Why it's going to be painful

At long last Mr Cameron had lifted his head above the parapet and said what everyone knows - government expenditure will have to be reduced by far more than anyone had the guts to say during the election campaign. He said the finances are even worse than he expected, although I doubt if they are much worse because he had a team of generally competent people working for him who only needed to read the blogs of Mr Redwood and Mr Tyler to find a very close approximation to the true horror bequeathed by the most incompetent government in modern history.

Mr Cameron said, quite correctly, that cuts must be made to expenditure because what was inherited cannot be afforded and he said there will be pain. Part of the pain will be felt by those in non-jobs who will have to find something else to do, as I have explained before it is a cruel consequence of creating non-jobs that those who take them in good faith, give up their former careers and then lose their new career. For those who took employment as official State naggers (such as five-a-day consultants, smoking-cessation counsellors and carbon footprint managers) it will be no less than they deserve, but I am sure the hectoring bullies are relatively few in number compared to the administrative staff in their departments who will also have to go.

The reason the pain will be greater than necessary is that hiring useless baggages to suck-up taxes and produce nothing of any value has consequences far beyond their own salaries and pension contributions. They are part of a larger structure, whether it be in local or national government or in a quango. That structure comprises several tiers of employees whose salaries relate, at least in part, to the size of their department. As the department grows through the hiring of people to do nothing, the nominal responsibilities of each head of department increase, carrying with it an inevitable demand that he be paid more. In the tier above him pay must also rise both to maintain differentials and to reflect the supposed additional responsibilities borne by the higher level managers.

Say each head of department was on a salary of £60,000 which increased to £63,000. He or she might have been perfectly happy with £60,000 and undoubtedly they planned their personal financial commitments according to the salary they received. Now they have adjusted their plans to reflect the 5% increase. It might have been no pain to have remained at £60,000 throughout, whereas there is undoubted pain in taking a pay cut of £3,000 a year even when you are on a decent whack. But, of course, the heads of department will still be in place when the non-jobsworths have gone. Either they will have their salaries reduced - a difficult task when the civil service is as heavily Unionised as it is and an even more difficult task because they have the contractual right to receive the salaries that have already been agreed - or their salaries remain in place and the "wasted" additional £3,000 must be clawed back elsewhere.

Then there is office space. In some circumstances an expanded workforce can be housed in existing premises but very often a substantial increase in numbers requires an annex to be rented or bought or the wholesale removal of a department from one building to another. Acquiring and disposing of commercial premises costs money - agents' fees, surveyors' fees, legal fees. Some public bodies have the expertise in house to do some of this work without incurring any out of pocket expenses but most out-source the work so that any problem encountered later can be laid at the door of the external surveyor/solicitor's insurance policy. These fees represent a small annual outlay if spread over the expected lifetime of the new building but they are still additional costs which must be added to the additional costs associated with operating a larger building. On paring-back the workforce you could scale-down your office accommodation but that is also an expensive operation.

Let's take a simple example. Bogshire County Council hires climate change diversity five-a-day outreach empathisers (plus administrative support staff) to work in each department of the council. Their salaries come to £1million a year, acquiring additional office accommodation incurs fees of £40,000, fit-out costs of £100,000 and the extra annual cost of that office accommodation is £50,000. Bogshire can sack the lot and (subject to one-off redundancy payments) save £1million a year. It can't get back the £140,000 it spent on fees and refurbishment and it can't save anything substantial on annual office costs without either selling in a falling market or surrendering the lease on the best terms it can negotiate and then re-acquiring smaller accommodation with all the one-off costs that entails. In order to return to the position it was in before expanding its expenditure beyond affordable levels it would have to eat into the things it was doing before. Assuming there were no non-jobs, useful people doing useful things will have to go or take salary reductions simply to undo the damage caused by hiring useless wasters to do nothing.

Countless further examples can be given of the long-term cost of correcting a structural over-spend. It is a far more expensive exercise than merely getting rid of unnecessary employees.

The hipless 3,000 - a step in the right direction

The decision to scrap HIPs (home information packs) has caused no discernible howls of protest. There was always something fundamentally absurd about HIPs, although in one respect they were a reasonable idea.

When someone is deciding whether to buy a house or flat he will want to know various things about the property. Obviously he will need to be assured that the vendor has the right to sell it and he will need to know whether it is freehold or leasehold and, if the latter, the terms of the lease. He might also want to know something about the condition of the property and whether any recent work done to it complied with Building Regulations, but he might not. A HIP had to contain information on all these things together with a report on how "energy-efficient" the property is. Energy efficiency certificates will still be required as a matter of EU law, it is the other stuff that is no longer compulsory. Like so many elements of the interfering nanny State, failure to provide a HIP could result in a fixed penalty notice being issued to the defaulting vendor.

The problem with requiring the vendor to supply all that other information up-front is that any prospective purchaser will have to check some of it for himself anyway and might not be interested in the rest. No purchaser in his right mind will buy a property without being satisfied from his own enquiries about exactly what he is buying and that the purchaser has the right to sell it. No sane solicitor or licensed conveyancer acting for a prospective purchaser will rely on documents produced by the vendor as evidence of the right to sell, he will undertake his own search at the Land Registry - in fact this is done online and takes only moments. A conveyancer will also undertake his own searches of relevant local authority registers to ensure there is no risk to his client from such matters as threatened compulsory purchase or breaches by the existing owner of Building Regulations. Although the vendor's HIP will almost certainly tell the truth about these things, a conveyancer who does not undertake these simple searches himself would be liable to a claim from his client if a problem later emerged. Requiring the vendor to undertake these searches and disclose the results simply results in the same work being done twice.

So far as the condition of the property is concerned, a purchaser who wants to know something can ask. If the vendor refuses to answer his question he will, no doubt, walk away from the negotiation. But not all purchasers are interested in the property's condition because many plan to make changes once they move in and the current condition is pretty much irrelevant. Requiring the vendor to volunteer irrelevant information is a pure waste of time and requiring him to volunteer relevant information achieves nothing other than a possible speeding of the sale process by a day or two. In fact many conveyancers have followed the pre-HIP practice of making specific requests for information their clients want to know whether or not it was included in the HIP. They formed the view that it is better to have a specific answer to a specific question, so HIPs resulted in duplicated work again.

The one, limited, way in which HIPs are a good idea is in relation to properties with a problem (perhaps a new gas appliance was installed but not certified y a competent person or there is a proposal to build a sewage works behind the rear garden wall). It does happen that purchasers are interested in a property only to discover a problem later and back out after they have incurred time and cost; alerting them to such a sticking-point would prevent them even making an offer. Although this happens it is not common and is hardly a good reason for requiring all vendors to spend money on a HIP for fear of a fixed penalty.

It has been said by the Director General of the Association of Home Information Pack Providers (AHIPP) that 3,000 jobs will be lost and 10,000 will be affected (I presume he meant affected for the worse). I find that comment interesting in several respects.

First it is interesting that AHIPP exists at all.

Secondly, HIPs will still exist for those who want them. Any vendor who thinks it is a good idea to provide a HIP can still do so, yet AHIPP says 3,000 jobs will be lost. I infer from this that he knows most vendors will not want to provide a HIP and most potential purchasers will not be deterred by the absence of a HIP. If ever you want proof that HIPs are a piece of pointless bureaucracy, the Director General has provided it.

Thirdly, the lost jobs will be lost because they should never have been created in the first place. I have commented before on the cruelty of creating non-jobs. In that piece I discussed the public sector but the same point applies to the hipless 3,000. They entered this field of work in good faith because they were told it was important work of benefit to the country, no doubt many saw it as a stable job and a step-up from what they did before. As it is they will be out of work because there is no real demand for what they did. Time will tell what they find to do instead but I have no doubt many will end up worse off than if they had never entered the field in the first place.

Fourthly, I wonder how many ministers from the last government will condemn this as "taking money out of the economy" or will say it should not be done now because it will "threaten the recovery". Not many, I'd wager, because the jobs are in the private sector and only the State matters to them.

What I find of most interest is not the reaction of AHIPP but the fact, for fact it is, that there will be no outcry over this. Indeed there will be widespread relief that an unnecessary burden has been lifted. It is Step One on a very long walk.

Why the NHS can never work

Whenever I hear debates about the NHS I am struck by something that is usually not said far more than by anything that is. The point rarely made is that you can fund health care through taxation without the delivery of the service being run by the State. In fact taxation funds all sorts of activities without having a direct hand in their provision, for example the payment of benefits allows people to buy food from supermarkets not from a State shop. The problem with the NHS, and the reason it is riddled with inefficiency and bureaucracy, is nothing to do with being funded out of taxation it is directly and necessarily a consequence of being under the political control of government.

One noticeable feature of the public sector is that dismissal for failing to do a job properly is reserved almost exclusively for the lowliest employees. There are notable exception such as the dreadful old bint who was squeezed out of her job at the head of a council's social services department as a result of the failings in the Baby P case, but her resignation/dismissal was more the consequence of public outcry than the imposition of a sanction by her employers. This, I am sure, is a consequence of the people at the top - the government ministers - being practically immune from sanction no matter what failings occur in their departments.

In the private sector there are consequences for not delivering a proper service and for wasting money on unnecessary fripperies. The directors of a company are accountable to the shareholders, the managers to the directors and the shop floor workers to the managers; the role of each is spelled out by their contracts of employment and failure to honour those terms can lead, ultimately, to dismissal. No NHS hospital manager seems to lose their job when wards are beset by MRSA and patients are left in their own soil. Were such things to occur in a private hospital heads would roll.

