How Baby Bonds Grew Up
“Transferring future generations into the new fully funded pensions and social insurance system is straightforward. The account is opened at birth in the name of the child, with the government paying in the first 1000 to start it off. The 1000 will grow, either by interest or capital appreciation, even while the child is growing up. The child’s account might well be topped up by payments made into it by other family members, free of tax up to the normal limits.”
“A succinct and readable paper from the Adam Smith Institute,” Bill Jamieson called it in his article “Welfare: Here is your starter for 1000” in the Sunday Telegraph on 31 December 1995. “The purpose of the ASI’s Fortune Account is to build up a nest-egg for retirement. But the account holder will also accumulate savings that can be drawn in periods of unemployment, disability or medical expenses.”
Only last year that the left-leaning Institute for Public Policy Research called for a 1000 ‘baby bond’, with the same ideas in mind.
“But wait a minute,” commented Bill Jamieson in his column on 20 Feb 2000. “Is this not the same 1000 Fortune Account first advocated by the Adam Smith Institute five years ago? I wrote about it here in December 1995?” Well yes.
Still, as Bismarck said, if you like laws or sausages, you should never watch either being made. The Baby Bond system that is being trumpeted by the government (in this pre-election period) has some of the essence of the Fortune Account/IPPR ideas, but has actually come out as a twisted mess.
What we’re left with is another exercise in social engineering. Another means-tested benefit, designed to channel yet more resources from wealthier to poorer families. A system that will not take power out of the hands of politicians, but will give them yet another flow of funds to use to buy votes from favoured groups. A system that will not reform the welfare state, but which will add another programme on to its mind-bogglingly complex and heavy superstructure.
It is all retrograde thinking. Frank Field, the DSS minister sacked earlier on in this administration because his free thinking on deep and difficult issues could not be tolerated, was right in saying that we need to get away from means-testing. Not only is it degrading, but it is ethically corrosive (people are rewarded for making themselves worse off, or for misrepresenting themselves as worse off than they really are) and both complex and expensive to administer.
If you are going to have means-testing in order to redirect resources from rich to poor, then why have more than one means-test? Why not do it, transparently, with a Negative Income Tax system above the line, you pay tax, below the line, you’re paid benefit rather than add yet another means test (and no doubt another 40-page application form) to the array of means-tests we have already?
On the cost side, Gordon Brown may well think that, by the time the system is up and running, it will be for some other Chancellor to work out how to pay for it. He might even imagine that the new funds that are being directed to poorer families will enable him to reduce other benefits. But who ever heard of a welfare benefit being taken away?
The thinking behind ASI’s 1995 Fortune Account idea was that it would be simple (basically, everyone registering a birth gets a 1000 cheque, no problems) and that it would build into a lifetime pool of savings that would raise people out of dependence on state benefits which is would then, quite obviously, replace. Being properly funded instead of pay-as-you-go, it would be more secure, and therefore more popular. Many state insurance programmes would wither away because everyone had something better. Being individualized accounts, people would feel they had more control over them than they do over their DSS and Council benefits today; and there would be every incentive for them to add to their savings, or to the Fortune Account savings of children and grandchildren.
But when you try to make it an instrument of social engineering, you build in perverse incentives, complexities, and a lack of individual control. Then you don’t achieve what the idea was supposed to achieve.
A beautiful conception, but what an ugly brute the Baby Bond could turn out to be.
Unbundling the Welfare State
Cost containment brings problems of its own, most notably problems of complexity and under-provision. Chronic under-provision has been a general feature of the UK public sector as whole for some while now and it arises from the limitations of tax funding as a mechanism for financing the supply of goods and services on which expenditure might be expected to grow faster than national income.
Whilst targeting of benefits through some or other forms of means testing may help contain budgetary costs, it effectively operates as a tax on self-provision, thereby reducing incentives for personal initiative. The largest effects are likely to fall on millions of households who, though not in poverty, enjoy relatively modest incomes. For these people, incentives to supplement state benefit levels are relatively weak, and dependency on inadequate levels of state provision is encouraged.
