A university experience from America

I have been following the university applications of a friend's son with some interest. He applied to eight institutions, all of them established and esteemed universities and all of them American. In the circumstances that is hardly surprising because my friend is American and lives with her family in Massachusetts. Her son has always done well at school, obtaining very high grades in almost all subjects. He is not a wholly outstanding student but his grades gave him a realistic chance of a place at Harvard or Yale. Despite being shortlisted for interview at both, he was not offered a place at either and instead had to choose between two other very well known universities. I won't say which because it doesn't matter for the purpose of today's screed. What I want to write about is an aspect of how the whole process works for people of modest means in the USA.

Unlike here, there is no culture of expectation and no culture of entitlement. The concept of education being "free" is unknown because everyone knows it is not free, it is just a matter of who pays for it. Suggest to my friend that her son should be entitled to have his tuition and keep paid for and her question will be "who by?" (they are not very good at 'whom' over there and care not a jot if a sentence ends with a preposition). Parents understand that universities are independent institutions and have to raise money to pay the costs of providing the tuition and other facilities that youngsters wish to use to increase their prospects as they enter adulthood. Equally, the universities exist to provide a service and have to justify that existence through offering a service that is sufficiently attractive to entice people to pay. Insufficient paying customers and the course is scaled back or eliminated. The thinking at the universities is not that they are entitled to paying customers and some means must be found to pay for however many courses they choose to offer, it is that a loss on one course means students on well-subscribed courses will be at risk of receiving a lesser service than would be the case if poodle varnishing were left off the curriculum.

My friend's son applied not just for a place but also for funding from university bursaries and scholarships. His parents have ordinary jobs, each paying under the national average wage. They have saved for each child to provide a college fund but their resources have not allowed them to create a big enough pot to do more than make a contribution towards the costs of a university course. Two factors affect the decision about which offer to accept. The boy has to decide which course is best for him but he also has to consider the cost implications of that decision. One offer will require the family to find about $4,000 a year more than the other course which calls for a nominal contribution. That's a significant sum for them, particularly because there are younger siblings, one of whom will be of university age while the eldest is still an undergraduate. The parents have said he should choose the course that he thinks will serve him best and that he should not concern himself with the financial side of things. No doubt he will have little appreciation of what it would mean from day-to-day to find $4,000 each year, but it is hard to imagine that even a teenager could leave it out of his thinking entirely.

For the parents the position is simple. Their son has an opportunity to go to a very good university and gain a qualification that, subject to his own endeavours, should equip him for a good career. They did not have that opportunity and will do everything they can to ensure their child utilises his. There is no scintilla of remorse, envy or bitterness that they will have to make a contribution towards the costs of tuition any more than their son feels such emotions at the thought he will have to find part-time work throughout his college years to keep himself in beer and condoms. American college students have a long history of taking evening and weekend jobs to pay their way. My experience is that they make excellent waiting staff at restaurants because they are bright and attentive and have enough about them to know that the more you please the customer the larger the tip is likely to be. Some go into prostitution, in which field the same rules apply.

Last week there was uproar among the professionally entitled when the London Metropolitan University announced a plan to cut the number of courses offered from 557 to 160. There is a delicious article in a newspaper local to FatBigot Towers giving a headline figure of 400 courses being abolished, with a first paragraph saying it is more than 400 and only by the seventh paragraph does the writer do the sums and work out that 557 minus 160 is 397 (here). The London Metropolitan University is an amalgamation of a number of former polytechnics. The greatest distincition achieved by any department of the constituent parts was probably the Law faculty at the City of London Polytechnic which was as good as that of many minor universities, but there is no basis for arguing that LMU is anything other than a make-weight new university. Why does anyone suggest it, or any part of it, is entitled to remain in being if it can't pay its way?

The contrast with the USA is marked. Universities over there are forced to close courses all the time when they don't attract sufficient paying customers. Most marked is that they attract paying customers who pay with their own money save where the university has funds which it allocates to those who show the greatest aptitude for the subject according to the judgment of the university itself. Now, I am not so blind as to ignore the existence of a degree of tokenism in US universities, especially where future funding is dependent on appearing to give advantage to minorities today; but that is all part of the same process - they sometimes take the wrong person and exclude the right person this year because doing so ensures 1,000 of the right people can be funded next year.

