Recycling and the balance of power

Were I to take up the patio at FatBigot Towers and lay a new one I would have to dispose of the old paving slabs and incedental detritus. It's not the sort of thing you can put in the dustbin so I would have to hire someone specifically for the task. There are lots of such people around, for a few quid they will take just about anything. I have used them a few times over the years.

It was an interesting experience. By the way they carried on anyone would think they were providing a service and their customer was paying their wages. An appointment was made to my convenience, a couple of burly chaps wearing thick leather gloves traipsed over the finest tufted Wilton, followed by a boy with a little battery operated vacuum cleaner. The heavy stuff was collected, carried back the way they came and the boy ensured any crumbs of concrete or mud that fell to the floor were picked up immediately. I handed over some small paper portraits of Her Majesty, they said thank you and all was well with the world.

I wasn't doing them a favour, I was paying for a service. They weren't doing me a favour, the were providing a service in return for money. It was a perfect example of what a service is - the provision of something that one person wants or needs and either cannot do himself or cannot do as efficiently and easily as someone else.

The world of normal domestic refuse disposal seems to operate in a different way these days, but it was not always so. There have always been two aspects to refuse disposal, it not only gets rid of stuff that would otherwise get in the way but there is also a serious public health aspect by which waste products that might cause harm or attract vermin are removed and disposed of more safely. This is very much a service and, like my blokes with thick leather gloves, must be paid for or it cannot be done. I have no doubt that it is the single most important function of local government in the UK.

And to my mind it is a legitimate function of government because the health aspect is so important that only a branch of government, with the power of compulsion can ensure the risks of uncollected waste are kept within reasonable compass. Compulsion in this field is required for two reasons. First because the service must be paid for and that requires compulsion. Just as a private company providing a service can sue its customer for not paying the bill, so a council can take legal proceedings against those who fail to pay Council Tax (that Council Tax covers matters other than refuse collection is irrelevant for these purposes). Secondly because there can be risks to innocent third parties if someone does not dispose of waste there must be a back-up mechanism to ensure that potential harm is minimised. It might be that the waste itself presents a health hazard, or that it creates a nuisance through smell or that it attracts vermin; each of these is serious if you are living next door to it. But that is as far as compulsion should go in order for the council to provide the service we all want and need. By going that far and no further, compulsion is consistent with refuse collection being something done for us by the council.

Where things have become skewed is in relation to so-called recycling. I opined on recycling some time ago (here), the point I want to make today is not about the recycling process itself but about the way it has been used to change the very nature of refuse collection. Now it is not just a service provided by the council for us and for which we pay, now it is also an obligation we owe to the State and for which we pay even more than before. The additional payment is a result of the absurd EU landfill tax that requires councils to pay, I believe, £59 per ton (or perhaps tonne) of waste sent to landfill sites. Councils don't want to pay more of that tax than they have to, so they seek ways of reducing the amount they send to landfill.

It operates in different ways in different areas, according to what arrangements the council has made for recycling. Some take cardboard, others don't have a deal with a cardboard recycler; some find it more cost-effective to have householders separate glass from plastic, others find they can do it better and cheaper themselves; some take green waste, others think the cost of dealing with it outweighs the saving in tax; and so it goes on. I have no reason to think these things are not thought through and assessed very carefully by each council because the financial ramifications are significant.

Everything depends on what they can negotiate with recycling companies and whether the cost of recycling is higher or lower than the landfill tax. Actually not everything rests on that, some councils are so infested by manic Greenies that they happily waste money recycling despite it not being cost-effective. Nonetheless, the economics of the practice are important for all of them.

One consequence of the need to recycle (whether that need is driven wholly or only partly by the landfill tax) is that a new area of compulsion arises. If we little people do not sort our recyclable rubbish from our other rubbish there is a penalty for the council. That penalty is primarily through paying more landfill tax than is necessary although there is also legitimate democratic pressure on council officers to comply with every mad policy adopted by Greenie councillors; either way they either accept the penalty or they have to force us to help them avoid it. Of course they dress-up fixed penalty charges as necessary to "save the planet" when they are nothing of the sort, they are imposed in order to change behaviour so that the council keeps its costs down and does what elected councillors require it to do.

Refuse collection is still a service we pay the council to perform but it now has an additional layer in which the roles are reversed. Part of the process is now a service we perform for the State. Where doing so helps to keep down the cost of refuse disposal there is an obvious benefit to us, but only because of a tax that has no point in this country because we have centuries of landfill capacity. The cost of that benefit is that, in yet another area, our ordinary everyday lives involve an obligation to the State that previously did not exist whilst at the same time the cost of the State providing a service to us is increased. Isn't it odd how both EU and Greenie policies almost always result in that double-whammy for the little people?