If problems of growing complexity and underprovision are to be tackled, some of the key features of existing welfare arrangements will need to be radically re-designed. In particular, public policy objectives need to be clarified and made more precise, and government activity needs to be reshaped in ways that minimise the ‘crowding-out’ effects that they have on self-provision.
One necessary condition for this to occur is that there be greater separation or ‘unbundling’ between measures to redistribute income and the public provision of particular types of benefit. This will reduce the ‘cross-subsidisation’ implicit in many state benefits/services, and hence the distortions to markets that such cross-subsidisation creates. In effect, it means re-establishing much closer links between specific insurance and savings (e.g. pensions) benefits and contributions made, and more clearly distinguishing these from income transfers.
More stable and more precise contractual arrangements also need to be established so that (i) non-state providers will have incentives to make the investment necessary to develop low-cost, mass-market products and services and (ii) there is greater clarity about risks that, going forward, will be borne publicly and risks that will be borne via insurance pools and capital markets.
There is considerable scope for increasing social security provision through elimination of existing distortions at the boundary between state provision and self provision. Some of the reforms made to date point the way forward: for example, tax credits can be used systematically to unbundle income redistribution from insurance and saving products. Without some radical re-design of existing arrangements, however, progress can be expected to be slow, and under-provision will likely continue to be a problem for many years to come.
Life in the Hot Lane
But reserving the route to specially-equipped buses would ensure that only a small fraction of the capacity of the rail right-of-way would be utilized. Only twenty buses per lane per hour are expected to use the system in peak-time in 2016 – taking up less than five per cent of lane capacity! Cambridgeshire expects to receive some £70 million of taxpayer’s money to implement this sadly inefficient project. Could it do better?
One answer can be found in the US, where some motorway lanes are reserved for “High-Occupancy Vehicles” (HOVs) such as buses and car-pools. But HOV lane capacity is wasted when there are not enough HOVs to utilize it.
The problem was successfully solved in 1995, on State Route 91 in California, by allowing the spare HOV-lane capacity to be used by toll-paying vehicles, the tolls being collected electronically, without vehicles having to stop. The tolls vary with traffic, and are kept high enough to ensure free flow at all times. Those lanes (dubbed “HOT Lanes” because they can be accessed by High-Occupancy or Tolls) are being considered for other US cities because they have the following advantages:
* They assure congestion-free travel on payment of a fee; * They provide congestion-free facilities to designated HOVs, at no charge; * They reduce congestion in other lanes by drawing away some users; * They expand road capacity without expanding infrastructure; * They raise revenues, possibly enough to be self-financing.
Might there be an opportunity now in Cambridgeshire to improve on the “guided busway” concept by re-configuring it as a “HOT Lane”? There would be the additional advantage that the tolls might make such lanes attractive to private finance. It would, in essence, allow road users to buy their way out of congestion, while providing a toll-free facility for public transport. All this at little or no cost to public funds, which could be reserved for projects more difficult to finance privately, such as pedestrian or cycle facilities.
There are not too many projects which offer clear benefits at no obvious cost. Are not HOT lanes on disused Cambridgeshire railways worth exploring further?
Do we need a Department for Education and Skills?
Even in those days, however, it seemed to me that the Department of Education in London was attempting to control in detail the day to day running of schools. For example, if a local education authority wanted to close, open or expand a school, permission had to be given by the Secretary of State. In practice, of course, the civil servants compiled the case for and against approval. In practice also, I personally obtained greater information where necessary at times visiting the school itself. Usually, but not always, the Secretary of State confirmed the approval or rejection given to him. It seemed to me then that: who were we, in remote London, to determine what was best for a school we had never even heard of? For that matter, was the local authority best placed to pronounce life or death over a school? Surely it should be the school itself expressed by parents, staff and governors to have the dominant say, or to use a term, it should be up to the market.