This field is one of a long list in which good intentions have combined with electoral bribes to create a situation in the UK that is fundamentally artificial. We seem to have, at least among the political chatterati, an established phrase that is treated as the starting point of all discussion about higher education, namely: "free university education". Any call for contributions towards tuition fees is seen as an affront to reasonable expectation because the assumed ideal is that all students should get whatever they want at someone elses expense. No sane person could ever talk of "free university education". University education is a hugely expensive business, it is not and never has been free. Someone has to pay for it. Over here the culture is that taxpayers should pay for it, over there the culture is that the student and/or his family have to pay for it.

Provided there is a sensible system of scholarships and bursaries for the promising but impecunious, those who deserve university places will receive them (yes, some will always slip through the net for more reasons than you could shake an elephant's willy at but that will always happen). Provided universities are dependent on people using their own money to decide which courses are worth paying for, they can remain in being but only if they offer good courses at a competitive cost. When both the customer and the supplier have their limitless demands met by the milk of the taxation udder you will get low-grade courses being followed by low-grade students to the benefit of nobody other than the very people who are currently making the most noise about the London Metropolitan University - udder suckers who can only maintain their positions with the near presence of a soft and generous teat.

As usual I have waffled all around the houses but I think there is one point about my friend's experience that is more important than any other. Her son's education is a private thing, it's funding is a private thing, both are sorted out in the family and between the family and the university. It is not the business of anyone else and it is not the responsibility of anyone else. The expensive dead hand of The State is nowhere to be seen.

And everyone is happy.

I prefer to have one vote, like everyone else

We haven't had a nationwide referendum in this country since 1975, now we face one on our voting system and it's a pretty low-key, perhaps to some invisible, affair. A few days ago a leaflet plopped through the letter box from a quango called The Electoral Commission explaining what the referendum is about and, I thought very fairly, defining the differences between the current voting system and the alternative on offer. My first thought about the whole affair is that it is worryingly low-key, probably because it concerns a subject that stirs interest in very few people.

The previous referendum, on whether the UK should continue to be a member of the European Economic Community, was a very high-profile affair. It was a topic that split both our major political parties down the middle (as it does today) and was headline news ever since the UK joined the EEC in 1973. With the dishonest and bullying approach that has marked every step of the project to create a United States of Europe, the UK was signed-up to the EEC without asking the people whether they wanted it and a referendum was allowed only once membership became the status quo. Even if the matter had been approached honestly by holding the referendum before we were committed to the disaster that has become the EU, the importance of the issue would not have changed. It was a major constituional shift for this country. Switching from the established form of voting for MPs (first past the post) to anything else is also a major constitutional shift.

That other systems are used in various parts of the UK and in various other types of election is neither here nor there. The established position is that the person who gains most votes in each constituency wins a seat in Parliament and introducing any other method of voting goes to the heart of our flawed but well-established system. My natural conservatism says that, for all its faults, the established method should not be changed unless there is very good reason to do so. Not only should it be arguable that an alternative would be better, it should be clear that that is so.

This makes me ask what is wrong with the current system. Various faults have been suggested. I don't pretend that what I am about to say is exhaustive but there are two arguments which seem to be most commonly promulgated and to be more substantive than any others.

First, it is said to be wrong that some constituencies are so dominated by one established political party that they can never change hands under "first past the post" and that this deprives voters who do not support that party from having an effective vote. In a way the objection is fair. Some constituencies have a long history of returning an MP of one party with 50% or more of the votes cast so no other candidate can get close to winning. Being in such a constituency myself I am well aware of the "wasted vote" argument. This problem also arises where one party regularly receives less than 50% of the votes cast. At 49% there only need be 2% cast for third party candidates for 49% to be victorious and at 43% of the vote a further 8% going to assorted small candidates means 43% wins.

Secondly, it is said that in more marginal seats people do not always vote for the candidate they want to win but in order to prevent another candidate being successful. A Conservative-Labour marginal seat puts pressure on those who might wish to vote for a third candidate to vote Conservative if they want to keep Labour out or vice versa. Again, it is a fair objection in that people can feel the need to vote against their conscience in order to achieve a result which is not what they really want but is better in their eyes than the other possible outcome. They know their chosen candidate has no real chance, so they engage in a damage limitation exercise.

Both of these objections are, in my view, consequences of the constituency system and, to a lesser extent, of the dominance of the main political parties rather than consequences of the voting system.

