economy



This post may seem ironic to people working in local government in England where both their functions and the funding they receive from central government to provide them have been and are being so drastically cut. The actual circumstances I set out apply directly to Scotland (I pick up the political aspects of those circumstances in my other blog). But the arithmetic and the issues are relevant anywhere a higher level of government helps fund a lower level.

People don’t like paying taxes. They especially don’t like paying them when it’s very obvious (unlike, say, VAT) and when a bill for them arrives, literally, through the door. And they don’t like paying more taxes in times of inflation or when they feel hard pressed.

Local government, throughout the UK, has for a long time received most of its funding directly from central government. How much they get and why is a complex story. But crudely speaking, about 70% of council funding has come from central government. Some of the rest comes from income (parking fines, housing rents and so on) but much of this is, to use the jargon, ring-fenced for specific purposes. So, also crudely speaking, we can say that councils have received about 30% of their income from local taxes – once upon a time domestic rates, briefly and notoriously the poll tax, and now council tax.

Because of its visibility, people are very conscious of increases in council tax levels. They don’t like it. They moan to their elected representatives at all levels and the government comes under pressure to ‘do something’ about it.’ The ‘something’ they’re sometimes tempted to do is institute a council tax freeze, paid for by them in exchange for certain commitments by councils (I examine the Scottish example in my other blog).

There are two unintended consequences of a council tax freeze of this sort.

First, over time central government funds a greater and greater percentage of council spending. The following table illustrates this.

If

  1. a council service costs £100 in year 1 and annual inflation is 3%
  2. and it is funded 70% by the government, 30% by council tax
  3. and the government agrees to pay for the maintenance of that service at existing levels providing the council agrees not to increase council tax

this is what happens.

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
TOTAL COST 100.0 103.0 106.1 109.3 112.6 116.0 119.5
Government pays 70.0 73.0 76.1 79.3 82.6 86.0 89.5
Council tax pays 30.0 30.0 30.0 30.0 30.0 30.0 30.0
% paid by government 70.0 70.8 71.7 72.6 73.4 74.1 74.9

So in seven years, in this simplified example, central government funding increases from 70% of a council’s spending to virtually 75% (three-quarters) and the longer the freeze continues, the higher that percentage will creep.

I spell out some of the detailed consequences of this in Scotland in my other blog that I’ve already mentioned. But the general point, as the old saying has it, is that he who pays the piper calls the tune. And the more he pays, the more he calls the tune.

The second unintended consequence is that wealthy people benefit more from a council tax freeze than poor people.

This can be illustrated by the situation where I live, in Aberdeen. There are seven council tax bands based (historically) on the value of your house or flat. Each band is set as a percentage of the middle Band, D, a sort of rough average.

The table below shows what the council tax is in 2014/15 for the lowest, ‘average’ and highest property bands in Aberdeen. If the council tax freeze were to continue for seven years, council tax would stay at those levels – £820.26, £1230.39 and £2460.78 respectively. The table shows what council tax would be if inflation continued throughout at 3% per year and there were no freeze.

2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
Band A 820.26 844.87 870.22 896.33 923.22 950.92 979.45
Band D 1230.39 1267.30 1305.32 1344.48 1384.81 1426.35 1469.14
Band H 2460.78 2534.60 2610.64 2688.96 2769.63 2852.72 2938.30

From this information it is easy to calculate what people in each band would save with a freeze (the difference between 2014/15 and 2015/16 + 2014/15 and 2016/17 etc)

Band A 543.45
Band D 815.06
Band H 1692.54

So the taxpayers in the highest council tax band save £1149.09 more than those in the lowest band.

You may object to this on the basis that the council tax is based on housing prices not incomes. What about the little old lady with a small income who lives in a large house inherited from her parents? What about the self-made millionaire who never moved out of his council house? Of course extreme cases like this exist. But on balance we can be sure with some confidence that in most cases the value of the property that people live in reflects their wealth and income. So a council tax freeze tends to benefit the better off more than the poor.

My contention is that both this and the increasing reliance of council funding on central government are unintended consequences of a council tax freeze. To keep the technical and more overtly political aspects of this separate I look at some of the wider implications in my The Nation says No Thanks! blog.