Well, of course, in comparison to the Department for Education and Skills (DfES) today, we of 20 years ago exercised a light touch. Today circulars and other papers pour out of the DfES at several a week. Today, the DfES tells schools what to teach, how to teach, what ‘targets’ to achieve, what to spend, what not to spend, and so on. I always opposed the introduction of the National Curriculum, even when the Tories introduced it. I could see what was coming: almost complete central ministerial control.
The last few years have been disastrous for schools. Any improvements in some areas have been in spite of government interference not because of it. You only have to look at the independent schools to see how they operate very well, teach to a high standard, mostly get excellent results, and all without the DfES, nor a Local Education Authority, breathing down their neck. In short, the state maintained schools catering for 93% of school children would greatly benefit and achieve more if they had the freedom to manage as enjoyed by the independent schools which cater for the other 7% of children. But could this be done?
Well yes it could, and rather more easily than those who have a vested interest in the present system might suppose. The Grant Maintained policy of the late 1980s and up to 1997 (when Labour scrapped it) showed us the way. Those schools which chose to become Grant Maintained prospered in almost every way, but most importantly in the quality of education. They also demonstrated, to the delight of the Treasury, greater effectiveness and efficiency with the money allocated to them. The policy was to allow the number of Grant Maintained schools to grow as and when schools wanted to join. By 1997 there were a fair number, but most schools were directly maintained, and then Labour scrapped the Grant Maintained ones anyway.
The next government should establish a very clear, unambiguous funding policy for schools, based upon so much money per pupil per year, varied according to the age of the child, with extra for proven special needs. The schools would be paid the equivalent of school fees by the government, based upon the number of pupils at the school. As with the Grant Maintained system, the best way of doing this is through a funding agency operating within tightly drawn rules.
All maintained schools would then have the freedom to manage and freedom to educate within the allocated budget. They would not have, and would not need, control from the local authority, nor from the Department. They might choose to buy some services from the local authority (transport, special needs assessment, grounds maintenance), but that would be up to them, and out of their budget.
All the Circulars, instructions, regulations, targets and the rest of the present paraphernalia from the DfES would stop. OFSTED, the schools’ inspectors, would continue, but would inspect along the lines now applied to the independent schools.
Parliament would, as always, vote each year the money allocated to schools; the Treasury would pay it to the Funding Agency; the Funding Agency would pay it directly to the schools. No job left for a DfES? That’s right, we do not need the DfES, we do not need a Secretary of State for Education, and, as the saying goes, if it is not necessary to have a Department for Education and Skills, it is necessary not to have a Department for Education and Skills.
How would this be achieved? Clearly it depends upon, and stems from, the schools policy outlined about. An incoming government would initially retain the DfES and the Secretary of State to put through the necessary legislation to create ‘Grant Maintained for all’. Slowly, after probably two years, the DfES would dwindle in size as its work on funding was taken over by the Treasury and the Funding Agency, and the rest of the work would be done not at a bureaucratic level but by the teachers in schools themselves. So schools policy implemented first; wind down and out for the DfES to follow.
Mrs Thatcher may have decreed only one Circular per year; let us decree not even one.
Our over-centralized schools
State education suffers from too much control from the centre. Teachers are snowed under by paperwork, and dismayed at being told how to do their jobs by ministers and officials. All of the major – and many of the minor – operational and spending decisions are made by county and national bureaucrats who are distant from life in the classroom and the real needs of children and parents. Bad schools reinforce a spiral of decline in too many localities. Disadvantaged by low levels of literacy and numeracy, communities suffer under high levels of disaffection, unemployment, and crime. The middle classes can escape by going private or moving house. But the poorest remain trapped inside a near-monopoly system that is too centralized to respond to their needs.
Exit will drive reform
Huge budget increases have not brought the exptected improvements in NHS performance. Nor are they likely to. Some 70% of the NHS budget goes in wages, and increases tend to go there first. Medical equipment and medicines are getting more effective, but they are also more expensive. Meanwhile, the population continues to get older, demanding yet more medical and social care. And because there is no competition, new money shores up out-of-date ways of working, rather than going into the development of innovative systems.
