Boris Johnson attacks firms that rely on tax credits to top up and subsidise low pay

SOURCE DAILY MAIL: Boris warns Cameron and Osborne against 'hacking back' tax credits until firms start paying their workers more

The London Mayor said it was 'scandalous' that private companies were paying their workers so poorly that the government needed to top up their wages with tax credits. He warned the Chancellor not to used next month's budget to begin 'hacking back' in-work benefits while pay was still so low. Mr Johnson's warning shot comes after the Prime Minister used a speech this week to attack the spiralling cost of tax credits – and accused giant firms of using the benefits system to hold down wages. A study by Citizens UK this year showed that there were 5.2million low paid workers in the UK, receiving £11billion in state support. It is argued that if their firms paid them the Living Wage instead of the minimum wage it would save the taxpayer £6.7billion in benefits. Five of the country's biggest retailers – Tesco, Asda, Sainsbury's, Morrison's and Next – reportedly receive £1billion-a-year in taxpayer-funded subsidies for their wages bill. Mr Johnson is backing the Living Wage campaign, where firms volunteer to pay staff more than just the legal minimum. He said:  'It is quite interesting how this movement is building. When I started as mayor there were about 23 companies and organisations who were paying the living wage, it's now up to about 617 – it's massively grown... It puts tens of millions of pounds into the pockets of people who need it. It's a wonderful, wonderful thing.'

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It's not just school kids who worry about their grades. The government has similar problems. But for the government there are ways around this students can only dream of!

For years the government has struggled with both Grade Inflation (us) and Grade Deflation (them).

In schools grades were inflating too much. Exam boards were allegedly in a "race to the bottom", competing for schools to sign up with them in return for easier marking and higher grades.

The government implemented multifarious education changes to tighten and toughen the curriculum, all slapped with the lipstick of changing the way GCSEs are graded. Instead of A*; A; B; C; D; E; F; G, grades awarded from 2017 (i.e. for courses started in 2015) will be 9;8;7;6;5;4;3;2;1. This provides 9 numeric categories, instead of the 8 alphabetic grades. 

The consequence being to make almost everyone feel a bit worse: a 9 will provoke scarcely more celebration than an A*; an 8 demotes the child from the elite; while a 1 will reinforce a child’s position in the de-elite even more poignantly than a G.  

On the other hand, the government's own grades on policy results were deflating, particularly to ministerial egos. 

For example Iain Duncan Smith's homework has produced some very worrying marks, (e.g. foodbank usage up; job centre sanctions up (artificially?)). Following a Freedom of Information Request Duncan Smith was hoping to lose his report-card on the number of people who died soon after having disability benefits withheld:


IDS's claim that he didn't have it (his dog ate it?) was scotched by his own staff. The Information Commissioner's report reveals: 
"The DWP [Department for Works and Pensions] responded on 12 August 2014. It stated that it held requested information however as it intended to publish this information it was exempt from disclosure under section 22 of the FOIA. It also stated that it did not have a definite publication date at the time."

On 30th April 2015 The Information Commissioner dismissed the DWP's excuses, ordering that the DWP must produce the information:

https://ico.org.uk/media/action-weve-taken/decision-notices/2015/1424160/fs_50557638.pdf

IDS appealed against this decision, kicking off a remarkably successful public petition: "Publish the statistics showing how many people have died after their benefits were stopped". 

Another method the Government has used to deal with “Grade Deflation” is based closely on its GCSE grading reform referred to above. Except while the grade boundaries for students have been raised, the grade boundaries for government have been lowered:

Child Poverty: The Tories plan to reduce Child Poverty not by making poor children better off, but by changing the definition of child poverty. Cameron said in June 2015:
"Just take the historic approach to tackling child poverty. Today, because of the way it is measured, we are in the absurd situation where if we increase the state pension, child poverty actually goes up."
The widely accepted definition of Poverty is households with income below 60% of the median (average) income. This attempts to link the economic condition of the poor with that of the rest of the nation.

The Tories would rather cook up a measure that allows half the country (upto the median) to get richer leaving the others behind without raising the poverty-rate-nouveau.


Fuel Poverty: In 2013 the UK government changed the definition of 'fuel poverty'.
"The Department of Energy and Climate Change (DECC) has changed the way it defines fuel poverty - seemingly lifting two million households out of it in the process. "

The graph below shows the government's expectation of the impact on Fuel Poverty:

Disabled: The Tories changed the definition of 'disabled'. Prior to the reforms one was eligible for transport related benefits if one could not walk more than 50 metres at a time. By changing the rule to not being able to walk more than 20 metres, as if by miracle an estimated 428,000 people would be declared fit enough and lose mobility benefits.