Tellingly, "superbug" infections are virtually unknown in private hospitals. In part this can be explained by the risk to managers' jobs were they to allow such conditions to prevail, but it is also the result of two other factors. First, the continued existence of the hospital depends on being able to attract customers. This means that hospital acquired infections not only put individual managers at risk they put the whole business at risk. Against that background it is no more surprising to find private hospitals to be clean than it is to find clean glasses being put in front of diners in a restaurant before their wine is served. Secondly, the business of a private hospital is built from the bottom up not the top down. Providing what the customer demands is a prerequisite not just to the business continuing but to it getting off the ground in the first place. This creates an ethos of offering a proper service first and restricting your administrative structure to the minimum necessary to run that service.

In all this, the till is the measure of whether an adequate service is being provided. Customers only pay if they get what they want at a price they can afford. If they do receive that, they pay and the bell on the till goes ding. Money is just the measurement used, however, it is not the judge of whether the hospital is doing things properly. The judge is the customer. What happens to his money is the evidence of his judgment. It might go into the till of hospital A or hospital B or hospital C, just as it might go into the till of Tesco or Sainsburys or Morrisons or some other supermarket. These supermarket giants succeed in business because they react to what the customers want and offer the best produce they can at the lowest price they can manage. The directors of these companies run their businesses by looking only at what is good for the businesses themselves and that is determined by what is best for the customers. There is no such thing as what is best for the directors there is only what is best for the customers, the directors might receive tasty bonuses when profits are made but that can happen only as a consequence of the customers' decision to shop at one rather than the other.

This fundamental difference between the public and private sector is only part of the reason why the provision of medical services cannot function efficiently as a top-down operation. The other important factor is that politicians will always see the NHS as something that can be used to their political advantage as well as being a means of providing medical services. The service can be brilliant but that will garner no extra votes unless the little people share the view that it is brilliant. More relevantly, the service can get worse or stay the same or improve only a tiny bit yet votes will flow from the little people believing it is better than it is.

There have been countless instances over the last thirteen years of the government launching expensive NHS initiatives and telling us they have been a massive success. It started with waiting times for treatment. Some treatments were provided instantly, others took time. Of course no one wants to wait if they need medical treatment but some waiting is inevitable because there are not endless resources. The result was diktats from above about waiting times with the continued funding of hospital departments being dependent on meeting the waiting time targets. The consequences were obvious. Waiting times in the problem fields fell by a combination of: (i) taking resources from a field in which people were not having to wait (so that they then did have to wait) and pumping them into the problem area and (ii) cheating by having doctors and nurses say hello to someone as they were approaching the maximum waiting time just so that it could be said they had been seen by a medical professional before the deadline.

There was another result, one just as obvious but much more expensive. In order to know whether the waiting time targets were met a whole new layer of bureaucracy had to be created and paid for. That layer exists purely for the benefit of the government. It exists so that statistics can be gathered, edited, massaged and falsified to provide the pre-determined result: "the government has improved health care". In fact it also creates a second unnecessary and expensive layer of bureaucracy at hospital level. Not only do they have to collect statistics for the government's number-crunchers to play with, they have to crunch their own numbers in order to preserve their funding for the following year. Bureaucracy costs money, money that could otherwise have been used to provide more hospital beds and more equipment. Remember, though, there are no votes in more beds and equipment, votes come only from the perceptions of potential voters. The process is an ever-more expensive spiral of unnecessary costs because you cannot stop after one initiative, the voter is a fickle being and requires constant persuasion.

Because politicians see the NHS as a way of gaining votes they cannot stop interfering, new initiatives are brought into effect before it has been possible to assess whether the previous initiative has been beneficial. The injection of additional funds is also accompanied by the need for additional statistics to show this new money has produced an improvement - not to measure whether there has been improvement but to show improvement. For the politicians it is utterly irrelevant whether an earlier change has improved the service provided to patients, what matters is whether it is beneficial to them, so they can abandon the last change at will or retain it and introduce another simply to get votes.

For so long as the NHS is under political control we will see the same thing happening. Every year it will become more expensive as more vote-seeking initiatives are added to the list and more pen-pushers are needed to keep track of what is happening. The provision of medical services will be guided to an ever greater extent by what the politicians think might be good for them with twisted statistics justifying their every move. And still superbugs will kill in NHS hospitals and be virtually unknown in the private sector.

We must shed the public sector of pointless managers

When I read a headline proclaiming an impending strike by civil servants I had no idea what it was all about. On reading the article I discovered it is all about redundancy pay. My chubby little heart was lifted by reading that five of the six trade unions representing civil servants had agreed to a change to the redundancy pay scale and only one was holding out against the plan. Under the new proposal civil servants will be entitled to far more than the statutory minimum, albeit less than their previous contractual entitlement. It looks like most of the unions have recognised the reality of an empty governmental purse.

It might be a different matter once the need to reduce government spending substantially becomes policy rather than a plan for some undefined time in the future. There are all sorts of ways one can look at the figures. I prefer a simple approach to match my lack of depth. Government spending, c£600billion; government income c£450billion; answer = reduce spending by c£150billion. There, nice and simple.

I doubt that anyone sees throwing people out of work as a good in itself save, perhaps, when the people concerned are politicians. Some of us are very keen to see every five-a-day advisor, carbon footprint assessor and street football consultants to be out of a job, but it has nothing to do with wanting to see the individuals on the dole. Instead it is all about the jobs they do. They are non-jobs, they suck money from the productive side of the economy and deliver nothing of value; they represent spending for the sake of spending. The need for redundancies is far from clear, however.

The public sector has a large turnover of staff each year. One way to reduce staffing costs without sacking anyone is to use staff currently in non-jobs to fill vacancies as they arise in the parts of the public sector which actually do something useful. This will take careful and sensitive management but there is no reason in principle why an administrative assistant in a five-a-day advisory department could not use their skills in a court office or a hospital office or a tax office when an existing member of staff leaves. Of course it is unlikely that a satisfactory position can be found for everyone working in the non-value-added areas of the government machine, but there is no reason to believe that vast numbers cannot be transferred happily from one department to another. After all, if someone leaves a court office to take a job in the private sector they are simply transferring their skills from one work place to another; there is no difference in principle between that happening and someone else moving from one government office to another.

The "natural wastage" that arises every year through retirement and resignation does not always require new people to be brought into the fold. Identifying the areas of the public sector that are mere political fripperies allows the people currently employed there to be available to fill other vacancies.

That is not to say there will not be an adverse consequence on overall levels of employment. By definition, abolishing one role and using the person who filled that role to fill a vacancy elsewhere that would otherwise have been filled by taking someone off the dole leads to one fewer person being employed overall. But given the need to save £150billion (on my simple figures) the overall number of state employees will have to fall considerably.

Transferability of state employees is almost certainly easiest where the job is not technical, particularly where it is purely administrative. The greatest risk of redundancy is probably not in the paper-pushing side of things but in wholly unnecessary management roles. The management of departments often requires knowledge and skills that are particular to that department and are not easily transferable. Where the department is a waste of space the manager cannot expect to find another position in the civil service as easily as his secretary and the army of people who deal with mundane paperwork. The time has come, however, when the pointlessness of their department must be acknowledged and they will go the way of countless people in the past who had skills and knowledge that was no longer of any use. If they can be used elsewhere, so be it. If they cannot then it must be "thank you and goodbye". I hate to think how many people are employed in these positions at salaries of £40,000 and above (plus pension, plus car plus this plus that). A huge saving is possible if only someone finds the guts to say "sorry, your job achieves nothing".

It is worth noting that almost all non-jobs have always been non-jobs. I am not talking about the modern day equivalent of the brick maker whose skills were made redundant by mechanisation of the brick-making process. I am talking about the man with the flag walking in front of early cars to warn people that a motor vehicle was approaching. That was a non-job, created out of an abundance of caution about a risk that never existed. So it is with every public sector job concerning so-called "climate change" or haranguing people about what they should or should not consume, and so it is also with the countless talking-shop Quangos including those with "Regional Development" in their title.

Such of their staff who have skills useful elsewhere should be redeployed. It will save money without causing them to lose a day's pay. A big saving will be made by disposing of the highly paid but utterly pointless managers.

I did a rough calculation earlier today. It concerned a local shop that is suffering badly despite being run extremely well. There are two owners who both work there, three other full-time staff and five part-timers. Assuming all the employees are on £7 an hour and the owners draw £30,000 each (if takings permit that much), the income tax and National Insurance produced by that business in a year is roughly £25,000. Five full-time and three part-time workers work all year to pay the cost of half a senior climate change manager.

If the unions oppose such redundancies they should be shot.

When is a budget not a budget?

On Thursday I bemoaned the government's idea of putting Windy Miller in charge of electricity generation, today I want to discuss another aspect of their exciting "low carbon" plan. The Secretary of State for Energy and Climate Change announced that every government department now has a "carbon budget" as well as one dealing with pounds and pence. He said it was part of the scheme of "legally binding carbon budgets" announced by the Chancellor of the Exchequer earlier this year. The use of the term "budget" is a complete nonsense. What he means is that every government department will be set targets. That is not a budget any more than setting a target for the number of exam passes to be attained by schools is an "examination budget" or the number of arrests made by the police is an "arrest budget". But that is only the start of the absurdity.

