Cameron is getting his economic excuses in first, but others should know better

However they dress up the rhetoric, economic orthodoxy is convincing too many politicians of all parties that there is no choice but to accept austerity economics. They should know better, as a number of commentators are pointing out.

Professor John Weeks from University of London has provided an excellent economic history lesson to explain why austerity doesn't add up. When Osborne became chancellor the UK public debt was £974 billion (63% of GDP), and at the end of this September, four years and five months later, the debt was £1451 billion (80% of GDP). This increase of £475 billion exceeded the so-called ballooning of debt under Gordon Brown that, through a massive recession, rose by £440 billion.

In fact Osborne has put on more debt during his years of "sound fiscal policy" and much-touted recovery that Brown did during an economic collapse. In contrast Gordon Brown's fiscal stimulus stopped the rise in public borrowing in late 2009. Increased spending stopped borrowing from rising, because that spending arrested the fall in the economy that had created the need for more borrowing. In contrast Osborne has been incapable of bringing borrowing down. This is because his expenditure cuts undermine growth. Slow growth means slow revenue recovery, hardly rocket science even for Osborne.

Steve Keen from Kingston University warns that we are heading for another financial crisis, but not for the global economic reasons Cameron is using as his latest excuse. Cameron is panicking about a rising level of government debt, when at 91% of GDP, it’s 80 percentage points below the level of private debt. If Cameron thinks reducing government spending when private credit is contracting is good economic policy, then he’s ignoring the biggest car crash in economic history – the European Union, where government austerity turned the crisis into a second Great Depression.

Martin Wolf in the Financial Times (£) also questions Cameron's concerns about the global economy. He points to the difficulties caused by the fiscal austerity that his government recommends have become particularly evident in Japan and the eurozone. He argues that these stagnant high-income economies are the weakest links in the world economy. To understand why, he says we need to analyse today’s most important economic illness: chronic demand deficiency syndrome.

He points to three reasons for this. Firstly the post-crisis overhang of private debt and the damage to confidence caused by the sudden disintegration of the financial system. Secondly, and almost the opposite, economies suffer not just from a post-crisis balance-sheet recession, but from an inability to generate credit-driven demand on the pre-crisis scale. Thirdly, slowdown in potential growth, due to some combination of demographic changes, slowing rises in productivity and weak investment. But he says that this last set of explanations feeds directly into the second. If growth of potential supply is expected to slow, consumption and investment will be weak. That will generate feeble growth in demand.

Of course Osborne is less concerned about the effectiveness of austerity economics, than his long term plan to reduce the role of the state. Austerity is just an excuse for his ideological goals. What is more worrying, as John Weeks points out, is Ed Ball's conversion to austerity. Is it that the political strategy of being fiscally tough outweighs economic common sense? What he should do is go back and read his own Bloomberg lectures. I once told him that I thought he understood economics then, but it's not too late to change course and adopt a different more progressive political and economic strategy.

 

 

Same old same old with the shared services

When Labour took control of Hammersmith and Fulham Borough (LBHF) one of their manifesto commitments was a review of shared services arrangements with the Westminster (WCC) and Kingston and Chelsea (RBKC) authorities. This “critical friend” review has now been published. The report makes key recommendations for improvement around: vision, leadership, accountability structures, governance, procurement and technology. What’s interesting from a unison perspective is that it contains a survey of staff across the 3 boroughs.

The survey was sent to all staff in LBHF and all staff working in shared services in the other two boroughs (RBKC and WCC). There was a great deal of agreement among staff the key challenges were solving the different processes technologies and cultures which make shared working difficult and a huge feeling of uncertainty about what the future held.
Uncertainty: most respondents picked “neither agree nor disagree” when asked whether shared services had enabled cost savings and service improvements. It was generally felt that costs savings were the overarching priority for sharing services. LBHF staff felt more strongly than the other boroughs that shared services “does not improve individual borough’s ability to serve own residents”.

Personal development: while staff felt that sharing best practice and working shared teams offered personal development opportunities there were serious levels of concern about job security. This may though be a general, and not unrealistic, concern felt by all workers across local government considering the level of budget cuts they face.
Staff are pretty evenly split between those who would like to see more joint working and those who want to see it end, and 16% who didn’t know. Finance and corporate services were most keen to return to single borough operations.