Of course the best way to be sure of good results is to have a sympathetic marker. How long before the government decides to ditch its unsatisfactory examiners (that would be many of us voters)? Perhaps by bringing back the potwalloper voting requirement: 
"The potwalloper qualification [for voting] was a householder who was self-sustaining (they made no claim on poor relief) and who had their own hearth on which they could cook or boil (wallop) a pot."

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Rip-off News round-up. Our pick of the last week's media (Thu 25th June)

Boris Johnson attacks firms that use tax credits to keep pay down

The Mayor of London, Boris Johnson, has warned David Cameron against “hacking back” on benefits for low-paid workers until companies “cough up” more money and increase their pay. He condemned private firms that fail to pay the living wage and force their staff to rely on tax credits to top up their pay were “scandalous”. Mr Johnson said: “It is scandalous that we have gigantic supermarkets that are being subsidised to the tune of hundreds of millions of pounds with in-work benefits whilst they have huge dividends, bonuses and private jets.” His intervention came after the Prime Minister used a speech earlier this week to attack the rising cost of tax credits and accuse firms of using the benefits system to hold down wages. Mr Cameron and George Osborne, the Chancellor, are committed to finding £12  billion worth of savings in the welfare budget, with tax credits likely to be cut. It was yesterday claimed that the cuts are proving so controversial that the Government has yet to decide where they will fall, and may delay setting them out until the Autumn Statement. TELEGRAPH

UK to reject EU plans to combat multinational tax avoidance

David Gauke, financial secretary to the Treasury, told representatives from the European parliament that Britain would not adopt the measures to introduce certain common tax rules. “He was very clear that the UK is insisting on tax competition,” said German MEP Michael Theurer, who met with the UK treasury minister on Thursday. “It was really a shock from the minister.” Theurer is part of a committee of MEPs set up to examine how multinationals are avoiding tax in the EU and what can be done about it. The committee was set up in response to the LuxLeaks revelations of tax avoidance in Luxembourg and its members strongly support the reform plans announced on Wednesday by European commissioner for tax Pierre Moscovici. Moscovici’s proposals seek to resurrect a longstanding tax harmonisation policy, which has been blocked by hostile member states since 2011. Known as the common consolidated corporate tax base, or CCCTB, the policy would see countries adopt a common set of rules on where company profits arise – removing many of the national differences that multinationals have been able to exploit to lower their tax bill. GUARDIAN

Tories move to scrap child poverty target amid fears their policies will raise child poverty

The Child Poverty Act, introduced by Labour, legally commits the Government to reducing child poverty to fewer than one in ten children by 2020. But the Daily Mail newspaper reports that the Government wants to repeal the legally binding target, possibly as early as next month. David Cameron has also hinted that that the way child poverty is measured could be changed, ahead of an expected rise in the current metric. The Institute for Fiscal Studies forecasts that child poverty is set to rise of the first time in a decade. Around 17.4 per cent children were in poverty in the UK, a figure that has been steadily falling or stable, until now. The Children’s Society said at the launch of the Government’s welfare cap that it would hit 140,000 children compared to only 60,000 adults. The Government has now pledged to reduce the cap even further from £26,000 to £23,000. INDEPENDENT

Skilled workers 'may vanish' if further education budget cuts continue

Professor Alison Wolf, a respected labour market expert and author of the Wolf review of vocational education, said the further education sector that provides the bulk of the UK’s post-secondary training faces possible collapse and the loss of a valuable source of technicians and mechanics. Hardest hit are likely to be small companies in manufacturing areas such as the west Midlands, which will be unable to compete with larger companies that can fund their own in-house training.  Professor Wolf said: “It damages and affects the nature of the industrial structure of this country. If you create a system in which vocational training can’t be funded, that is going to have a knock-on effect on which parts of the economy flourish and which don’t.” Wolf said that the FE sector would be squeezed by the expansion of universities, which will soon be allowed to recruit unlimited numbers of undergraduates but were unlikely to train the skilled technicians the economy demands. “If you are a 19-year-old and the choice is between a declining number of places in struggling institutions being funded a little over £2,000 a year, or open doors at another institution with uncapped ability to recruit where the government is underwriting fees of £9,000 a year, where are you going to go?” she said. GUARDIAN

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Graphs at a glance: The self-employed are included in employment statistics, but they are excluded from calculations of UK average wages. So what?

There are many ways, and many more motives, to raise an average. For example here are two ways to raise Average Wages:

1) Have more people on higher pay
2) Have fewer people on lower pay


And here are two ways of having fewer people on lower pay:
2a) Pay the low paid more
2b) Pretend they don't exist

Stick Men from https://pixabay.com/en/stick-man-stickman-stick-figure-34978/

The Average Weekly Earnings (AWE) statistic produced by the Office for National Statistics (ONS) is a closely followed measure of the performance of the UK economy. Particularly when earnings rise faster than inflation (very rare since the 2008 crash) ministers pop out to celebrate, hoping to convince the public they are waving not drowning.