The result is that most of us are unlikely to notice any improvement in standards, no matter how large the budget increases given to the NHS.
How then to bring change to the NHS, or any other state monopoly? It seems likely that the most effective, and possibly the only, way to drive reform is to open state services to the same kind of competitive pressure faced by almost every other business. In other words, the knowledge that, if you do not provide the very best of service, customers can quite realistically leave and go to another provider.
Of course, we do not have this position at present, either in healthcare, or education, nor in any of the major state services. A lucky (or desperate) few can afford to go private instead, and just by-pass the state provider; but the vast majority of the public cannot.
In a paper for the Adam Smith Institute, Getting Back Your Health, Professor Philip Booth of the City University, London recommends that we give patients a rebate, based on the value of the medical care they can expect from the state. They can then take this rebate to any provider, public or private. The rebate does not necessarily cover the full cost of alternative care, since we need to make sure that a reasonable funding stream continues for those who choose to stay with their NHS providers and not to take up alternative options. But it would give an important cash boost to perhaps millions of people who would like to go private, but cannot quite afford to do so.
The rebate proposal, says Professor Booth, should go hand-in-hand with reforms to the NHS. This is important in order to deliver a higher quality of service to those who choose to use the NHS. It is also important as part of a more general move to liberalise the provision of healthcare and free the NHS from the top-down approach to funding and management. Without going into detail, the following list gives an indication of the kinds of reform that are necessary in the NHS. They are designed to change the incentive structure so that there is more chance of developing functional pricing systems – so that people know where the waste is and where the shortages lie – and that providers will look to patients, and not bureaucrats, for their continuing funding. The reforms include:
* the principle of fund holding should be restored to GPs * trusts should be made fully independent and responsible for setting pay and conditions * health authorities should be allowed to purchase health services from any provider * trusts should be allowed to sell health services to any funder (a private insurance company or any health authority).
The government, in fact, has made limited progress on some of these points, in terms of statements of principle. However, much will depend on how radical the implementation is and the extent to which the devolution of budgets to ‘Primary Care Trusts’ really does involve devolution to the front line, and how entrepreneurial the PCTs will prove to be. However, given the huge opposition within the government’s own Party to even the most modest reforms – such as Foundation Hospitals – the prognosis is not good.
Which again brings us back to our starting point: that the most likely way to improve the systems and output of the NHS is, paradoxically, to enable people to leave it. And with a state rebate cheque, millions could do just that, speeding their own treatment and taking a huge pressure of demand off the NHS.
The Political Conditions
Before Britain joins the Euro the five economic tests must be passed. Chancellor Gordon Brown declared in June 2003 that four of the five tests had been failed. He was satisfied that British entry would not damage financial services in Britain, but was not happy about employment or investment. Nor was there sufficient convergence or flexibility.
The supposition throughout was that this was about economics. In fact many, if not most, of those who support entry do so for political reasons. While they advance arguments that this will be good for the British economy, they support entry because they maintain it will make the UK more influential in Europe, and more tied in with the development of a united Europe. Similarly, many opposing entry cite economic arguments but are opposed to the political implications of UK membership.
If entry is to be, at least in part, a political decision, the possible political barriers to membership might bear examination, just as the economic ones did. It could be argued that there are five political tests in addition to the economic ones.
1. There must be no transfer of power from elected representatives to unelected officials.
The great fear in Britain is that some of our European partners seem happy to have civil servants make decisions which they would prefer to see controlled by electorates. From the European Commission downward, bodies can make binding decisions which cannot be reversed by electors, nor can their members be dismissed by electors. This lies at the heart of the democratic deficit of which Europe stands accused. Only if the UK were satisfied that there would be no such transfer would his test be passed.
2. Britain must retain the ability to set its own rates of taxation.
Since the tax cuts of the 1980s, Britain has had lower rates than most of its EU partners. They, on average, have to work an additional nine days to pay off their annual burden. For some it is much more. The British fear that if Europe raised their taxes to the rates which prevail in the EU, it would have the same harmful effect on wealth and job creation which those high rates have had in Europe. A guarantee that Britain could continue to set its own taxes would be needed to pass this test.
