Water water everywhere

11. April 2024 · Write a comment · Categories: Actuarial, Cartoons, Economics, Regulation

The Telegraph thinks the shareholders are to blame. The Guardian has the Australian investment bank Macquarie in its sights. Martin Bradley’s (the European Head of Infrastructure at Macquarie Asset Management) attempts in Infrastructure Investor at justifying their actions only seem to be making things worse. The FT is using it as an excuse to have a go at the Capital Asset Pricing Model. Count Binface has included in his manifesto for the London Mayoral election a requirement for the company’s management to “take a dip in the Thames, to see how they like it”.

I am talking of course about Thames Water, which really does appear to be everywhere at the moment. But how did we get here?

The management of water works by private companies was originally a legacy of the Victorians – most of the water supply and all waste water services moved into local government control from the late 19th and early 20th centuries. Control then passed from 165 different water supply bodies to 10 regional water authorities in 1974 before these were sold back to private companies in 1989.

Water is obviously a resource vital to all of us, as well as being what economists call a natural monopoly. There have been debates for quite some time now about renationalising the water industry – some arguing that it is too expensive and that a Welsh Water not-for-profit model is the answer, others saying that water, electricity and Royal Mail together would cost less than £50 billion to nationalise and would pay for themselves within 7 years if investors were just repaid what they had invested in the businesses, others saying that water is a failed business and could be acquired without compensation for shareholders as happened with Northern Rock.

What none of these appear to be arguing is that private monopolies should not exist as a reason for renationalising water. We have become so used to monopoly or oligopoly profits in everything from utilities to transport to mobile phones to supermarkets, that we sometimes forget that it has not always been like this.

This point was made to me powerfully in Cory Doctorow’s excellent The Internet Con – How to Seize the Means of Computation. The 19th century debate in the US Senate about monopolies was impassioned. Senator John Sherman of the 1890 Sherman Act effectively put the war against monopolies on an equivalent footing with the War of Independence from the British Crown:

If we will not endure a King as a political power we should not endure a King over the production, transportation, and sale of the necessaries of life. If we would not submit to an emperor we should not submit to an autocrat of trade with power to prevent competition and to fix the price of any commodity.

It’s stirring stuff. The “harmful dominance” theory of antitrust (ie the idea that companies which dominate an industry are potentially harmful just because they are dominant, before they even start to abuse their dominant positions) led to the dismantling of several “empires”, including that of Rockefeller’s Standard Oil Company in the early 20th century.

But then enter Robert Bork. Famous amongst other things for having an extremely dull taste in video rentals, Bork was Solicitor General of the US between 1973 and 1977, under Presidents Nixon and Ford, and Acting US Attorney General from 1982 to 1988 under President Reagan. Bork developed what he called a “consumer welfare” theory of antitrust. This allowed mergers and monopolies to proceed provided prices were lowered and/or quality improved, or even if they weren’t as long as some “exogenous factors” could be blamed for the price hikes or reduction in quality.

Sound familiar? It should, as we all still live in Bork’s world. For example, the microeconomics part of the Institute and Faculty of Actuaries’ Business Economics syllabus relating to imperfect markets reads as follows:

Note the focus on the different ways firms supposedly maximise profits (this approach is fairly thoroughly debunked by Steve Keen here) rather than on the market power they wield. The part which should include the regulation of monopolies reads as follows:

Note the lowering of expectations in 3.1.6: “Why government intervention might not improve market outcomes in practice even if the existence of ‘market failures’ suggest they can in theory”. However the real limitations are laid bare in 3.2. The main targets of “competition policy” in the text book (Economics by Sloman et al) you are pointed to by the core reading turn out to be what are referred to as “exclusionary abuses”, ie where businesses actively prevent effective competition from actual or potential competitors. As the preamble on competition policy in Sloman says:

Competition policy could ban various structures. For example, there could be restrictions on mergers leading to market share of more than a certain amount. (This is the harmful dominant approach, about which no more is said) Most countries, however, focus on whether the practices of particular monopolists or oligopolists are anti-competitive. Some practices may be made illegal, such as price fixing by oligopolists; others may be assessed on a case-by-case basis. Such an approach does not presume that the existence of power is against the public interest, but rather that certain uses of that power may be.

So, in other words, we will leave monopolistic businesses with the power and attempt to detect abuses of that power on a case-by case basis via overworked and under-resourced regulators. Sherman could have never cut Standard Oil down to size with this approach.

Yanis Varoufakis’ contention, in Technofeudalism, is that capitalism now only operates within the framework provided by the most extreme monopolists of Big Tech, with most of us either “cloud proles” (ie wage slaves working for Big Tech under feudal conditions) or “cloud serfs” (ie the rest of us working for Big Tech for free by creating content and sharing our data on their platforms). Big Tech’s size massively increased as a result of the bank bail out of 2008 and additional money pumped through them and the corporations working for them coupled with austerity for everyone else, which was therefore almost totally financialised – leading to the “everything rally” for asset owners.

As Varoufakis says:

When an activist state makes fabulously wealthier the same bankers whose quasi-criminal activities brought misery to the majority, while they are punished with self-defeating austerity, two new calamities beckon: poisoned politics and permanent stagnation.

Again, sound familiar?