Let's just stop for a moment and try to absorb the concept of government departments having "legally binding" targets of any kind. What are the consequences of the target not being met? It's easy to see what "legally binding" means in the real world, it means that the law requires you to do or refrain from doing something and will impose a penalty if you breach that requirement. We have things called courts which enforce legally binding obligations and administer penalties to those who fail in their legal duties. How can that apply to the failure of a government department to meet a target for reducing the production of carbon dioxide resulting from, say, the manufacture of giant windmills? What penalty can be imposed, and who will impose it? Will the department's funding be reduced next year if it fails to meet this year's target? Of course not. Will a fine be imposed or the minister and senior civil servants face prosecution and imprisonment? Of course not. These are just targets.

At the moment they seem to be only internal targets for government departments themselves. As such they are nothing but a massively expensive exercise in navel gazing. Some of it is already in place. NHS trusts and local councils have departments dedicated to reducing their employers' "carbon footprint". Lightbulbs that produce the amount of light everyone is accustomed to are replaced by fat curly lightbulbs that don't. The officially mandated guilt associated with the use of electricity and gas is assuaged by spending taxpayers' money on planting trees in Africa. Trees that would have been planted anyway at a fraction of the cost because they provide a crop. Instead we pay not just for the crop but also for the kick-backs to local "worthies". Lowly council employees are told they cannot have a parking space at work because driving is naughty, while the big wigs retain their chauffeurs. Advisors and consultants are made available to local businesses to tell them how they can reduce their emissions. Reams of paper are shuffled back and forth, miles are clocked-up and expenses incurred in order to meet current targets. None of it will make the slightest bit of difference to anything. Absolutely no difference at all.

Real businesses, businesses that make things and generate the wealth that is taxed to pay for the paper-pushers, don't employ "carbon footprint advisors" unless they think there is something in it for them. They know that there is only one measure that matters, pounds and pence. Employing symbolic greenies can be profitable if your business depends on custom from naive, tree-hugging tofu-knitters. But if you are making nuts, bolts and washers your customers are concerned with only price and quality. If you can make the same things at the same or a lower price by adopting a process that emits less carbon dioxide you might choose to follow that path. I defy you, however, to find a government-employed greenie advisor who has the expertise required to find a way for manufacturing businesses to do so. After all, what can these people know about the technical aspects of manufacturing industry? If they knew that stuff they wouldn't be employed as greenie advisors, they would have real jobs in their field of expertise.

None of this will stop some of them coming up with grandiose plans. And none of it will stop most of their "work" being fiddling at the edges to find utterly minuscule savings in carbon dioxide emissions at a cost far out of proportion to any benefit even the most ardent greenie could identify.

It's bad enough that money will be wasted on the fiddling at the edges, far more worrying is the thought of grandiose plans. Grandiose plans make good politics. For as long as it is thought there are votes in greenieness, governments will divert money from sensible stuff because nothing is a better use of our money than buying our votes.

Lying behind all this wibble is the ludicrous concept of measuring in "carbons dioxides". It is a meaningless measure because it cannot be compared to anything else and it has no utility as a measure in itself. The mile is a useful measure because it allows us to judge how long it will take to travel from A to B and, during our journey, it tells what proportion of the trip has expired. The pound is a useful measure because it allows us to judge whether a particular item of paid work is worth doing and whether it is worth buying a particular thing. Measuring carbon dioxide emissions is pointless because there is nothing to compare it to and of itself it means nothing to say "my new car emits 50 grammes of carbon dioxide per kilometre whereas my old one emitted 150". So what? What difference does that make to anything? No one can identify the difference it will make because it is so small as to be irrelevant to anything.

In fact it can be compared to itself. We can assess, but not measure, how much carbon dioxide we produce this year compared to last year. In doing so we will find that anything we do as individuals is very small because most emissions are unavoidable by individual activity - they come from industry (yes, that industry, the one that lights and heats our homes and provides us with employment). But even that comparison is pointless because the whole man-made global warming circus revolves around worldwide emissions of carbon dioxide, not just the 1.6% or so from this country.

So, what does a departmental "carbon budget" actually amount to? If anyone thinks it will result in substantial reductions in UK carbon dioxide emissions, I fear they are deluded. The likelihood is that there will be a little trimming at the edges and it will cost a huge amount of money.

Just like the windmills. A futile and unaffordable farce.

Whistling in the wind

It is hard to know where to start when discussing the government's new "low-carbon" energy plan, it is so full of internal contradictions and downright nonsense. But I have to pick somewhere so I'll start with the presumption that the world is warming. This ties in nicely with the announcement made last week that some international talking-shop or another is determined to keep global warming to a maximum of 2 degrees Celsius above the level of some time around 1750. There's a bit of slack built in already, the earth has political permission to get warmer provided it doesn't get too warm. So from that starting point my initial observation is that a bit of warming should reduce energy consumption because there will be less of a need to heat our homes and workplaces during the chilly months. There, we have reduced our "carbon footprint" already and it hasn't cost a bean.

Where do we go from there? I know, let's see how they plan to generate electricity without producing carbon dioxide. The headline measure is windmills. I am not sure whether these are the same windmills to which they committed £100billion just a few months ago but I presume they are. The intention is to build about 7,000 new windmills by 2020. I've got news for them. It's 2009 already so they only have ten years and five months, 125 months. So that's 56 windmills per month or the best part of two a day every day for more than ten years. Are we really expected to believe that this will happen? Given enough people, materials and money any number of anything can be built pretty quickly, but even so this task strikes me as impracticable.

And what if it does happen? That's where the real fun and games arise. Windmills can only produce electricity when the wind is blowing. When it is not blowing they often have to be kept turning to prevent the blades buckling in the sun (because the size of the things means the three blades will catch unequal amounts of energy from the sun and will buckle unless they are rotated to keep exposure roughly equal). So they will need to take electricity from the grid when they need to be rotated and there is insufficient wind to perform the task.

When the wind is turning the blades electricity will be generated but at present there is no efficient way of storing that juice, it can be fed into the grid and a coal/gas/nuclear plant can be turned down or it can be drained away to earth if there is no call for it. Yet the wind can stop just as quickly as it starts, so there must always be conventional back-up generators to fill the void. Some of these can be turned on and off reasonably quickly but they use a lot more fuel that way compared to running pretty much constantly. Any saving of fossil fuel use through having windy electricity being fed into the grid is ameliorated by the additional fuel consumption and wear-and-tear of the conventional plants. And there is always a bottom line. The bottom line is that we must maintain sufficient conventional generating capacity to provide all our needs because it can never be known how much will come from the windmills.

Coal-fired generators are included in the plan. The government has kindly agreed to allow these provided they are fitted with mechanisms to capture a lot of the carbon dioxide they produce before it floats into the air. What a splendid idea. Or it would be if such mechanisms existed. Some are being trialled at the moment but they are a long way from being usable on a large scale. And all of them require power which means more fuel must be used to generate the same amount of electricity.

So, the plan is to construct an unattainable number of windmills at an unaffordable cost in order to provide an unreliable supply, whilst maintaining conventional generating capacity but not using it efficiently and making it less fuel-efficient when it is used.

Only central planning can come up with such a scheme.

Technological advances might well find ways of storing spare electricity, I would certainly expect that to happen because history shows engineers to be able to find solutions to such problems. Yet no one can say when a solution will be found and there is certainly no guarantee that it will be before 2020. As and when it does happen, windmills might have a serious part to play but even then they can only generate so much power, we are a very long way from windmills being able to make more than a marginal contribution to our electricity needs.

So why is this ridiculous plan being put forward? Ostensibly it is because of fears of catastrophic global warming. Did you spot the adjective I slipped in there? Catastrophic. A bit of warming or a bit of cooling is neither here nor there, even the doomiest of doom-mongers don't argue that small changes will be harmful to anyone other than those who like the cold. You might think that before embarking on a hugely expensive and inefficient exercise the government would take a look at whether the evidence of risk justifies the expense. Those who believe in the catastrophic man-made global warming scenario argue that current evidence of no measured increase in actual average temperatures over the last decade does not undermine their hypothesis. Those who don't believe in it cite the last decade as strong evidence that the hypothesis is incorrect. For the purposes of what I have to say today it really doesn't matter which, if either, of those sides is correct. The simple fact is that the government did not re-assess the evidence before launching the new plan. To say the least, their approach is slipshod.

A further aspect of the plan is worth mentioning. It seems that they want to compel people to utilise energy-saving measures in their homes and work places. We already see this in the current Building Regulations that require a newly-built property to meet strict energy efficiency targets before the work will be certified and the property becomes marketable. Usually these targets can only be met by the installation of cavity-wall insulation or the use of insulating boarding on internal walls, in either case combined with double-glazed windows. It seems likely that they will extend the Building Regulations to ensure that double-glazing and wall insulation have to be added even where work of a non-structural nature is undertaken.

There is a precedent for this in the regulations about noise insulation between flats. Originally noise insulating flooring (which is nothing more than inch-thick chipboard with a layer of hard rubber) had to be fitted only when a new block of flats was being built. Then they extended it to conversions of single dwellings into one or more flats, and now the installation of nothing more than a new bathroom is viewed by some Councils' Building Control departments as triggering the need to replace all flooring so as to provide effective sound insulation between one flat and the flat below. I expect the same creeping process to apply to double glazing and the insulation of walls.