3. Joining the Euro must not prejudice Britain’s ability to determine the social conditions of employment, including payments and benefits, and to determine its own welfare policy. Britain has a more dynamic economy, roughly midway between those of the US on one side, and the other EU members on the other. We have a more flexible labour market, and can respond more rapidly to economic opportunities. Our social labour costs are lower than those of our partners. We try to keep our welfare at a level which does not burden enterprise and industry with excessive taxes. The UK must be assured that European social and welfare policies will not be imposed on this country.
4. There must be guarantees that British taxpayers will not be required to pay for the unfunded pensions which some EU countries have promised their citizens. Britain has opted overwhelmingly for funded pensions. Most of the income of our future pensioners will come from funds which have been saved up and invested for the purpose. Many of our EU partners have opted for pay-as-you-go pensions, in which present taxpayers pay the pensions of present recipients. In place of funds are promises drawn on future taxpayers. Britain’s pension fund is larger than that of all our EU partners combined. If Britain joins the Euro, there must be guarantees that the British people, having saved for their own pensions, will not also have to pay for those of their European partners who did not.
5. Britain must be assured that joining the Euro will not lead to taxes which are paid by British taxpayers direct to European institutions.
If EU bodies acquire the right to impose taxes directly upon the peoples of Europe, then both the peoples and their national governments will lose control over the activities of those bodies. We pay our taxes to elected bodies and can, by our vote, influence to some degree the level of those taxes and the wisdom with which they are spent. This important plank of our democracy would disappear if the EU were able to impose taxes directly upon us. The possibility must be specifically excluded if this test is to be passed.
Taken together, the five political tests do indeed constitute further barriers to British entry. They could all easily be resolved, however, by guarantees that our entry would not result in the events they seek to preclude. Such guarantees would give the lie to those who claim that these events are part of a creeping plan to impose them by degrees. By specifically precluding them, it would be possible to reassure the British people that they were not being drawn covertly into a European state, or deprived systematically of their traditional democratic rights and their independence.
By adding the five political tests and setting them out openly, it would make it easier for people to accept an economic case for entry. Since this is a political decision, it makes sense to see if it meets our political concerns.
The Paradox of ‘Affordable’ Housing
Who, what, and why?
A recent note from the House of Commons Library suggests that there is really no argument about the need for affordable housing. It states: “The provision of affordable housing is viewed as a fundamental component of sustainable development.”
But what precisely is ‘affordable housing’? The note quotes the Cambridge scholar Alan Holmans, who defines it as: “renting at below-market rents from a public body or a housing association?; shared ownership sponsored by a housing association; or renting from a private landlord with all or part of the rent paid from public funds, currently Housing Benefit.”
In other words, what has come to be called ‘affordable housing’ is in fact social housing or subsidised housing. A new name to make an old political policy more difficult to object to.
And why do we need social or ‘affordable’ housing? The House of Commons note suggests that it is simply because the cost of housing has outstripped the financial means of many people: “The cost of house building and the level and distribution of incomes and assets means that large numbers of households lack the resources to make a demand for decent housing effective in the market.”
Scale of the problem
Since the market is assumed to have failed, political debate in housing circles has become heavily focused on disputes over how many new ‘affordable’ housing units the government should be providing to meet future demand.
In 1995, the Conservative government estimated a need for 60,000 to 100,000 units per year throughout the 1990s. Subsequent studies tend to support a figure in the same region, although towards the upper end: in 2001, Alan Holmans’ estimate was about 80,000 to 85,000 p.a.
But provision in recent years (at about 40,000 p.a.) has fallen well short of this figure, with the result that estimates of the accumulated shortage (or ‘backlog’) have risen. Holmans’ 1995 estimate of 500,000 units needed to clear the backlog had become 650,000 by March 2001. In March 2002, Lord Best estimated that the “difference between housing demand and supply will have widened to a yawning gap of 1.1 million homes in England alone by 2022, most of it in London and the South-East.”
