June 18 2001


Fantasy finance

There was an excellent "File on Four" programme on the radio last week dealing with the topical issue of the Private Finance Initiatives(PFIs) which Mr Blair intends to employ to revitalise the public services.

Pembrokeshire County Council has already embarked on a PFI in the building of a new £8 million primary school in Pembroke Dock (see Old Grumpy Jan 8 - "Live now pay later").

What was interesting was that the main contributor to the programme, Peter Robinson of the left-leaning Institute for Public Policy Research which is one of the chief advocates for PFIs, had to admit that the way the policy is being implemented is seriously flawed.

According to Mr Robinson, the mechanism built into the system to prevent the waste of public money - a value for money comparison between the cost of the PFI and traditional state funding - simply doesn't work because, he said, local councils, health authorities and other public bodies considering PFIs were given "Hobson's Choice".

By that he meant that the contest between private and public finance was not conducted on a level playing field because even if the publicly financed option proved to be cheaper it couldn't go ahead unless the Treasury - in our case the Welsh Assembly - would agree to providing the cash.

He said that in most cases the Treasury had made it clear that such funding would not be forthcoming which meant that local authorities and others were left to chose, not between a PFI project and a publicly funded project, but between a PFI project and no project at all.

David Price of Northumberland University claimed that this led to the figures being massaged to show the PFI in the best possible light.

One of the main factors in the cost comparisons is the burden of risk carried by the private sector.

For instance, if there is a cost over-run on a public sector contract it is the taxpayer who picks up the tab, but in the case of a PFI it is the private company that carries this risk.

Price says that it is easy to exaggerate these risks in order to make the PFI look more attractive, or, as he put it, "The risk assessment can be stitched up to come up with the right answer".

I only hope that whoever is called upon to cut the ribbon when the school in Pembroke Dock is finally opened takes the trouble to explain to the seven-year-olds present that they will still be paying through the nose for this "flagship" development when they are 35.

Fantasy funding

Another example of the smoke and mirrors approach to public finance was revealed by last week's report in the Mercury on the Bluestone fiasco.

Up until I read that report I had always assumed that the cost of transporting the stone from Pembrokeshire was the £100,000 so frequently recorded in the press.

Even that seemed a colossal figure to me, so imagine my surprise when I read that £100,000 was merely the lottery grant and the actual "cost" of the enterprise was £475,000; the £375,00 balance being provided by "Pembrokeshire County Council and other sources" in the form of "match-funding".

I must admit that until I read that report I had always fondly imagined that when the economic development gurus in the County Council referred to this or that grant "levering in" this or that amount of match-funding from the private sector that it involved somebody writing out a cheque or at least committing land or buildings or other tangible assets to the project.

But now I learn that in the case of the Bluestone much of the match-funding consisted of a notional payment of £50 a day to each of the army of volunteers who helped to drag the stone down from the hills.

You may ask why £50 a day rather than, say, the £33 which the minimum wage would have cost?

After all, pulling on a rope doesn't require any particular skill or expertise.

The answer is, of course, that the more you pretend to pay these hauliers, the more match-funding you can pretend to be providing and, as these grants are calculated as a percentage of the match-funding, the bigger the payout from the lottery fund.

Beats buying a ticket!

By happy coincidence, last week I happened to be talking to someone who I knew to be involved with a voluntary organisation that had received a sizeable grant from the EU a couple of years ago.

I asked how that organisation had match-funded the grant money.

"Oh! part of it was funded by paying me a notional £30 an hour for attending meetings" he told me.


Nothing to declare

Old Grumpy's antennae gave a twitch as I read a report in the Western Telegraph regarding a Housing Committee debate about heating problems in council houses.

Cllr Norman Parry (Ind. Carew) was particularly concerned about tenants in rural areas where there was no gas supply.

This reminded me of events some years ago when the County Council approved a policy of priorities for the installation of central heating in council houses.

Now, so far as the old boys on the Council are concerned, policies are an infernal nuisance because they lay down a framework of rules which makes it difficult for them to influence-peddle on behalf of those who will ensure their continued presence on the gravy train after the next election.