Another issue is the “enduring variance in terms and conditions between and within teams”. This creates “difficult working environment”. The report states that there is a risk that “the good will of staff is being stretched too far”.

The technological issues are significant, there are three IT systems leaving an admin heavy workload this often leads to the recruitment of temporary staff to process transactional backlogs: Hardly the best way to spend money.

As with other shared services projects there are real issues about individual borough accountability and the ability of boroughs to design and deliver on their individual visions for the future of their areas.
The report is of course full of typical business jargon, but if you go past that it highlights the challenges members face as more of these plans are evolving in Scottish Authorities. It is important that when meeting with mangers and elected members that we can highlight what has happened elsewhere to avoid costly mistakes being repeated.

NHS Scotland is under financial pressure and it's going to get worse

NHS in Scotland is facing significant pressures at the same time as having to make major changes to services to meet future needs. That's the key message from the latest Audit Scotland report on NHS finances.

This infographic sums up the pressures.

They also found evidence that NHS boards are finding it increasingly difficult to cope with these pressures. NHS boards’ revenue budgets increased by just over one per cent in real terms in 2013/14, and smaller real terms increases are planned from 2014/15 onwards. Cost pressures, such as the growing costs of drugs and other health technologies exacerbate this tight financial situation. This table shows that while spending overall has increased in cash terms, spending per head of population has decreased since 2009/10.

While resources are falling in real terms, the demands on the NHS are increasing. This is as a result of demographic change, particularly the growing population of elderly and very elderly people; the number of people with long-term health conditions; and people’s rising expectations of healthcare. Audit Scotland conclude that it will be challenging for the NHS to make the scale of changes required over the next few years to meet the 2020 Vision strategy. In particular, progress has been slow in moving more care into the community - a process not helped by council budget cuts. They point to pinch points in the complex health and care system with only three boards meeting the delayed discharge targets. It remains to be seen if health and care integration will tackle these.

While all NHS boards met their financial targets, several required additional funding from the Scottish Government or relied on non-recurring savings to break even. NHS Highland, NHS Orkney and NHS 24 had particular difficulties. Five boards are relying on non-recurring savings to meet efficiency targets. A classic indication of NHS cost pressures is the backlog of maintenance required to ensure that hospitals and other buildings are fit for purpose. In 2012, the Scottish Government forecast that the cost of this backlog would decrease by £174 million by 2013, from £948 million to £774 million. The actual reduction was £90 million, to £858 million.

The NHS capital budget available to boards fell by 21% between 2012/13 and 2013/14, from £605.5 million to £481.3 million. In a separate announcement the Scottish Government has announced a big PPP/PFI programme. This expensive form of finance is funded from revenue.

In addition, despite significant efforts, the NHS did not meet some key waiting time targets in 2013/14. The report highlights a range of pressures including a significant increase in outpatient appointments. Audit Scotland argue that the current level of focus on meeting waiting time targets may not be sustainable when combined with additional pressures of increasing demand and tightening budgets.

There has been a reduction in the number of hospital beds across Scotland. Between 2008/09 and 2012/13, the average number of available staffed beds in acute specialties reduced by 7% (1,144 beds); the number of acute surgical beds fell by 11% (596 beds); and the number of acute medical beds fell by 5% (313 beds). The main reason given for this reduction is the growth in day surgery.

The report highlights a range of staffing pressures, particularly amongst medical staff. NHS Scotland spent £128 million on bank and agency nursing and midwifery staff in 2013/14, an increase of 15% since 2012/13. Spending on agency staff increased by 46%, to £9.3 million. This follows a rise of 62% the previous year, reversing the trend of falls in spending on agency nurses since 2008/09. Agency staff are likely to be more expensive than bank nurses, and also pose a greater potential risk to patient safety and the quality of care.

Overall, this report gives a good overview of the financial state of NHS Scotland and its constituent boards, shorn of the usual spin. In short, it's tough now, but it's going to get a lot worse.

 

 

Inequality in Scotland: much needed detail and analysis

A new paper Inequality in Scotland: New Perspectives from David Bell, David Eiser and Michael McGoldrick, adds some much needed detail and policy analysis to an often simplistic debate around poverty and inequality in Scotland (and elsewhere). The paper contains a great deal of data from large scale surveys over the last thirty years attempting to identify the economic and social trends in Scotland.