The total amount of ‘affordable housing’ needed in each future year is therefore the sum of projected annual demand and the build required over time to clear the ‘backlog’. Given that governments have consistently failed to meet the targets for new ‘affordable housing’ set for them by housing experts, the calculation of future demand is constantly rising, since the backlog, far from being reduced, is always getting bigger.
Importance of the debate
This debate has real consequences. Reluctant to liberalise the planning rules and allow more building, governments have presided over a market where demand has well outstripped supply. The people who are most clearly excluded as a result of this imbalance are of course those who are least well off. So now, politicians are under constant pressure to meet the needs of this group by providing more ‘affordable’ or social housing.
Some politicians relish the situation that this ‘market failure’ (or more properly, government failure) has brought about. The electoral consequences of such things have never been lost on politicians: Herbert Morrison triumphantly declared his determination to “build the Tories out of London”. And today, the Mayor of London’s draft Spatial Development Strategy (the ‘London Plan’) is predicated on massive new provision of social housing.
The ‘key workers’ justification
Another stimulus to the ‘affordable housing’ debate is the difficulty that public-sector workers (in particular) find in affording starter homes in London and other places. So the question is how homes might be found for ‘key workers’.
It is not precisely clear who qualifies as a ‘key worker’, though police, nurses, and teachers are commonly cited as examples. And since it is assumed that people in such professions will demand more flexible tenure arrangements than traditional public-sector renting, it is not obvious what ‘key worker housing’ would look like.
Nonetheless, it is taken as a fact of life that these ‘key workers’ cannot decently house themselves without the public sector providing homes for them, or at least without the government intervening significantly in the housing market.
Soft-selling social housing
Semantically, the substitution in recent years of the phrase ‘affordable housing’ for ‘social housing’ has made the policy easier to sell. The new language has led many ordinary people into thinking that it means that houses on sale in the private market will somehow be made more affordable. But of course it means nothing of the sort: it means a return to the policy of the state providing social housing and subsidised housing. And the terms in which the proponents of this approach have framed the debate mean that the only legitimate area for dispute is about how fast the demand for ‘affordable housing’ is projected to rise.
The promise of lower house prices must be a cheering prospect for purchasers, particularly those just entering the housing market. Unfortunately, in believing this implication they are the victims of pure spin.
2. Unravelling the assumptions
Dependency and dysfunction
The reality of the housing market is not only quite different from that which the language of the ‘affordable housing’ debate implies: it is also racked with perverse incentives that do nothing to help solve the underlying problems.
For example, many of those living in ‘affordable’ housing are drawing Housing Benefit and Council Tax Benefit: they therefore have little incentive to leave the ‘affordable’ housing sector, even if they are in work.
And there are many other spanners in the works of the housing market. In some cases, tenancies are inherited. Council house sales have been resisted by most local authorities and further discouraged by recent lowering of the discounts. Housing associations are not subject to the Right to Buy legislation. In London especially, larger units are in very short supply; but there is no incentive (as there would be in the private sector) for those whose families have grown up and gone away to trade down to a smaller (rented) unit, thus releasing it for a new family.
It is a sector from which practically all market mechanisms have been removed. It is not dysfunctional because the market is incapable of working in the housing sector, even though it works quietly and efficiently in so many others. It is dysfunctional precisely because the market is not being permitted to work.
Just what has failed?
But the consensus position is that large numbers of households lack enough money to make their demand for decent housing effective in the market. In other words, in the housing sector, markets are assumed to have failed ex hypothesi.
And the consensus conclusion is that, because of this market failure, the need for the state to house people has grown. That is indeed a remarkable conclusion, in a country where incomes have been rising steadily for decades.
Historically, it might have been understandable that we should have wished to make subsidised provision for the landless labourer or the unskilled industrial worker. But today, astonishingly, we are being asked to provide publicly subsidised housing for young people with university qualifications about to enter such eminently middle class professions as teaching and medicine.
It seems hard to understand why the market should have failed in housing, when in most other sectors, the goods and services it delivers have become steadily more ‘affordable’, not less.