It is not too late to push back against the monopolies which control our lives. Doctorow’s big idea in The Internet Con is interoperability, the ability of new technologies to plug into Big Tech’s services, systems and platforms, which Big Tech tends to resist with all of the power at its disposal. He makes a convincing case for how this simple change could reduce the size of Big Tech companies quickly and bring them within the scope of democratic control once more.

And for those businesses which need to be at monopoly scale to work at all? Water, for instance. That sounds like an unanswerable case for nationalisation to me. Perhaps assuming that dominant private companies are bound to be harmful needs to come back into fashion.

Some perspective on the sustainability of the national debt

19. March 2024 · Write a comment · Categories: Economics, Regulation

My evidence to the House of Lords Economic Affairs committee on the sustainability of the UK’s national debt is now available on the parliamentary website.

I was rather surprised to see that only 37 people submitted written evidence. My evidence was as follows (with the hyperlinks which got removed restored and the addition of the graph of the history of public sector net debt):

The “incredible” £2.6 trillion mentioned by Lord Bridges of Headley in the call for evidence suggests that you are using the public sector net debt excluding public sector banks figure, which is £2.671 trillion or 97.5% of GDP as at November 2023 according to the Public Sector Finances bulletin on the ONS website. You could more reasonably use the public sector net debt excluding public sector banks and the Bank of England figure, which recognises that otherwise you are notionally including a debt attributed to an organisation which has no debt, which therefore reduces this debt to £2.419 trillion or 88.3% of GDP. Or even better, you could also deduct the Bank of England Asset Purchase facility, which was used for QE and is held by a subsidiary company of the Bank of England controlled by the Treasury and therefore also not a debt in the commonly accepted sense of the word. This stands at £0.597 trillion in Q2 2023 according to the latest quarterly report from the DMO and would further reduce the debt to hopefully a slightly less incredible £1.822 trillion or 66.5% of GDP.

Even if you want to stick with your original number, despite a large part of it not being owed to anyone with any interest in being paid back, the public sector net debt according to the ONS following a global pandemic and Brexit as a percentage of GDP is lower in the UK than at any time between 1916-17 and 1960-61.

Our latest general government debt available on the IMF Datamapper, which is from 2022, of 101.4% of GDP also compares favourably with the United States (121.4%), Japan (261.3%) and France (111.7%), with only Germany (66.5%), China (77.1%) and India (83.1%) of our major partners or rivals with lower debt.

With this perspective in mind, my responses to a selection of the questions set out for the call for evidence would be as follows:

What is meant by a “sustainable” national debt? Does the metric of debt as a percentage of GDP adequately capture sustainability?

I think this means affordable, both currently and in the future. The only reason our current level of debt (which, as I have shown, is not particularly high either by international or historical comparison) is felt by some to be unaffordable is the sharp increases in interest rates by the Bank of England over the last two years. Central government debt interest, net of the Asset Purchase Facility was £112.1 billion in 2022-23, compared to £60.9 billion in 2021-22 and £26.7 billion in 2020-21.

According to the World Economic Outlook from the IMF in April 2023:

Overall, the analysis suggests that once the current inflationary episode has passed, interest rates are likely to revert toward pre-pandemic levels in advanced economies.

This is therefore a temporary problem and does not suggest that the level of debt is unsustainable at all. Interest rates should be brought down as quickly as possible, and the rate of interest on the Asset Purchase Facility should be reduced immediately to very low levels, as is already the case in many other countries including the Eurozone and Japan (the case for this was made in June 2022 in the New Economics Foundations’ report Between A Rock And A Hard Place).

The Government’s target is for public sector net debt (excluding the Bank of England) to be falling, as a percentage of GDP, by the fifth year of the OBR’s forecast. How meaningful is this target; and how does it inform an evaluation of the sustainability of our national debt?

I think this target is essentially meaningless given the high likelihood of a change of Government within the next year. In my opinion Government spending needs to be set according to need rather than by setting an arbitrary target for the level of debt as a percentage of GDP.

What are the market risks created by high levels of public debt; and what factors will influence the market’s appetite for this debt?

As the DMO Annual review for 2022-23 states: “The average cover ratio at gilt auctions in 2022-23 was 2.39, in line with 2.41, in 2021-22”, ie there are consistently nearly two and a half times as many bids for gilts as gilts being offered for sale. This indicates a continued strong demand for gilts.

What levels of productivity and growth are required to ensure our national debt is sustainable?

Our national debt is already sustainable.

If we are to ensure our national debt is sustainable, what might this mean for fiscal policy?

Our national debt is already sustainable.

Should the definition of the national debt differentiate between debt incurred for investments (which generate revenue for the Government), and other areas of spending?

Yes. One example would be where nationalised entities such as Network Rail are included as a liability but the corresponding revenue-producing asset is not set against this when included in the national debt figures.

It is striking to me what questions you are not asking, eg:

If we are to ensure our national debt is sustainable, what might this mean for monetary policy?

This seems to me to be a much more relevant question, as it would appear that the sole reason the unsustainability of the national debt has become an issue is due to the monetary policy of the Bank of England. Japan has negative interest rates, the Eurozone’s rate is 0.75% below ours. The high level of interest rates in the UK is having a negative impact on economic growth, investment and unemployment, as well as sharply increasing the cost of the national debt. The independence of the Bank of England and the nature of the targets it is set would both be more interesting subjects for a call for evidence than the sustainability of the national debt.