Latest stats show pay packets grew at 2.7% in April - fastest real increase since start of crisis. Good news for working people

— George Osborne (@George_Osborne) June 17, 2015

http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN02795

The ONS states: 
"AWE itself is an estimate of average earnings per employee per week. It is calculated by dividing total (weighted) pay by total (weighted) employment."
The 'weighting' they refer to is intended to make the figure "representative of the Great Britain economy as a whole".

In fact, these statistics don't represent the whole economy. The ONS explicitly ignores three groups of workers from these figures, stating: 
"The self-employed, HM Armed Forces and Government Supported Trainees are excluded from the statistics."

HM Armed Forces and Government Supported Trainees contribute just a couple of hundred thousand individuals, and so make relatively little difference to the national average wage. 

On the other hand the Self Employed make up 15% of the UK workforce. According to the ONS's Labour Force Survey, in April-June 2014 the Self Employed were 4.6 million out of a total workforce of 30.6 million.

[Note that ONS data on self-employed wages at the time of writing this post is available upto 2012/13]. 

The wages of the self-employed fell between 2007/08 and 2012/13 both in real terms (£62 a week worse off, adjusted for inflation - the graph below shows 2012/13 prices) and in nominal terms (£23 a week worse off, when counting the number of £s in your pocket).

The wages of those who are not self-employed, who work for an employer, have also fallen since the 2007/08 banking crisis. But not nearly as much as the wages of the self-employed:

The British 'jobs miracle', by which unemployment did not explode as expected following the banker induced crisis, was according to the ONS the result of the growth of self-employed workers. The ONS stated in August 2014:

"The rise in employment over the past six years has been predominantly among the self-employed. There were 1.1 million more workers in April-June 2014 compared with January-March 2008, among whom there were 732,000 more self-employed."

http://www.ons.gov.uk/ons/rel/lmac/self-employed-workers-in-the-uk/2014/rep-self-employed-workers-in-the-uk-2014.html

It seems a bit dodgy to use the Self Employed to show unemployment hasn't risen, while excluding the Self Employed from the national average wage calculation. The large differences in estimated pay rises for each group are shown in the graph below for the years ONS data is available, 2002/03 to 2012/13:  

The increase in Self-Employment is likely to continue not least due to various government shenanigans with pensions requiring people to work to an older age: demise of Defined Contribution pensions; change of indexation from RPI to CPI; freedom for people to cash in pension pots; pushing back the state pension age.

The ONS stated in its report in August 2014 titled "Self-employed workers in the UK - 2014":

• The number of over 65s who are self-employed has more than doubled in the past 5 years to reach nearly half a million
• The number of women in self-employment is increasing at a faster rate than the number of men (although men still dominate self employment)
• Average income from self-employment fallen by 22% since 2008/09
• Across the European Union the UK has had the third largest percentage rise in self-employment since 2009

Including the Self-Employed in the Average Wage Statistics, even as a separate item, would be very revealing. Which is precisely why no government is likely to do it. 

Being able to keep people out of both the Unemployment Stats (because they are self-employed) as well as keeping them out of the average wage figures (because they are self employed) provides a very useful black hole to ignore a growing portion of low paid UK workers.



[P.S. We hope it is not too churlish to mention that this will also be of particular interest to our MPs, whose pay after their bumper 10% pay rise in 2015 will be linked to the change in this ONS Average Weekly Earnings figure (excluding the self-employed)].

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Wind farm subsidies will end a year early. Another promise abandoned thanks to pressure from the oil lobby?

KJ and Chris can see the spirit of Magna Carta in Cameron's "greenest government ever"...

SOURCE BBC NEWS: Earlier end to subsidies for new UK onshore wind farms

New onshore wind farms will be excluded from a subsidy scheme from 1 April 2016, a year earlier than expected. There will be a grace period for projects which already have planning permission, the Department of Energy and Climate Change said. The funding for the subsidy comes from the Renewables Obligation, which is funded by levies added to household fuel bills. The Conservatives promised in their manifesto to hold down bills and increase renewable energy. But onshore wind is the cheapest readily-available form of clean energy in the UK. That's why some experts have described their decision to kill the onshore wind programme as bizarre and irrational. Some of the business leaders are baffled why ministers will give local people a unique veto over wind turbines, when they cannot veto shale gas fracking or even a nuclear power station on their doorstep.