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I’ve taken to posting the occasional blog entry about Singapore, entries that might confuse regular HelpGov readers. After all, as the header says, HelpGov is about trying to make sense of government and public services, and other stuff. Why would I be interested in this small, far-away island state?

The truth is, I feel quite sentimental about the place.

I was part of a large tribe of children – mainly British, but also Australians and New Zealanders – who spent part of their childhood in the country when their fathers served in the various Commonwealth armed forces based there right up until the 1980s.

Singapore Orchard Road 1960

Singapore Orchard Road 1960

Our time in Singapore was idyllic. We led a largely open air life in shorts and flip-flops. We swam in mostly European-only pools and in the warm sea. If our parents weren’t looking we ate exotic spicy foods from street vendors and cooled off with brightly-coloured, sweet ‘ice balls.’ We soaked up the tropical climate and the sights, sounds and smells of cultures a million miles removed from the drab greyness of our own countries. And almost universally, our mothers had a female servant, an amah, to take the drudgery out of domestic work.

So it’s not surprising that we mostly feel good about our time there. If you don’t believe me just Google ‘far east britbrats’ (what we tend to call ourselves).

What we don’t remember – by and large – is the downside.

The fact that what we enjoyed was a by-product of Empire, an empire dead or dying by the time we got there.

The fact that our comfort and delight in the place was built on the availability of cheap labour.

The fact that for at least part of the period there were still open drains discharging into the filthy Singapore River, that most Singaporeans lived in poverty with a life expectancy way below ours, that many children wore no shoes, that it was not uncommon for Europeans to say things like ‘Get the boy to do it’ when referring to a waiter or male servant.

All that makes the achievement of the country since those days the more remarkable.

An island with no natural resources has been transformed into a modern state with an income per head significantly exceeding that of the old colonial master. Singaporeans, rightly, compare themselves to other ‘first world’ countries. There is an elected parliament and a properly-constituted judicial system. The country ranks fifth on Transparency International’s latest Corruption Perceptions Index – higher than the UK, Australia or Canada. And for fans of HelpGov’s more traditional subject matter, the head of the Singapore civil service was invited last year to contribute to The Guardian’s Global Public Leaders Series.

So bearing in mind my own background and what the country has achieved, I’m reluctant as a foreigner, an ang moh* to boot, to criticise Singapore. It somehow seems impertinent.

But my browsing on the web has brought me up against a less congenial side of the country, for example the strange case of Professor Tey Tsun Hang and the apparently esoteric subject of a government population white paper.

I would be less than honest with myself if I didn’t share my thoughts on other aspects of that less congenial side so, seeking the forgiveness of Singaporeans in advance, I will do that in my next post on Singapore.

* Ang moh or  红毛 – a Chinese term for Westerners, often derogatory, but I’ll live with that.


I nearly wrote this two days ago when Donald Trump issued his latest statement about the offshore wind turbines he believes will blight his new golf course at Menie in Aberdeenshire.

The not-always sensible gene in my brain told me ‘Wait a day or two otherwise you’ll write something you regret.’ It also saved me getting confused with another news story that day, headlined by The Scotsman as

Man who arrived in Scotland with rare fever transferred to London hospital.

Sadly, it wasn’t about the noisy Trump-et but a poor man who has since died of the rare disease he had.

It’s best to let Trump speak for himself. Here’s some of what he said.

  • Their [the RSPB’s] name should be changed to RSKB – “Royal Society for the Killing of Birds” to reflect their pro-wind turbine position
  • Military radar will be totally affected by these massive, ugly and inefficient turbines…..wind turbines compromise national security
  • They are doing it strictly because Alex Salmond wants them to, and Alex Salmond has a death wish for Scotland
  • The golf course I have built is already considered, perhaps, the best in the world
  • The hotel I am planning would likewise be far superior to any hotel in Scotland, England, Ireland and, hopefully, anywhere in Europe
  • Restaurants, hotels and stores are packed to the rafters because of the success of our great golf development
  • Alex Salmond, whose greatest contribution has been to let a Libyan terrorist go home to his friends after bombing Pan Am flight 103
  • Almost as importantly as the destruction of the Scottish environment and landscape, taxes will be raised massively for Scottish taxpayers to pay for Alex’s folly.

