicity over the last decade, which is itemised in the annual accounts of all councils. 

Key findings

• The average local authority spends almost £1 million (£985,000) on publicity.
• The average local authority is spending double the amount on publicity than it did in 1996-97:

- Without taking account of inflation the average local authority spent £430,000 on publicity ten years ago.  The average spend today is a 130 per cent increase on that 1996-97 figure. 

- In today’s prices the average local authority spent £550,000 on publicity in 1996-97.  The average spend today is an 80 per cent increase in real terms on a decade ago.

• The total local authority publicity bill is £450 million.
• There is one local authority, Birmingham City Council, that spends more than £10 million on publicity.
• There are 8 local authorities spending more than £5 million on publicity.
• There are 73 local authorities spending more than £2 million on publicity.
• There are 141 local authorities spending more than £1 million on publicity.
• The total spend on publicity is not broken down in a uniform way in the various local authority accounts.  It is possible, however, to identify 44 councils that spend at least £1 million and 4 councils spending at least £2 million on staff recruitment advertising – despite the increased use of websites.  If all local authority accounts provided a full breakdown of publicity spending, the number of councils spending at least £1 million on staff advertising would almost certainly increase.
• The doubling of average publicity spending per local authority in the last decade is extremely  disappointing.  There are, however, a number of councils that are actually spending less on publicity than ten years ago. For example:

- Hammersmith and Fulham Borough Council spent £669,000 on publicity in 2006-07, down 11 per cent from the £751,000 spent in 1996-97. 

- In 2005-06, however, the council spent £1,030,000 on publicity, meaning that the 1-year fall in spending was 35 per cent. 

- If Hammersmith and Fulham can reduce publicity spending by 35 per cent in one year (in part by allowing advertising by local businesses in council publications) make other efficiency savings and reduce council tax by 3 per cent, then it must be possible for other councils to follow suit. 

Matthew Elliott, Chief Executive of the TaxPayers’ Alliance, said:

“It’s important for council taxpayers to see just how their hard-earned money is being spent by town halls.  With council tax doubling in the past decade, it’s extremely disappointing that councils have chosen to double their publicity budgets over the same period.  With the internet cutting the cost of communication, it shouldn’t be difficult for local authorities to find savings in this area and bring council tax down.”

Click for full report:

Download Council Spending Uncovered, No. 1: Publicity (PDF)

Click for regional tables, to be read in conjunction with the full report above:

Download East Midlands Regional Table (PDF)

Download East of England Regional Table (PDF)

Download London Regional Table (PDF)

Download North East Regional Table (PDF)

Download North West Regional Table (PDF)

Download Northern Ireland Regional Table (PDF)

Download Scotland Regional Table (PDF)

Download South East Regional Table (PDF)

Download South West Regional Table (PDF)

Download Wales Regional Table (PDF)

Download West Midlands Regional Table (PDF)

Download Yorkshire and the Humber Regional Table (PDF)

Weekly Waste Watch- 82

Flashy new buildings fail to improve school

In the news this week:

£25m Blair "super-school" heading for closure- "A pioneering £25million "super-school", opened by ex-PM Tony Blair, has been put into special measures by school inspectors. Bishops Park College, built five years ago to mop up a predicted boom in demand for school places, was hailed as an innovative new venture. But now the state-of-the-art facility in Clacton, Essex, which has 900 places but only 560 pupils, is threatened with closure. The report is the latest blow for the beleaguered school in which inspectors said standards in maths and English were "exceptionally low". Teachers were also judged to have "too low" expectations of what the children could achieve academically." (Telegraph 1.12.07)

£150,000 on unneeded Whitehall survey- "They say you shouldn't ask a question unless you're ready for the answer. Perhaps that's something Whitehall officials should have borne in mind when they spent £150,000 on a survey into public attitudes to migration. They had hoped to produce reassuring data to comfort ministers wrestling with the shambles of Labour's asylum and immigration policy. Instead, an overwhelming majority of the population said there were too many immigrants in Britain and strict quotas should be imposed on the numbers entering." (Mail 1.12.07)

£200,000 for left-wing propaganda- "A glossy 'voter's guide' for teenagers backed by the Commons Speaker Michael Martin has been accused of political bias. The pamphlets, called Voting Times, and sent to 600,000 households a year to remind young people to register to vote when they turn 18, cost more than £200,000 to produce. But they were at the centre of a row last night after critics complained they offered a list of "Left-leaning causes" under the title "Identify the issues that matter". Produced in the style of a glossy magazine complete with a picture casebook telling the story of one politically motivated young man, the pamphlet reads: "Identify the issues that matter. Your unique experiences in life mean that you have a unique view of the world. "Global poverty, the environment, healthcare, education, training and jobs are just a few of the issues facing Britain." (Mail on Sunday 2.12.07)

£83 grand expenses for another high-rolling cop- "The police chief tipped as the next Scotland Yard Commissioner is facing scrutiny after running up expenses of more than £83,000 over the past three years. Sir Hugh Orde, the £130,000-a-year head of the Police Service Northern Ireland (PSNI), has spent the cash on flights and hotels in the UK and the US since 2004. The figure is higher than any other UK Chief Constable - but Sir Hugh, 48, has denied using taxpayers' cash to meet his long-term mistress Denise Weston." (Mail on Sunday 2.12.07)

Total for week- £25,433,000