For so long as we elect MPs for individual constituencies there will be instances of "safe" seats. Some places contain so many people of like mind that a socialist or a conservative will always triumph even if party labels change. AV seems unlikely to make an difference in such constituencies. Similarly, some seats will always be likely to return an MP of one party or another party, third party supporters know their chosen candidate will not win. AV might lead to more people putting their first choice first but it seems inevitable that they will use their second vote for tactical purposes. Typically under the present system a LibDem supporter who wants to keep Labour out will vote Conservative where the LibDem candidate cannot expect enough first choice votes to win and under AV he will either vote Conservative with LibDem as his second choice or LibDem with Conservative as his second choice. Either way, once all but the top two candidates have been eliminated (which will result in Labour and Conservative remaining in the race in almost all Con-Lab marginal seats) his current tactical voting seems likely to be replicated whether he put Con first and LibDem second or vice versa.

It is only when we look at seats that are genuine races between three or more candidates that AV might make a difference to the outcome. There is certainly an argument for such seats to go to the candidate who receives the least disapproval, although that rather goes against the grain in an age of pasty-faced political leaders who go out of their way to avoid giving offence and thereby avoid advocating any sort or position of principle. Charming personality politics gives us Blair and Cameron as Prime Minister, two men without a coherent political principle between them. AV seems designed to ensure that beige is the secret to success. I don't find that particularly attractive.

Even less attractive is a system that results in those who are polictically savvy having more of a say than those who are not. For those of us who enjoy politics and take more than a passing interest in it, the opportunity to place multiple choices would be a delight - not least because we can don an anorak, try to second-guess the likely result and use our choices to eliminate someone we don't want to succeed. Those with little interest in politics but a desire to be part of the democratic process will have no incentive to approach the subject in the same way. They might not think it necessary or appropriate to place a second, third or other choice. Under the present system all who bother to vote are in exactly the same position, they have one cross to place on a piece of paper and their cross will either be against the name of the winner or against the name of a loser. Under AV everyone has the option to place as many preferences as there are candidates but no one is compelled to use all those choices.

One thing I find genuinely exciting about a general election is that I am in exactly the same position as a multi-millionnaire and tramp. We each have one vote. I am in the same position as the most intellectually brilliant and the window-licker. We each have one vote. I am in the same position as the most knowledgable political analyst and the person who has no interest in politics at all. We each have one vote. I am in the same position as a person of noble breeding and the latest in a line of illiterate potato pickers. We each have one vote. I am on a par with the Prime Minister. We each have one vote. Talking of illiterate multi-millionnaire window-lickers with no interest in politics, I am in the same position as Premier League footballers. We each have one vote. I find it unpalatable that we might adopt a voting system that allows those who take an interest to have a more effective say than Mrs Muggins who gets on with her life but votes every time because she is proud to have the right to do so. If I could see an advantage to AV that outweighs this disadvantage I might be persuaded to vote for the change. All I have heard so far is that it might allow a more concilliatory result in some marginal seats. To my mind that is an irrelevance compared to the levelling benefit of every voter being in the position of having one vote.

Addendum
In the comments (here) the good Mr Wadsworth disputes my assertion that AV leads to some having more than one vote. The case he puts is as follows: "Under AV everyone has one vote in each round of voting. Although your ballot paper might be shuffled from your first choice candidate's pile to your second choice etc, that is your one vote being shuffled around and in the final round it will be counted once." That is patent nonsense and the reason why it is nonsense illustrates the objection I raised above. A simple example shows why he is wrong.

Let's say we have a four-way marginal, Lab, Con, LibDem and UKIP. Mr A votes only for the UKIP candidate, who is eliminated in the first round. When the second round votes are cast Mr A is not involved in the process because he has not made a second choice. Mr A placed one vote and it was counted only once. Mr B also chose UKIP but he put LibDem second. In the second round his vote remains in play because he made a second choice. One could say he has had two votes, but let's not quibble about that just yet, at each of the first two stages of voting he has had one vote. On elimination of the LibDem chap in the second round, he plays no part in the third round. Mr A is involved in one round only, Mr B is involved in two rounds but neither plays any part in the final round. It is, therefore, quite obviously the case that not every vote is carried forward, only those who have voted for one of the final two candidates (or more if one reaches 50% while there are still three or more people in the game) have their vote carried forward to the final round.

I do not consider it a matter of semantics to say that Mr A has had one vote, Mr B has had two votes and those who places the Lab or Con candidates somewhere in their list have had three votes. Of course it is true that at each stage any one constituent has only one vote but that does not change the fact that some continue to have a say while others have their votes discarded because they did not make a sufficient number of choices to remain in play.

It is interesting to note that no commenter has yet suggested what benefits AV is meant to bring.