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Rip-off News round-up. Our pick of the last week's media (Thu 18th June)

Average monthly London rents hit £1,500 for first time

According to data collected by HomeLet, rents have shot up 12.5% across the country with tenants on average asked to fork out £751 a month outside the capital. Its survey also shows rental costs over the past three months has gone up five times faster than tenant income. The sharp rise in figures since the election will add to the pressure on workers who find themselves locked out of the first-time buyers market because they don’t have enough disposable income to save for the hefty deposit banks require before approving mortgages. The spike in rental reflects the general crisis in the UK with a shortage of housing pushing the cost of buying a property beyond the reach of many first-time buyers. This in turn has created an overheated demand for rental properties, says HomeLet. The increase over the past year is five times greater than it was two years ago when the year-on-year increase was 2.6%. Only three regions in the country have shown a decline in rental prices – the north west, east Anglia and Yorkshire and Humber. GUARDIAN

Pay low-income families more to boost economic growth, says IMF (unless you’re Greek, apparently!)

The idea that increased income inequality makes economies more dynamic has been rejected by an International Monetary Fund study, which shows the widening income gap between rich and poor is bad for growth. The report dismissed “trickle-down” economics, and said that if governments wanted to increase the pace of growth they should concentrate on helping the poorest 20% of citizens. The study – covering advanced, emerging and developing countries – said technological progress, weaker trade unions, globalisation and tax policies that favoured the wealthy had all played their part in making widening inequality “the defining challenge of our time”. The study, however, reflects the tension between the IMF’s economic analysis and the more hardline policy advice given to individual countries such as Greece, which need financial support. During its negotiations with Athens, the IMF has been seeking to weaken workers’ rights, but the research paper found that the easing of labour market regulations was associated with greater inequality and a boost to the incomes of the richest 10%. GUARDIAN

Government plans law change to stop “fake” apprenticeships

Under the plans, unauthorised use of the term would be illegal, as is already the case for the use of the term degree. To legally describe training as an apprenticeship, schemes would have to provide at least a year's training and meet other requirements. In a statement, the Department for Business Innovation and Skills said the legislation would give the government power to take action if the term is "misused to promote low-quality courses". Last month a report from the Institute for Public Policy Research (IPPR) and the Local Government Association criticised apprenticeships for failing to tackle youth unemployment. "There is a big gap between the function apprenticeships should have in our economy and how they're being used in practice... The majority of apprenticeships are being used to train older people, and those who are already employed at their company, instead of taking on young people out of work." said the IPPR. The government has itself pledged to create three million apprenticeships by 2020. To help reach that target, public bodies, including hospitals, schools and the police, will be set targets to take on more apprentices. BBC NEWS

Doubts cast on George Osborne over RBS sell-off as Andrew Tyrie questions £14.3bn profit claim

Tory MP Andrew Tyrie, the chairman of the Treasury select committee, cast doubt on chancellor George Osborne’s claims taxpayers stand to make a £14bn profit from the 2008 banking bailout. Osborne unveiled plans on Wednesday to start selling a 79 per cent stake in Royal Bank of Scotland (RBS) – but at a loss to taxpayers who bailed out the bank. Osborne explained, citing a report published by advisory firm Rothschild, that a £7.2bn loss on the sale would be cushioned by a gain made on the sale of other state-owned assets like Lloyds. Overall, Rothschild estimated a £14.3bn surplus for the Treasury from its interventions in the banking sector. But Tyrie said Osborne’s calculation “...would benefit from a great deal of qualification... It excludes the cost of funding the bailouts (£17bn)....And it treats fees paid in exchange for a service as if they were income, or recoveries.” Shares in RBS were at 361.5p yesterday. after the sell-off plans were unveiled. The government would need to sell shares at 407p to break even on its £45bn 2008 recapitalisation of the bank. The first sale of shares is set to come in the next 12 months but could be as soon as September. CITY AM

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Chancellor Osborne to sell RBS shares at a loss. What's he up to?!

SOURCE CITY AM: Doubts cast on George Osborne over RBS sell-off as Andrew Tyrie questions £14.3bn profit claim

Tory MP Andrew Tyrie, the chairman of the Treasury select committee, cast doubt on chancellor George Osborne’s claims taxpayers stand to make a £14bn profit from the 2008 banking bailout. Osborne unveiled plans on Wednesday to start selling a 79 per cent stake in Royal Bank of Scotland (RBS) – but at a loss to taxpayers who bailed out the bank. Osborne explained, citing a report published by advisory firm Rothschild, that a £7.2bn loss on the sale would be cushioned by a gain made on the sale of other state-owned assets like Lloyds. Overall, Rothschild estimated a £14.3bn surplus for the Treasury from its interventions in the banking sector. But Tyrie said Osborne’s calculation “...would benefit from a great deal of qualification... It excludes the cost of funding the bailouts (£17bn)....And it treats fees paid in exchange for a service as if they were income, or recoveries.” Shares in RBS were at 361.5p yesterday. after the sell-off plans were unveiled. The government would need to sell shares at 407p to break even on its £45bn 2008 recapitalisation of the bank. The first sale of shares is set to come in the next 12 months but could be as soon as September.