The reason I mention this is that the cost of the work is almost always far in excess of the saving in heating bills. Decent quality double-glazing of a modest home can easily cost between four and five thousand pounds whilst saving only a few pounds a year in heating costs. Wall insulation might only set you back a thousand or two (including the cost of redecoration) while also saving very little. Say these measures save £150 a year, itself somewhat unlikely for a modest property even with electricity and gas costing what they do today, it would take almost thirty years to recoup insulating costs of £4,000. Maybe the windows and wall insulation will last that long or maybe they won't, no one can tell. What we can tell is that people will be forced to fork-out a lot of money on a pure gamble whether they will ever get a benefit from it.

At every stage of this plan one thing is clear. The costs are enormous whilst the benefits are purely speculative. Actually, one other thing is clear. Even if catastrophe will strike through substantial further emissions of carbon dioxide, those emissions will happen anyway. Nibbling-away at the 2% or so of global emissions originating from the UK is utterly futile while China and India today, and Brasil, Mexico, South Africa and others tomorrow, use coal to provide them with energy to give them a small leg-up in their attempt to match the standard of living we currently enjoy.

The whole thing is a futile and unaffordable farce.

Old-age care

I am in a state of shock. The government has got something right. They have initiated a debate about how care for the elderly should be funded. At the moment those with assets have to pay for residential or nursing care and must sell their home (or one of their homes if they were once Members of Parliament) if it is the only way to raise the cash.

The present system lays bare a fundamental issue. Who is responsible for my well-being, me or the State? If, as I believe, it is me then I should pay for any care I need in my dotage just as I pay for my miserable existence today. If that means there is less in my estate when I fall off the twig, so be it. My estate comprises my assets and it is hard to see why others without such assets (or, indeed, those with greater assets) should pay for my needs when I can pay for them myself.

But then those with no realisable assets get care for nothing, so why should I not receive the same value of care as them out of taxation and only pay for any additional services I might desire?

The simple fact is that there is an equally strong case for (i) those with assets paying for their care and (ii) everyone receiving a minimum standard regardless of assets. Neither position can be said to be plainly right and neither is plainly wrong. Where difficulty arises is in frustrated intentions. Mr & Mrs Ordinary who scrimped together the deposit for a small house and worked hard to pay-off the mortgage did not do so just for the fun of it. They did so to provide themselves with secure housing throughout their lives and so that they could pass something on to their children. It is politically unpalatable that the asset they have taken thirty or more years to acquire should be paid over to the State in return for nothing more than the same old-age care received without additional cost by those who liquidated their wages into the latrine at the Dog & Duck every Saturday night.

As with so many problems that arise in relation to health care, the solution comes sixty years too late and at far greater cost than it should. The NHS was intended by its architect, William Beveridge, to be based on insurance with premiums reviewed annually to ensure sufficient was being put into the pot to provide not just for current expenditure but also to build a reserve. An insurance company that raises only enough in premiums to pay administrative costs and likely one-year expenditure would soon go to the wall because the very nature of the business is that the risks being insured are variable. In the real world governments who inherit a pot of cash raid it if they can to pay for their pet projects with a view to winning future votes. No substantial reserve pot was ever created, instead the NHS, including old-age care, was treated as a call on current tax receipts year-by-year.

And so we are where we are. The new government initiative finally grasps the nettle by realising there are three ways in which old-age care can be provided by the NHS. Each presupposes a basic level of care available to all without charge, the debate is about how a level of care above the basic level should be funded. One option is to simply leave it to individuals to pay as and when they wish for some optional extras. The second is to apply a levy of around £20,000 at retirement age on all those who can afford to pay it (no doubt operating by way of a lump-sum confiscation from private pension plans). The third is to establish an insurance system into which people can pay over time to receive care later. The first two concentrate on those who are at or near retirement age, the third makes most sense if applied throughout a working life.

Criticism from the Opposition that the government should not be launching a discussion document but putting forward a firm proposal is unpersuasive. The three options all have their merits and need to be reflected upon and thought through. It is churlish to criticise a government that has too often launched hasty and ill-considered initiatives when for once it has done the sensible thing and shown willingness to engage in debate on a difficult and important topic.

I find this issue fascinating because it links into themes I have waffled about over the months. One of my themes is that too many people live beyond their means and by doing so store-up problems for the future. We are witnessing an intense example of that at present as many of those who borrowed against fictitious equity in their homes to enjoy temporary frivolities are now paying a very dear price. We see it in a different way in the enormous levels of government debt which, in some quarters, is causing long-needed focus on what government can really afford to do. And we see it too in the inadequacy of funding for pensions in both the private and public sectors. In all these areas current spending by both individuals and government has had priority over saving to pay for future costs. Isolating old-age care as an issue should help to illustrate that it is a normal incident of life and is so expensive that it needs to be saved for, just like a decent pension.

Perhaps someone has prepared figures about what proportion of our incomes we should all save throughout our working lives to cover future contingencies like pensions and old-age care, I know not. At a rough guess I would say ten percent for a pension and maybe two or three percent for care. In a way it doesn't matter whether that saving takes place individually, through an employer-run scheme, through an insurance company or through taxation. What does matter is that a pot of money is built up and kept safe specifically for these areas of future expenditure. In practice that rules out taxation because no government can be trusted to leave the pot unraided. It might also rule out insurance companies because their huge assets always make an avaricious Chancellor of the Exchequer salivate like a vicar in the choirboys' changing room.

The difficulty is in ensuring that voluntary top-ups remain just that. It would be easy for a future government to say that the NHS will fund care only for those who have not made their own provision, particularly if insurance becomes the norm. That cannot happen for many years and should not be the focus of attention today. What should be the focus of attention is the necessary shift in attitudes away from "the State will provide" to "the State will provide a basic safety net, anything else is down to me".

Health and education, think fruit and veg

All enterprises operate according to the pressures they face. If you have a market stall selling fruit and veg you have to buy produce and sell it for a profit or you pack up and find something else to do. The pressures on such a business are almost all about profit. What are the overheads? How much does stock cost? How must wastage is involved? At what price can the stock be sold? Wastage involves a number of factors some of which are imposed by law. If you sell produce of unsatisfactory quality your customer can claim redress and your reputation might suffer. If you sell produce that is unfit for human consumption you might face prosecution. The law imposes a quality threshold and it dictates the minimum you should pay any staff you employ, but apart from that everything is about making a margin between buying price and selling price. The position is essentially the same for every business in the private sector. There are certain legal constraints on what you can do but apart from that you either create a sufficient profit to make it worthwhile or you close.

Privately-funded education thrived for generations without government targets and league tables. Not all schools in the private sector survived. Those who couldn't make the grade had to close and others arose in their place where there was perceived to be unfulfilled demand that could be met at an affordable price. So also with privately-funded hospitals. If they were not delivering a service people were prepared to pay for they would go to the wall.

One freedom the private sector has is to reject potential customers who cannot afford the fees or who would cause trouble. That does not apply in the public sector for so long as there is a legal right to medical treatment and a legal obligation on parents to send their children to school. But leaving these special factors to one side there is a particular pressure on state schools and medical services that the private sector does not have, and that is political interference.

If the government is running schools and hospitals it knows that problems can cost votes, so it feels the need to be seen to be acting to anticipate difficulties that might arise and correct those that have arisen. This is why we have countless initiatives being forced on teachers and medical staff, often before the previous initiative in the same area has taken full effect. The emphasis is on what's good for the politicians rather than on delivering the best possible service at ground level. And with every change comes a stream of paper going through numerous layers of bureaucracy, it flows down from the top and then another stream of paper heads in the opposite direction in order to report back on how the initiative has operated.

Contrast this to the position in the private sector in which the overriding need is to keep administrative costs to a minimum so that the best possible service can be provided for the lowest possible price. Of course they have quality controls but these are the responsibility of the hospital general manager and the head teacher who knows that failure means the possible loss of his job and collapse of the whole business.

A further contrast is that there is no pressure for uniformity in the private sector. To my mind this is one of the most costly, damaging and misguided aspects of state provision. There is no more a single correct way to provide medical care or to teach than there is a single correct way to bowl a cricket ball or butter a slice of bread. Seeking uniformity of practice stifles the sort of initiative that leads to improved practices. Seeking uniformity of outcome is simply absurd. There is no logical basis for saying that, for example, lung cancer recovery rates should be roughly the same all over the country or that resources in every hospital should be allocated so as to ensure that no patient has to wait longer than an arbitrary target time before being seen by a consultant. The former ignores inevitable regional differences in lifestyle and the latter is both administratively expensive and hugely wasteful as other work is put on ice in order to meet the target.

What is often overlooked when state provision of services is discussed is that the political pressure to fiddle with everything is both inevitable and entirely reasonable. No government can afford to sit back and say "we are not seeking to improve things" without risking its political future. Part of the reason for this is an apparently widespread belief that the government can effect improvements. I have grave doubts about this but then it really depends on how you define improvement. Can they change things to create an impression that an identified problem has been alleviated in the short-term? Yes, of course they can. But at what cost to other aspects of the service? Take a few million out of the budget to pay for a new gimmick and you might buy a good headline but that money has to be taken from another part of the system; there is no way of knowing whether the perceived solution to one problem is a price worth paying unless you can measure and compare the detriment suffered elsewhere.

