When the mind wanders to tax and economics

Having a curious little thought about tax and the economy, so bear with me.

This little thought comes from a very important question: given all the waste in the public sector, where is all this money going?

Here’s a hypothetical. I’m directing a big IT project at the HMRC. Let’s say a nice, civil liberty infringing database, something perhaps to do with ID cards. These things seem to be all the rage these days anyway. I appoint some Programme Managers and Project Managers, but since we have very little in-house experience, we’re going to need contractors. So we tender the project and appoint a consultancy. Let’s call them Capcenture, for arguments sake.

Capcenture come in, look at our hastily drawn requirements and make some suggestions, the requirements are changed and we then go out to hire a load more contractors to help us develop it – coincidentally, most of these people are one-man-band ‘consultancy’ companies going through an Agency, taking advantage (barely legally) of IR35 to pay as little tax as possible (and who can blame them?). Already the bill is looking pretty swollen, but the project is underway.

Then, someone goes back to the original specifications and decides that there’s more functionality they need out of it. Development has already started, so this means more modifications, and the timetable slips. The budget doesn’t cover for that kind of slippage, so they revaluate the project and go back to the purse holders talking about sunk costs and the importance of this government approved initiative.

More contractors are hired at £500 per day to help with the development. The Consultancy is called back in with their specialists each at £1500 per day. The bill goes ever higher, and the project will run for ever longer. All this money gushing from the purse of the public; but where is it going to?

The Government is giving it to private sector companies, whose tax receipts will funnel some of it back to the Government. The rest they will invest in staff, or save, or spend as is their wont. The shareholders off all these companies will reap the dividends. The consultancies all know this. That’s why there are armies of ‘Public Sector Account Managers’ and specialists. An entire business stream has built up on selling to the public sector, because it is the ultimate cash cow – and they always pay their bills. If it sounds a lot like stealing from Peter to pay Paul, you’d be right.

Where has the money gone? Into the private sector; waste or not, you can’t deny that people have profited from it, even if it is the few rather than the many. Hold up a second there. Did we just say the few rather than the many? Isn’t the point of socialism and social democracy the many rather than the few? Isn’t it about redistribution of wealth and all that stuff? Our taxes have gone to pay for a project that lines the pockets of the evil capitalist piggy things! By extension, the Government has stolen from the many to give to the rich few.

Yikes. Who’d have seen that flaw in their logic?

Anyway, it seems to be something of a merry-go-round of money. I think of it as being that there is ultimately a finite source of cash in the economy. This can occasionally be increased in terms of numerical amounts, but the ultimate value of the cash pool cannot change. In my very simple understanding, this is why we get inflation – you can print as much of the stuff as you want, but that only devalues what you have. 100% split into thousandths is still 100% when you add it all up. Growth, and an increase in the base value of the money pool, can only occur when new products are created or resources made/discovered.

The only difference is who determines where that money goes. Is it me, or is it the Government?

The Devil’s Kitchen has for a while now been hunting down, naming and shaming what he identifies as Fake Charities. These are pressure groups and lobbyists that receive significant funding (more than 10% or at least £1m, I understand) from HM Gov. Notwithstanding that I find the principle of the Government choosing to pay my taxes to a ‘charitable’ pressure or lobby group with whom I disagree to be a total affront, the funding for these groups should come from those who support them, not the body politic.

I do not agree with what the Anti-Drinking/Alcohol lobby say, therefore I am appalled that my taxes are going to fund them. I may sympathise with the Anti-Tobacco lobby insofar as I like not having smoke in my face, but the fact they push to actively remove the rights of others to do to their bodies as they please means that I would never willingly give them money. As you can imagine, I’m not best pleased that the Government does on my behalf. Even for charities of which I approve, such as Stonewall, I do not agree with the Government funding them, or indeed any public sector body. Public money should not fund a pressure or lobby group, however admirable their aim.

The Government has decided that it knows best where to spend our money and to whom to donate, therefore these ‘charities’ receive money to advance their arguments to the Government. Right or wrong their arguments may be, the decision of who to support should be mine. On no grounds, be it health, social welfare or civil liberty, should taxpayers cash go towards a pressure group. Unfortunately, it does.

Charity should be private and personal. Charities and political lobbying groups can lobby me for my cash all they like. They certainly should receive none from the treasury.

The State colossus, Big Government, our massive and bloated Public Sector, are the manifestation of that denial of choice. They are testament to a belief that our leaders know best how to spend our money. Which, given the way they throw it around, shows a complete lack of respect for the people from whom they take it on threat of imprisonment. I apologise if that all seems melodramatic, but New Labour scare me and I don’t trust them with my money. Imagine if the Government let failing industries fall. What do you think would happen? My belief is that if there is no market for goods, the companies are on borrowed time anyway. If their departure creates an opportunity, someone with savvy will fill it.

At the heart of all this is one basic difference. One approach assumes that the populace is too selfish or too stupid to spend its money, the other believes in the intelligence and natural altruism of the human spirit. If you like, socialism is the ultimate form of political pessimism. Libertarianism, and to a degree, Conservatism, believes in the ultimate good of humanity and in our ability to decide for ourselves.

Not quite so idyllic...

The maddening lunacy of students who get on a bandwagon for a ‘cause’ almost always ends in some poor sap having to deal with the fallout. In the wake of Israel’s targeted action against Hamas in Gaza, the student fury over the Eden Springs water contract has roused itself from the doldrums where it belonged.