SOURCE: Chancellor Osborne's speech at Mansion House, June 2015

“There is another step we take today towards a new settlement with financial services – and that is to get the government out of the business of owning great chunks of the banking system.”

“...if you take into account all the sales we’ve authorised of our bank assets, and the fees we’ve received – at the current valuations taxpayers can expect to make £14 billion more than they paid out. Let me be very clear about what I’m saying tonight: Our economic plan has been about fixing what went wrong in the British economy. So, in the coming months we will begin to sell our stake in RBS.”

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Privatisation of RBS, will the taxpayer get their money back let alone make a profit? Osborne says yes, National Audit Office says no!

On the 20th May 2015, just weeks after the General Election relieved the Tories of their Liberal Democrat conscience, George Osborne asked the bankers at Rothschild’s to tell him that he should re-privatise RBS (the Royal Bank of Scotland). 

Accordingly Rothschild’s produced a report titled “The UK investment in the Royal Bank of Scotland”. The report says the government should indeed re-privatise RBS. To cover their expensively pinstriped backsides Rothschild's started the report with a disclaimer which included statements such as:
"The Report has been prepared on the basis of publicly available information. This information has not been independently verified by Rothschild....no responsibility or liability is or will be accepted by Rothschild or by any of their officers, servants, agents or affiliates as to or in relation to the accuracy or completeness of the information forming the basis of this Report"

In short, Rothschild's stated: we took the information we were given; we didn't check whether it was correct; we didn't check whether it was complete; don't blame us if it is wrong.

The report managed to assert that we, the British taxpayers, not only get our money back but we make a £14.3 billion profit! The report concedes that we made a loss from RBS alone, estimated at £7.2 billion. But taking into account all the financial sector crash rescues together: RBS, Lloyds, UKAR (i.e. the remains of Northern Rock and Bradford & Bingley) and various other unspecified institutions the report claims an overall surplus of £14.3 billion. 

To see if this is true, we took a look at publicly available information from the National Audit Office (NAO).
 
1) "Cash and fees received"
Consider in the Rothschild's table above, Shaded in purple, the "Cash and fees received" and the "CGS fees" and "SLS fees":
The Rothschild's report states “We also take into account the fees received by the government under the Credit Guarantee Scheme and Special Liquidity Scheme (industry-wide funding and guarantee schemes) under which there is no remaining liability to the taxpayer and no payments were made.”

What's this about? The banks bought £1.029 trillion (equal to 80% of all publicly owned wealth put together: £1.34 trillion in 2013-14) of insurance cover from the government to protect them against further losses. This insurance came mainly in the form of the Credit Guarantee Scheme, the Special Liquidity Scheme, and the Asset Protection Scheme. 

The banks didn't claim on this insurance, so Rothschild's decided they would use the premium to put against the amount the banks owed the government. You try going to your insurer and see what they say if you ask for your premiums back because you didn't make a claim. And you want the money to pay off your overdraft.

 

Also included in this "cash received" is interest paid by the banks on £133 billion in loans the government gave them. (This £133 billion is not included in the "Amount Injected" figures in the table above).

[Text in purple and red below is taken from the National Audit Office].

Q: How much support did the Government provide to UK banks?

There were two types of support provided:

• Provision of guarantees and other non-cash support. The main items under this heading are the Credit Guarantee Scheme, Special Liquidity Scheme and Asset Protection Scheme, as well as various other guarantees and indemnities provided to UK banks.

• Provision of cash in the form of loans to the Financial Services Compensation Scheme and insolvent banks to support deposits, and the purchase of share capital in Royal Bank of Scotland and Lloyds Banking Group.

Peak Support

• Guarantee commitments [insurance]: £1.029 trillion
• Cash outlay [loans]: £133 billion
• Total Peak Support: £1.162 trillion

The National Audit Office states that this £17 billion in cash and fees received by the government is actually less than the cost to the government of providing the support. For Rothschild's to include this to show the taxpayer made an overall profit is nonsense. The sort of blinkered accounting that got the banks into the Credit Crisis in the first place. The NAO explicitly states the taxpayer made a loss:

• The fees and income received. As at 31 March 2014, the Treasury had received a total of around £17 billion in fees and interest for providing the support and assuming the risks covered by the guarantees since 2008. This is below the cumulative finance cost.

2) "Outstanding Payments"
Shaded in green in the Rothschild's table above, "Outstanding Payment" refers to £20.3 billion still owed by the banks to the government. For example RBS owed £1.2 billion to buy back the government's right to the lion's share of dividends, their "Dividend Access Share". Something RBS is keen to do so it can restart paying dividends, which haven't been paid since its rescue by the government.