Difficult, but not impossible, and before long the Director of Housing had a succession of the old boys knocking on his door to plead for one of their favoured constituents to be made an exception to the rule.

The result was that six properties were singled out for special treatment.

That was back in June 1998 and I kept a file on the case which has been gathering dust until I was reminded of its existence by the report on Cllr Parry's remarks.

One of the six properties listed, 21 Kesteven Court, Carew, was on Cllr Parry' patch.

Not that he could be accused of giving favours for votes because 21 Kesteven Court is his home address.

Another curious thing I noticed was that the minutes of the meeting of full Council where the Housing Committee decision was finally ratified do not record that Cllr Parry declared his pecuniary interest in the matter, though they do record that he was present.(see Old Grumpy June 4)

Pound wise - Euro foolish

I notice that the Government has decided throw a bucket of cold water over those euro-enthusiasts who are pressing for an early referendum on the single currency.

Europe Minister Peter Hain has told them to "cool it", and his boss Jack Straw has called for a period of "quite reflection" on the issue, rather than hasty action.

This could just be due to political cowardice - after all, if the Irish government can't persuade their usually europhilic electorate to endorse the Nice Treaty, what price Mr Blair convincing a highly sceptical British public to vote for the Euro.

But,I think, there's more to it than mere electoral calculation.

Over the past few months Old Grumpy has noticed that every Labour Minister who is interviewed on the likelyhood of the UK joining the Euro first recites the mantra of the five economic tests before saying that if the criteria are met then it will be in Britain's interest to join "a successful single currency". (My emphasis)

This is a wonderful get-out clause because nobody could accuse the single currency of being a success so far.

And this week Gordon Brown's chief economic advisor Ed Balls made a little-reported speech in which he drew attention to the fact that, while we cannot possibly join the Euro at the present unfavourable exchange rate, getting the pound down to a suitable level might introduce all manner of instability into the British economy. (See Old Grumpy 4 & 11 June).

If the Pound falls to the level of the Euro then there is the danger of inflation due to dearer imports, and if the Euro rises to meet the Pound it risks choking off economic growth, such as it is, in Euroland.

So, the calls to "cool it" are designed to send a message to the foreign exchange dealers, who have been busy marking down the pound in anticipation of early entry into the single currency, that Britain's abandonment of the Pound is far from being a done deal.

Don't be surprised if, in a couple of years time, you see Tony Blair on your TV telling the nation that the Euro, which he had hoped would be the Mark with an Italian accent had turned out to be the Lira in leiderhosen, and the UK would be giving it the miss for the foreseeable future.

Centre ground or shifting sands?

Since the election there has been much talk about "the centre ground" where the Tories must position themselves if they are to "reconnect" with the electorate.

Pundits talk of this "centre ground" as if it were some well defined territory, the location of which was clear to everyone.

The problem is that there are at least two possible definitions of this "centre ground".

Firstly, it could be the intermediate position between two extremes: I believe the earth is flat, my opponents think it is roughly spherical and the centrist splits the difference and claims it is flat on one side and round on the other - clearly a ridiculous position because there is no habitable half-way house between truth and falsehood.

Or it could be that the "centre ground" is not based on some specific, well defined, unvarying set of principles but on the shifting sands of public opinion as manifested over time.

So, by definition, the winners of the election are on the "centre ground" while the losers are not.

Thus in 1945 the "centre ground" was Atlee's socialism with its promise to take into public ownership the means of production, distribution and exchange. During the 50s, 60s, and 70s the "centre ground" had shifted towards the "Butskelite" consensus around the mixed economy and the welfare state; in the 80s and early 90s it encompassed Thatcherism and now we have Mr Blair's "Third Way" whatever that might turn out to mean.

So, as they decide who to elect as their new leader, the Tories should consider the possibility that by the time the next election comes round the "centre ground" may have moved in their direction.

On the other hand, it may just be that that they are so thoroughly disliked by the voters that they couldn't get elected even with the Archangel Gabriel at their head.

In that case they will just have to wait patiently for New Labour's over-confidence to draw them into some disaster equivalent to the the ERM.

Perhaps they should be encouraging the Prime Minister to sign up to the Euro.

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