Actuaries and Hooky Street

03. October 2023 · Write a comment · Categories: Actuarial, Cartoons, Climate Change, Economics, Pensions

The latest publication from the Institute and Faculty of Actuaries (IFoA) is called Beyond the next Parliament: The case for long-term policymaking. It refers to a number of previous reports, such as the Great Risk Transfer report from April 2021 and the two more recent climate papers (here and here), all of which contained much thoughtful analysis even if I did not always agree with all of the recommendations.

The case for long-term policymaking is certainly something that needs to be made loudly and often, although I was perhaps expecting some discussion of concepts like cathedral thinking, ie a capacity to plan and implement projects over multiple generations, or intergenerational justice, an issue of particular importance when discussing responses to climate change, in tying these various reports together within a long-term narrative. The Good Ancestor by Roman Krzanic is a great starting point for considering such questions.

Instead the IFoA have chosen to go in a different direction entirely in linking this previous work together, displaying imprisonment by current short-term political thinking in a paper supposedly focused on the long-term to such an extent that I am now left feeling that I disagree with them about nearly everything.

Take pensions, for instance (bold type is mine):

With the decline of defined benefit (DB) pension schemes, the responsibility for investment and longevity risk is increasingly being placed on the individual.

In a world where responsibility for funding retirement is increasingly being placed on the individual, there is remarkably little consistent consumer information about how much someone should save into their pension, or what a ‘good’ pension pot constitutes.

The IFoA remains concerned that many UK households are not saving enough for later life, are not accessing free guidance or paid-for financial advice, and remain ill-equipped to deal with the risk of running out of money in retirement.

It is almost as if the transfer of risk to individuals is something inevitable, or beyond the ability of mere humans to control. In the words of the late great John Sullivan, in the theme song from Only Fools and Horses:

Cause where it all comes from is a mystery. It’s like the changing of the seasons and the tides of the sea.

Why Only Fools and Horses you ask? Well have you ever heard a better description of defined contribution pensions than:

No income tax, no VAT. No money back, no guarantee

The IFoA’s main concern is that UK households are not doing enough about this new “responsibility” to provide for their own retirement. And the state? The state pension is mentioned only once here:

Naturally, the next UK Government will need to address the adequacy question as part of a wider pensions strategy for the UK that also considers big questions such as the sustainability of the State Pension and the triple lock.

This of course is so-called “positive economics” in action, which makes much of only relying on objective data analysis, but within a policy framework which is not up for discussion. Increased state provision, which one would have thought would at least need to be considered in the mix in this case, is reduced to obsessive focus on tiny questions like the triple lock while being kept generally outside this policy framework. Instead we get this:

We recommend that the government should reinvigorate its public messaging around minimum pension saving levels – particularly through workplace auto-enrolment pension schemes – to ensure that consumers are not lulled into a false sense of security as to whether their pension saving will be adequate to achieve their retirement income goals.
In doing so, government should use expertise and evidence on testing behavioural responses to different messages and channels, to identify those that are most effective in impacting saving behaviour.

So at a time when, according to the Resolution Foundation, the marginal rate for low to middle income households have an effective marginal rate of tax of 63%, the IFoA apparently think it is acceptable to push the cost onto them even more in order to achieve a sufficient pension at retirement. A certain cost and uncertain benefit. It is not a basis for a minimum income guarantee.

The second section sets out the problems associated with long-term care, again asking for a greater contribution by individuals via an expansion of insurance and savings-based financial products.

We are back to the changing of the seasons and the tides of the sea in the next section on keeping pace with rapid digital transformation, which states that:

there has been a trend away from broad risk pools and toward more granular pricing based on an individual’s specific rating factors (i.e. their risk characteristics)

Note the use of the passive tense there – it implies that noone is responsible and there is no way we can swim against this current back up to those old broad risk pools however hard we try. And so we shouldn’t try. The only option is to instead try and lower the premiums at the bottom end a bit – which is explained in their other report, The hidden risks of being poor: the poverty premium in insurance. The model for this is Flood Re, which is explained here. Of course this probably won’t work if you are underinsured as, it seems, 80% of us are.

Section 3 remains one I can cheer about, laying out more clearly than I have seen before to the financial community the risks of climate change, with the work on biodiversity at a somewhat earlier stage. However a framework is immediately assembled in the next section, Going for growth to build a better Britain (a slogan which I am sure Liz Truss would have been quite happy with), to limit the options for tackling these risks. An example:

Even though there is evidence that infrastructure development can promote growth and job creation, governments may be forced to defer such funding until the national balance sheet looks healthier. Although governments may be partially able to finance infrastructure projects, given their capital constraints they also need to attract investment from the private sector.

Unbelievably, the rest of this section then focuses almost entirely on what can be done to lure the private sector into investing in preventing their own doom (not framed in those terms of course, but in terms of boosting growth rather than curbing emissions) along with everybody else’s. As long as private investors are looked after, everything else seems to be a secondary consideration. John Sullivan again:

C’est magnifique, Hooky Street.