Rothschild's assumes this £20.3 billion will all be payed back. Taken literally one can't argue with this. If the banks decide they don't have the money, then the taxpayers will bail them out. The taxpayer picking up these banks' debts to the taxpayer would actually be relatively small beer in the grand scale of things the taxpayer has been picking up for the financial sector.

3) Loss due to government's cost of borrowing
Something Rothschild's have completely omitted is the government had to borrow the money used to bail out the banks. 

Odd that bankers never forget about the interest when we borrow from them, but it completely slips their minds when they borrow from us.

The National Audit Office states the government paid a bit under 3% interest on the money it borrowed to bail out the financial services industry:

"Costs arising from the additional government borrowing raised to finance the purchase of the shares and loans.. The money needed to make the interventions was provided by longer-term funding in the form of Gilts (interest-bearing government bonds purchased by investors for periods of up to 50 years), at a cost of just under 3% a year."

During past sales of Lloyds Bank shares George Osborne claimed to be making a profit by comparing the sale price with the original bailout purchase price. He pulls this off by ignoring the 3% interest cost to the government. The reality is all these Lloyds share sales were made at a considerable loss:

Taking this 3% interest into account, we can see the real loss the British taxpayer has made in what Rothschild's describes as its "investment in the Royal Bank of Scotland":

4) The Opportunity Cost:
The Opportunity Cost represents what may have been gained if the government used the money given to bailout the banks on something else. 

The National Audit Office stated,
"The income generated by fees and interest is less than would be expected from a normal market investment and has not compensated the taxpayer for the degree of risk accepted by taxpayers in providing the support. Once the opportunity cost and risks are factored in, the schemes have represented a transfer from taxpayers to the financial sector."

For example, what if the government had built houses in Greater London to relieve the "housing crisis"? Using the Halifax House Price Index for Greater London, we can see how much more was lost for not doing the things we could have done:

It is ironic that the chancellor asked the bankers at N.M.Rothschild's to advise him. About 200 years ago an earlier head of the bank, a chap called N.M.Rothschild, said "Buy when there is blood in the streets". His meaning was to buy cheap when everyone else is panicking, so you can sell at a healthy profit later when everyone has calmed down. Instead, Osborne has decided to sell RBS at a loss. 

It is clear from the National Audit Office that the UK Taxpayer has made a large loss on the bailouts overall. 

But let's consider RBS alone. To estimate how big a loss the taxpayer investment in RBS actually is, as at 5th June 2015 (the date for which figures in the Rothschild's report are done):

[Figures in Rothschild's report are in blue; figures that didn't make it into the report are in purple; figures included in the report that shouldn't be, the bogus "cash and fees", are in green]

• Amount injected between Dec2008 and Dec2009: £45.8 billion
• Government paid interest on this £45.8 billion at 3% for 6 years: £8.2 billion in interest
• "Cash and fees" from Rothschild's report £4.5 billion not included in the 'surplus'
• Value of RBS shares stated in Rothschild's report: £32.4 billion 
• Loss stated in Rothschild's report: £7.2 billion
• Actual loss = £7.2b + £4.5b + £8.2b = £19.9 billion

It was perhaps inevitable that the big winners from the banking crash would be the banking sector. RBS, we are told, will thrive under private ownership because it will be able to do things it can't do under public ownership. 

We shudder to think what those things are, having already experienced Payment Protection Insurance, Interest Rate Swap Agreements, and various other scams pulled off by privately held banks in recent years.

And so here we are again. The taxpayers, having rescued and sheltered the collapsed banks, now release them back into the wild private sector, where we can continue to be their victims in the various shenanigans that are known collectively as "banking". 

Sadly there is nothing much we can do about that. But one thing we can do: when they tell you we British taxpayers made a profit from the banking bailouts take advice not from Rothschild's report but from Tom the cartoon cat: "Don't you believe it!"

 

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Rip-off News round-up. Our pick of the last week's media (Thu 11th June)

Bank of England governor calls for longer prison sentences for bankers who break the law

In his Mansion House speech Bank of England governor Mark Carney said "Criminal sanctions should be updated, with market abuse rules similarly extended and maximum prison terms lengthened." He said that markets responsible for trillions of pounds of global trade were stained by excess, collusion and abuse and that "ethical drift" had taken hold. He said the Bank of England under his predecessor, Lord King, failed in the run-up to the financial crisis because of its arcane and ambiguous rules and its inability to identify risks in the banking system. It failed to effectively control markets where abuse was rife. Chancellor George Osborne, who was also speaking at the Mansion House, said: "The public rightly asks: 'Why is it after so many scandals so few individuals have faced punishment in the courts?.. Individuals who fraudulently manipulate markets and commit financial crime should be treated like the criminals they are - and they will be." BBC NEWS

