Liberal Vision

Three cheers for the Browne review

The debate over the Browne review of higher education funding has only just begun, and the most negative responses, predictably have come from those who haven’t read it, or are wedded to unworkable and regressive systems like the graduate tax or pure state funding. From this corner we hope the government adopt the proposal in full, as an entirely workable compromise between the parties, building on the best elements of the previous government’s innovation in the sector.

In response to Simon Hughes statement we believe this proposal will help drive quality by changing the role of government from provider to regulator and forcing institutions to be more responsive to the needs of their students. By retrenching the principles of no up front payment, a higher repayment threshold, and a reasonable repayment percentage it should not put off anyone able from any background. Deep risk aversion to debt is better tackled by targeted support by institutions (this report helps that) and schools than multi-billion pound middle-class welfare. The repayment system with a 30-year write-off also means the system is fair and progressive. People cannot be forced to pay more than the cost of their education, and low-income earners are not punished by excessive debt for life.

It is hard to understate just how thoughtful and balanced this report has turned out to be. The six principles guiding the proposals are outlined as

• More investment should be available for higher education funding
• Student choice should be increased
• Everyone who has the potential should be able to benefit from higher education
• No one should have to pay until they start work
• When payments are made they should be affordable
• Part-time students should be treated the same as full-time students for the purposes of learning

The proposals themselves can be summarised as:

• The cap on fees will be removed
• The government will pay the cost of learning up front, students don’t start repaying until their income exceeds £21,000
• Payments are affordable at 9% of any income above £21,000, the interest rate is no higher than the government borrowing rate
• The mechanism will also apply to part-time courses
• Institutions that charge higher fees will have to pay back some of that to the government to offset the cost of borrowing
• After 30 years any outstanding balances are written off
• Living cost loans will be available to all at £3,750 per year
• Tapered maintenance grants of up to £3,250 per year will be available to students from households with income up to £60,000 per year
• Alumni donations will, like gift aid, be tax free
• All these thresholds and payments will be reviewed in line with the cost of living

Some benefits of the proposed solution:

• The system should permit an increase in the quality, flexibility and the number of places by increasing sector finance sustainably
• Quality will be driven by student demand, competition between institutions, and backed up by a simplified and unitary higher education regulator. Higher Education institutions will have more control over their own destiny.
• Variable fixed fees means students can think through the cost and benefit to them of specific courses and seek compensation for poor quality supply.
• No one can ever be impoverished by this scheme, nor can it be used as a future stealth tax by the state
• Unlike the NUS graduate tax proposal it will not increase government debt or force cuts in other areas to pay for them.

The only pity of this report is that it didn’t come from the Liberal Democrats. The party has had the Centre Forum report, Open Universities, since 2006, which makes many of the same points. Stephen Williams MP attempted to change the internal debate in 2008.

The political debate today is all about whether MPs will break election pledges to oppose fee rises, the real political tragedy though is that many of those MPs knew the policy they were committing to was unworkable populist guff to keep the peace with militant activists, and win a few temporary student votes. This is a case of local opportunism, and a failure to lead, biting back.

The courageous thing to do now though is accept the party got it wrong, highlight all the alternatives are worse and cannot be justified whilst other services are being cut, and back this report. In the long-run perhaps it will persuade the party to check what it pledges to do more carefully.

Vince Spart rides again

What to say about about Vince’s speech that hasn’t already been said after forensic text analysis and critiques by right and left.

On this occasion I rather agree with Labour blogger Hopi Sen’s ‘Sad donkey runs free’ analogy. In substance Vince has said nothing new, his attacks on the banking profession as ‘spivs’ are pure populism, and his chances of persuading his coalition partners to change anything on the basis of such an analysis are slight.

After the activist cheer has died away in a week, the main impact of the speech will be to permanently lower his reputation amongst business leaders, a novel communications strategy for the Business Secretary.

Behind the rhetoric, competition and bonsues in banking are difficult regulatory issues. For example are the footballer salary figures involved in some trader bonuses evidence of weak competition? Or a reflection that an individual whose decisions turns £1bn into £1.01bn over a year for their clients is entitled to expect some share of the £10,000,000 profit that represents as their fee? That a very small number of people can make a lot of money is not unique to banking, or typical for most parts of banking which involve more mundane activities like managing accounts and loans.

Bank profits on loans are also problematic as evidence of market failure.  A major driver of the credit bubble was the misselling of risky loans as safe, but that manifested itself in not charging enough to cover the risk. Since the bubble burst charges have risen. At what point is this evidence of weak competition? How do banks reconcile this with endless demands from politicians to make risky loans to small business and those on low incomes at interest rates that do not reflect the risk premium? 

What element to reserve ratios play in this? To raise the capital reserves of a bank deemed at risk to the new levels required by the draft Basel 3 agreement  requires profitable transactions. Are these profits acceptable to Vince? Are they unacceptable when the reserve ratio is achieved?

Market concentration can be evidence of oligopoly and anti-competitive practices; but not always; contestability at home and global competition can keep large companies honest.  One of the largest advocates of domestic concentration during the crisis was the previous UK government, encouraging  for example Lloyds to buy HBOS. Not great evidence for the wisdom of the state in adverting and correcting market failure through political leadership.

Another Vince idea, separation of retail and investment banking facilities as a necessary basis for future stability would be more credible if the headline failure of the UK crisis wasn’t Northern Rock, a retail bank.