There is also an analysis of the effect of policies on the distribution of income between rich and poor both those where that is the intended aim (tax and welfare) and others (housing or energy policy) which have other objectives.

Their analysis finds that the extent of distribution hasn’t changed much since the 1980s. The UK tax and benefits system still redistributes income at about the OECD average. As expected the minimum wage has been effective in raising wages at the bottom. This makes life better for lots of people. Sadly, if high earners continue to see massive increases in their wages and don’t pay a reasonable amount of tax on those earnings, income inequality will (and does) remain high. There is a detailed section on the Living Wage. Their research indicates that low pay is widespread across Scottish households with many combining a mix of high, medium and low earners. While the living wage will address individual wage inequality, household income inequality may not reduce. The picture is therefore complex. Within households the presence of a medium (or high earner) does not mean all those in the household have access to that income. Inequality exists within as well as between households. This analysis is therefore important but not really an argument against expanding the living wage to more workers.

There is a lot of debate about income tax and welfare spending in Scotland, much less discussed recently is the role of indirect taxes, which across the world are increasingly favoured by governments as an alternative to direct taxation. These increases inequalities as poorer households contribute more of their income on, for example VAT, than the rich. The same is true of energy policy as although better of people have higher bills the costs of energy takes up a much larger proportion of poorer households’ incomes.

What the report doesn’t look at all is the impact of public services on inequality and their role in reducing inequality through redistributing the cash value of services that would have to be paid for directly if not provided free at the point of use, like sending children to school, getting your refuse collected or visiting the doctor. This would have been a useful addition to the debate. The tax debate isn’t just about levels but about how we use the money that’s raised.

Let's be bolder on tackling poverty pay during Living Wage Week

During Living Wage Week we should focus on ensuring that the 400,000 workers in Scotland on poverty pay are paid the living wage.

The idea behind a living wage is very simple. A worker should be paid enough to live decently and to adequately provide for their family. It helps prevent in-work poverty and ensures workers are not exploited through low wages.

The Scottish Living Wage is good news for workers as they get higher wages that also improves their health and job motivation. It’s good for employers because it reduces turnover, improves productivity and attracts better staff through reputational gain. The wider community benefits through lower benefit cost, less stress on the NHS and cash into the local economy. The Institute of Fiscal studies has calculated sub-living wage employers cost the taxpayer £6bn a year in in-work benefits alone. The indirect cost on poverty is around £25bn a year.

This year’s Living Wage Week got off to a good start with a 20p increase in the rate to £7.85. That means a much needed pay rise for those on the living wage. That includes most of the public sector in Scotland and a growing number of private sector employers who have signed up voluntarily. The energy company SSE has been a champion of the living wage in Scotland this year and they have been joined by high profile firms including Nationwide and Heart of Midlothian Football Club. Celtic have yet to follow, but there is a great grass roots campaign pressing them at every opportunity.

Of course its women who are the main victims of poverty pay. Today is Equal Pay Day, marking the point at which women working full-time effectively stop earning as they are paid £5,200 (15.7%) less per year, on average, than men working full-time. Equal Pay Day for women working part-time was way back on 28 August. Research published last week by the World Economic Forum revealed that the UK has fallen out of the top 20 most gender-equal countries in the world for the first time after women’s incomes fell by £2,700 over the past year. The UK is now behind Nicaragua, Bulgaria and Burundi for women having an equal chance of a good education, career and health. And it’s not just women. Young workers, part-timers and black workers are all more likely to be on poverty pay.

The Scottish Government is to be commended for including the Scottish Living Wage in their pay policy and for supporting the Scottish Living Wage accreditation initiative. However, it is through procurement that they could do much more to extend the scope of the living wage in Scotland. Promises were made during the passage of the Procurement (S) Act that have not been delivered. Our experience on the ground shows that public bodies are not even abiding by the current rules - so we need to get a move on with developing the statutory guidance. In this briefing I set out how we could make progress now.

Labour also needs to be more radical. Ed Miliband’s plan to raise the National Minimum Wage (NMW) to £8 by 2020, won’t do a lot for workers below the living wage after you take into account rising inflation. UNISON and others, in submissions to the Smith Commission, have argued for the devolution of labour regulation including the NMW.

 

Scottish Labour, under a Leader like Neil Findlay, could be much bolder. Helping families out of poverty and saving the taxpayer from subsidising bad employers.