Back to gardening

The human mind is a wonderful thing, but its powers are not always benign. Gardening has been a great love of mine for as long as I remember. As a small child I planted, weeded and watered and then felt great excitement as the seeds I spread a month or two earlier produced flowers. Of course a month or two is a very long time when you are little, the long wait could disappoint and discourage some but for me the thrill of the finished product was well worth the wait. In my early adult years gardening was off the agenda because I had no garden and was too busy establishing my own grown-up roots. Once I was settled there were regular trips down to the FatBigot ancestral estate (a small three-bed semi in a Sussex village) to take up gardening duties as the parental generation became less able to cope.

It was on moving into FatBigot Towers nearly twenty years ago that I had my own garden for the first time. The previous owners had cultivated bindweed, brambles and elders to a standard that could have earned fellowships of the Royal Horticultural Society, so my first task was to clear out all the crud. On doing so it became apparent that the wall along the north boundary was utterly decrepit, an appearance that was enhanced by a large chunk of it falling as soon as it was touched. It makes the garden seem much larger than it is to say that the wall along one side required more than three thousand bricks to be laid and the use of more sand than you can shake a trowel at (together with a little cement and a vast quantity of hydrated lime). Now the fruit of my modest bricklaying skills is still standing and has weathered beautifully.

For more than a decade I mowed, sowed and hoed at every opportunity even building myself a greenhouse and creating three compost heaps - one for stuff currently rotting, one for stuff rotted and awaiting use and one for leaves. Then I suffered a cardiac unfortunance after a weekend of hard graft thinning the hedge around the front garden and shredding the detritus so that it would compost down at double quick time. And that is where the human mind came into play in my gardening. Saturday - panting and sweating while cutting the hedge; Sunday - panting and sweating while shredding the trimmings and incorporating them into the compost heap; Monday - heart attack. My poor brain linked vigorous gardening activity with intense physical pain.

Since then I have ventured into the garden a couple of times and done a little general trimming to prevent it becoming a jungle and this time last year I had a good go at the hedge again, albeit at a slower pace than before and less extensively than the previous thinning (which was somewhat overdue). Only now has my mind allowed me to tackle the back garden thoroughly. It was my intention to do so last year but on starting I realised it was causing me more worry than it should. Six years is a long time in the life of a garden so I knew there would be a lot of remedial work required before there was any chance of restoring it to its former glory (which wasn't, in all honesty, particularly glorious).

Last week I ran into someone I know who used to work at a Turkish restaurant very close to FatBigot Towers, he said he had just finished working at one place and was due to start a new job next week. The offer of a bit of cash turned him into a gardener for a few days, tackling the toughest parts of the clean-up job and generally clearing the site ready for more intricate preparatory work to be done. Many years ago the great Geoff Hamilton explained that once you get your garden soil into good condition it will remain good for a long time and will need very little additional work each year compared to the work involved in its initial preparation. How true that is, my old flower and veg areas still have light crumbly soil despite years of neglect. It allows the weeds to thrive but also makes it easier to remove them.

I am not planning to be very ambitious. In the flower beds I will clear perrenial weeds, add as much compost and conditioner as I can, preserve the best of the perennials, prune and feed roses and then just sow mixed cottage garden annuals to get two or three months of colour. The veg patch will have spuds, lots of spuds, and a wigwam of runners (always Scarlet Emperor for me). No doubt bindweed and dandelions will pop up in far greater quantities than I would like. Oh well, there's no escaping the old enemy when you have given them free rein for so long. The lawn will get a spring weed and feed treatment and then regular cutting.

The last three days, in which my Turkish assistant worked magnificently hard, have left me with a manageable project. Now my mind is working differently. It is dredging up memories from years ago about how to start a new garden and is reminding me of just how enjoyable and satisfying the exercise was first time round.

It's Prince Andrew's job, not his fault

Few things grate my adenoids more than self-righteous priggery. For the last week or so stories have abounded about Prince Andrew chummying-up to corrupt foreigners in his capacity as an honorary trade envoy and there has been much snarling about our current and former governments being too polite to Libya's mad dictator. The reality is that we have to deal with whoever we have to deal with in any given country, and for much of the world that means some pretty nasty little shytes, the alternative is the loss of business to those who are not so uptight.