Of course I am just having a bit of fun here with the Only Fools and Horses references and I am certainly not suggesting that everyone involved in financial markets is a Del Boy looking to take advantage of every punter or government that comes their way. That would be a caricature as gross as referring to the “dead hand of the state” or talking about public servants as “The Blob”. What I am saying is that the jostle of the market place cannot be the primary solution to many of the problems so accurately analysed here.

I realise I have been very slow to fully appreciate the IFoA’s general direction of travel, but by putting all of these reports together in one place they have clarified this for me. I believe that the overall programme of recommendations here would condemn the poor to further immiseration and uncertainty while letting government largely off the hook for solutions and companies largely off the hook in terms of further regulation. It would further accelerate the financialisation of our economy with the promise of additional financial markets to be exploited by the already wealthy.

This is not acting in the public interest but as a cheerleader for protecting the long-term profits of fund managers. And I despair that, three years on from the IFoA’s Economics Member Interest Group coming into existence, there should still be so little pluralism on display here in economic thinking that this is regarded as a balanced narrative.

It is clear to me that views outside the IFoA’s current policy framework will need to come from elsewhere. I am currently researching a paper on alternative approaches to pensions provision with Alan Swallow which I hope we will be able to publish something about soon.

The Imagination of our Ancestors

27. July 2023 · Write a comment · Categories: Climate Change, COVID-19, Economics, Science Fiction
Source: One of Henrique Alvim Corrêa’s 1906 illustrations of War of the Worlds. HG Wells himself approved of these incredible drawings, praising them before their publication and saying, “Alvim Corrêa did more for my work with his brush than I with my pen.”

“We are living inside the imagination of our ancestors” said Gaia Vince in an article earlier this year. I was reminded of this more recently when Sandy Trust said something very similar in his excellent presentation on climate scenarios ahead of the publication of the The Emperor’s New Climate Scenarios, which highlights how most climate-change scenario modelling in financial services excludes the possibility of tipping points and secondary impacts of climate change, thereby substantially underplaying the risk of us ending up with a hothouse earth scenario.

So I decided to remind myself of the imagination of one of our more imaginative ancestors and read The War of the Worlds. Despite having recently watched both the 2005 Spielberg/Tom Cruise film and the BBC adaptation, I found the content of the book quite surprising – much more focused on how the society of 1895 dealt with the Martians than the aliens themselves.

Wells delights in revealing the imagined human response at each stage. From concern about Martians trapped in their spacecraft in a pit near Woking, to sending a deputation to negotiate with it, to satisfying ourselves that they cannot escape their landing crater after their “Heat-Ray” has massacred 40 people surrounding it. As he puts it:

So some respectable dodo in the Mauritius might have lorded it in his nest, and discussed the arrival of that shipful of pitiless sailors in want of animal food. “We will peck them to death tomorrow, my dear.”

That was on the Friday. By Saturday night there was still more interest in the breakdown of a train between Byfleet and Woking junction than in whether this had anything to do with Martians. The lack of response continues:

I have read, in another account of these events, that on Sunday morning “all London was electrified by the news from Woking”. As a matter of fact, there was nothing to justify that very extravagant phrase. Plenty of Londoners did not hear of the Martians until the panic of Monday morning. Those who did took some time to realize all that the hastily worded telegrams in the Sunday papers conveyed. The majority of people in London do not read Sunday papers.

Wells has a theory:

The habit of personal security, moreover, is so deeply fixed in the Londoner’s mind, and startling intelligence so much a matter of course in the papers, that they could read without any personal tremors: “About seven o’clock last night the Martians came out of the cylinder, and, moving about under an armour of metallic shields, have completely wrecked Woking station with the adjacent houses, and massacred an entire battalion of the Cardigan Regiment. No details are known. Maxims have been absolutely useless against their armour; the field-guns have been disabled by them. Flying hussars have been galloping into Chertsey. The Martians appear to be moving slowly towards Chertsey or Windsor. Great anxiety prevails in West Surrey, and earthworks are being thrown up to check the advance London-ward.”

By Monday morning London is being evacuated in the wake of death and destruction. Wells could not sound more contemporary if he were to give his views about Lockdown or responses to the climate emergency. And we can look at these Londoners from nearly 130 years ago and see ourselves, busily discounting the far greater saturation of 24 hour television news, radio and social media and reading, watching and listening to the dire warnings of our own time “without any personal tremors”.

But if our children are going to be living inside our imagination, then what are we offering them? Ursula K Le Guin, in a talk originally called “Where Do You Get Your Ideas From?” and then changed to “The Question I Get Asked Most Often”, said this:

“The imagination can transfigure the dark matter of life. And in many personal essays and autobiographies, that’s what I begin to miss, to crave: transfiguration. To recognise our shared, familiar misery is not enough. I want to recognize something I never saw before. I want the vision to leap out at me, terrible and blazing – the fire of the transfiguring imagination. I want the true dragons.”

And that transfiguration of our experience, to embrace things we never saw before but can imagine, must happen in our stories initially. But if the stories are good enough they can then spread – to our homes, our workplaces, other places we meet our friends and people who aren’t our friends, to our politics, our economics, our society.

Roman Kznaric’s asks in his book, The Good Ancestor, whether there is an antidote to political myopia. His response is that there is and it lies in attempting to establish what he calls “deep democracy”.