I do not see how political interference can be avoided for so long as the government has direct responsibility for running things. This applies not just to schools and hospitals but to every other service it provides, but it is seen most keenly in the electoral battleground of the three Rs - reading writing and rheumatism. Remove direct political control and you remove the massively expensive need (for, in reality, it is a need) to fiddle with the system and monitor every aspect of it from on high.

Are health and education too important to be left to local decision-making by individual schools and hospitals? It is often asserted that they are, but I cannot see them as more important than providing food. Yet no one seems to be suggesting that Tesco should be nationalised because making sure we have affordable food is too important to be left to the private sector. And who would trust the government to run supermarkets? Stand for election on a platform of establishing the National Grocery Service and see where it gets you. Education and medical services are no more natural monopolies than are the sale of food and drink. Of course it is unrealistic to seek to run so many competing hospitals that there is not enough custom to allow any of them to receive the income it needs, but the same can be said of theatres, professional football clubs, hairdressers, solicitors, accountants, plumbers, architects and every other service business.

The best services are those providing good quality for an affordable price. Quality is maintained in the private sector by the need to be good in order to attract custom. The customer is a far better judge of quality than a government minister or any number of civil servants. Of course there are lapses in the private sector and failure to maintain proper quality can cause great harm before the customer base learns about it and votes with its wallet, yet state control does not prevent mistakes being made. Indeed we hear a lot about "superbug" infections and expensive lawsuits over negligent medical practice in the state-run system but few if any such stories about privately-funded medicine.

Bureaucracy is kept to a minimum in the private sector by the need to control costs in order to be affordable. Quality does not require bureaucracy but political control does, political control requires vast bureaucracy. And that costs a lot of money. To my mind, it is wasted money because there is no need for the state to run these services. That money could be used better in other ways and the services themselves will be subjected to far more telling and relevant quality controls if they are localised. Parents know if their children's state school is providing a poor service but can do nothing about it at present. Patients and their families know when a state hospital is not clean or is not providing a reasonable level of care but can do nothing about it at present. The inability of the customers to affect the service they pay for with their taxes tells us all we really need to know about the central failure of state services. When have you ever heard of a BUPA hospital not being clean or not keeping dependent patients clean and properly fed? When have you ever heard of a fee-charging school having no one the parents can turn to when their child reports on the inadequacy of Mr Quelch's pedagogic abilities? Maybe you have heard of such things, I know I haven't, yet they are the daily fare of reports about state services.

The whole thing is upside-down at present. Demand for private healthcare and private education has never been higher. How can that be if state control is a workable and effective system? Morale in both the HNS and state education is said to be at a low ebb. How can that be if state control is a workable and effective system? Politicians must be removed from day-to-day involvement in both fields except in two respects. For most people both education and healthcare are only affordable if paid for out of taxation; just as replacing their car if it is stolen is only affordable if paid for out of insurance premiums. Government must still fund the services but it must do so by passing the money directly to the most local possible level and trusting those who run schools and hospitals to use their allotted funds to best advantage. The other part government has to play is, in truth, a responsibility for Parliament rather than government. It is to set the legal framework within which services must be provided. Just as it sets the legal framework for a fruit and veg stallholder. Except in these two respects, politicians should leave things alone because they do far more harm than good.

This, That and The Other: a recipe for cutting state spending

We are seeing some very interesting suggestions about how government spending can be reduced but far too many of them fail to address what I consider to be the central point. The position appears to be that three main factors must be catered for. First there are substantial additional costs to the Exchequer caused by increased benefit payments to those who lose their jobs. Secondly, the money the government has borrowed, is borrowing now and intends to borrow over the next few years must be repaid with interest. And, thirdly, tax revenues are being squeezed by reduced payments in income and corporation taxes as well as Stamp Duty. The other day we read that Treasury officials are preparing briefing papers in which reductions of up to 20% in government spending will be examined. The current government is slowly abandoning its absurd suggestion that spending can be maintained or even expanded beyond current, unaffordable, levels and the opposition are trying to find ways of cutting up to 10% from departmental budgets other than health, education and (I know not why) overseas aid.

This week appears to be Quango week, with both main parties suggesting how they will reduce the cost of committees that undertake tasks delegated by government. So far the approach adopted appears to have been to find cheaper ways of doing what Quangoes do now. There is the same chance of this delivering serious savings as I have of becoming the next Chief Rabbi, and I'd fail the medical. In the next few weeks and months we can expect the debate to move on to other administrative issues with all eyes being focussed on finding better ways to procure paperclips and increasing staff contributions to the tea, coffee and biscuit fund from 25p a day to 27p.

There is no escaping the fact that, if a job is to be done, it must be paid for. Anyone brave enough to take on the public sector unions might try to reduce costs by imposing the sort of wages freezes / wage cuts that many in the private sector must endure if their job is to have any long-term prospect of survival. Such measures could undoubtedly save a nice chunk of cash but it will be a drop in the bucket of overall expenditure. The size of the problem needs something far more radical. The real question is not how government can undertake its present tasks more cheaply, it is whether the country can afford to have the government undertaking all its present tasks. I think there is an easy way to answer this question, which is to see what the current government considered affordable in previous years.

At every budget since Gordon Brown departed from the previous government's spending targets, he announced that things were going jolly well and the country could now afford to spend money on things it could not afford before. Previously it could not afford an extra £X million for This, £Y million for That and £Z million for The Other. Because, and only because, the Treasury was receiving more cash could these sums be spent. Prior to receipt of the additional tax revenues This, That and The Other were not essential they were optional extras. For so long as the money was there (or, to be more exact, appeared to be there) This, That and The Other were affordable luxuries, now that the money isn't there they are non-affordable luxuries. All we have to do is go back through past budgets to see the items Gordon Brown himself identified as being newly affordable. Had they been essential all along they would have been paid for all along and other matters would not have been funded, as it is they were known not to be essential. They remain non-essential today.

It is not enough to look at budgets alone because they don't define exhaustively what government does, they concentrate on how much will be allocated to each area. It is also necessary to ask whether tasks undertaken by government now (a great many of which were not undertaken ten, twenty or fifty years ago) need to be undertaken at all. My hobby horse in this regard is the army of people employed to tell us what not to eat, drink and smoke but there are many more. Why are taxpayers subsidising the cost of staging ballets, playing music to paying audiences and making motion pictures? Why are they paying artists to ply their trade? Why does the government contribute to charities? Why does the government pay for expensive television advertisements for its policies? Why is the government involved in domestic marketing of milk, meat and potatoes? Why is the government spending our money subsidising trade associations rather than leaving it to those who seek to make a profit from trading in a particular product to pay for their own "professional" body? The list can go on and on.

Would ballet disappear from the UK in the absence of taxpayer subsidy? You can bet your pointe shoes it wouldn't. It would go out and find additional sponsors like any other branch of entertainment. Maybe fewer ballets would be staged, maybe more, no one knows, but the number staged would be the number that can be afforded without Mr & Mrs Ordinary who struggle to fund their weekly evening in the pub having to pay for them.

These are all activities which cost not just the money they hand out to third parties but also the on-going expense of the bureaucratic infrastructure necessary to decide who should be the lucky recipients. Inevitably there are also costs involved in following-up to see how the money has been spent. One consequence of deciding that all of these areas of expenditure, and many more, are unaffordable luxuries is that the Quangoes involved will go; but if we just look at the Quango without also addressing the involvement of government in the field at all we can never achieve more than a gentle trim of costs at the edges.

Some Quangoes are capable of being beneficial, such as those that advise on how to address special problems like the current spread of swine flu and those that advise on prospective changes in the civil or criminal law. In relation to these there is one very obvious way to reduce the cost; albeit one that is mere trimming. I have never understood why their members are paid out of taxes to attend meetings. Membership of an ostensibly authoritative national advisory body is a feather in the cap of every person invited to form the panel. They can (and often do) use their membership to further their own careers and/or to secure private-sector consultancy positions. I doubt that many, if any, of them would decline membership if fees for attending were discontinued, not least because the world of academe is highly competitive and Professor Previously-Snubbed would readily step in to fill the breach when Professor Superannuated throws a hissy fit. Cover their out of pocket expenses (receipts required for every penny please), bung them an OBE after five years' service, a CBE for a decade, a chance to kneel at Buckingham Palace in return for chairing the thing for two or more years and Robert is your parent's sibling. It would also reintroduce the concept of public service to membership of these bodies. If no one is prepared to serve without being paid a fee the response should be to ask why, not to offer money. The answer will, I suspect, be that membership carries no prestige because the committee is pointless; all the proof you need that it should simply be scrapped.

On the more general point, reducing the scope of governmental activity will require politicians to give-up powers they currently have. This will require a public mood for getting government out of various aspects of our lives. With any luck the combination of the increasingly unacceptable surveillance state, excessive pointless nannying and the need to cut costs severely will provide that atmosphere. Oh well, you can't stop a fat boy dreaming.

Licensed to fill in forms

The recent announcement that teachers are to be required to be officially licensed seems to me to be yet another initiative which creates more problems than it could ever solve. On this week's Question Time simple Harriet Harman asserted that doctors and lawyers have had a system of continuing professional development (CPD) for years and that the purpose of this initiative is to ensure the standard of teachers is universally high.

I can't talk of doctors, but I certainly can say something about lawyers. It is important to start from the correct position. All lawyers are either self-employed free-lancers or they are employed by a firm or company. If free-lancers are no good they will get little if any work. If employed lawyers are no good they will be sacked. In both fields there will be exceptions - some incompetent free-lancers will get referrals from chums and some hopeless employed lawyers will remain in post; but as a general rule lawyers are like anyone else, if you're no good you need to find another job or a lower level of the same job.