Could the answer be ‘government failure’ rather than ‘market failure’?
3. The policy conclusions
New ‘affordable’ housing policies
Mrs. Thatcher’s government removed from local authorities their established role as providers of social housing. They also pressured the local authorities to contract out the management of their housing stock, and gave tenants the right to buy. The present government has, until now, continued these policies. Thus, the housing associations, which were given the local authorities’ social housing role, have remained the principal means by which public subsidy might be channelled into ‘affordable’ housing.
But now, in addition, increasing use has been made of planning policy guidance requiring larger-scale developments of new private-sector housing to include a substantial ‘affordable’ element (in conjunction with a Registered Social Landlord) by means of a Section 106 agreement incorporated into the planning permission. (Exactly how much of a new private development should be dedicated to ‘affordable’ housing is a matter of acute political debate, but the consensus is between one-third and one-half of the new supply, with the Mayor of London at the upper end of the range.)
Make housing less affordable
Many people assume that Section 106 agreements to provide new ‘affordable’ housing are either costless (since no public money is provided), or that they capture for the public sector a planning gain that would otherwise have gone to the developer or landowner.
But developers and landowners are unlikely to give away their gains without a qualm. In reality, they pass at least some of the cost of providing the ‘affordable’ houses to the purchasers of the new private units that are built alongside. Section 106 agreements therefore contribute to the upward spiral in private sector house prices; and the wedge between those who can afford to enter that market and those condemned to state support widens even further.
Supporting bad managers
Structural rigidities in the social-landlord sector also need more rigorous examination. The management failings of housing associations (in very ordinary ways, such as replacing light-bulbs in common areas) are often overlooked by the proponents of ‘affordable housing’, although most councillors know from case work that housing associations tend to be very sub-standard property managers.
If the Right to Buy cannot be imposed on housing associations – and the House of Lords would not pass it even when the Conservatives were in power – might not housing association tenants at least have the power to appoint private sector managers for their blocks?
Creating more dependants
As to ‘key workers’, it is no coincidence that the groups usually mentioned are all workers in the public sector. Formerly, police and nurses (among others) were provided with subsidised accommodation as part of their remuneration. But much of this stock has now been sold off, in part because of the constraining effects of government accounting policies.
In private, public-sector employers admit that it is bad pay policies that are at the root of the calls for ‘key worker’ housing. It seems pointlessly destructive to distort the whole of the housing market just to make up for this deficiency. The only lasting solution is to address the deficiencies in public-sector pay.
We need more market, not less
If the established policy consensus has any merit, then it must rest on one or more of the following demonstrable facts:
a) that there is an overall shortage of housing, now and projected into the future, that the market is not meeting; or b) that what is regarded as a decent standard of housing has risen faster then ordinary incomes can sustain.
There is some evidence for both of these propositions, but it is not clear that they support the extension of subsidised housing to an ever-growing section of society. Rather, they might point to the need for more house-building overall (rather than just ‘affordable’ housing), to the need for market liberalisation, or more flexible planning controls, or less restrictive regulation on minimum housing standards.
They might point, indeed, to the need for the housing sector to be driven far more by the power of the market, and far less by the powers within politics.
Butler on Museums
And this fact, that it is the politicians and not the public who pay the bills, has divided our museums from the public they are supposed to serve. They don’t reflect our culture, but that of the elites in power – elites who love big projects, and who find a few big budgets easier to manage than a lot of small ones.
So we see 11 million quid of Lottery cash blown on the pop music museum in Sheffield, another 9 on the visual arts centre in Cardiff – both of them closed within months. I’m sure both city councils grabbed these projects with both hands. But did anyone ask ordinary residents? Did these grand projects have any resonance with the people who actually live there?
I’ve just come back from the Isle of Arran, which has a delightful heritage museum. It’s tiny, and sits in a row of but-and-ben farm cottages. But it’s part of the fabric of the Island. Dedicated volunteers give it life: the community supports it, and it supports them, their identity and their culture.