In 2009, The Observer newspaper reported that a letter had been sent to the Queen after she demanded, during a visit to the London School of Economics in November 2008, to know why nobody had anticipated the credit crunch. There was one particularly telling sentence which was picked up widely at the time:

In summary, your majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.

To force our children to live inside our current imagination is to force them to live in a world stunted by the ever increasing influence and share of our head space which can be bought by the ever shrinking group of people we allocate our wealth to. But somewhere between the transfiguring imagination Le Guin talks about and the practical proposals of Kznaric and others, it seems to me that there is the first draft of an imagination which our children could live inside.

A pandemic of economic stories

21. July 2023 · Write a comment · Categories: Climate Change, Economics
Source: Maya Eilam. You can purchase a poster of this image at https://tenderhuman.com/shop/shapes-of-stories-by-kurt-vonnegut-infographic-print-and-poster

I first came across Maya Eilam’s fabulous infographic of Kurt Vonnegut’s 8 story shapes in 2016. Kurt himself wrote his master’s thesis on it which was rejected by the University of Chicago, and once described it as his “prettiest contribution” to culture – you can find further details about the idea in this article by Stephen Johnson.

The reason I bring Kurt’s story shapes up now is that I have been struck by how, instead of stories making shapes, the shapes are now making our stories. Take inflation, for example.

Yesterday we were told that the headline inflation rate (that average of an average of an average which disguises a continued food inflation rate above 17% alongside much else driven by the manic desire to reduce all inflationary pressures within the economy down to a single number) had fallen further than expected to 7.9%. Cue media stories about the Bank of England being under less pressure to raise interest rates further and the Daily Express to confuse inflation falling (ie the percentage increase in prices falling from one positive number to a slightly smaller positive number) with prices falling.

Last month it was all about Rishi Sunak telling us to hold our nerve and that there was no alternative. In May we apparently had an inflation “surprise” with sugar and milk in particular soaring. In April, the Mirror described inflation as a “living nightmare” and in March the BBC were reflecting on how the hyper-inflation in Germany in 1923 had shaped economies and politics in the 100 years since. And so it goes, as Kurt Vonnegut says throughout Slaughterhouse 5.

Behind all of these stories and the frequent use of the word “surprise” lie expectations of the story arc. These have been partly set by the OBR forecasts from November last year:

This is then compared, month by month in forensic detail, with the emerging reality from the ONS:

Source: ONS

This is despite us being fairly early in the OBR’s narrative and broadly following the suggested trajectory, although not as quickly as either the Bank of England or Rishi Sunak’s pledge need it to be. We appear to want our fairy stories to be quite precisely predictable at times.

But which of Vonnegut’s story shapes are we in? Sunak must hope he is Man in Hole and will eventually escape to the sunlit uplands, whereas many of us fear that he is instead condemning us to the From Bad to Worse narrative arc. Under these circumstances, muddying the waters and gaslighting are reasonably successful policies for the government as they can tip us into the less electorally damaging Which Way Is Up? as a story, a strategy employer very successfully by first Big Tobacco and then Big Oil to stop us acting in our own best interests for decades. If you also bring in Brexit, then you are starting to talk about the creation myths on the second row.

Our economics and politics are driven by the stories we tell ourselves. Therefore, to create economic and political change, we need to create new stories to tell. Which brings me to Neil Gaiman and his suggestion that the stories may be living off us as much as we are living off them:

You can just view people as this peculiar byproduct that stories use to breed. Really, it’s the stories that are the life-form — they are older than us, they are smarter than us, they keep going. But they need human beings to reproduce, much as we need food… we need things to keep ourselves alive. Maybe stories really are like viruses…

If stories really are like viruses, then I would really like a vaccine to roll out against some of the economic stories active in the population. The pandemic of daft economic ideas about the cost of climate change for instance, or the idea that a country’s debt is like a household’s. Both have been regularly debunked only to keep returning, often in slightly mutated form, to live amongst us again.

The Government is using the latest pay increase to actually reduce its funding to the NHS for the second year running

19. July 2023 · Write a comment · Categories: Actuarial, Cartoons, Economics
Pinhead and spikes wait on a bench outside the doctor's room

NHS pay is supposed to be set with reference to the recommendations by the NHS Pay Review Body. The terms of reference of this body, often referred to as “independent”, mean that they are unlikely to make truly unaffordable recommendations, as two of their six considerations in making any recommendations are as follows:

  • the funds available to the Health Departments as set out in the Government’s Departmental Expenditure Limits; and
  • the Government’s inflation target.

Despite this, as recently as last month, Helen Whately, the minister of state for social care, was saying that the “government has to look overall at what is affordable”, adding that the PM has said ministers must be “responsible with the public finances…We take the advice and recommendations from the pay review bodies, but you’ll understand that government has to be responsible with the public finances. That’s why I can’t say here and now what the outcome of the whole process is going to be”.

The Government then finally confirmed that it would accept the recommendations of the Pay Review Body (report here), but that:

The government will fund this pay award through prioritisation within existing departmental budgets, with front line services being protected.

Existing budgets in the NHS were set on the basis of a 3.5% pay rise, rather than the 6% for most doctors, 8.1-10.3% for junior doctors and 5% for senior leaders which has been agreed. So it will mean a reduction in non pay budgets to meet the shortfall.