In this field there is a substantial overlap between government and business although government's position extends far beyond trade links. Everything is a matter of practicalities. Either we maintain diplomatic links and converse with the head of state or we don't; there are very few situations in which severing diplomatic relations because the incumbent egomaniacal kleptomaniac in Outer Bongobongoland is of greater benefit to the UK than biting our tongues and pretending to be nice to him while working to make sure we get as much as we can as a result. Everyone has known Gaddafi to be bonkers for decades. So what? He's bonkers but he's in charge so if we wish to deal with Libya we have to deal with him no matter how repulsive he is. The same applies to the tin-pot dictators of almost all the oil states and those of almost all countries in Africa. A thin veneer of democratic authority in parts of Africa does not mask the simple fact that whoever wins the election will be no less corrupt than the losing candidates and no less corrupt than the likes of Gaddafi in Libya and, until recently, Mubarrak in Egypt. If it comes to that, these people are not very much more corrupt than the leaders of many mainland European countries. It is unthinkable to break-off relations with Italy or France yet the levels of personal corruption among their senior politicians make a few million in fiddled Westminster expenses seem like feed for the chickens. The situation is a classic one of keeping your friends close and your enemies closer. The more we interact with them the more chance we have of being able to make a tiny little difference when it really matters and, more importantly of keeping the benefits of trading with those who have products we want and markets we need.

I sometimes wonder whether suggestions (and even laws) that British companies should not pay bribes are made seriously. If you are driving through France and are stopped for speeding when you have kept religiously to the limit you know the policeman who stops you has no more desire to issue a ticket than you have to receive one. He wants to open your passport and find a crisp 20 Euro note inside. Having inspected your paperwork and retained that of greatest importance to him he will wave you on your way. Oh how wickedly corrupt, the prigs will say, no doubt they would choose to delay their journeys and pay three times as much for the privilege of an endorsement on their licence; like buggery they will, they will pay the bribe and tut-tut over their tofu for weeks. There is no difference between that situation and a business greasing palms in order to secure a contract. It's a matter of practicalities. That's how business is done in some countries whether we like it or not and we either play the game or lose the deal. Of course commercial reality still triumphs and bribes are paid in more indirect and subtle ways than a wad of cash in a brown envelope.

Over the last two days the front page of the Times newspaper has featured criticism of Prince Andrew's cozying-up to dubious senior figures from a number of unsavoury regimes. One has to ask whether he would be doing his job if he didn't give these people the treat of meeting his mummy or the hint that she might proffer them a cup of tea and a cucumber sandwich at a convenient juncture. After all, there's not much point giving the role of trade envoy to a Royal with no business experience unless his royalty were used to seek advantages for British companies in highly competitive markets. There is nothing else he can offer to the job so it seems implicit in his appointment that this is exactly what he was meant to do - although no one would ever be so crass as to actually say he was expected to do it.

Equally misplaced is excessive criticism of the pathetic current leader of the Labour Party for heaping odious praise on Gaddafi's corrupt son prior to a lecture at the London School of Economics. It would be entirely fair to observe that socialist politicians will always heap praise on any overseas despot provided that despot calls himself a socialist. No matter how brutal and repressive he might be, these poor fools go dewy-eyed once the S word is spoken and see nothing but benevolence and a desire to fight the enemies of "the people". Exactly the same conduct by a political leader who denounces socialism is, of course, a crime against humanity and an affront to basic human rights. The magic S word is all it takes to define two identical things in opposite ways, but that's what happens when you are in thrall to an irrational religion.

The reality is that the UK has no practical option but to try to get on with all countries around the world if it can, and that means being far more friendly to vile political leaders than a purely human response would allow. If we are honest about it we can see exactly the same thing happening in every aspect of international relations including sport - who would think of pretending to be delighted to meet the puffed-up heads of the International Olympic Committee or FIFA unless they had to? There is no choice unless you are prepared to abandon your interests and see the largesse of the corrupt and powerful leaders being dispensed elsewhere. Unpalatable it might be, but sometimes real life is exactly that. We should not have a go at those who suck-up to scum on our behalf; we'd have to find a way to do it ourselves if they didn't do it for us.

Insurance premiums and Euro ideology - part two

My previous offering (here) did not cover one aspect of the debate about the effect of the decision of the European Court of (so-called) Justice in case number C236/09. As I said then, the court decided that the premiums charged and benefits paid under insurance policies must not discriminate between men and women. In other words, men should never pay more or less than women simply because they are male and women should never receive more or less than men simply because they are female. I offered some views on the premium issue but said nothing about benefits.

The good Mr Pogo raised a matter in the comments (here). He observed that annuity rates are generally more generous for men than for women and wondered whether the court's ruling would require this to change. The answer, I think, is that it depends whether an annuity is an insurance policy.

