Thursday, 21 April 2016

BREXIT: Are the Eastern Europeans mad to let the UK leave


So at last commentators are beginning to wake up to the fact that if the UK votes to withdraw from the EU, then while this might be bad news for the UK but it will be even worse news for the EU itself. The Italian finance minister, Pier Carlo Padoan, has said that Britain’s departure could cause a domino effect in which Eurosceptic parties and electorates feel emboldened, while the German finance minister, Wolfgang Schäuble, claimed an out vote would be “poison” to the EU and world economies. Catherine Mann, the chief economist at the OECD recently said, “a vote against remaining in the EU would be “bad for the UK, bad for Europe and bad for the global economy” while Dr Jenz Zimmerman, a German government MP said “The departure of Britain from the EU would deprive the union of a “strong voice” from across the English Channel, he said. “Also, it would be more difficult for us in Germany who are strong European voices because France and the southern states might become more powerful.” These sorts of concerns are now increasing as it dawns on the Europeans that BREXIT might actually happen. Expect panic to break out as we get closer to 23 June

Imagine if you are a member of a club, which has rich and poor members and is threatened by outside parties. You are known as the strongest member of the club and also the second richest member. You are also the second most generous contributor to the poorer members of the club.  If you decided to leave the club, do you think the other members would just cheerily wave goodbye and let you go. Of course, not, they would do everything they could to persuade you to stay with them.

 If we turn to the UK and the EU, the situation is that the UK is:


In this situation, why on earth weren’t the other EU member states prepared to do much much more to persuade the UK to remain in the union.

What I find especially strange is that the biggest difficulties to the UK renegotiations were caused by the EU member states from Eastern Europe who gave David Cameron a really hard time. Now let’s recognise the following:

  • Economics - These eastern European states are poor countries and get huge amounts of EU financial aid. In addition, the size of the UK market and the free movement of labour, which enables their citizens to get work in the UK, assist them hugely. All of this will change if the UK as a major contributor to the EU budget were to leave and this will impact negatively on them
  • Security - these states are threatened by a resurgent Russia. Last year I visited the Baltic States and noticed they were terrified about what the Russians might do. Equally the other Eastern states know, from recent memory, what it is like to live under the Russian yoke and should think a bit more carefully about their actions. The UK is the only military power in Europe that Putin would worry about. Why do think he send his bombers to test our air space? – he wouldn’t waste the fuel to test the air space of Holland, Greece Latvia to name but three. If the UK decides to leave the EU on 23 June, expect Putin to celebrate and to raise the stakes in Eastern Europe and the Ukraine.

What is amazing is that these Eastern European states are prepared to let the UK leave the EU over a relatively small amount of money concerning benefits paid to its UK-based citizens. A man from Mars would look at this and think they were mad.Let us hope they do not have cause to regret that action

Monday, 11 April 2016

The UK steel industry and why I disagree with the Economist


I am sure I am not the only person who is a long time subscriber and reader of the Economist journal but who disagrees profoundly with most of what it says. The online comments section of the journal show just that. For example:

  • The Economist is socially liberal whereas I am socially conservative.
  • The Economist strongly supports uncontrolled free market forces whereas I (who also strongly support free market forces) also like to keep an eye on market failure and monopolistic tendencies.
  • The Economist uncritically strongly supports globalisation whereas I am sceptical.
  • The Economist only sees one way to measure the success of a country and that is GDP growth whereas I would like to look at other measures including how that growth is shared out

Basically,  the Economist takes ideological positions while I try to look at problems from a pragmatic perspective. Nevertheless, it is a good read and I do enjoy the books section.

So it is with the steel industry where (surprise, surprise) I again disagree with the Economist. Maybe it is because I was born after the Second World War and was brought up in South Wales where the two giant industries of coal and steel dominated. Subsequently I saw the death of the coal industry and I may now see the death of the steel industry if nothing is done.

So what is the issue with steel? Well, in summary, Tata steel, which is the dominant player in the UK steel industry, has recently posted a £68 million loss for the last quarter. This equates to about a loss of million pounds a day, which, if true, is clearly an unsustainable position in the longer term. As an accountant, I know only too well that such figures are often manipulated to justify an action that you wanted to take anyway

To make matters worse the whole economics of steel is in disarray with low global demand for steel coupled with huge spare production capacity in China, which is keeping prices low. Accusations are also made that China is dumping steel on world markets and below cost.