The NHS Confederation’s response is that:

If health leaders are expected to raid their own budgets to somehow plug this funding gap at local levels, it will almost certainly result in cutbacks to patient care elsewhere.

What they didn’t say was that the government will effectively be reducing their net spending on the NHS by not funding the award. As Richard Murphy has pointed out:

Firstly, all of these pay awards will be taxed. They extra pay will be the top part of a person’s pay. It’s likely that tax of 20% and NIC of 12% will be paid by each employee as a result.

On top of that employer’s NIC of 13.8% will be paid. In other words, of the gross cost (pay plus employer’s NIC), just over 40% will return to the Treasury in tax.

It makes no sense, in that case, to refuse that 40% back to the departments that are paying these people.

And that is even before you take into account indirect taxation and multiplier effects.

Not only does it make no sense for the government to use this of all moments to reduce their net contribution to the NHS, it also clearly goes against the wishes of the majority of voters. 82% think more funding is needed and support is found across all age groups, UK nations and across the political spectrum (63% among Conservative voters and 94% of Labour voters).

The main reason given by the government is that it “balances the need to keep inflation in check while giving some staff significant pay increases.” If that “balance” is achieved by robbing Peter of his operation due to a lack of beds or equipment in order to pay Dr Paul, then what sort of an achievement is that? And why, if the government are not prepared to actually fund the pay review body recommendations, do they have a say in whether they are accepted or not?

And this is not the first time. In July 2022, the failure to fully fund the recommended pay increase led, according to the NHS Confederation, to a shortfall of £1.8 billion, adding to the shortfall already due to inflation and increasing energy costs of over £4 billion. Then, as now, these increased costs will need to be absorbed by already over-stretched individual NHS trusts.

This will mean further additional avoidable deaths and more record waiting lists. It is a policy which is anything but balanced.

Sleaford-upon-Sea and the future none of us wants

05. July 2023 · Write a comment · Categories: Birmingham, Climate Change, Demographics, Economics, Prediction, Science Fiction
https://coastal.climatecentral.org/map/9/0.0491/52.7048/?theme=warming&map_type=decadal_slr&basemap=roadmap&contiguous=true&elevation_model=best_available&esl_model=ipcc_2021&percentile=p50&refresh=true&slr_year=2100&temperature_rise=2.7&temperature_unit=C

The year is 2100. Earth is approaching a peak population of 9.5 billion people. Despite some notable progress in decarbonising our activities and more progress on carbon capture of various types than expected 80 years ago, overall we have not managed to shift much off the Intergovernmental Panel on Climate Change (IPCC) middle-of-the-road shared socioeconomic pathway (SSP2). Some countries have done much better than others, with income inequality a problem both within and between them. Carbon emissions stayed fairly level until 2050 before starting to fall, but net zero has still not been achieved.1

Temperatures have risen by 2.7 degrees compared to pre-industrial levels. Africa has split between a north which has seen a recovery of rainfall and a south which is no longer habitable for humans. The Indian monsoon rains have failed. The Himalayan glaciers providing the waters of the Indus, Ganges and Brahmaputra, the Mekong, Yangtze and Yellow rivers have reduced by 90% from their pre-industrial levels.

The Amazonian rain forest basin has dried out completely. In Brazil, Venezuela, Columbia, East Peru and Bolivia life has become increasingly difficult due to wild fires. Drought is now permanent in the sub-tropics and Central America. Australia has become the world’s driest nation.

In the US Gulf of Mexico high sea temperatures drive 180+ mph winds.2 Flooding is widespread with sea levels having risen by 0.6 metres on average compared to 2020.3 Many plant species have become extinct as they were unable to adapt to such a sudden change in climate.

Food prices continue to soar, with temperatures, droughts and the inundation of arable land adversely affecting many crops. Massive migrations have led to increasingly severe military and police responses from the most popular destination countries. There is fear that we have not yet seen the end of the terrible costs of climate change, with temperatures continuing to rise.

England has a new Eastern coastline, which became a certainty once the decision was taken that the cost benefit analysis did not justify the expense on the massive coastal defences which would have been required to prevent it. Sleaford is now a seaside town. Birmingham is the only major city which has not been significantly affected by sea level rise4 and there are calls for the capital to be moved there. However London hangs grimly on following the failure of the Thames Barrier in the 2040s. An Intertidal Property Pricing Index (IPPI) has sprung up, which sucks in money as investors bet on the development opportunities in the aftermath of the catastrophe.5

This, or something like it, is the future we are currently on track for but none of us wants. So let’s change the trajectory.

Notes:

  1. The IPCC’s SSP2 narrative description.
  2. Mark Lynas, Six Degrees: Our Future On A Hotter Planet, Harper Perennial, 2008 for the scientific consensus at the time on the consequences of 3 degrees warming
  3. https://sealevel.nasa.gov/ipcc-ar6-sea-level-projection-tool?type=global (accessed 5 July 2023)
  4. https://coastal.climatecentral.org/ (accessed 5 July 2023) for the maps of England following 2.7 degrees warming by 2100 following current trajectories
  5. IPPI borrowed from Kim Stanley Robinson’s depiction of a future New York after two pulses totalling 15 metres (50 feet) of sea level rise in New York 2140, Orbit, 2018

We have become the nightmare vendor

25. May 2023 · Write a comment · Categories: Cartoons, Climate Change, Demographics, Economics

For those of you who have ever bought or sold a house (and I realise that that is a dwindling proportion as we move down the age ranges), it occurred to me that the UK increasingly resembles the worst kind of vendor. The sort that removes the lightbulbs and the doorknobs before giving up possession.