As I understand matters personal pensions work as follows. An individual pays contributions to a third party in order to build a fund from which a pension will be payable if he lives long enough. He could just save the money himself, but by paying it to an approved pension fund holder he is allowed to claim tax relief for his contributions. The pension fund holder collects the payments, invests them as well as it can, take a chunky commission at every stage and accounts to the contributor every year with a statement explaining just how little is being held in the fund. Each pension policy has a defined end-date. Provided the contributor has reached the age of 55 he or she may receive something back (it used to be 50 but is now 55). If he or she is younger than 55 at the relevant date, the fund is closed and the accumulated lump-sum is invested until he or she hits the magic age. At that time the policy matures.

I don't pretend to know many ins-and-outs of insurance law, but believe it is correct that these pension arrangements are a form of insurance. All insurance involves two factors: (i) you pay premiums and (ii) you are entitled to receive a payment if the thing you have insured against occurs (be it a burglary, a disease or, as in the case of pensions, reaching a certain age despite modern science decreeing that to be impossible because you smoke and drink). Entitlement to receive anything under a pension plan is dependent on a contingency and for that reason I believe it correct to say that pension plans are a form of insurance.

Insurance can entitle you to a fixed sum (you might pay premiums that entitle you to £5,000 if you break a leg bone - no matter which bone or how seriously it is fractured, you get the same sum) or to recompense for loss (as with home contents insurance), or to protection against claims others take against you (as in the case of professional indemnity insurance), or it might entitle you to a variable sum depending on how well the insurance company has invested its receipts. This latter course is how pension policies work. The heirs of those who die before the maturity date of the policy might or might not be entitled to claim a lump sum by way of refund and they might or might not make a claim, in any event some money will be left in the fund by those who cannot or do not get a refund. Some investments will be good, others will be bad. The fund will be what it is at the date a policy matures and the policyholder will be entitled to a lump sum calculated according to the state of the fund at that date.

When the policy matures, the policyholder is entitled to a lump sum but, if he claimed tax relief on his contributions, he is not entitled to receive it as a single lump sum. I believe a certain percentage can be taken in cash but the rest has to be used to buy an annuity. Many think this requirement iniquitous, but that is not the point of today's missive. The point is that the insurance policy comes to an end when the lump sum is calculated and paid. It goes without saying that all insurers large enough to administer pension funds also offer annuities, but their customers cannot be required to buy one of their annuities. The customer is entitled to a lump sum but must take that lump sum in the form of AN annuity, not any particular annuity. The purchase of the annuity is a separate transaction from the allocation of a particular lump sum to a particular policyholder on the date the pension policy matures.

At that date the policyholder has the benefit of a sum of money. Provided that sum of money is not calculated differently according to whether the policyholder is male or female it will not, I think, fall foul of the ECJ's ruling.

When it comes to buying an annuity men tend to get better terms that women because we don't live as long. Whether being the recipient of nagging shortens life or delivering nagging lengthens life really doesn't matter, it might even be a combination of the two, but the fact is that blokes generally don't live as long as gals. Annuities reflect this reality by giving men slightly better returns. It seems to me that that will not fall foul of the ECJ's decision unless annuities are insurance contracts. I cannot see that they are.

An annuity is a contract under which you pay a company a lump sum in return for being entitled to an income (paid weekly, monthly, quarterly or annually) for life. An annuity is no different from the cash-for-equity deals that are available to homeowners of a certain age. You make your house over and in return are entitled to a defined sum each year for as long as you live, it might even be index-linked, and you are also entitled to remain in the house. There is nothing about this that seems to me to equate it to insurance any more than purchasing an annuity is insurance. It could, I suppose, be argued that the lump sum is a premium and the receipts are benefits that depends on the contingency of longevity but that involves a contingency that causes payments to cease rather than one that caues payments to commence - and an essential feature of insurance, as I understand it, is that the entitlement to receive a benefit rests on a contingency other than payment of the premiums.

If this is correct, annuity returns are not caught by the ECJ ruling.

It's only a matter of time, of course.

Insurance premiums and Euro ideology

It is not often that men come out on the right side of anti-discrimination laws, but the slavish adherence of the European Court of Justice to a flawed principle seems to have produced exactly that result. I am, of course, talking about the recent decision that insurance companies are not allowed to discriminate between men and women purely on the grounds of gender when setting premiums or paying benefits.

The judgment itself (here) is clear. Where the position of men and women is comparable they must be treated the same. Where their positions are not comparable they may be treated differently. Who decides when their positions are and are not comparable? Well, the institutions of the EU of course and they have decreed that the situations of men and women are comparable when it comes to setting insurance premiums and calculating benefits payable under a policy.