Outside competition issues how do the Treasury reconcile the attacks on bank profits with the need for the tax revenues from those profits to cover a government debt… in part based on over-optimistic spending commitments premised on bank profits?

Rhetoric about balancing the economy is the current political answer, but to do this either requires other sectors to grow relatively faster than banking, or shrinking the sector. The latter is not a wise growth or jobs strategy. The former… tends to require loans from banks.

Vince has something of a challenge in delivering on his rhetoric.

Tax avoider criticises tax avoidance

Tax avoidance is the legal means by which people minimise the amount of money they pay to the government each year by taking advantage of opportunities not to pay. Tax avoidance for example includes paying money into a pension scheme, buying second hand goods, shopping on holiday in lower tax countries, utilising tax-free saving schemes, the capital gains allowance on shares, and charitable donations utilising gift aid. Very few of us are not tax avoiders.

At the conference next week our Treasury spokesperson in the Lords, Matthew Oakeshott, intends to attack tax avoidance as anti-social and poisonous to the concept of the Big Society. This attack is primarily aimed at those individuals wealthy enough to manage their tax affairs in ways the rest of cannot, through non-domicile and non-residency arrangements; but as a general principle it suggests there is a moral element to paying tax that goes beyond the legal and civic duty to make a contribution and requires us to arrange our affairs to maximise that contribution.

I find this puzzling, voluntarily paying more than you must for something is not very rational behaviour, particularly not for something for which your contribution will make little difference to you, and it is not as if the target of his ire is a drain on the public purse, quite the reverse. Even for generous collectivists it makes more sense to give away money to your own choice of charities and trusts than it does to the black hole of government spending, particularly if it’s just going on repaying past waste. Further whether the left like it or not there is a competition between nations for international wealth and talent and the reality of the tax system at that level is that it is a negotiation and balancing act.

I find it particularly puzzling from a representative of an institution that is one big tax avoidance scheme. Their Lordships do not pay tax on their allowances and have voted to keep it that way, even after last year’s scandals. Lord Oakeshott himself was a vocal opponent of the worst abuses, but as a well off champion of the morals of paying more tax than one legally needs to in order to show solidarity and civic duty one assumes that he has been voluntarily surrendering the 31-51% of his allowance that the rest of us would pay on income for a similar part-time job… and urging the same of his colleagues… perhaps he could clarify in his speech?

That aside though I would rather the Government focused on making the tax system simple and low enough that avoidance is less likely, and we are a more attractive destination for international investment. Perhaps they should also follow the logical corollary of  Oakeshott’s argument by thanking the humble tax payer for their contribution occasionally, particularly those who contribute most.

Do they learn NOTHING?

Here’s a very informative little vid from the good people over at Reason detailing moves in the US to outlaw Menthol cigarettes:

The move to ban Menthols, and other ”flavoured smokes”, marks the transition to an outright ban on the sale of cigarettes. But I’m just astonished that politicians are moving in this direction.

DO THEY LEARN NOTHING?

I’ll say it again.

DO THEY LEARN NOTHING?

When has prohibition ever worked? It hasn’t/still isn’t. So why are we even going down this path? Looks like the 2020s are going to be marked with prohibition just like the 1920s was. And once again it will end in failure and costly procedures to have the legislation repealed. Politicians are stupid and Government is a joke.

Famine, like aid, is political

In today’s WSJ development economist and Aid Watch blogger, William Easterly, reviews Peter Gill’s new book on Ethiopia since Live Aid, “Famine and Foreigners”. Well worth reading if only for Easterly’s concise, but tragically accurate, summary of Ethiopia’s perpetual trouble with food insecurity over the last few decades:

“If it were possible to sum up in one sentence Ethiopia’s struggles with famine over the past quarter-century, I’d suggest this: It’s not the rains, it’s the rulers. As Peter Gill makes clear in his well-turned account of the country’s miseries since the 1984-85 famine and the Live Aid concert meant to relieve it, drought has not been as devastating to Ethiopians as their own autocratic governments.”

Unfortunately, many western NGOs find it inconvenient to recognise this fact and continue to tow the donor-friendly line of “climate change” as the primary causal factor for food shortages in the developing world. Great for western public relations, less helpful for the average Ethiopian, who would probably prefer to be given the opportunity to own land, trade freely and drag themselves out of poverty, than see foreign aid spent on useful projects like this, or this.

The last “naturally” caused famine in Northern Europe occurred in Finland in 1866–1868. The cause? Climate change, of course: unusually wet summer in ’66, then exceptionally harsh winter and spring in ’67. The actual cause: Poor infrastructure and communication linkages restricted trade and when it became evident a crisis was mounting the Finnish government refused to borrow money from abroad for fear of devaluing its newly introduced currency. By the time Rothschild’s came to the rescue with loans, it was too late and almost 15 per cent of the population was to perish.

Thankfully today, most of Europe has moved beyond oppressive systems of governance capable of starving entire populations for political reasons. The ability to exchange goods freely and the incentive, through ownership, to develop, improve and protect land helps to mitigate the effects of climatic fluctuations.  Ethiopians are intentionally prohibited  these luxuries. And their citizens are unlikely to benefit from the continued tunnel vision of western  NGOs, rock stars and governments intent upon perusing, and funding, their own agendas. Gill and Easterly recognise this: DfID, with its donation of £132m in bilateral aid to the Ethiopian government  in 2009, seems not to.