Basically, Eden Springs UK are a subsidiary of Danone Springs of Eden, a leading water supplier in Europe. No problem so far. The complication comes here: Mayanot Eden Ltd. is an Israeli mineral water producer which operates in Europe under the Eden Springs brand. It extracts water from the Golan Heights in Israel, and this is where Palestinian Solidarity groups have taken offence. Mayanot, they claim, oppress the Palestinians and steal their water, as the Golan Heights were illegally annexed. It’s the old ‘Israel the Villain’ argument, and guess what, it’s EUSA and the Scottish Palestinian Solidarity Society who are peddling it.

Some students are really good at causes. They do their research, look at all angles of an argument, reason out the good from the ill and make their stand accordingly. Others, and probably most, jump on the nearest bandwagon for the nearest underdog and shout as loud as they can, whether or not their case actually has any validity.

Which brings me to this case: Eden Springs UK does not supply you with water from the Golan Heights. Their parent company is majority owned by Group Danone with a 58% stake, not Mayanot. If you really want to dig into it, Eden Springs UK is held by Danone Springs of Eden BV (a Dutch company) which is ultimately owned by Danone SA – a French company. None of these companies have been charged or convicted of a criminal offence. Eden Springs UK are in fact a Scottish operated group – so all that EUSA/SPSS are doing is promoting the boycott of a Scottish company. Well done there!

So the sins of the father shall be visited upon the son. In this case, whether any sin has been committed at all is a matter of perspective, but let’s leave that out of it. The Golan Heights have been Israeli territory since 1981. Why penalise a UK holding of a French company for something that one of the partner organisations may or may not have done wrong?

While this has been bubbling along for a while, the Gaza conflict has once again brought it to the fore. The result of the renewed interest has been that a lot of University contract teams are under pressure from students to cancel the contract. Legally, they are under no obligation to do so, as you must have an actual, valid reason to cancel a contract. In this case, a bunch of students in a tizzy does not constitute a valid reason. Criminal conviction, breach of contract, failure to supply and so on – those would be good reasons to review the contract. If there are break clauses they may be able to exploit these, but they’d really have to ask why the heck they’d want to rather than tell the students to go forth and multiply.

EU Procurement law Vs. My taxes.

I received today an e-mail inviting me to attend a seminar on EU Procurement law. There have been rather a lot of seminars on this subject lately, but this one was going for an attention-grabber:

“The EU procurement rules are fraught with difficulty.

You are required to navigate between the black letter of the law and the commercial reality of putting together a procurement.

To manage the risk effectively you need rock-solid advice on what you can and can't do.”

It went on to list a number of the hurdles and complicated rules that can make a public sector contracting exercise something of a minefield, from when you can and cannot speak to suppliers during the process, when a framework is anti-competitive and thus non-compliant, and so on and so forth.

Normally these things get the ‘delete’ treatment without any further ado; however this framed the problem faced by contracts teams within the Public Sector very succinctly. Basically, there are so many pitfalls, red tape and ridiculous levels of bureaucracy designed at making the process as ‘fair’, ‘open’, ‘transparent’, ‘non-discriminatory’, etc, etc. as possible that it becomes an uphill struggle before you even get started.

I’m not saying that any of these goals are a bad thing. On the contrary, they are wonderful principles of a free market. Public money should be accountable, and we should not be awarding the contract to someone who isn’t going to offer the best value for money.

It’s also fucking difficult to argue against the rules. They make irritating sense to a free-marketeer. If followed, they stop protectionist policies and are intended to prevent sharp practice, all good things. In fact, you can’t even say that a public body should be able to spend its money in the local economy, because the whole point of the rules is that the best response to your tender will win the business.

In other words, if local suppliers want to win the business, then they need to up their game and improve. It also means that there should be no barrier to those local suppliers winning business elsewhere in Europe, if they decide to do so. Great, in theory.

So, does that mean I’m happy that my tax money is going to line a German, or Spanish company’s offers? Well the flipside is that their tax money could well be lining those of a British company, so you could argue that it will all come out in the wash.

What I’m trying to make clear here is that the spirit of the EU Procurement rules is something I agree with. My issue is more whether or not the sheer cost of implementing the laws, enforcing them, and even writing the damned things is actually delivering us any value for money, or if in fact is costing governments – and therefore you and me as the taxpayer – a huge amount of money that could be better off back in my pocket.

It also means that the UK Government can’t say to contracting authorities (basically a body spending public cash) that they should source locally and support the British economy. It has no say over where that public money will end up. Of course I should be happy that the most economically advantageous tender will win, therefore saving the taxpayer money. It’s very easy to end up in a circular argument on this.

When the House of Commons commissioned the construction of new offices for MPs, what was to become Portcullis House, the contract for the windows went to a British firm. The problem was that a French-owned firm, Harmon, had submitted the most economically advantageous bid. Someone at the House had decided we should buy British. Harmon challenged this under a breach of the EU Procurement rules and were awarded damages in court for £1.85m. There were other aspects they could also sue for, however the House of Commons settled out of court for an unspecified fee. So the taxpayer paid for the windows twice over, maybe more. Now, can you spell colossal waste of my fucking money?

Fine, you say, live within the rules. I question not the spirit of the rules, let me re-iterate that. What I do believe in is choice. The same choice afforded to the private sector, which has far more freedom to make decisions on where it spends its money. What I question is why that accountability seems to lie with Europe, and not with the UK taxpayer. Why the fuck are some overpaid bunch of bureaucrats allowed to tell our public sector that it can’t support local businesses if it chooses to do so? It may not be the right choice, but the point is that the public sector in the UK should be responsible to the UK taxpayer, not to fucking eurocrats.

I fail to see why we need another layer of bureaucracy on top of our own, trying to tell us what we can and can’t do – private or public sector. Big government is not a good thing. More big government above a big government is worse. We have enough crap from our own politicians, we really don’t need to be subsidising eurocrats as well, and we really don’t need more layers of red tape, processes and procedures that cost the taxpayer even more money.