In the real world there are relatively few qualified lawyers who cannot find some position to which they are suited. Plenty of administrative jobs within solicitors' firms, business and the Court Service require a little legal knowledge and are filled very well by those who could never make a go of practice as a solicitor or barrister. And those in practice find their own level over time. Some deal perfectly competently with small cases but struggle with the juicy stuff so they stick to what they can do, do it decently and earn a living. Those who take a position requiring particular skills cannot expect to last long if they lack those skills. After all, that is what happens in business all the time. Someone appears to be competent, is given a job, turns out not to be up to it and is either offered something more suitable or off-loaded before they have been employed long enough to qualify for statutory redundancy pay.

Whether they are comfortable in their current position or struggling, all but the dangerously negligent do their best to keep up to date with recent developments in the law and the procedural rules of the courts. In fact I can take that further, you simply cannot give competent advice without researching the law to see if anything relevant to the case you are working on has changed since you last dealt with that field of law. Practitioners do not keep up to date for fear of professional disciplinary proceedings, they do so because they want to provide a proper service.

Continuing professional education has almost nothing to do with competence in your everyday work. At the time I retired I had to undertake twelve hours of CPD each year in order to get my practicing certificate for the following year. Numerous companies provide lectures, seminars, courses and DVDs through which it is possible to clock-up the necessary hours. It is a requirement to gather the prescribed number of "points" in fields connected to your main areas of work but there is no requirement to do so at any particular time provided you do it by the 31st of December. It was my practice to use the period between Christmas and New Year to watch some DVDs of lectures in areas I found interesting. I won't deny that I learned something from each presentation but I will deny that it made any difference to how I did my work because I had to do individual research for each case even if the subject had been covered by one of the DVDs. A judge asking "has there been any new law on this recently Mr Bigot?" would not be satisfied with the answer "oh yes, My Lord, and I have a very interesting DVD here in which someone talks about it".

I doubt that the introduction of CPD for lawyers has had any significant benefit at all. The extremely good are still extremely good, the good are still good, the competent are still competent and the duffers are still duffers. Frankly, if you don't check for developments in the law each time you give advice you are too dangerous to be let out in public and you are unlikely to be any less dangerous because you attended a half-day seminar six months earlier. It's all a box-ticking exercise, there is no substance to it. Whether you are able to make a living depends on whether you have clients or an employer willing to pay you, not on being able to satisfy a pen-pusher that you have garnered enough "points" to be allowed through for another year.

I fail to see how five-yearly licences for teachers will make much difference to anything. They could provide a way for schools to sack the incompetent, but in such a highly-unionised and state-funded field many a headteacher and board of governors would not want the hassle. If they cannot or do not sack the incompetent now why should it be any different later? The same test will apply and the same obstructions will be in place. Indeed, it could make it even worse because the grant of a licence will, I suspect, make someone unsackable for five years in the absence of gross misconduct. I have no reason to believe it will be anything other than another box-ticking exercise with a vast army of assessors and inspectors being employed to pore over the forms. And what will the system provide for those rare cases when the headteacher says "sorry, Mr Quelch is past it, I don't recommend renewal of his licence"? Being a government scheme I can imagine a body being created to hear appeals which will be a rich fighting ground for the unions.

It shows every sign of being a bureaucrat's delight.

And when will teachers be required to undertake any CPD courses that might be included in this scheme? Let me guess. At the moment children get a day-off from time to time for teachers' "study days", something unheard of just twenty years ago. They won't be giving those up, their unions won't let them. Maybe they will undertake their CPD hours during their ten or more weeks of annual leave. I'm sorry, I have just read that sentence, how foolish of me to write something so fanciful.

Why do governments run a deficit?

I have never understood why governments think it appropriate to owe money year-in and year-out. When exceptional events occur and they borrow to alleviate or avoid adverse effects, such as in times of war, their position is entirely understandable. But I fail to see why they should not place balancing the books at the very top of their list of priorities at all other times. After all, £1billion borrowed at 3% costs £30million which is a lot of paperclips. It is beginning to look as though government borrowing this year might reach £200billion, assuming a 3% rate of interest that is a mouthwatering £6billion in interest in one year alone.

Having said that, if the interest is paid to UK-based lenders it is (apart from relatively insignificant costs) a zero-sum game because the money is taken in tax from the domestic economy and paid back into the domestic economy. Only that part of the interest that goes overseas is a true loss and in that respect government debt is never really as expensive as it might seem. Nonetheless, there is always an overseas element in government borrowing so it does amount to a net drag on the UK economy and even if it is less than the headline figure of total interest payable, it is still money that came from UK taxpayers and ends up outside this country.

Even the element of interest that is paid to UK lenders has its problems because it is taken from everyone and handed to very few. It amounts to a redistribution of wealth which would never be countenanced if it were stated government policy. If only politicians were brave enough to point out to the public that government debt means sending vast sums overseas and giving additional income to UK investors in this country, I suspect government debt would also not be countenanced. At a time when, correctly in my view, the government will not hand-out money to prop-up ailing manufacturing businesses willy-nilly, it is handing-out money to prop-up ailing pension funds and banks - additional money to that which the banks have already received and which has caused outrage in some quarters.

The reasons why they do not balance the books are fairly obvious. They fear political damage from reducing spending and believe there is political profit in spending on pet projects. Somehow the damage done by the cost of borrowing is never brought into the equation. It seems to me that a government of any political hue would be onto a huge vote-winner if it said it was going to eliminate, for example, all official naggers in order to reduce debt and free the interest payments on that debt so that it can be spent on the services people really want or to reduce debt even further. Implementing any additional spending resulting from this in an efficient manner raises other issues but in purely political terms it seems to me that the concept is unassailable.

Balancing the books is one thing, building reserves is a different kettle of ballgame. We are probably decades from the UK government being in a position to build reserves even if it slashes spending vastly. Not only do we have the current borrowings to repay (including those in the pipeline for the next year or two while the effects of the recession work their way through the system) but we also have to face two other major sources of debt. Numerous public spending projects have been funded on the never-never and kept off the books (the so-called PFI arrangements) yet they will have to be paid for in the next few years, and public sector pension liabilities will become an increasing drain as the baby-boom generation retires. I have read all sorts of estimates for the cost of these two elements and have reached the firm conclusion that no one really knows how much is involved save that it will be many billions of pounds a year for many years to come.

These are debts every bit as much as a government bond is debt, they involve a liability to fork-out money now and in the future in return for no future benefit. Just as the benefit from a bond is received once as a lump sum and then payments are made to the bond holder over time without him having to do anything more than he has already done, so the benefit of the new hospital, road or school and the benefit of the public-sector employee's work has already been received and must now be paid for without anything further coming in return.

The current position of UK government finances is utterly dire. The amount that must be paid out in future years to cover the cost of on-going borrowing and the cost of servicing PFI debts and pensions is a one-way street. Not only is it vast, it is also money going out for which nothing will be received in return. If anything requires government to seek to balance the books in the future it is the painful lesson we are now learning about the cost of debt. Let's put this in context. Over the last decade we have seen a huge expansion of government spending on non-essential functions - not only the nannying naggers I complain about regularly, but also the countless advisory bodies funded by government to tell government what it wants to hear and the absurd posturing of every branch of central and local government employing "climate change" advisors and assessors to evaluate what can be done to reduce government's "carbon footprint" and many other peripheral activities that no private sector business would waste a penny on. None of this nonsense can even remotely be described as necessary expenditure, it has been incurred because the government thought it could afford it and thought there was political capital in doing so. Had none of that cost been incurred and the sums involved been put instead in a big biscuit tin under the Prime Minister's bed we would be some way towards having the pot required to pay for on-going pensions liabilities.

This illustrates what balancing the books actually means. It does not mean looking only at one financial year and seeing whether receipts balance outgoings, it also means making provision for future liabilities. Governments of both parties have failed miserably to do this and the price of that failure is going to be felt over the next decade and more. For them to have run deficits while an even greater deficit was building up in the background was, I am sure, the result of decisions being made on purely political grounds. Eventually facts always hit home.

Blank - the bureaucratic default position

Just when we thought the scandal about MPs' expenses and allowances couldn't plumb new depths the Parliamentary authorities released copies of relevant documents but deleted so many details that a lot of the documents provided no relevant information at all. In some cases the whole document was blanked-out, yet still it was released for public consumption. The only real pleasure in this exercise has been the reintroduction of the verb "to redact" to everyday usage, thereby dredging it from its old home in the Chancery Division of the High Court, a home in which it gave many of us enormous pleasure for years.

When challenged about the futility of revealing documents that don't allow a clear examination of whether expenses or allowances were properly claimed, the response from the politicians concerned has been a unified "nothing to do with us guv". In a way they are correct. They assert that the decision to edit receipts and expenses forms was taken by civil servants without guidance or instructions from any of our elected politicians. If this is correct, it is indeed nothing to do with them but only in a narrow sense of them not having taken the decision. In a wider, and I believe more accurate, sense it is everything to do with them because they failed to ensure that the material released would satisfy the purpose of the exercise, namely to allow the little people to assess whether claims for reimbursement were valid.

Taking their narrow point at face value, what has happened is a good indicator of one of the most significant problems with bureaucracy. By definition bureaucracy is concerned with implementing a system and not with whether that system is effective or efficient. It is about following procedures whether or not they make sense and whether or not they deliver a benefit. We have seen this at work in so many fields of the public sector recently.