There is a way out of part of the problem. Councils could collect everything, sort it themselves and make clear that the additional cost is due entirely to EU and Greenie initiatives. It might be more expensive than imposing obligations on householders and issuing fixed-penalty fines for non-compliance, but it would ensure that the balance of power between the State and the ordinary people is moved one tiny notch in favour of the latter.

Councils and the Icelandic goose

We have now learned that numerous councils, police authorities and other public bodies had money in Icelandic banks and face a combined loss in excess of £1billion. There has been much wailing and gnashing of teeth about this with people asking why these organisations were hoarding money, why they put it with Icelandic banks in the first place and why they did not withdraw it to a more secure location once doubts were expressed about the creditworthiness of our friends in the chilly north.

Surprisingly, the first point has generated a lot of ire but it seems to me this is misguided. Local councils receive most of their funding from central government but still raise very substantial sums through Council Tax. Their income is not received in handy-sized pieces once a month just in time to meet that months' bills, it arrives in large chunks at irregular intervals, much of it at or close to the start of the financial year. When money is received in large amounts and is not all needed for current expenditure the sensible thing to do is put it to use earning interest. If you know a certain amount will not need to be spent for, say, five months you look for the best possible return on a five-month investment; even that which will need to be dipped into in the short term can earn a few quid. This has nothing to do with councils, county police forces or Transport for London hoarding money, it is all about budgeting sensibly by gaining as much additional money as possible while a lump sum remains unused in any other way.

This also answers the second point. Because it is sensible to get the best return possible, the money is deposited in the place offering the best rate of interest. Recently that has been Icelandic banks. That, of course, is not the whole story and that is why the third point arises.

It appears to be the case that many knowledgable commentators expressed concern about the viability of Icelandic banks more than a year ago. Given that the sums deposited in them by some councils and other bodies were very large indeed (I have heard figures of up to £50million from a single county council and £40million from Transport for London) one must wonder why the warnings were not sufficient to cause a change of approach.

In principle the position should be fairly simple. If you are in charge of a fund of other peoples money or, as the case may be, money given to you to use for the benefit of other people, your first obligation should be to keep the fund safe. That is far more important than seeking to increase it by investment. In order to keep the fund safe you have to take into account that inflation will reduce its value, so you must place it in an interest bearing account. Leaving aside issues of taxation and how best to measure inflation, what should be achieved as a bare minimum is to receive the same rate of interest as the rate of inflation. In general terms, if inflation is 2% you need to get 2% interest in order to maintain the starting value. A return above that level enhances the fund, which is beneficial, but a balance must be struck between the amount of profit you try to earn and the risk to the integrity of the fund. Putting it all on a horse at odds of 5-1 against will give you a massive profit if the horse wins but a total loss if the horse loses; so horse racing is not a viable investment vehicle.

A bank which offers, say, 6% when inflation is 2% gives you a good profit, but there is no such thing as a free lunch so you have to be satisfied that the bank is sound. There are internationally recognised standards for banks based on their perceived creditworthiness so you check its rating and find it is "AAA". Great, your money appears to be completely safe because those who monitor these things have said so by their rating. It goes without saying that ratings are reviewed regularly and can change, because you are in charge of a fund which is intended to be used for the benefit of other people you must keep an eye on the ratings and remove the fund if the bank is downgraded. In the absence of an enforceable guarantee that your money is safe, anything less than the top rating is not good enough when you are dealing with other peoples money (unless they are aware of the risk and direct you to keep the fund where it is).

Let me suggest three reasons why numerous public bodies kept substantial sums in Icelandic banks despite clear warnings that they were not good for the money.

The first reason is sheer sloppiness. A good return is received, no one thinks the bank will fold even when its rating falls and no other bank offers as high a rate of interest. The warning is heard but not heeded because it is not perceived to be an immediate problem. Years of good returns build trust in a continuation of the bounty, the golden eggs keep popping out of the goose and it is assumed they will do so forever. In these circumstances there is perceived to be no requirement to change the method of investment other than to move funds if a new goose is found producing 24 rather than 18 carat ovoids.

The second reason is that the high return is built into the accounts for the year. The council's spending plans cannot be put into effect in their entirety unless a minimum of, say, 5.5% interest is earned. So the money goes into an account at 6% when the best alternative gives 5%. Switching to the 5% account means that the council will breach representations it has made to the voters and an election is never far away. The treasurer knows his life will not be worth living if he rocks the boat. He sees himself as the servant of the councillors rather than as the custodian of taxpayers' money so he takes the path of least resistance. Plans were made on the basis that the high rate of interest will be achieved so locking funds into the dodgy bank becomes a political necessity.

Finally there is the belief that central government will come to the rescue if there is a problem.

Underlying all three reasons is the fact that the position of principle I identified above does not pertain in the public sector. The money collected through tax is not seen as belonging to the taxpayer but as belonging to government - most to central government and some to local government. They take risks with it that no one would ever take if employed to look after a fund for someone else and they do so knowing that the taxpayer can always be forced to lay another golden egg.