It’s difficult to know where to start in analysing this meretricious nonsense. Put at its simplest it re-tells the old, old story of Trump’s superiority in every way to anyone who might threaten his business.

So, the RSPB don’t exist to protect birds but the Donald does. He knows better than the UK military about radar and national security. His golf course and hotel will be the best in Scotland, the UK, Europe…the world. Restaurants, hotels and ‘stores’ in the North east are packed to the rafters already a few months after his golf course opened [They’re not]. Alex Salmond – who I hold no brief for – not only has a death wish for the country he so clearly loves above all else but his greatest achievement has been releasing a Libyan terrorist. And to pay for the one wind farm off Aberdeen that is the cause of Trump’s ill-temper, taxes [that the Scottish Parliament currently has no power to raise] will have to increase massively.

Perhaps the only other thing you need to know about Donald Trump is what I heard the director of the excellent documentary You’ve Been Trumped say when the film was premiered in Aberdeen

In three years [following Trump for the movie] I didn’t hear him say ‘Thank you’ once.


Ahh, money!

Lovely money.  Lolly, bunce, spondulicks, quids, bucks…

As many names for it as the Eskimos are said to have for snow or, to lower the tone, slang words we use for our own human sexual organs.

And for the same reasons.

They’re all things that are really important (yes, them too).

But money’s different from the others in one critical respect.

As the song from the musical Cabaret has it

Money makes the world go round

It makes the world go round.

It’s literally the currency that keeps the economy of the world moving.

We all like it and studies have shown that whatever we’re paid most people would like a bit more, roughly 10% more in fact, that being the amount people tend to think they’re underpaid for the work they do.

Most of us provide a product or service for that work.

Those products or services are incredibly diverse – from potatoes in umpteen different varieties, through fast food, vehicles as different as Mini Coopers, Rolls Royces and JCB diggers, to physiotherapy, dentistry…you get the point.

But there’s one trade where the product is money itself – banking.

And I think that’s one of the many problems with banking.

The product – money – they deal in is also the product they (the bankers) pay themselves.  How easy it is to cream off a bit more of the vast sums of money flowing through the system, a slightly higher commission here, a bit more bonus there.  No-one will notice, surely?

It’s not like that for anyone else.

If you work on an assembly line of the company that makes Mini Coopers, or even manage it, you don’t want to be paid in cars, you don’t want your bonus to be half-a-Mini this year, 65%-of-a-Mini next year if profits go up.

If you flip burgers for a living you certainly don’t want to be confronted with 120 meal deals at the end of the month with your pay slip.

(Gratuitous old joke – Q: What do you say to a graduate of XYZ [insert your favourite] University?  A: Big Mac and fries, please)

So just as we have to put up with being paid in their product – money – I propose that bankers should be paid in units of the products and services we produce.  After all, each of those products and services has a market value.

I wouldn’t be too mean about it.  I’d let them choose the product or service they want to receive their remuneration in.  Having determined an employee’s salary and bonus the bank would then transfer to the individual that amount by value of the product/service concerned.

You can imagine the scene on the trading floor of the casinos that pass for investment banks.

‘Yay! That deal with the Kazakhstan derivatives went through.’

‘OK, what did you get?’

‘Two IKEA kitchens.  Woot!  Woot!’

‘Big deal.  The scam with the Mexican trade got me 50k.’

‘50k?’

‘Yes, 50k pairs of M&S briefs.’

[Silence]

‘Er, swap you a cupboard for 500 pairs of knickers?’

And so on…

The system would also have the merit that it would be more difficult to cream off that little extra of the product (money) we give them to invest for us.

Wealth adviser (sic) to client – ‘Um, our commission’s gone up this quarter.  That’ll be another £350.’

Client – ‘That’s fine.  How do you want it? Eighty-five sacks of potatoes or two-thirds of my ride-on mower?’

I think this could be a goer.

Brilliant idea ©HelpGov 2012