In some respects this is patently absurd. Women are at greater risk of thefts in the street, (for example, handbags are easier to snatch than wallets in jackets) young men are at greater risk of crashing a car, men are at greater risk of dying younger, men are at greater risk of injury around the house (they climb on chairs to fiddle with electric fittings whereas women climb on chairs to scream "eek" at the sight of a mouse). These disparate levels of risk exist between the sexes but it is not their gender that causes the disparity it is their behaviour and different patterns of behaviour present different risks of an insurance policy being called upon. Because, generally speaking, men behave differently from women men present a greater risk for some types of insurance and a lower risk for others.

Throughout the world these self-evident facts have conventionally been reflected by higher premiums being payable by those most likely to present a claim. There are two aspects to this because insurance operates in two ways. On the one hand, some insurance exists primarily to pay the policyholder a defined sum in the event of certain things happening; for example you can take out insurance that pays you a lump sum in the event that you break a leg or suffer a heart attack, or you can insure the contents of your home so that you receive some money if you are burgled and your stuff is nicked. The only beneficiary of such a policy is the policyholder himself (leaving aside the right to nominate a different beneficiary but there are limits to when and how that can be done). On the other hand some insurance exists primarily to provide protection to third parties against damage done by the policyholder. Lawyers, architects, accountants and others have to carry insurance so that anyone suffering due to their negligence can be compensated; similarly car drivers take out insurance not just to compensate them in case a crash occurs but also to ensure that innocent third parties can be compensated. Strictly speaking third parties are not entitled to claim against these indemnity policies, instead the policyholder is liable to pay compenation and the insurance company provides the funds from which he pays it; although the reality is that the insurance is for the benefit of the third parties.

Whether insurance is primarily for the benefit of the policyholder or third parties, it involves shifting risk from one person (or group) to another. If you have no household contents insurance the removal of your goodies by little Johnny Toerag causes you a loss and you have to dip into your own pocket to replace the missing things, the risk is yours alone. By insuring against burglary that risk is spread among all policyholders. Equally, negligence by an architect might cause millions of pounds of loss which will fall initially on the owner of the building; the owner can sue the architect but will he have the money to pay? Perhaps not, so he has professional indemnity insurance to ensure there is a fund from which his "victim" can be compensated. In that case risk passes from the owner to the architect to all those who have paid premiums into the relevant fund.

There is no single principle by which the fairness of the spread of risk can be assessed but the conventional approach is to charge higher premiums to those who are more likely to make a claim and lower premiums to low risk customers; in addition the greater the size of any potential claim the greater the premium. Different people, and different insurers, can take widely divergent views about how premiums should be weighted. Some might think it fair for everyone to pay the same premium, or for premiums to be graded according to the income of each policyholder, or to vary according to the area in which the policyholder lives, or according to his age or his occupation. Arguments can be made for each of these factors to be given particular weight in certain situations. What is considered fair is a matter of opinion and opinions necessarily vary.

I have read a lot of comment in the last few days about the judgment of the ECJ being unfair to young women drivers who, apparently, are much less likely to make a claim on their motor insurance than young men of the same age. It certainly appears to be the case that insurers will not be able to charge young men higher motor premiums than young women because that would involve unlawful discrimination on the basis of gender. I find this a slightly confusing concept. There is a reason why young men's premiums are higher - it is because, as a class, they are more likely to make claims. Not every one of them is a menace, but sufficient are to make them a risky group - not by way of anecdote but by way of hard evidence about the number and type of incidents in which they are involved. That is fact, that is reality. For reality to be cast aside in favour of a political ideal strikes me as highly unappealing.

Having said that, all weighting of insurance premiums requires judgments to be made about what is and is not fair. When I last had a big car and its insurance was due for renewal I obtained quotes varying between about £350 and just under £2,000. Same car, same location, same driver with decades of experience and not as much as a speeding ticket, yet one insurer assessed the risk I posed as requiring a premium five times higher than another. No doubt each felt they were chrging what was fair in the circumstances.

We shouldn't get too uptight about car insurance. Maybe premiums will go up substantially for young women, maybe they will fall a bit for young men, maybe they will rise for older people to allow premiums for the young to find a level between the current male and female level. Whatever happens there will continue to be wide differences between insurance companies' charges.

More troubling is the illustration given by the recent ECJ case of the consequences of pushing ideology into areas that are none of its concern. I have no problem with the concept of men and women being treated equally by the law, but I find it ludicrous that the law requires anyone to pretend that differences that actually exist as a matter of fact between men and women do not exist. There might be a simple way to avoid this absurdity. It arises only because the EU has decreed that the position of men and women is comparable so far as insurance premiums are concerned. As a matter of fact that is simply not the case, at least it is not the case when it comes to motoring premiums. The EU could, were it so minded, allow insurers to charge men and women different premiums where there is clear evidence that men present a higher risk than women or vice versa. That, indeed, was the position until it was struck down by the ECJ because it was inconsistent with another provision of EU law.