Clearly, this situation is unacceptable to Tata. Furthermore, Tata does not see any “cloud with a silver lining” on the horizon in the form of a significant global economic recovery, which will improve the fortunes of the steel industry and, in my view, they are right to think this. Consequently, Tata is left with three main options although, clearly, there are several sub-options in each case:

  • Restructuring/Reinvestment
  • Sales to a third party(s)
  • Outright closure

Restructuring/Reinvestment

The first option is to somehow restructure Tata’s UK steel operation in the UK in such a way that is can become profitable and compete in world markets. Inevitably, any such restructuring will required advances in production technology and substantial levels of capital investment, plus a range of associated costs.

It is well known that a plan was put before the Tata board drawn up managers and unions in the company. The plan would involve around £100 million investment to transform the plant into a producer of high-quality steel for advanced industries and aimed to achieve cost savings of some £350 million per annum, which would allow the company to return to profit. However, it would require 750 job losses. The plan would take several years to implement and the investment costs plus the need to finance the losses that would be incurred over the period of transition would be in excess of £1bn.  Tata were unable to accept this plan possibly because it was seen as over-optimistic and/or the risks being too great to justify the huge level of investment involved. This is a huge amount of investment and if Tata are not prepared to accept it then it seems unlikely that any other commercial lender or investor would be prepared to do so.

Sale to a third party(s)

Tata is currently pursuing this option.  They will be selling-off the various bits of its UK steel operation to interested buyers who will have their own ideas about how they will utilise their new acquisitions and what sorts of changes they will make. It seems very likely that the UK government will need to have some financial involvement in this process in order to provide “sweeteners” and guarantees to potential buyers to go ahead with their purchases. What exactly the taxpayer will gain from this financial involvement remains unclear. The problem with this approach is that there are no guarantees that about what the end game might look like and whether what is left constitutes a viable UK steel industry.

Outright closure

In the current environment, if suitable sales of all or part of their steel business cannot not be achieved then it seems highly possible that Tata may decide to close down the whole UK business involving redundancy of its employees and sales of fixed assets.

There are examples in the UK (e.g., Ebbw Vale) where after many years of contraction, steel making ceased entirely and in Ebbw Vales, the plant was eventually demolished and the site used to create a modern learning campus. Clearly, such events involving huge redundancies are disruptive and cause great pain in the communities involved.

With this option, we would be facing a situation where the whole of the Tata steel operation is discontinued with significant and widespread implications for many

 Where do we go from here?

In the light of the above analysis, the question is where do we go from here and as the White Rabbit said to Alice it depends where you want to get to. I suggest that where we want to get to is a long-term viable steel industry in the UK with minimisation of job losses and social disruption. No doubt, the Economist will take a different view from this.  

In considering the above issues, I suggest there are three critically important points to keep in mind:

  • The UK’s manufacturing heritage and future – the UK has a long and proud heritage in iron and steel production, which goes back centuries. However, it should also have strong future as well. Writing about the unbalanced UK economy (http://www.publicfinance.co.uk/2010/04/double-trouble).  I emphasised the pressing need to focus on the role of manufacturing industry in the UK and to engender a resurgence in the sector.  This point was emphasised for many years by, among others, Sir John Rose, the chief executive of Rolls Royce (one of the few remaining UK examples of world-class manufacturing industry). However, this view usually seems to fall on deaf years because of the obsession by London-centric governments (of all parties) on London and its financial services sector. The steel industry in the UK should be important in its own right as a producer of high quality steel for many countries and as the source of steel for UK manufacturing industry.
  • The strategic importance of steel – in the last few days I have read many commentators including the Economist, The Financial Times etc argue that steel is not a strategic industry for the UK. They believe that we can always get what sort of steel we need from somewhere in this world whenever we want it. I would dispute this. Firstly, as I have argued above, a strong UK manufacturing industry needs a strong UK steel industry not relying totally on the continuity of global supply chains in unstable parts of the world. This seems to be especially important in the case in relation to the production of military hardware where I really do not like the idea of national defence having to rely on the delivery of steel from an unstable region the other side of the globe. Related to this is that many commentators such as the Economist seem to have disarming naivety and over-optimism about the state of the world. Those of us who have lived in the Middle East were extremely doubtful that the “Arab Spring” would result in any form of democracy in the Middle East and the experiences of Syria, Egypt, and Libya etc show that we were right.  However, until very recently, the Economist was still talking about the possibility of something positive coming out of the Arab Spring.  I was a child of the 1960s and remember the cold war and the Cuban missile crisis. The world I see today is far more dangerous and unstable than in the cold-war period with the potential for conflict all around us in many different forms. Hence, I would strongly argue that we need a strategically viable steel industry in the UK rather than put ourselves at the mercy of globalisation in a turbulent world.
  • Economic and social impacts – as already noted the closure of any steel plant has major social and economic impacts. The situation with the potential closure of several steel plants and even the complete closure of the Tata steel operation in the UK is of even greater significance. Not only will jobs be lost in the steel industry but further jobs will also be lost further up the supply chain and in local businesses who rely on steel workers’ wages to keep afloat. The normal way of assessing this is by the conduct of an Economic Impact Appraisal (EIA) and while such studies may have been conducted on the closure of individual steel plants, I am not aware of any study, which looks at the impacts of closure of the entire Tata steel business. I commented to someone that if such a study were undertaken, we should probably ensue we need a box of Valium at hand before we looked the results, which will be frightening. Such a study is needed before Government makes any decisions.

 When I consider the three factors discussed above, I draw three conclusions.

  • The UK needs to foster a stronger advanced manufacturing base and this will require high quality steel
  • The UK needs a viable domestic steel industry in a dangerous and unstable world.
  • The social and economic costs of closing Tata’s UK steel operation are not yet quantified but will probably be horrendous.

In the light of this, it seems to me that some form of nationalisation or state ownership of the UK steel industry must take place. Now before the right wing of the Tory party start crowing about “lame ducks”, it must be emphasised that I am not talking about old style Labour ideology of nationalisation to conquer the commanding heights of the economy. My suggested nationalisation is a pragmatic and non-ideological response to the situation I see evolving before me. In a paper entitled “Could state capitalism save the day” (http://www.publicfinanceinternational.org/opinion/2012/03/could-state-capitalism-save-day) I argued that the UK should learn from successful economies across the world, such as China, India, Malaysia and Brazil, where government involvement in business is accepted and has helped provide stability and boost business. Yes there will be risks and a cost to the public purse but there will be a certain costs involved in in providing sweeteners to private companies who might by Tata piecemeal and of paying benefits to redundant steel workers and their families which could also run into hundreds of millions of pounds per annum. And for those, in Treasury, who might suggest that they would find other jobs, I would say leave your Whitehall offices and visit Port Talbot.

So there we have it. In late 2015, I wrote a piece entitled “Ideological purity or people’s lives” (http://www.malcolmprowle.com/search?updated-min=2015-01-01T00:00:00Z&updated-max=2016-01-01T00:00:00Z&max-results=4). This questioned whether this Government puts ideological purity (i.e. against state ownership) above the needs of the economy and people’s lives and welfare. My final shot was whether this government is the party of One Nation Tories or Ideological Fanatics. Their response to this crisis will answer that question.

 

 

 

Saturday, 9 April 2016

Adult social care under the cosh: Where do we go from here?


Adult social care is the term used to describe a range of support services provided by local authorities to (in the main) elderly people. Although these services are commissioned and funded by local authorities, the actual provision of care may be undertaken by private sector, public sector or third sector organisations.

Why do I suggest that adult social care is “under the cosh”? Well firstly, we have the demand side. The success of medical science in extending both the length of life and the quality of life of older people, coupled with a reduction in the fertility rate of the population (meaning fewer babies are being born) means the structure of the population is changing. Thus, we see a continuously increasing trend in the proportion of our population represented by the elderly (65+) and the very elderly (80+). The impact of this is shown diagrammatically below where we see, clearly, a bulging of the elderly population bands


 

Secondly, because of “austerity”, it is well known that local government in England has been the hardest hit part of the public sector with over a third of its funding being cut since 2010 and with more cuts to follow. In other parts of the UK, the impact on local government has not been as savage.