The Financial Services Authority concerned itself with the procedures followed by banks and other lenders rather than with the substance of the effect of the loans on the whole financial sector. A bank that advanced a large loan to someone with no realistic prospect of being able to service the interest payments let alone repay the capital raised no FSA eyebrows provided the correct forms were used. Hospitals have had to provide streams of statistical material to the Department of Health (or whatever they are calling it this week) rather than spending the resources involved on treating patients or keeping wards clean. Policemen are kept off the streets to fill in forms. And armies of pen-pushers have been employed at taxpayers' expense to shuffle information up and down the hierarchy in every government department. Filling in the form is often more important than what the form contains. After all, the information on the forms can usually be interpreted to say almost anything the government wants it to say. The job of the bureaucrats is, both literally and figuratively, a matter of form rather than substance.

And so it is with the redaction of MPs' receipts and claims. There can be no doubt that some information on these documents should not be released because to do so would compromise the privacy of innocent third parties or because they are simply irrelevant. For example, a document might disclose the home address and telephone number of an MP's secretary as well as showing how much he or she was paid; it is the latter information that matters, the former is usually not only irrelevant but is not something the public has any legitimate right to know. An MP who submits an invoice from a shop containing five items of which only one is claimed as an expense can reasonably expect the other items to be blanked-out because they are none of the public's business. But what happens if redacting an ostensibly irrelevant detail, or one which might be thought to be none of the public's business, results in the document becoming ambiguous or even meaningless? That defeats the whole purpose of the exercise, so a balance has to be struck between the need to ensure the validity of expenses claims can be assessed and the need to keep irrelevant and personal details from prurient gaze. It is not only in the current climate that assessment of the validity of claims must be paramount. For example, where the MP's secretary's address is the same as the MP's address that fact is, on the face of things, a legitimate factor in evaluating the claim for reimbursement because it can cause perfectly fair and reasonable questions to be asked.

Redacting documents requires the exercise of judgment. It requires substance to be placed above form and sometimes involves a difficult balancing exercise between keeping private that which is genuinely private and exposing that which is necessary to be disclosed even though it is private. I am not at all surprised to find that things were done as they were because that is the nature of bureaucracy, it is non-judgmental. The default position is the path of least resistance - arrive at 9am, follow the guidelines slavishly, tea break at 11, follow the guidelines slavishly, lunch between 1 and 2, follow the guidelines slavishly, cup of tea at 3.30, follow the guidelines slavishly, go home at 5pm. Do not think for yourself, do not seek to exercise judgment, push that pen, shuffle that paper, tote that barge, lift that bale, never get a little drunk and land in jail.

Pensions are not optional extras

An interesting survey in today's Times suggests that very few people are making a serious effort to provide themselves with a pension. Although you can't draw any conclusions about the precise proportion of people who are not making their own provision from a snap-shot survey of fewer than 1,400 individuals, the results point towards something of a problem. It was found that almost half of those aged 41-60 are not currently paying into a pension fund and barely a third of those under 30 have a pension. Of course we were assured that this would not happen when the government introduced "stakeholder pensions", yet another of their gimmicks that has sunk almost without trace after costing millions in "consultation" and feasibility studies. Now they are planning a new scheme known as the "personal account". I knew nothing about this until reading the article in the Times, although that is probably a failing on my part.

Pension provision is a huge problem in this country because of institutionalised reliance on the welfare state. We are told the State will look after us from cradle to grave. In relation to pensions the cost of providing a modest subsistence level of income for all is absolutely enormous. Both my regular readers will know that when the state old-age pension was first devised it was to be funded by National Insurance contributions by which everyone would pay into a massive savings pot which would then be dipped into to pay us a modest weekly sum when we reach the defined retirement age. Right from the beginning there was a problem with this because payment-out started immediately and used such a large proportion of NI contributions that the pot never grew. In addition, once government had received money it could not resist the temptation to spend it. It was, therefore, hardly surprising that NI contributions quickly became just another form of income tax. I believe they are still accounted for separately from receipts from income tax itself, but that is just a bean counting exercise; the reality is that all the money is treated as being available for current expenditure and any dream of a pension pot being created evaporated many years ago. What should be quite a sensible arrangement of compulsory payments into a fund from which pensions will be distributed is in fact a giant Ponzi scheme in which the return on our "investment" is paid out of other people's "investment" and there is in fact no investment at all.

Nowadays the basic state pension is added to by various means tested top-ups and some lump-sum payments. Lying behind it all is the presumption that the first port of call for every retired person should be the State. It is rarely mentioned that the state old-age pension was originally extremely modest - well below subsistence level, was paid at age 70, was means-tested and was only paid to those of good character. It was so modest that anyone who thought they might live beyond 70 (which ruled out a vast chunk of the population in the early 20th century) was encouraged to make their own provision. Over time the ever-growing welfare state has shifted perception. Now a shortfall between the value of the state pension and the real cost of living is met with cries of "I paid my stamp, I demand a proper pension". Against this background we find a widespread resistance to making personal pension arrangements, it seems to be viewed as the wrong thing to do because we have already paid for a pension through NI contributions and making our own arrangements is letting the government off the hook.

The new scheme, due to come in in 2012, is nothing other than compulsion to take out a private pension if you have not done so already. It is probably sensible because the alternative is to force people to do it by simply cancelling the state pension, which would be political suicide. The irony is that the State machine encouraged the little people into an attitude of reliance and can only reduce reliance by using the force of the State to make them do so.

I don't know how much should be set-aside by individuals to allow a sufficiently large pot to build up so that it can be relied on for their income in retirement, I have read estimates between 5% and 14% of annual gross income, perhaps 10% is a fair average. That might seem a lot but average life expectancy now suggests the likelihood that most people will draw a pension for at least ten years following a working life of about forty-five to fifty years. If you were paying into the pot for, say, forty years and your income increased steadily throughout that time, the sums you paid-in at the beginning will be very small in cash terms compared to what you paid-in at the end. The smallest sums will have had time to grow but the largest sums will not. Assuming real growth of 2% a year, £100 invested over forty years turns into about £220, over thirty years it would grow to about £180, almost £150 over twenty years and just £120 over ten years. If your pot is used to buy an annuity giving a 5% yield, a pension of £10,000 a year requires a pot of £200,000. It takes a lot of investment to build a pot of that size even over forty years yet it will give you less than £200 a week and if you want the payments to be index-linked throughout your dotage the initial pension will be well under £200 a week. This is a very rough-and-ready example, but it gives an indication of the amount you need to accumulate through your working life if you are to have a bearable pension at the end.

To my mind, pensions are a good illustration of what happens if you don't live within your means. Perhaps it is more accurate to say that our means must be measured by taking into account the amount we should set aside for a pension. We are now in remedial territory. The huge black hole caused by decades of inadequate personal provision is being addressed and the cost will be a reduction in disposable income for all those who do not already have an occupational or personal pension scheme. It comes at a time when remedial therapy is also required for government expenditure because of past mistakes. By 2012 the recession will have ended and modest economic growth will probably have resumed. Then the new compulsory pension will come into effect, initially requiring employees to pay 1% of their gross income into the pot then 3% in 2013 and 5% from 2014 onwards. So disposable income will be forced down, for good reason, just as the economy is picking up. But, it will mean that disposable income will then be measured more realistically than in the past.

Putting off the cost of pensions is a form of credit just as insidious as equity-lending secured against perceived increases in house values. It encourages a false assessment of real wealth and requires a painful adjustment at a later date. I'm all for adjustment where it is needed and for painful adjustment where that pain cannot be avoided. All those in the Times survey who said they are not currently making any provision for a pension are simply putting off the day they have to do so and making that day more painful. As much as anything it is a matter of culture. To date the culture has been for the State to pay for our old age. That aspect of the welfare state has been exposed as rotten to the core. The initial system was right, the way it has been altered over the last century has led to an unaffordable mess that cannot deliver because it has made it impossible to deliver by fostering a sense of entitlement and reliance wholly out of proportion to the practicalities of the issue.

The ethos behind the new regime is something I find very encouraging. Pension provision is treated as a normal cost of life for the individual to bear just as he bears the cost of food and clothing. It is not a matter of shifting the cost from the taxpayer to the individual because the taxpayer would never be exposed to the cost of a decent pension for all. It is far more subtle than that. The paltry state pension will remain and the new system is about something different, it is about making people face up to the reality that a decent income in retirement is attainable, that it must be paid for and that the more they pay the more they will receive (subject, as always, to the ups and downs of any investment scheme). It marks a shift in emphasis towards self-reliance.

I am a great believer in promoting self-reliance because I have a great belief in the ability of people to provide for themselves if only the State would get out of the way and let them do it on their own terms.

Is it time to flatten the black economy?

We now have confirmation that the Chancellor of the Exchequer is just guessing what he should do, he has admitted that his decision to increase the top rate of income tax from 40% to 50% was not based on any evidence or analysis but was a personal judgment.