HSBC Switzerland pays out £28m over money-laundering claims, but deal avoids prosecution and publication of findings

HSBC’s Swiss arm was caught banking the proceeds of political corruption and accepted deposits from arms dealers while helping wealthy people evade taxes. But the Swiss will not prosecute HSBC or publish the findings of their investigation into alleged aggravated money laundering. Announcing the biggest financial penalty ever imposed by the Geneva authorities, chief prosecutor Olivier Jornot launched a stinging attack on his own country’s financial laws, adding his voice to a growing a number of Swiss politicians and campaigners calling for reform of the country’s secretive banking system. HSBC’s Swiss arm is still facing investigations by US, French and Belgian authorities. Belgium said on Tuesday it was hoping to recover £390m in unpaid taxes from citizens who had hidden funds in undeclared Swiss accounts. Wrongdoing at HSBC was exposed after an IT worker at the bank, Hervé Falciani, leaked details about its Swiss accounts. The documents ended up in the hands of the French government in December 2008 and were distributed to the tax authorities of other nations, including the UK. But Switzerland is pursuing Falciani. It has issued an international arrest warrant, but the French authorities have refused to extradite him. GUARDIAN

Social Housing tenants earning £100k may get ‘right to buy’ discount

Government data show that there are 21,000 households in social properties, including council and housing association homes, who have incomes higher than £60,000. Some 8,000 earn over £80,000 and 5,000 are on more than £100,000. They could all qualify for six-figure discounts (£104,000 in London and £77,000 in the rest of England) funded by the taxpayer under David Cameron’s controversial new ‘right to buy’ plans. Critics said the disclosure made a mockery of Mr Cameron’s vow to help “working people” enjoy the dream of home ownership and one senior London Tory MP urged ministers to “iron out its obvious iniquities”. Researchers estimate that Right to Buy will force inner London boroughs to sell off 16,000 valuable properties. Social housing is built to help people on lower incomes but tenants can usually stay for life even if their earnings rise. Last year, former Communities Secretary Eric Pickles said it was “blatant unfairness” that the high-earning tenants were subsidised. EVENING STANDARD

WPP boss Martin Sorrell survives revolt over £43m pay package

77.8% voted for the pay package while 19.5% voted against and 2.7% abstained. Mr Sorrell, who took over WPP 30 years ago, received an annual salary of £1.15 million for 2014 but his total pay included £36 million as part of a long-term incentive plan and a £3.6 million short-term bonus. Adding pension contributions and a number of other benefits, he received total compensation of £42.98 million for 2014. Mr Sorrell’s pay has been a source of controversy for years. At the 2012 general meeting, nearly 60% of shareholders rejected his pay packet after which WPP lowered the executive’s base salary for 2013 and changed its long-term bonus plan, which has been the source of much of the controversy. PIRC, a U.K. consultancy advising a mix of asset managers and pension funds, said before the meeting that the annual controversy about Mr. Sorrell’s “enormous” pay packet showed executive remuneration systems were deeply flawed and in need of an overhaul. Luke Hildyard, deputy director at think tank High Pay Centre, said Mr. Sorrell’s pay for 2014 was more than double the amount paid to the chief executive of Royal Dutch Shell PLC, who was the second-best paid FTSE 100 boss for the period behind Mr. Sorrell. WALL STREET JOURNAL

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In our opinion: To prevent Parliament becoming the preserve of the wealthy, something needs to be done about pay and MPs. But not what IPSA is suggesting.

Those arguing to raise MPs pay say they just want to help and to be fair:

1) Help: to help poorer people, without independent wealth, to be able to afford to be MPs

2) Fair: to be fair to MPs, allowing them to earn what other professionals in equivalent jobs earn.

Both are nonsense. We look at the "equivalent jobs" ruse in a seperate post - >>CLICK HERE<<. In this post we consider helping poorer people into Parliament.

The time to help poorer people become MPs is not when they are MPs with all an MP's generous earning opportunities (see below). The time to help the poorer is before they are MPs when they are still 'poorer'. The time to help is when they are still in the scrum trying to get an MP’s job: first to get selected as a candidate, then to get elected as an MP.

Once in Parliament an MP’s basic pay, even without the 2015 10% payrise, puts them in the top 6% of wage earners in the UK. Squirm into a minister’s salary, and they are in the top 3%. Scrabble into the Cabinet, and they are in the top 2%. Even an ordinary backbencher, by employing their spouse as helper, can get more than 98% of UK wage earners.

Apart from money paid to them by Parliament, MPs are in addition allowed to hold as many other paid jobs as they like. Some earn far more in the spare time being an MP gives them than their basic MP's salaries. The reality is MPs are already very well paid for what they do, both as an MP and all the other stuff.