Now, local government delivers a wide range of services and it might be thought that these cuts would have been focussed on areas other than social care for vulnerable people. However, as one senior local government officer once said to me “there are votes in parks, leisure centres, refuse collection etc but there are no votes in old people”. That may be cynical but it does illustrate why adult social care has had to take a large proportion of the financial “hit”.

Many local authorities have dealt with the levels of funding cuts heroically (http://www.accaglobal.com/content/dam/acca/global/PDF-technical/public-sector/tech-tp-tiosfl.pdf) thus minimising the damage to front-line services. More specifically, cuts in adult social care funding have also been dealt with by a variety of means but have probably now taken most of the “low hanging fruit” in the first phase of austerity from 2011 to2015.

 

What is now required is a much closer inspection of specific social care services  and one area of concern has always been that of residential care for the elderly  which consumes just under half of the adult social care budget.  Some authorities are concerned that the rate (per 100,000 population) of permanent admissions (65+) to residential homes seems high particularly when set against the rates in comparable local authorities, and what might be seen as the norm.

 

I have been looking at this issue recently, and there seems to me, to be three main factors, at play here and need to be investigated thoroughly.

Population characteristics

There are a range of population factors (morbidity, economic, socio-cultural and other) which will be drivers of the need for admission to residential social care for the elderly. Hopefully, the impact of variations in some of these factors will have been eliminated in making the choice of comparable local authorities a reasonable one but this may not be the case. Hence, a more detailed analysis would need to be undertaken of the socio-economic characteristics of the population of the various social care authorities being compared. This will aim to identify whether or not higher rates of admission can be justified on population characteristic grounds or whether further investigations are needed. Moreover, collaboration and sharing of data by a number of authorities should, through the use of data analytics, enable some sort of normative level of admission to be calculated for a particular population profile

Limited alternatives

Where there is a deemed need for social care for an elderly person, those responsible for making the decision about what sorts of care to provide have to take account of many factors but especially:

  1. The needs of the individual for care
  2. The wishes of the individual
  3. The alternative approaches to care that are available (usually locally)

Quite often it will be the case that the type of care required by a consideration of  a) and b) above will not be available locally and a choice has to be made based on what is actually available. In such circumstances, it is quite possible to see how a person who does not really need residential care ends up in residential care because that is the only option available. This could lead to a higher than needed level of admission to residential care

To deal with this, various alternatives might be made available. Some form of enhanced domiciliary care might be made available while a recently published report by the Centre for Social Justice (http://www.centreforsocialjustice.org.uk/UserStorage/pdf/Pdf%20reports/CSJ-Evermore-May-2013.pdf) speaks of a “quantum leap in improvement of what is available”.

The implication of this for local government is the need for greater innovation and flexibility in service provision for the elderly rather than “one size fits all”.  In turn, this may also have implications for the way in which those services are commissioned.

Decision making

The systems for assessing the needs of elderly people and identifying and deciding the most appropriate care approach is complex and involves representatives of health and social care (as well as the elderly person themselves and their relatives) individually or as part of a multi-professional and multi-agency team. Unfortunately the decision making approach often varies in the degree of robustness and transparency and many people sometimes report distressing experiences. Furthermore, the assessment and decision-making approaches often lack consistency between different social care/NHS organisations but also, sometimes, within the same social care/NHS organisation as a consequence of different perspectives by the various people involved.

Under the heading of decision making process we can incorporate a range of factors (such as: organisational structures, mechanisms, degree of autonomy, different professional perspectives, culture etc) which will impinge on the way in which care decisions are made and the outcomes. All of these will feed through into the decision making process and it should not be surprising that sometimes decision making is sub-optimal and inconsistent. Moreover, there are external factors to consider. The Francis report on the Mid-Staffs NHS Trust scandal rightly emphasised the importance of patient safety. However, many are now of the view that patient safety has, in some cases, become a byword for extreme risk averseness. In turn, this may be affecting decisions about adult social care.

This is a complex area but some attempt needs to be made to ensure that the decision making involved is being approached in an informed, consistent and reasonable manner given the limited resources available  and the need to optimise its use.

 

The issues discussed above are quite complex and need specialist skills. Understandably, hard-pressed local authorities may find it difficult to undertake the degree of analysis required. Nevertheless, in the context of the current (and future) financial situation, there may be an imperative for a greater degree of sophistication in addressing the issue of adult residential care