Harold Macmillan referred to Margaret Thatcher’s Government “selling off the family silver” in response to the widespread privatisations of public assets at the time. This Government has gone further, denying funding to the health and social security safety net we all rely on to such an extent that, as Health Equity in England: The Marmot’s Review 10 Years On found in 2020:

  • people can expect to spend more of their lives in poor health;
  • improvements to life expectancy have stalled, and declined for women in the most deprived 10% of areas;
  • the health gap has grown between wealthy and deprived areas; and
  • living in a deprived area of the North East is worse for your health than living in a similarly deprived area in London, to the extent that life expectancy is nearly five years less.

However it is even worse than that. I once bought a house from a man who had done all of his own plumbing, despite being a telephone engineer. He proudly took me up to the airing cupboard, where the boiler room displayed piping of complexity which would not have been out of place on a nuclear submarine.

“Everything has its own stop cock.” He said. He might even have called them isolation valves. I just thought of how many different leaks were possible from what he had constructed.

And so it proved. We had a plumber on speed dial before long and, with every new job he undertook for us, most of which was to undo the “work” of which the former owner had been so proud, he used to intone “what a man”, more to himself than to us.

Brexit, even as its architects start to disavow it in the face of the increasingly overwhelming evidence of the bullet holes in our own feet, is our home-made plumbing. And I am sure that there are any number of people around the world, looking at us and intoning “what a man” to themselves. It no longer matters to most of us how much the Brexiteers think they have buffed up their sovereignty isolation valves. Every week brings a new story about another leak of what Macmillan endearingly referred to as our “treasure” that it has enabled.

On immigration, we are like that house on the street which noone from the area wants to go anywhere near. Neighbours only reluctantly enter into any kind of dispute about who should replace the shared fence. There is a huge-sounding dog which barks at you fiercely if you venture up the driveway, on which the only car is on bricks. It feels like, if we were to ultimately die as a nation, noone would notice for years until the smell coming from inside became too much for anyone to ignore any more.

Anyway, enough of all that. I am off to the Hay Festival tomorrow for my annual infusion of ideas, erudition and words just flowing all around me. And so I must leave you with a book recommendation. I will be taking The Golden Mole by Katherine Rundell with me, a brilliant beautifully illustrated book (illustrations by Talya Baldwin) with each chapter focused on a different endangered species. Sounds bleak? No! The writing is so good that you are soon just overwhelmed by the richness you hadn’t even been aware of and might otherwise never have been. I have been reading it very slowly as I really do not want it to end. As Katherine says about The Human at the end of the book, with a different take on treasure:

For what is the finest treasure? Life. It is everything that lives, and the earth upon which they depend: narwhal, spider, pangolin, swift, faulted and shining human. It calls out for more furious, more iron-willed treasuring.

I have this book because Katherine described it so compellingly in an interview at the Hay Winter Festival (a smaller one in November each year). She has also written a book about John Donne, the metaphysical poet, called Super-Infinite. I had not considered until now that I was remotely interested in John Donne, but I also cannot imagine that the week will pass without me buying this and reading it too.

Chasms

12. May 2023 · Write a comment · Categories: Demographics, Economics, Pensions, Science Fiction

I recently finished reading Chasm City by Alastair Reynolds, which I highly recommend. In it, sufficiently rich people have been able to buy a programme of treatments which make them immortal. Not that they can’t die, but they needn’t if they’re careful. Good science fiction, I thought.

Then I read Paul Kitson’s (the new UK Head of Pensions Consulting at EY) piece on LinkedIn where he wrote (bold mine):

Pension schemes, corporate sponsors, members – everyone, in fact – must now contend with a forward looking plan that (somehow!) considers on one side the possibility of future pandemic outbreaks shortening life expectancy, and on the other side the many £billions being spent on ‘regenerative medicine’ (AKA “the ending of ageing” or “escape velocity for death”!).

So perhaps not entirely, I thought.

In Chasm City, the immortals who live in “the Canopy” have two main problems:

  1. Hanging on to their wealth and, if possible, increasing it, as forever is a long time to finance.
  2. Boredom.

One particular group amuse themselves by hunting poor people in “the Mulch” (lower level where the poor live). Others indulge in increasingly dangerous pastimes to inject some urgency into the otherwise featureless expanse of their lives. No wealth moves from the Canopy to the Mulch, not even in a trickle.

I am just finishing Do Androids Dream of Electric Sheep by Philip K Dick (a classic, I know, but I hadn’t read it before, although I have seen Bladerunner). One of the features of the post-apocalyptic world of 1992 described are “mood organs” which allow you to dial up a given mood at any time, eg 481 is “awareness of the manifold possibilities open to me in the future” whereas 888 is the desire to watch TV, no matter what’s on it. Again, good science fiction, I thought.

