Graphs at a glance: Whether Free Schools are any good or not, they cost half as much to build as traditional schools. Is this the real reason the government is so keen on them?

A National Audit Office (NAO) report published in December 2013 reported that 'free schools' were costing twice as much (on average £6.6 million per school) as expected to build. On the day of publication the media herd wallowed in this cost-doubling story. 

What was less talked about is the report's observation that even though the schools' costs were double the original estimate, they still cost 45% less than building a traditional school. The NAO report stated:

Costs have been lower partly because the Department has taken an innovative approach to providing premises for Free Schools. It has used significant numbers of existing buildings to reduce costs, including properties not traditionally used for schools (Figure 13).

 

the Department also used less extensive building specifications than on its previous building programmes, such as Building Schools for the Future. It also adopted new space standards, which were approximately 15 per cent smaller for secondary and 5 per cent smaller for primary Schools than existing standards.

Free Schools are 45% cheaper on average to build than traditional schools, helped by having less space per student (15% less in secondary schools!) and by moving into unused former hospital, police, office and retail buildings.

With all the evangelical talk of a 'free school revolution' could grubby cost-cutting be the real motivation? Or was the cheapness just collateral to improving educational standards? The same NAO report sheds some light on this. 

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The Ripped-off Britons TV Show: 3 sketches - Inequality and Cameron's Happiness Index; Housing Benefit Cuts; The Pension (errr... Bank Fees) Crisis

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Rip-off News round-up. Our pick of the last week's media (Thu 12th December)

Rise of 'closet borrowers' who hide debts from their partners

An estimated 11 million people are not telling their partners or family the truth about their borrowing. This secrecy poses a risk to both their relationships and finances, warns the Debt Advisory Centre (DAC). One in ten of these "closet borrowers" owes more than £10,000. The DAC warns that keeping debt secret makes it impossible for households to manage their budgets, and borrowing through credit cards and payday lenders increases the risk. Londoners are the "most duplicitous", with nearly one in three hiding the true scale of their borrowing. But their neighbours in the wider south east were either more open with their families - or less honest to survey takers - with only 16 per cent admitting that they had secret debts. Younger borrowers keep more secrets than older, with around third of those between 25 and 44 holding hidden debt. TELEGRAPH

Lloyds fined record £28m for mis-selling: 100,000 may get compensation

The Financial Conduct Authority said that incentive schemes created a failure in its sales process between 2010 and 2012 where staff across the group's high street brands - Lloyds TSB, Bank of Scotland and Halifax - were put under pressure to hit targets to avoid being demoted. It said such incentive plans "can create a culture of mis-selling". The products included critical illness, income protection, life cover and "expenses on death" cover. Investments included personal investment plans, Individual Savings Accounts (Isas) and Open Ended Investment Companies (Oeics). The regulator said the banks persuaded customers to take out more protection cover than they needed. It could also be that customers were urged to invest in funds when this wasn't suitable for them. Salespeople got commissions as high as £1,600. TELEGRAPH

RBS fined $100m by US for deliberate Iran sanctions violations

The Royal Bank of Scotland has been fined $100m (£61m, 73m euros) by US regulators for deliberately violating US sanctions against Iran, Sudan, Burma, and Cuba. The settlement follows from a 2010 internal investigation by RBS into its historical US dollar payment processes and controls. The violations took place between 2005-09. Bank procedures removed location information on payments made to US financial institutions from countries like Iran and Cuba. RBS employees in the UK "received written instructions containing a step-by-step guide on how to create and route U.S. dollar payment messages involving sanctioned entities through the United States to avoid detection". In total, more than 3,500 transactions, totalling approximately $523m, were routed through New York banks in violation of US sanctions. BBC NEWS

Ofcom says TV payday loan adverts have risen sharply to 400,000 a year

Television viewers were exposed to nearly 400,000 payday loan adverts last year, according to the regulator, Ofcom. In 2011 there were 243,000 such adverts, increasing to 397,000 in 2012, a rise of 64%. On average, each adult viewer saw 152 such adverts in 2012, while children watched 70. Labour has already called for all such adverts to be banned during children's TV programmes. BBC NEWS

