Lies, Damned Lies and By Election Analysis

The Feltham & Heston by-election has produced the predictable outcome of a Labour win against a background of greater than the usual level of voter apathy.

But when he heard a comment on the radio this morning that the Labour Party is clearly going backwards, because it had achieved a lesser swing in this by-election than in Barnsley Central, Chubby Cat pricked up his furry little ears.   For two reasons; firstly that Barnsley Central was the last by-election but two (so the interviewee in question was clearly being selective) and secondly because of the sheer bonkersness of relying on 'swing' as a measure of very much at all in a by-election like this.

It is testament to the influence of the late, great Robert McKenzie, inventor of the swingometer, that we still use this concept.  It has its uses, but it was invented in the days when 95% of the votes in Parliamentary elections were cast for two parties, Conservative or Labour, so it made more sense to think of elections as a battleground in which one party won support from the other.  Nowadays, across the UK, around a third of votes are cast for other parties, so the pendulum is now one that swings in circles rather than just to and fro.  At the very least, you have to calculate more than one swing figure for each contest to see what it is going on.

For by-elections, which invariably come with a much poorer turnout than General Elections, it makes more sense to look at who it was who decided not to vote.

In Feltham & Heston, over 25,000 people who voted in 2010 decided not to bother in the by-election, a 52% remarkable reduction in the number of votes cast, broken down as follows;

Conservative	-10080	-61.0%
Labour	-8535	-40.3%
Lib Dems	-5315	-79.6%
BNP	-1174	-68.5%
Novelty & local (*)	-632	-74.1%
Green	-104	-19.6%
Workers Revolutionary	-78	-100.0%
UKIP	284	28.6%
English Democrat	322

(*)   'Novelty & Local' is Chubby Cat's collective term for all those parties that don't really count at a national level.

The Conservatives lost the largest number of votes, over 10,000 or 61% of their votes, while the Lib Dems fared even worse, losing nearly 80% of their 2010 poll.   Labour lost 40%, which is less than the 52% overall reduction in votes cast, hence the increase in its share of the vote, but only an irrespressible optimist would call it good.  A pattern since the 2010 General Election has been that all three main parties have lost votes in each of the by-elections, apart from Oldham & Saddleworth, which arguably doesn't count because the 2010 result was declared void.  Only UKIP regularly increases not just its share of the vote, but also its ACTUAL number of votes.

Of course, all of this is great fun,  and utterly meaningless, but it confirms the general trend provided by polling that none of the three main parties is in particularly good odour with voters at the moment. The next General Election is likely to be won by the people we dislike least on the day.  

Passing on the Pain

The BBC reports that the English Community Care Association, a representative body for charity and private sector care providers, has criticised local authorities for 'appalling' behaviour in seeking to reduce what they pay for care home services.  

This can be read two ways.   Firstly, it is clearly the case that local authority funding is being reduced significantly in cash terms over the next few years, and since social care is the largest area of local authority expenditure which is not directly funded by the Government (as is the schools service), many authorities have little choice but to bear down on costs.  There are only two ways they can do this,  either by reducing entitlement to services, which is clearly difficult when we are talking about highly vulnerable people and in some cases almost certainly unlawful, or they can try and reduce prices.

Since the private and voluntary sectors are now major providers of care services, the only way this can be done in a lot of cases is to reduce fees paid to these providers, and inevitably some of those providers will be more easily able to bear the reduction than others.  For local authorities, this is no more than doing to their suppliers what the Government and, to some extent, the taxpayer does to the local authorities.  Even before the current economic crisis, more was expected for less on a year-by-year basis.

The other way of looking at it is that if you are a care provider, and you have already driven down costs as far as they will go, it is impossible to go on providing the same services for less money- just as it is impossible for local authorities to do so for services they run, for all the exhortations of Ministers.  Furthermore, some local authorities seem to have been a little high handed in the way they have sought unilaterally to reduce fees which, if I recall from ancient days my studies of commercial law, is not strictly allowed.

The Government's reaction has not yet become clear but I have a shrewd suspicion - based on track record- that they might take the part of the private and voluntary sector, if they say anything at all, although perhaps they would be wisest to stay out of it.

Let it not be forgotten in all of these high handed rows between funders, commissioners and providers that the people who suffer at the end of the day are the residents of care homes, among the nation's most vulnerable citizens.   Thus every time a decision is made to cut public expenditure rather than to put up taxes, the pain of public sector cuts finds its natural level. In many cases, as in this one, this is at a level of accountability many steps removed from the original decision-  a process which, if I was being cheeky, I might be tempted to call the 'Trickle Down Effect'.

Buy now, nothing to pay until after the next election

It was interesting recently when the cost of PFI to Hospital Trusts entered the news.  To recap, certain Tory politicians were complaining that their local hospital trusts are hobbled by the costs of PFI schemes entered into under the last Government.  The cynical would say that this is no more than a smokescreen to distract from the current lot of cuts, but the future costs of current decisions is a big issue in public finance.

Now there is nothing wrong with ‘buy now, pay later’ as such – as long as you go into it with your eyes open and understand what you are getting yourself into. And politicians in particular will always be open to a nice buy-now pay later scheme if there’s one going.

The PFI scheme in theory is sustainable because the benefits of the new build hospital or school, prison or road will be consumed while the contract payments are being made.  There is an obvious irony about a politician standing outside a spanking new hospital complaining about payments to the PFI provider eating into the budget for patient care, as if somehow hospital services could be provided without the inconvenience and expense of having to provide hospitals.

Unfunded public sector pension schemes are a more problematic buy-now pay later schemes because the future taxpayers who will end up paying for them will not get the benefit of any of the value provided by the public sector workers receiving the pensions.  In effect past generations have employed teachers, police, soldiers  and NHS staff  (and to a lesser extent local government staff since their scheme is partially funded) on the cheap.  The problem is not that these commitments were entered into, but that the government of the day failed to make sufficient financial provision for them.

The question of value for money in PFI, of course, is another matter.  The best that can be said is that it can be quite hard at the start of a twenty five or thirty year contract to know what is going to happen that might make the deal look like a bad one several years down the line.  The classic RPI based inflation indexation for PFI contract payments for example is looking like a bad deal now; three or four years ago it was looking fine.   Perhaps more risk should have been transferred to the private sector, but as we know, risk transfer always comes at a cost.

More frustratingly for both parties to PFI contracts, the impact of changes in Government policy can be both disruptive and expensive to resolve.  All those Secondary School PFI schemes that predated first Building Schools for the Future and now the academy model would have worked best if the contracts could have been allowed to run more or less unamended for the duration. Unfortunately asking the Government to go twenty-five or thirty years without thinking up at least a dozen new ways of providing school buildings is a bit like expecting the cat to stop chasing mice.  Each one of those policy decisions would have the potential to frustrate the contract and that’s another risk that the private sector has to build in.

Politicians reserve the right to complain about the foolish decisions of their predecessors, and that is in fact how our system is supposed to work.  The feature of a democratic system is regular elections and changes of government which leads to changes in policy; it makes our system responsive to change and, from that point of view, relatively efficient.  The fact is that it also comes with certain inefficiencies of the type already described. 

The question is not why do public sector buy-now pay later schemes end up costing more than anticipated – the answer to that is simple enough-  but whether given that truth we should really be encouraging them at all.   For finance professionals in the public sector, all we have to do is to stop the cat chasing the mouse- easy!