Then I read a piece in this months’ Actuary magazine called Apt apps, about doctors being recommended by NICE to offer patients with insomnia the Sleepio app as an effective and cost-saving alternative to sleeping pills. So perhaps not entirely, I thought.

The first book was written in 2001 and the second in 1968, so it would seem that lead times are variable.

Both books deal with the fragility of identity, whether via memory implants and religious viruses in Reynolds’ book or how we go about separating androids from people from “chickenheads” in Dick’s. The divisions between the life experiences of the different groups are so stark, but it is the characteristics of the people in them which takes up everyone’s time and attention in both books, rather than the structure of the societies which create such extreme winners and losers. Which suddenly doesn’t feel like science fiction at all.

Meanwhile what has happened to England’s life expectancies by decile of deprivation in the last 10 years?

Source: ONS https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthinequalities/bulletins/healthstatelifeexpectanciesbyindexofmultipledeprivationimd/2018to2020#health-state-life-expectancies-data

So not quite immortality yet at the top, but inequality is clearly worsening in life expectancy. The Government Actuary’s Department gave an upbeat view last year on what the impact of the recent Levelling Up White Paper might be. Others are upbeat too.

However the Government’s track record is not good on inequality. Sir Michael Marmot produced the Marmot Review on health inequalities in the UK in 2010 and then followed this up with a review of what progress had been made 10 years later. As he points out in his recent interview in The Actuary:

Health spending fell from around 42% to 35% during the 2010s. He notes that this reduction was carried out in a regressive way: “There has been a 16% reduction in health spending for the most affluent, but a 32% reduction for the most deprived groups.” In addition, he says, while unemployment fell over the course of the decade, the income of employed people also went down – so the proportion of people living in poverty rose, as did child poverty.

These are the kinds of interventions that matter for most people rather than sleep apps or regenerative medicine to achieve escape velocity from death. And they are definitely not science fiction.

The Parable of the Boiling Frog

28. April 2023 · Write a comment · Categories: Birmingham, Climate Change, Economics, Science Fiction
Source: https://commons.wikimedia.org/wiki/File:Green_frog_(Pelophylax_esculentus_complex)_Danube_delta.jpg by Charles J. Sharp, CC BY-SA 4.0 https://creativecommons.org/licenses/by-sa/4.0, via Wikimedia Commons

It has been quite a year for reading great books and being inspired by them for me: from An Immense World by Ed Yong last April, to Regenesis by George Monbiot and The Lathe of Heaven by Ursula Le Guin in October, to a great trio of reads in 2023 of The Capital Order by Clara Mattei, When The Lights Went Out by Andy Beckett and The Left Hand of Darkness by Ursula Le Guin. And that is just the books I have blogged about.

However, my stand out book this year is none of these. I have often heard people say they wish they had written some book or other, and I have never understood it until now. This is the book I would hope that a better version of me might have written in a parallel universe. Fortunately for you, Simon Sharpe has written Five Times Faster in this universe, and I am so glad he has.

Five Times Faster is funny, constantly surprising and has reframed my entire attitude to the climate crisis and what can be done about it. Perhaps it had more intensity for me as I read most of it aboard the XR bus from Birmingham down to London last weekend, but it has given me more hope for what Kim Stanley Robinson calls “dodging the mass extinction event” than I have had for some time.

Amongst the many wonders of this book is to reframe the time-worn story of the frog sitting in water which is slowly coming to the boil as a series of conversations with its science adviser, its economics adviser and its diplomatic adviser. To do it full justice you will need to read the book, but the gist of it goes as follows:

First of all, the frog asks its science adviser to investigate whether the water really is getting warmer. The science adviser confirms that it is, and also predicts that, in 5 minutes’ time, it will be a further 2o warmer, plus or minus 1o. The frog says it didn’t want a prediction, it wanted a risk assessment. It takes a while to get the science adviser to understand what this is but then, when asked what’s the worst that could happen, the adviser blurts out “That’s easy. You could boil to death.” In response to the question of how likely that is to happen, the adviser says that it would be very unlikely after 5 minutes, more likely than not after 10 and after 15 a certainty. So the frog now realises it needs to jump out of the pot.

The frog now turns to its economics adviser to ask how it should go about it. The economics advisor does a cost benefit analysis by first calculating the energy cost per cm of moving up the pot away from the water, converting this first into food consumption and then money, and equating this with the frog’s willingness to pay for not being boiled, which is derived from its air conditioning bill. The most efficient solution turns out to be to climb 4.73 cm up the side of the pot. Worried that it would just be replacing the risk of being boiled with one of being steamed to death, the frog ignores its economics adviser and jumps out of the pot.

Finally the general problem of the frogs and the relentlessly boiling water is put to the negotiators for a diplomatic solution. The sides of the pot are too high by now for most of them to jump out. The negotiators tell them they just need to raise their ambition and that this is the only game in town. The consequences of not accepting that analysis and looking at alternative salientian strategies make up the final third of the book.

I cannot recommend it highly enough. If enough people read it and act upon it, perhaps we can avoid this:

Source: https://commons.wikimedia.org/wiki/File:2012_Froschschenkel_anagoria.JPG Anagoria, CC BY 3.0 https://creativecommons.org/licenses/by/3.0, via Wikimedia Commons

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