Those who worry about helping the poorer into Parliament need to adjust the aim of their generousity. Once they are MPs, the poor are no longer poor enjoying as they would be an MPs various remunerative opportunities. Those who worry about the poor need to help them BEFORE they become MPs.

The wealthy can afford to play at getting into elected politics without having to earn a salary. The not-wealthy have a greater need to focus on their day-jobs to pay their bills.

Therefore the pay rise should not go to MPs, but to anyone who is not an MP. Raise the minimum wage so even the meanest of us can afford to take time off to get into politics. 

Or, in a time of austerity when we can't afford to give all non-MPs a payrise, limit it to those who are not an MP but want to be an MP. An “MP’s Job Seeker’s Allowance” (MP-JSA).

If those who call for more money really want to help poorer people get into Parliament, they would institute an MP-JSA

Would that get public support? Probably Not.

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In our opinion: To prevent Parliament becoming the preserve of dopey coasters, something needs to be done about pay and MPs. But not what IPSA proposes.

To support its contention that MPs are underpaid, IPSA helpfully provided a graph showing the pay of a basic bog-standard MP compared to other senior professionals. Here we see how our MPs are at the bottom of the pile of what IPSA considers their peers.

IPSA GRAPH

To even more helpfully contribute to the debate we have reproduced IPSA's graph with some additional information:

a) MPs' earnings when they hold additional responsibilities in Parliament, from Assistant Whip to Cabinet Minister.

b) An example of an MP who earns an extra £250,000 a year doing other work (as a barrister) outside his MP duties. Search the "Register of Members' Financial Interests" and you will find many MPs with paid spare-time hobbies earning them tens and hundreds of thousands of pounds per year. 

So what is the truth? There is no answer to that question. But the data shows:

1) Is being an MP a risky job? According to the Electoral Reform Society, taking results up to the 2010 election, the average parliamentary seat had not changed parties since 1960. Some had not changed since the time of Queen Victoria. While there are casualties at every election (and the occasional massacre e.g. in 2015: Labour in Scotland and the LibDems everywhere), most MPs are in "safe seats" they are unlikely to lose.



2) Do we need to pay MPs more because of the great responsibility they bear? When it comes to voting, MPs either do what the rest of their party do (63% of the time) or don't turn up (36% of the time). Data from The Public Whip, for the 2010-15 parliament, shows out of all the votes during that parliament, the average MP only voted against his party 1 time in 100. MPs march through the voting lobbies with the predictability of sheep herded by a well trained collie. For those who say "pay peanuts you get monkeys", sheep are even cheaper.

So what is to be done? The Tory government has been against standardised pay in the public sector. In the 2013 budget, the Tories stated their plan to snuff out "progression pay":

"In the Budget 2013 the government announced that it would seek significant further savings from progression pay in the 2013 Spending Round. In the 2013 Spending Round it announced that departments would be putting in place plans to end automatic time-served progression pay in the civil service by 2015 to 2016; also that substantial reform to progression pay would be taken forward or was already under way for teachers, the health service, prisons and police."

How about applying the government's public sector pay philosophy to MPs:
a) £5,000 reduction in pay for "safe seat" constituencies that have not changed party in the last 3 elections. [like a pay premium for teachers working in tough schools]
b) £5,000 reduction in pay for "nodding donkey" MPs who have rebelled in fewer than 5% of votes. [like a pay reduction for 'coasting' doctors]
c) For "swinger" MPs who will not sign away their right to outside paid jobs: zero hour contracts paid per vote, per select committee attendance, and per speech in Parliament. With a 25% surtax on external earnings. [like the 700,000 UK employees on Zero Hour Contracts]

IPSA proposes to reduce other MP benefits, to appear to put a pill under all the sugar:

• to reduce MPs’ generous pension benefits [as has been done in both public and private sectors, with changes to retirement age, indexation, closure of Defined Benefit schemes];
• to scrap resettlement payments for MPs which had been worth up to a year’s salary [perhaps a benefit they actually do deserve to keep];
• to tighten MPs’ expenses further ["further"? According to the Guardian, for 2013/14 MPs claimed more expenses than at height of 2009 scandal. Though IPSA said, taking inflation into account they claimed the same as at the height of the 2009 scandal!]

Will our Parliamentarians take the same medicine they give to the rest of the Public Service? Instead they sit like Trollopian vicars holding out their plates saying they couldn't possibly manage another slice of cake. 

In the end they will politely force themselve to manage another 7,000. So as not to cause offense.

[The other favourite argument for giving MPs a payrise is to help poorer people become MPs. Also nonsense - >>CLICK HERE<< to read why]

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