ONS figures show families spending more on heating and maintaining homes, with those on lower incomes cutting spending on food

The Office for National Statistics said a decline in disposable income since the banking crash had tightened the financial screw on the average household, which had £489 to spend in 2012, compared with £526.40 in 2006 after accounting for inflation. The ONS said the harsh winters of 2011 and 2012 were also likely to have played a part in driving up energy bills. For the lowest-income families the jump in costs meant they spent 25% of their income on housing, compared with 9% among the richest households. Overall, the richest 10% of homes spent an average of £1,065.60 a week and the poorest 10% spent £189.30 a week. Some of Britain's biggest retailers said the continuing squeeze on family budgets meant they were braced for a difficult Christmas. GUARDIAN

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MP pay to rise while everyone else's is falling? There's more than one reason why their timing is damn stupid

Fee explains it all to KJ...

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Justice is supposed to be blind, but not when signing outsourcing contracts. House of Commons committees expose Ministry of Justice outsourcing contract calamities.

In a previous post we complained about the coalition government's plan to reduce spending on public services to the lowest level since before 1948. 

The Ministry of Justice (MoJ) provides a good (i.e. dreadful) example of this blind rush to cut costs. 

Rather like someone looking for a miracle diet, the MoJ showed it was prepared to swallow anything to lose costs. Sadly this is the same with all the ministries chasing the government's strategy of cutting costs. They measure success by the number of pills they take, and not by the effectiveness of the resulting 'body shaping'. They rush because they know the pill-box may be taken away from them at the next election (though Labour say they will pop the same pills, so it is doubtful us ripped-off Britons will be any less ripped-off).

Outsourcers tempted by this careless slopping out of public sector contracts claim they improve services and lower costs by deploying their ninja-like private sector skills. In practice, their bright ideas are focussed on extracting profits.


Probably the key innovation the private sector brings is cutting staff pay and benefits. Cutting the pay of public sector staff is a very blunt instrument that could be done without outsourcing to the private sector. However governments dare not do this directly because the public sector workforce is better organised by unions to resist. Privatised employees are broken off from this mutual support and become easier prey. A report by IDS, who do independent research on employment issues, shows that the private sector pays worse in general, and exceptionally worse when it comes to female employees:

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Graphs at a glance: Government spending on education, health and other services are being cut to pre-1948 levels

A train is dangerous if you run into its path or you refuse to get out of its way. Otherwise trains are perfectly useful and amiable. Rather like our amiable chancellor, George Osborne, into whose path the country placed itself when fleeing from the previous Labour government. George Osborne whose boyish smile eloquently smirks “How come they haven’t found me out yet?”

A graph from the Office of Budget Responsibility (OBR), a body created by the government in 2010 to provide independent economic forecasts, shines a light into a dark corner of Osborne’s mind. This graph shows Osborne’s current economic strategy will bring government consumption to the smallest share of GDP since before 1948. 

Office of Budget Responsibility "Economic and Fiscal Outlook December 2013"

“Government Consumption” includes money spent buying goods and services. It does not include transfers of money from one group of people (taken in taxes) to another (e.g. paid in benefits and pensions). Government Consumption includes paying for public services such as health, education, transport, justice, defence and the like.

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Osborne says his policies have put Britain back on the road to recovery as growth returns. But for whom?

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Rip-off News round-up. Our pick of the last week's media (Thu 5th December)

Serious Fraud Office called in over Royal Bank of Scotland’s role in High Street collapses, including Peacocks, Clinton Cards and HMV

The taxpayer-controlled RBS was accused in a Government-backed report last week of ‘systematically’ profiting from vulnerable, mainly small, business customers placed in a division called its Global Restructuring Group (GRG). The SFO is already considering a criminal investigation into the treatment of these small businesses. A whistle-blower has provided the SFO with a dossier of what he claims is evidence that RBS conducted alleged ‘systematic institutionalised criminal fraud’. In a letter sent to SFO director David Green, the whistle-blower says: ‘Officers of RBS deliberately acted contrary to interests of other parties . . . to maximise their own interests at RBS to [the bank’s] unjust enrichment.’ DAILY MAIL