As the Director of the Adam Smith Institute, Eamonn Butler, points out in an article in The Times today, increasing rates of income tax, particularly at the higher bands, does not increase the overall tax take. It's all pretty obvious really. The more you have to pay in tax the more cost-effective it is to pay an accountant to keep your bill to the absolute minimum and the more fastidious your accountant must be to keep you happy. Equally, if earning above a certain level will result in you having to pay a rate of income tax you consider to be excessive you might well choose to keep your earnings below that level. Or you could just move to Papua New Guinea and be done with it. On the other hand, being liable to income tax at a rate you consider fair reduces your incentive to find ways of reducing your tax bill. Not only does the cost of hiring an accountant form a greater proportion of your tax liability, such that he has to find substantial savings to justify his fee, but there is simply less inclination to do so if you feel you are being asked to pay a fair amount.

I rather like the idea of income tax being set at a level which provides very little incentive for avoidance. It's not that I want to put accountants out of business, although I am happy to allow them more time to formulate their proposals for Land Value Tax. Reducing tax avoidance is something of an empty concept. By definition, tax avoidance involves careful examination of the tax laws so as to ensure you take advantage of ways in which those laws allow you to reduce your liability to tax below what it might otherwise be. Everyone who lawfully claims an expense against tax is engaged in tax avoidance. Say you have a gross income of £20,000 and you spent £15 on travel from one place of employment to another, a taxi from one of your employer's offices to another because you were needed at the other office. You can put that expense against tax and reduce your taxable income by £15. You don't have to make the claim, you can pay the extra tax if you want to, but the law allows you to set that expense against your income so that you are taxed on a smaller total sum. There is absolutely no difference between the shy paper-pusher who reduces his tax bill in this way and the brash multi-millionaire who sets up complex trusts or has money paid to an overseas management firm rather than to his bank account in the UK. Each is doing exactly as the law allow him to do - he is arranging his affairs within the law so as to reduce his liability to UK income tax. It should not be forgotten, however, that those who engage in tax avoidance are complying with the law, not breaking it.

Changing the law so that various forms of avoidance are no longer available is aimed only at those who comply with the law. Very often such changes merely make available new means of avoidance because closing one "loophole" opens another, the risk they run is to be too effective and encourage those who previously complied with the law to operate outside it.

The "black" economy is, in my view, the real black hole in the UK government's income stream. It is anyone's guess how big it is. Some parts of it, like organised crime, are so far outside the law that there is no reasonable prospect of them being brought into the tax net, but I believe an awful lot is a direct consequence of tax and national insurance being at the rates they are at the moment. The headline standard rate of income tax of 20% doesn't sound too bad, but employees pay national insurance on top at 11% and employers have to chip-in a further 12.8% on all but the first £110 a week. A base weekly wage of £400 will cost an employer more than £430 yet the employee will receive in the region of £300. Pay half the wage in cash, half through the books and both employee and employer benefit, the employer's weekly outgoing is reduced by around £19 and the employee's take-home pays rises by around £65.

There are two further incentives for employers operating small businesses to keep a proportion of their turnover off the books. The first is to ensure that they personally only pay income tax at 20% rather than 40%. Declare a taxable income above £37,400 in the current financial year and you retain only 60 pence for every pound above that figure whereas you keep 80 pence in the pound below £37,400. Having said that, I suspect many of those who under-declare their income are more interested in finding a figure that will not leave them open to enquiry rather than just avoiding the top rate of tax and so will declare around £25,000 or £30,000 rather than being too cute and running right up to the limit. Nonetheless, they will steer well clear of the 40% tax band.

The other factor is VAT. A turnover of £67,000 triggers the need to register for VAT and, therefore, to charge VAT (currently 15%) to all your customers. The £67,000 threshold is on turnover not profit. I was speaking just the other day to a neighbour who is having a new kitchen installed. She engaged the services of a specialist kitchen fitter who is certified to do electrical and gas work, so that he can undertake all the work himself, but who is not registered for VAT. He advised her that he does not provide any materials, units or appliances because he needs to keep his turnover below the VAT threshold in order to be able to charge a competitive rate for his services. My neighbour chose and bought units and appliances herself and the fitter told her what additional materials he needed (including cables, copper pipes, solder, a gas canister for his blowtorch, tiles, grout, filler, paint and even tubes of silicone sealant) which he asked her to pay for (she paid him cash, he bought them, provided her with the receipts and, of course, gave her the change).

Not every tradesman has a customer willing to engage in this circuitous process. The others have to buy materials themselves and it doesn't take long before their turnover exceeds the magic figure and they have to put their prices up, thereby doing themselves out of business. Building materials, in particular, are quite staggeringly expensive. Their only practical option is to seek payment in cash so that they can buy materials in cash and pay their staff in cash, thereby keeping enough off the books to avoid having to charge VAT.

I believe the scale of this type of tax evasion to be enormous. It happens all over the country with tradesmen who fear that strict compliance with the law will make their services too expensive. As a consequence they not only jiggle figures to keep their overheads and prices down, they also see an opportunity to declare a lower personal income then they would be happy to declare if only they didn't feel the need to fiddle the system in the first place. Once they are fiddling to reduce staff costs and fiddling to keep prices down they have nothing to lose by also fiddling to keep a proportion of their own income away from the taxman. It is a cumulative process, each fiddle that is considered necessary to stay in business encourages a further fiddle to make additional profit.

I wonder what would happen if the first £15,000 of income were free of income tax and then a flat rate of 20% applied to everyone with no additional national insurance contributions. My guess is that a great part of the black economy would be brought onto the books because the incentive to work outside the system, with the risk of detection and penalties necessarily involved in doing so, would be cut drastically. I would also guess that the vast majority of those currently taxed at 40% and those who will be taxed at 50% when the new rate comes in (if it ever does) will readily pay 20% rather than spending money seeking to reduce their liability. Of course this is just a guess, but it accords with my idea of common sense.

There is no way of knowing what a radical change like this might do to the tax take, perhaps it will provide enough for the government to do the things it really needs to do, perhaps it won't; it's anyone's guess. What it will most certainly do, in my view, is trim the costs of collection enormously. Plenty will bleat about it being wrong that someone on £100,000 a year of taxable income should pay "the same" as someone on £10,000. This raises an aspect of so-called "progressive" taxation I have never really understood. The person taxed on £100,000 does not pay the same as the person on £10,000; under a flat-rate system at 20% the former pays £20,000 and the latter pays £2,000. My maths might not be particularly good, but I see a factor of ten differentiating these amounts.

To my mind there are only two arguments for "progressive" taxation. One is that the person on a lower income necessarily pays a higher proportion of his money on subsistence, so it is fair that the tax paid on the amount available for discretionary spending should rise. That is all very well when subsistence costs have to come out of income that is taxed. For the current financial year income tax is payable on earnings above £6,475. Assuming £15,000 to be subsistence level (as I have for the purposes of this piece), Mr Modest is required to earn over £17,000 just to reach subsistence level because he pays tax at the current rate of 20% on everything above £6,475, so to end up with £15,000 he must earn an additional £2,000-odd. Even if true subsistence level is £10,000 or £8,000 he is still paying tax on part of his income within the subsistence bracket. In that situation I can see that a modest up-lift for those earning comfortably more than subsistence can be justified. The other argument is essentially similar, it is that above subsistence level everything is an optional extra but some optional extras are a normal part of life in this country and others are real treats. In essence the argument is that true subsistence level is higher than the base costs of housing, heating, food and clothes. Actually there is a third argument, that people earning more are some sort of wicked parasite and should be punished; attractive though that might be to some I consider it to be mindless nonsense.

That is all very well, but the sensible answer is surely to lift the personal allowance to subsistence level and then concentrate on bringing everyone into the fold rather than providing incentives for some to escape. This is what lies behind the flat rates applied in some Eastern European countries after they shed the yoke of Soviet rule. The black economy was rife as was corruption by both municipal and tax authorities. A system had to be adopted which reduced incentives to operate outside it otherwise the well-established evasion techniques would just be adopted by even more people. Introducing flat rates at modest levels was a huge gamble because the new governments could only guess whether those operating outside the system would play ball. The result was that they did in sufficient numbers to make the new system work, both in terms of tax raised and in being easy and cheap to administer.

Britain's black economy is rarely addressed by our main political parties other than through bland assertions that they will clamp down on evasion. A few builders and car mechanics are caught each year and a few shops are monitored and discovered to be taking far more in cash than they declare. So what? Has it done anything to bring substantial sums onto the books and into the tax system? Of course not. There are some jobbing gardeners, builders and plumbers who issue formal tax receipts for everything they do, for every one of them there are dozens who ask for payment in cash and when pressed to issue a receipt give a document signed in the name Michael Mouse.

Enforcement against those operating outside the system is a fantastically expensive exercise which might or might not provide a return in excess of the costs. That, however, is the wrong way to look at it. It is not a trading enterprise in which the Revenue can be seen to be successful if it costs £100million to collect £101mlillion because it is not about the net £1million they collect, it is about the countless hundreds of millions that escape their attention completely. All that money is outside the tax system because the risk of being caught is small compared to the benefit of saving income tax and national insurance by doing things on the sly.

I have heard it argued that those operating in the black economy are such thoroughgoing rogues that they will evade tax no matter what. I find that impossible to accept. Of course some are, but the jobbing handyman or gardener who earns £400 in a week and declares £220 is just trying to earn a living wage and the builder who keeps his declared turnover below the VAT threshold is just trying to stay in business. These people are not major criminals, they work for every penny they receive. The effective cause of them fiddling their books is the current tax system under which they fear (rightly or wrongly) they could not make a living if they kept by the rules. Any system containing such an incentive is necessarily flawed.

It would take a bold government to make such a radical change. My guess is that it would pay off in spades.