If we have to have EU law (and the sooner we don't, the better) it should at least try to reflect reality. I doubt that it can ever do so to a sufficient degree to gain public support because it is systemically ideological rather than practical. It is not just Middle Eastern despots who can only bully their subjects for so long before they are ousted.

Breaking news - HBOS doesn't lose £500 million

It was announced yesterday (see here) that Lloyds Bank, the lucky owner of HBOS (Halifax Bank of Scotland), will have to pay around £500million to HBOS customers who took out a particular type of loan. The long and short of it is that customers were told they would be given notice if HBOS changed its policy from charging a maximum of 2% above base rate to charging 3% above base rate. The policy was changed, as they were probably entitled to do, but notice was not given to all customers who were told they would be given notice. Nonetheless, 3% above base rate was charged. Lloyds has agreed to compensate those who paid the additional 1% but were not given notice.

On the face of it the position is very straightforward. Whether or not customers would have sought a replacement loan on being informed of the change, they would have had the opportunity to do so. As it is they were deprived of that opportunity. Had they been given notice it seems fair to presume that some would have found another lender and ended up paying less than the amount they paid Lloyds, some would have found another lender and ended up paying more than to Lloyds, some would have switched to a different type of loan with Lloyds and some would have just left the original loan in place and paid the extra interest. There is no way of knowing how many would have fallen into each category although it is probably not unrealistic to suggest that most would have left things as they were and just paid the higher interest charge. After all, base rate had fallen substantially and 3% above base was less than many had been paying a year before when the mark-up was 2%.

If this were looked at as a claim for breach of contract the assessment of compensation would be fiendishly difficult. Leaving aside the question whether there was any breach of contract, compensation would have to be calculated by trying to value the loss of opportunity to switch mortgage from Lloyds to another lender or from one Lloyds mortgage product to another. The position would be different for different borrowers, depending on their own financial circumstances and the degree to which they would have been likely to seek out an alternative loan. Few would have been entitled to repayment of the whole of the additional 1% they paid although it is theoretically possible that a very small number would have been able to prove a case for a larger sum (if they were able to satisfy the court they would have switched to a loan charging less than 2% over base).

Reports say up to 300,000 HBOS customers were affected. It would make no sense (except to the bank managers of the lawyers involved) to have 300,000 separate claims. Were this dealt with by way of claims for breach of contract there would be only one claim in which all customers who showed interest would be involved. "Class actions", as these cases are known, are relatively new beasts to the English judicial process, we see them most often when a large number of people suffer personal injuries due to the same cause - perhaps a drug that proves to have bad side effects or a work practice that causes many employees to suffer illness or injury. Although the accuracy of the compensation in each individual case is somewhat rough and ready the process is generally quicker, certainly much cheaper and has the added advantage of everyone knowing their case has been considered in the same way as everyone else's.

The intervention of regulators of businesses such as banking means that legal claims do not always need to be made, the regulator can step in and require redress to be paid for an apparent wrongdoing. This, of course, is what happened in the present case. We will probably never know how much pressure was applied by the regulator and how much the decision to offer compensation was motivated by either a genuine sense of the need to do the right thing or exasperation at Lloyds with the shabby practices of HBOS and it does not really matter. A problem was identified, a solution worked out and litigation avoided.

At the heart of the solution is the implicit assumption that HBOS/Lloyds should not have charged an extra 1% interest without giving notice to their customers. Whether they were entitled to do so in law is not the point, they said they would give notice and they did not; of itself that is bad practice and, some would say, fundamentally unfair. The amount they received from customers by increasing their margin seems to have been around £500million. They simply should not have received that sum in the first place. Had they followed good practice they would have received the money and would not now be liable to repay it, as it is they should not have received it and now must repay it.

In making the repayments Lloyds will not be losing anything they will simply be handing back money they should not have received. It is quite wrong to think of this as a loss. Any loss is purely hypothetical and results from not giving the promised notice - had it been given they would have received £500million, by not giving it they have lost £500million, except they haven't. By not giving notice they lost the chance of receiving up to £500million but they did not lose any money. By not investing one pound on the numbers 6, 16, 26, 32, 33, 34 and 46 for last Saturday's lottery you lost £4million - that is not a loss it is a failure to make a profit that would have ensued from doing something other than what you actually did.