Paying below the minimum wage: HMRC has prosecuted ONLY TWO companies in four years

Paying less than the National Minimum Wage (NMW) is illegal, yet over 300,000 people in the UK earn less than the NMW. HMRC has investigated 10,777 firms since 2009 for allegedly breaking the law on low pay, collecting £15.8m in arrears payments and imposing £2.1m in fines. However, only two firms have been prosecuted, and despite ministers' repeated pledges, only one has ever been named and shamed: Treena Professional Hair and Beauty in Leicester, which in 2010 paid a member of staff £342 for 20 weeks' work when she was entitled to £3,703. GUARDIAN

EU fines banks £1.4bn over rate-rigging

The European Commission has fined eight banks - including RBS - a total of 1.7bn euros (£1.4bn) for forming illegal cartels to rig interest rates. The rates are used to set the price of trillions of dollars of products, including mortgages. The record-breaking fines cover yen Libor and Euribor, the European equivalent of the rate set in London, and follow similar fines by financial regulators in the UK and US. UBS and Barclays stood to pay the largest fines of 2.5bn euros and 690m euros, but avoided paying anything because they assisted the investigation. Aside from RBS, Barclays and UBS, the other organisations involved were Deutsche Bank, Societe Generale, JP Morgan, Citibank and the brokers RP Martin. Banks that have not yet settled fines but are being investigated are HSBC and Credit Agricole. A handful of individuals are facing criminal charges. BBC NEWS

British Gas under fire for insulation plan lobbying

After it failed to meet existing mandatory targets for solid-wall insulation, British Gas persuaded ministers to lower industry targets by two-thirds . Rival energy firms say British Gas's lobbying has put up to 10,000 jobs at risk and may jeopardise the fledgling solid-wall insulation industry. Some firms created large teams of home insulators and were on schedule to complete the work on time. But British Gas insulated only one in six of the solid-walled homes it was supposed to. British Gas said there were cheaper ways to save on bills and cut carbon emissions, and denied that they supported lowering the target because cold homes would mean more sales of gas. An industry source pointed out the Old Etonian link between Mr Cameron and Sam Laidlaw of Centrica, which owns British Gas. BBC NEWS

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The £50 saving from cutting the ECO green levy may be gobbled up by a small rise in the wholesale gas price

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Liebrary: PFI saves us virtually nothing, if you believe the NAO’s figures. If you believe the Commons Treasury Committee, it costs us a vast amount that nobody has yet quantified

Private Finance Initiatives (PFI) were first used by the Conservatives in 1992, were enthusiastically embraced by Labour when they came into power in 1997, and continue to be cuddled and kissed by the coalition government of 2010. PFI involves the government entering into contracts with the private sector, where public infrastructure (hospitals, schools etc) are handed to the private sector for development and management and effectively rented back. A report by the National Audit Office (NAO) helpfully explains this:

"The private finance initiative (PFI) is a way to finance and provide public sector infrastructure and capital equipment projects. Under a PFI contract, a public sector authority pays a private contractor an annual fee, the ‘unitary charge’ for the provision and maintenance of a building or other asset. The unitary charge may also cover services such as cleaning, catering and security in relation to the asset."

Government ministers of all odour promised better services and greater savings from PFI. The reality, stated in a House of Commons Treasury Committee report in 2011 is very different:

"Private finance has always been more expensive than government borrowing, but since the financial crisis the difference between the costs has widened significantly. The cost of capital for a typical PFI project is currently over 8%—double the long term government gilt rate of approximately 4%. The difference in finance costs means that PFI projects are significantly more expensive to fund over the life of a project. This represents a significant cost to taxpayers."

The same Treasury Committee report complained that analyses justifying PFI contracts made unjustifiable assumptions without which the contracts would never have been signed. These included:

• Understating the internal rate of return (IRR), i.e. the profit the private sector partner would extract.
• Overstating the cost of the government simply borrowing money to pay for capital investment, instead of paying rent to a private sector partner
• Underestimating the whole life cost of the contract.
• Overestimating the cost of keeping the work in the public sector
• etc. etc.

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