If it had £11 million of public money I am sure it could put up a fabulous building and increase its collection fifty-fold. But it would lose its soul and purpose. Just a dead thing that had been dropped onto the landscape.
We have too many marble palaces built on the sewer of public money. And that is money that is forced out of us under pain of imprisonment. But if the public really valued what museums do, we would fund them voluntarily, through admission fees and donations. And to make us do that, museums would have to engage more with us, and be more businesslike about it.
The Christmas gift catalogues have started to arrive, and it’s actually good to see many museums exploiting their unique collections in this way; I am sure it brings people to the museums, and indeed, brings museums to the people.
But we need much more. We need innovative membership schemes that charge visitors fairly, without curbing access. Maybe vouchers for deserving groups. And the treasures that museums have in store should be rented or loaned – or even sold – to public and private collections. Museums must build new streams of income on their huge assets.
So let’s rid museum boards of the snobs who think that having to earn money from the public somehow taints their purity. As every business knows, the only way to survive – and to grow – is to give your customers such a good experience that they come back for more.
Don’t we want our museums to be like that?
Dr Eamonn Butler is Director of the Adam Smith Institute. This article was originally broadcast on BBC Radio’s You and Yours programme.
Medical Savings Accounts
Many countries with private health insurance schemes — the US, Singapore, even South Africa — have developed the medical savings account idea as an escape from runaway healthcare costs. The idea is to allow insurance, public or private, to concentrate on providing against the big, unpredictable and costly healthcare needs, but to ensure that everyone has access to savings that can be used to provide for the smaller, routine, more everyday healthcare costs.
Thus instead of US employers covering their workers for every conceivable healthcare need — a very expensive proposition — they instead provide only catastrophic health insurance, and give their workers back some or all of the savings as a ‘medical savings account’ which they can use on healthcare costs as they please. Workers like it because they decide how to spend their account, instead of having the manager of a health management organization (HMO) tell them what they can and cannot like. Employers like it because it is cheaper. And insurers like it because they are not bogged down in the administration of very small medical claims.
In Singapore, a compulsory provident scheme covers people for their big-ticket medical costs. But they are also obliged to save into a medical savings account. They have to keep this topped up to a level that would cover the average person’s annual medical bills.
The idea of medical savings accounts is that insurance remains focused on the big risks, while the small items are dealt with out of savings. This is efficient, because it means insurers are not chasing paper on very small insurance claims like dressings, minor pharmaceuticals, or the cost of GP visits – those can be met in cash by the individual from funds in his or her medical savings account.
Another source of efficiency is that the medical savings account idea is also a disincentive against overdemand. People may not willingly volunteer for large-scale interventions like transplants or dialysis, but when minor medical services are free, people demand more than they really need – calling out the doctor to deal with minor ailments, for example – adding to the insurers’ costs and creating queues and delays for those who are in urgent need. Where patients see the cost of their care, however, they are less likely to demand more than they believe essential. This is particularly true if unspent balances in a medical savings account can be taken in cash at year-end, or rolled up towards other items, such as a retirement pension, college fees, or house purchase.
In principle, medical savings accounts should work just as well in a state-insurance system.Today’s NHS, for example, is overburdened by the demand for (and administration of) minor services, including GP visits, minor pharmaceuticals, and relatively cheap medical treatments. Too often, though, there are long queues to see a GP (or consultation times are stripped down to a few minutes), and long waits to receive even minor medical attention.
Could medical savings accounts help curb this overdemand? Instead of all services being free, should the NHS concentrate on providing only the big-ticket items for free, and charge for minor items such as GP visits? The money saved — perhaps half the NHS budget — could be remitted back to UK citizens as medical savings accounts, which would ensure that everyone had funds to pay directly for the small-scale care they needed — as well as the free service to fall back on in the case of a major medical problem. Knowing how much health services cost would prompt us to shop around for the best value, making the supply of healthcare services more competitive and efficient, and with the right incentive structure it would induce people not to overdemand minor services while equally making sure that everyone did go to get the treatment they really needed.